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TMI Blog1992 (9) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... on an amount of Rs. 3,66,547, being commission paid to foreign commission agents. From the details furnished by the assessee, it is seen that the amount of Rs. 3,66,547 on which weighted deduction under section 35B has been claimed and allowed includes an amount of Rs. 1,77,181 being commission paid to Messrs. Drew Brown Ltd., Toronto, Canada. This party does not appear to be a commission agent ; but is only a direct buyer of goods from the assessee and what is paid to him as commission is actually 'trade discount' which does not qualify for weighted deduction under section 35B. Therefore, the weighted deduction allowed under section 35B on the commission of Rs. 1,77,181 paid to Drew Brown Ltd. has to be withdrawn. One-third of Rs. 1,77,181, viz., Rs. 59,060. 3. Development rebate on plant and machinery costing Rs. 1,40,041, is seen allowed at 25 per cent. on the ground that processing of cashew nuts is a priority industry eligible for development rebate at higher rate. Processing of cashew nuts is not a priority industry. Please see decision of the AAC, TVM, in Appeal No. ITA 202-0 of 1972-73 dated July 20, 1973, in the case of K. Ravindranathan Nair, A-Ward, Quilon PX 4144. So d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tituted " information " and that, therefore, the reopening was valid. The Revenue appealed to the Tribunal. The Tribunal went into the question of the validity of the reopening in the first instance and since it upheld the contention of the assessee on this point, the Tribunal did not consider the case on the merits. The Tribunal noted that two conditions had to be satisfied before an assessment could be reopened under section 147. One was that the Assessing Officer must have reason to believe that income had escaped assessment. This condition was satisfied going by the contents of the notice issued by the Income-tax Officer on March 15, 1976, wherein he had stated that he had reason to believe that income had escaped assessment. The other condition was the requirement of section 148(2) that the Income-tax Officer shall, before issuing notice for making a reassessment under section 147, record his reasons for doing so. The Tribunal perused the records of the case and came to the conclusion that this requirement had not been satisfied. The Tribunal stated : " The learned Departmental Representative, in the background which we have set out, wanted us to construe that reasons have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... December 28, 1974, and it reads as follows "Please see IAP's objections. 154 notice put up. Hearing on January 10, 1975. " Evidently, this is by the office. The next entry is " not to be rectified by the officer, which appears on the side of the letter of objections of the assessee. The next entry in the order sheet is on March 15, 1976, and it reads " 148 notice put up ", obviously by the office. It is on the basis of these entries that we have got to see whether reasons have been recorded to satisfy the requirement of section 148(2). Section 148 reads : " 148. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed ; and the provisions of this Act shall, so far as may be, apply accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illed before the Income-tax Officer could exercise the jurisdiction to reopen an assessment. In CIT v. Thakurlal [1981] 132 ITR 398, the High Court of Madhya Pradesh dealt with an analogous case with a mere noting by the Incometax Officer that the payment of Rs. 45,000 was not an allowable expenditure. It was held insufficient to be a recording of reasons for the purpose of section 148(2). The court affirmed that recording of reasons before issuing a notice under section 147(b) was a mandatory requirement. S. P. Divekar and A. P. Divekar v. CIT [1986] 157 ITR 629 is another case where the Bombay High Court held the requirement to record reasons to be mandatory. Inter alia, they referred to the decision of the Supreme Court in Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603, where it was noted that when the provision required the Income-tax Officer to give reasons for issuing a notice, it required him to show that he had prima facie grounds before him for doing so, this being an important safeguard to the assessee. It is clear from the scheme of sections 147 and 148 that the prescription of recording of reasons in section 148(2) is mandatory and is an essential condition requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessment, but also should indicate the existence of the other ingredients of section 147 justifying the reopening. All that is lacking in the case. Actually, there was no recording of reasons at all at any stage, though counsel for the Revenue was at pains to infer a recording of reasons at the stage the notice under section 154 was issued. According to him, the finding recorded by the Tribunal is that there was a recording of reasons when the notice under section 154 was issued, and that is a finding of fact which is conclusive. We cannot agree. For one thing, we have the entire notes paper extracted in the order of the Tribunal which does not show any recording of reasons at any time. What the Tribunal had indicated was only the narration of the mistakes made in the notice under section 154 and no more. Even otherwise, we are of the opinion that the recording of reasons, if any, in the proceedings under section 154 is not sufficient to sustain the independent proceedings under section 148. In fact, initiation of proceedings under section 154 does not require any prior recording of reasons at all. The assessee has only to be apprised of the mistake and afforded an opportunit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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