Keshrimal Bapulal vs Commissioner of Income Tax

B.A. Khan, J.—The ITAT, Indore Bench, has referred the following question, stated to be question of law, arising out of its order dated 29-5-1989 for the opinion of this Court :

"Whether, on the facts and in the circumstances of the case, assessment for assessment year 1981-82 framed u/s 143(1) of the income tax Act could be validly reopened u/s 143(2)(b) without recording reasons for such reopening ?"

Facts, briefly stated, giving rise to this reference, are that the assessee is a Hindu undivided family. It divided capital of the family business aggregating Rs. 1,25,112 on 21-10-1979 and claimed it as a family arrangement in the assessment year 1980-81. It was also claimed that this amount had gone out of the family�s hold due to family arrangement which was not a partial partition and as such, no order u/s 171(3) of the income tax Act, 1961 (�the Act�) was necessary. It was further asserted that section 171(3) which derecognised partial partition with effect from 31-12-1978 also did not apply to the case. This position was accepted by the Assessing Officer but was ordered to be revised by the Commissioner u/s 263 of the Act requiring the ITO to make a de novo assessment by treating the claimed family arrangement as partial partition.

The assessee took appeal before the Tribunal against this but failed. Resultantly, the ITO framed fresh assessment rejecting the stand of the assessee that it was a family arrangement. The assessee again took appeal and ultimately the Tribunal held by order dated 2-1-1987 that such a family arrangement was a partial partition.

Thereafter, the assessee took the same stand for the assessment years 1981-82 and 1982-83 and succeeded for the first assessment year for which the assessment was framed u/s 143(1) on 10-9-1982. It was, however, reopened by issuance of notice u/s 143(2)(b) with the approval of the IAC and reframed on 6-3-1984 u/s 143(3) and so was the assessment for the assessment year 1982-83.

The assessee again took appeal against this order but in vain. While dealing with its appeal the Tribunal in its order dated 28-2-1992 also recorded the finding that reopening of the assessment for the assessment year 1981-82 u/s 143(2)(b) was valid. This gave rise to the point in issue and the present reference on the question stated hereinabove.

Mr. Choudhary, the learned counsel for the assessee, submitted that in its appeal before the Tribunal, the assessee had questioned the re-opening of the assessment for the relevant year on the ground that the ITO had failed to satisfy the conditions precedent as contemplated u/s 143(2)(b) and that he had no new information or material before him apart from that which existed at the time of completing the assessment u/s 143(1) for this year. According to him, under the mandate of the relevant provision the ITO had to feel satisfied that it was both necessary and expedient to reopen the assessment which demanded recording of reasons by him prior to seeking approval of the IAC. But the Tribunal had dealt with his contention cursorily taking the view that there was no condition precedent to be satisfied by him for reopening the assessment u/s 143(2)(b). An examination of the relevant provisions governing reopening of the assessment suggests that a number of stages are involved in the process. Therefore, it becomes necessary to know the stage at which the ITO was supposedly required to satisfy the requirements of section 143(2)(b) and its proviso. This aspect of the matter was missing both in the appeal of the assessee and the order of the Tribunal and the question framed and referred also was couched in generalised terms. In other words, the question framed is not reflective of the crux of the point in issue. It, therefore, becomes difficult in the circumstances to answer the reference in present form. The reference is, accordingly, returned to the Tribunal for submitting a supplementary statement of the case on hearing the parties and after re-framing the question on which the opinion is solicited.