M.Y.EQBAL,J. - (1.) ON an application filed under Section 256(2) of the Income Tax Act 1961 (shortly the Act) this Court passed order on 6.4. 1998 directing the Income Tax Appellate Tribunal to refer the following questions: (i) Whether assigning the reason for issuance of notice under Section 148(2) of the Income Tax Act is imperative and under the facts and circumstances whether before issuance of notice, the Income Tax Officer has complied with this imperative provision? (ii) Whether in the absence of any discussion in this regard by the Tribunal, the order suffers from infirmity?
(2.) THE facts relevant for the purpose of deciding the reference case are as under: The assessee is a Private Limited Company carrying on hotel and restaurant business. Original return was filed on 12.4.1989 showing loss of Rs. 646/ -. Later on the Assessing Officer received valuation report in respect of investment in the construction of hotel and restaurant building from D.C.L.T. In order to consider the cost of construction, as reported by the departmental valuer, the Assessing Officer issued notice under Section 148 of the I.T. Act on 6.12.1990. In response to the said notice the assessee submitted a letter staring that the return filed on 12.4.1989 should be treated as a return in compliance of the notice under Section 143 of the I Act. Accordingly the Assessing Officer proceeded with the assessment. The assessee challenged the action of the Assessing Officer by preferring appeal before the Commissioner of Income Tax (Appeal) who confirmed the action of the Assessing Officer. The assessee then moved the Tribunal by filing Second Appeal on the ground that the action of the Assessing Officer in issuing notice under Section 148 of the Act was not proper and valid because he had not recorded reasons and his satisfaction for issuing such notice. After considering the facts of the case the Tribunal affirmed the action of the Assessing Officer holding that taking recourse to Sections 147/148 of the I Act by the Assessing Officer was proper and justified. The petitioner, thereafter, filed a petition before this Court under Section 256(2) of the Act for directing the Tribunal to refer the substantial question of law to this Court for answering the same. As noticed above, this Court, by order dated 6.4.1990 directed the Tribunal to refer the substantial questions of law with statements of facts, as quoted hereinabove. Mr. Binod Poddar, learned Counsel appearing on behalf of the petitioner, submitted that before issuing the notice, the Assessing Officer has not recorded his satisfaction by passing order nor has informed the assessee about the reasons to believe that the income chargeable to tax has escaped assessment within the meaning of Section 147(a) of the I Act. Learned Counsel submitted that the jurisdiction for initiation of proceeding and issuance of notice is derived from Section 147(a) of the Act and the Assessing Officer has to confine himself only to the recorded reasons. Learned Counsel further submitted that recording reasons is pie -requisite to the assumption of jurisdiction by the Income Tax Officer for initiating proceeding under Section 147(a) of the Act. Learned Counsel, in this regard relied upon the decisions in the cases of Commissioner of Income Tax v. Agarwalla Brothers : [1991]189ITR786(Patna) , GKN Driveshafts (India) Ltd. v. Income Tax Officer (2003) 259 ITT 19) and Hemraj Munshi Ram v. Union of India and Ors. : [2000]245ITR155(Patna) .
(3.) ON the other hand, Mr. Jhunjhunwala, learned Counsel appearing on behalf of the Revenue, drawn our attention to explanation (2) to Section 147 of the Act and submitted that since the return filed by the assessee was declared non -est by the Assessing Officer, no reason was required to be assigned while directing the assessee to file return. Learned Counsel submitted that the Tribunal has rightly held that the action of the Assessing Officer was fully justified.;