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TMI Blog1992 (2) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons recorded on March 21, 1977, was justified in, law in sustaining the reopening of assessment under section 147(b) of the Act on the reasons and grounds given in the order passed on appeal ? (2) whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the reassessment Proceedings initiated under section 147(a) of the Act by issue of notice dated December 31, 1976, under section 148 of the Act on the reasons recorded, could be validly converted into a proceeding under section 147(b) of the Act subsequently? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in setting aside the order of the Appellate Assistant Commissioner of Income-tax cancelling the reassessment orders passed by the Income-tax Officer in ignorance of section 144B of the Act and in directing the Income-tax Officer to resort to the provisions of section 144B afresh instead of annulling and/or cancelling the reassessment orders and without also taking into consideration the legal bar of limitation for the passing of reassessment orders under section 153 of the Act ? " The present reference relates to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not revenue receipt and, as such, the same was not includible in the total income. It now appears that even though the receipts are of capital nature but being receipts from transfer of capital assets, yielded capital gains liable to tax under the provisions of the Income-tax Act, 1961. In this connection, the decision of the court in Travancore Tea Estates Co. Ltd. v. CIT [1974] 93 ITR 314 (Ker), may be referred to. I am, therefore, satisfied that capital gains liable to tax on transfer of a capital asset, i.e., forest trees of spontaneous growth, escaped assessment in this case for the year. The assessee only claimed that the receipts are exempt from tax and mentioned in Part III of the return. The relevant details as to capital gains were not furnished in the return. I have, therefore, reason to believe that income chargeable to tax escaped assessment for non-disclosure of all material facts fully and truly. Issue notice under section 148. (Sd.) Income-tax Officer." Again on March 21, 1977, the Income-tax Officer made another entry in the order sheet which is reproduced below : " Action under section 147(a) was initiated in this case and a notice under section 148 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng afresh and on consideration of the facts and the contentions made before it, was of the opinion that there was no case for reopening of the assessment under clause (a) of section 147 of the Act. However, according to the Appellate Tribunal, as proceedings under clause (a) of section 147 were validly initiated they could be converted into proceedings under clause (b) of section 147. The Appellate Tribunal finally accepted the appeals filed by the Revenue and modified the order of the Appellate Assistant Commissioner to the extent that instead of cancelling the assessment orders they were only set aside and the Income-tax Officer was given liberty to proceed afresh in accordance with section 144B of the Act. We find that after the final order was passed by the Appellate Tribunal, a petition was filed for correction of some mistakes in the final order of the Tribunal and this petition was accepted and from the final order some vital portions of the order were deleted. According to Mr. J. P. Bhattacharjee, learned senior counsel for the assessee, in view of the finding recorded by the Appellate Tribunal in paragraph 9 of the order, the final order of the Tribunal is not sustaina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary for his assessment for that year, income chargeable to tax has escaped assessment for that year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned. Clause (b) of the said section 147, inter alia, empowers, the Income-tax Officer subject to the provisions of sections 148 to 153 to assess, or reassess any income or recompute the loss or the depreciation allowance if notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in, consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Section 148 of the Act, inter alia, provides that before making any assessment, reassessment or recomputation under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139 of the Act and further before issuing such notice, the Income tax Officer shall record his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n hand, the assessee disclosed the receipt of Rs. 5 lakhs in Part III of the return. In other words, the assessee disclosed fully and truly all primary facts and, therefore, in view of the law laid down by the apex court, it cannot be said that clause (a) of section 147 of the Act could be invoked by the Income-tax Officer. It may be stated that in the first assessment order the Income-tax Officer considered this aspect of the matter keeping in view, as stated above, the various decisions of the apex court and other High Courts and held that the income of Rs. 5 lakhs was a capital receipt and not a revenue receipt. The successor-Income-tax Officer by the above order dated December 31, 1976, took the view that income chargeable to tax had escaped assessment for non-disclosure of material facts fully and truly. This order dated December 31, 1976, is not sustainable in law in view of what has been stated above. Realising the legal position by order dated March 21, 1977, proceedings under section 147(b) was initiated. But in the said order, it was recorded that no fresh notice under section 148 was necessary as notice was issued earlier pursuant to an order dated December 31, 1976. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not available with the Income-tax Officer when the order dated March 21, 1977, was passed. In view of the above position we hold that the initiation of proceedings by the Income-tax Officer under clause (b) of section 147 of the Act is bad in law inasmuch as on that date no information was in the possession of the Income-tax Officer and that apart, no notice as required under section 148 of the Act was also issued. Another point which has been urged by Mr. Bhattacharjee is that in the first assessment order the Income-tax Officer fully considered the receipt of Rs. 5 lakhs for each assessment year and held that it was capital receipt. According to Mr. Bhattacharjee if an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to the inference would not justify the initiation of action for reopening an assessment. In this connection, learned counsel has placed reliance on the decision of the apex court in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437. We have perused the above decision of the apex court and we are in agreement with learned counsel that in the case in hand merely because the subsequent Income-tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and these conditions are conditions precedent to be satisfied before the Income-tax Officer acquires jurisdiction to issue a notice under the section. Their Lordships also explained the expression "reason to believe " in section 34 and held that this expression does not mean a purely subjective satisfaction on the part of the Income-tax Officer and the belief must be held in good faith; it cannot be merely a pretence. It was further held that proceedings for assessment or reassessment start with the issue of a notice and it is only after the service of the notice that the assessee, whose income is sought to be assessed or reassessed, becomes a party to these proceedings. Coming to the case in hand we have already recorded that the Income-tax Officer by the subsequent order decided to proceed under clause (b) of section 147 of the Act, but declined to issue notice under section 148 of the Act on the ground that while initiating proceedings earlier under clause (a) of section 147 of the Act notice under section 148 was issued. On perusal of these two clauses, We find that these clauses are to be invoked for different purposes and on the basis of different materials. Clause (a) can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eace. The above ratios are applicable to the case in hand regarding initiation of proceedings under clause (a) of section 147. We have already held that initiation of proceedings under clause, (b) of the said section is also bad in law inasmuch as no notice under section 148 was issued and the materials were not available at the time of initiation of the proceedings. Mr. Talukdar, learned counsel for the Revenue, has urged that in the present case it is not a conversion of the proceeding from clause (a) into clause (b). According to learned counsel, though in the first order, the Income-tax Officer recorded initiation of proceedings under clause (a), in fact, it was a proceeding under clause (b), but we are unable to accept the contention of learned counsel inasmuch as the orders of the Income-tax Officer are very clear and after proper application of mind by the first order it was decided to initiate proceedings under clause (a) and thereafter by the second order to start proceedings under clause (b). Mr. Talukdar has placed reliance on a decision of the apex court in ITO v. Mewalal Dwarka Prasad [1989] 176 ITR 529 (SC) ; AIR 1989 SC 1088, in support of his contention. In that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re on the part of the assessee to disclose fully and truly all material facts, the Income-tax Officer in consequence of information in his possession subsequent to the first assessment has reason to believe that income chargeable to tax has escaped assessment. From the facts of the case we find that at the time of original assessment the assessee had filed along with the return the balance-sheet which was taken note of by the Income-tax Officer and thereafter the assessee filed a revised return showing some profit and the Income-tax Officer issued notice under section 147. But in the case in hand it is not so. Primary facts were disclosed in the return by the assessee and for drawing up proceedings under clause (b) the information mentioned in the second order was not available with the Income-tax Officer as recorded by the Appellate Assistant Commissioner. So, the above ratio laid down by the apex court is also of no help to the Revenue. Mr. Talukdar has placed reliance on another decision of the apex court in R. K. Upadhyaya v. Shanabhai P. Patel [1987] 166 ITR 163 (SC) AIR 1987 SC 1378. In that decision, the ratio laid down was that service of notice is not a condition precede ..... X X X X Extracts X X X X X X X X Extracts X X X X
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