Commissioner of Income Tax vs Lallubhai Jogibhai

Dr. B.P. Saraf, J.—The following question of law has been referred by the Income Tax Appellate Tribunal u/s 256(1) of the Income Tax Act, 1961, for the opinion of this court at the instance of the Revenue :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in setting aside the order of the Appellate Assistant Commissioner dated January 28, 1977, as also the order of the Income Tax Officer dated February 20, 1976, adding Rs. 55,000 to the total income of Rs. 30,000 as per the original assessment order ?"

The facts of the case relevant for determination of the controversy are as follows :

The assessee is an individual. He was assessed under the Income Tax Act, 1961 ("the Act"), for the assessment year 1966-67. The assessment was reopened by the Income Tax Officer by issue of a notice u/s 148 of the Act. The notice was issued on March 29, 1975, but it was served on the assessee on April 7, 1975. The Income Tax Officer completed the assessment in pursuance of the proceedings initiated by him u/s 147 of the Act by the above notice and included a sum of Rs. 55,000 as unexplained investment to the amount of income of Rs. 30,000 which was assessed earlier in the original assessment. The order of reassessment was challenged before the Appellate Assistant Commissioner on the ground, inter alia, that though the notice u/s 148 was issued within eight years from the end of the relevant assessment year, it was served after the expiry of the period of eight years and hence the proceedings were barred by limitation. The Appellate Assistant Commissioner did not accept the contention of the assessee and held that issue of notice u/s 148 within the period of eight years was sufficient compliance with the requirement of section 147 read with section 149 of the Act. The assessee went in further appeal to the Income Tax Appellate Tribunal ("the Tribunal"). The Tribunal held that the notice u/s 148 is not only to be issued but served within the period of limitation as laid down in section 149 of the Act. As in the instant case, as the notice was served on the assessee after the expiry of eight years, the order of reassessment was set aside by the Tribunal. Hence, this reference at the instance of the Revenue.

Mr. G. S. Jetley, learned advocate, appearing for the Revenue, submits that section 149 simply lays down the time-limit for issue of notice u/s 148. Once a notice is issued within the period specified therein, the initiation of proceedings would be valid and service of notice beyond the period of limitation would not invalidate the same. In support of this contention, reliance is placed on the decision of the Supreme Court in R.K. Upadhyaya Vs. Shanabhai P. Patel, .

We have considered the submission of Mr. Jetley. The controversy in this case seems to be covered by the decision of the Supreme Court referred to above. The Supreme Court in that case categorically held that a clear distinction has been made out under the Income Tax Act, 1961, between "issue of notice" and "service of notice". Section 149 prescribes the period of limitation. It prohibits issue of notice u/s 148 after the expiry of the prescribed period of limitation. Section 148(1) provides for service of notice as a condition precedent for making an order of assessment. Once a notice is issued within the period of limitation, jurisdiction becomes vested with the Income Tax Officer to proceed to reassess. The requirement of issue of notice is satisfied when a notice is actually issued. Section 148(1) deals with the making of the reassessment and mandates that reassessment shall not be made until there has been service. Under the Income Tax Act, 1961, service is not a condition precedent to conferment of jurisdiction on the Income Tax Officer to deal with the matter but it is a condition precedent to the making of the order of assessment.

In the instant case, the undisputed factual position is that notice u/s 148 was issued by the Income Tax Officer within the period of limitation prescribed u/s 149 of the Act. There is also no controversy about the fact that the order of reassessment was made only after service of notice on the assessee. The ratio of the decision in R.K. Upadhyaya Vs. Shanabhai P. Patel, of the Supreme Court squarely applies to the present case. The Income-fax Officer having issued the notice u/s 148 within limitation, the order of reassessment is valid. We are, therefore, of the clear opinion that the Tribunal was not justified in holding that the initiation of reassessment proceedings by the Income Tax Officer was barred by limitation and setting aside the orders of the Appellate Assistant Commissioner and the Income Tax Officer.

Having regard to the above discussion, we answer the question referred to us in the negative and in favour of the Revenue.

There shall be no order as to costs.