2005 (5) TMI 24 - HC - Income Tax

Reassessment - 1. Whether Tribunal, was justified in rejecting the additional grounds challenging the validity of the assessment order on the basis of illegal initiation of proceedings under section 148 without complying with the provision of section 148(2)? 2. Whether, Tribunal was in law justified in holding that the amendment in the provisions of sections 139(8), 215 and 217 inserted with effect from April 1, 1985, would be applicable to assessment of earlier years completed after April 1,1975 and so charging of interest in the case of the assessee under section 138(8) as well as under section 217 is perfectly justified as the assessment under section 147 has been made for the first time after April 1, 1985 and so it is a regular assessment? 3. Whether Tribunal was in law justified in treating the assessment of the assessee as regular assessment within the meaning of section 2(40)? - we answer question No. 1 referred to us in the negative, i.e., in favour of the assessee and against the Revenue and questions Nos. 2 and 3 in favour of the Revenue and against the assessee.

Issues Involved:
1. Validity of the assessment order based on the initiation of proceedings under section 148 without complying with section 148(2).
2. Applicability of amendments in sections 139(8), 215, and 217 to assessments of earlier years completed after April 1, 1975.
3. Classification of the assessment as a regular assessment within the meaning of section 2(40) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Validity of the Assessment Order
The primary issue was whether the Tribunal was justified in rejecting the additional grounds challenging the validity of the assessment order due to the alleged illegal initiation of proceedings under section 148 without complying with section 148(2). The assessee contended that no reasons were recorded by the Income-tax Officer before issuing the notice under section 148, making the proceedings invalid and void ab initio. The Tribunal refused to entertain this additional ground, asserting that the assessee had not raised this issue before the Commissioner of Income-tax (Appeals) and had not provided evidence of the reasons recorded.

The court, however, held that recording of reasons is a mandatory condition precedent for initiating reassessment proceedings. Citing multiple precedents, including P.V. Doshi v. CIT and CIT v. Kurban Hussain Ibrahimji Mithiborwala, the court emphasized that if the notice issued is invalid, the entire proceedings become void for lack of jurisdiction. The court concluded that the Tribunal erred in not allowing the additional ground challenging the validity of the assessment order, thus answering this issue in favor of the assessee.

Issue 2: Applicability of Amendments to Sections 139(8), 215, and 217
The second issue concerned whether the amendments to sections 139(8), 215, and 217, effective from April 1, 1985, applied to assessments of earlier years completed after April 1, 1975. The Tribunal held that charging interest under sections 139(8) and 217 was justified as the assessment under section 147 was made for the first time after April 1, 1985, thus qualifying as a regular assessment.

Both parties conceded that this issue was covered by the Supreme Court decision in K. Govindan and Sons v. CIT, which held that assessments made for the first time under section 147 are regular assessments and that Explanation 2 to section 139(8) is clarificatory and applicable to earlier assessment years. Consequently, the court answered this issue in favor of the Revenue.

Issue 3: Classification as Regular Assessment
The third issue addressed whether the Tribunal was justified in treating the assessment as a regular assessment within the meaning of section 2(40) of the Income-tax Act, 1961. The Tribunal's stance was that the assessment under section 147, made for the first time after April 1, 1985, should be considered a regular assessment.

Again, referencing the Supreme Court's decision in K. Govindan and Sons v. CIT, the court affirmed that an assessment made for the first time under section 147 is indeed a regular assessment. Thus, this issue was also resolved in favor of the Revenue.

Conclusion
The court concluded by answering the first issue in the negative, favoring the assessee, and the second and third issues in the affirmative, favoring the Revenue. There was no order as to costs.

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