ORDER
Rajesh Balia, J.
1. This appeal is directed against the order of the Tribunal, Jodhpur Bench, Jodhpur, dt. 26th May, 2003 relating to asst. yr. 1988-89 deciding ITA No. 1111/Jp/1994 and ITA No. 898/Jp/1995 filed by the respondent-assessee before the Tribunal. There were cross-appeals filed by the assessee to the extent they were aggrieved with the order passed by the CIT(A) in an appeal filed by the assessee against the order of reassessment for the asst. yr. 1988-89 dt. 30th Nov., 1993.
2. The appeal of the assessee was allowed and that of the Revenue was dismissed by the Tribunal on threefold grounds. Firstly, that prior to amendment of Section 147 w.e.f. 1st April, 1989, it was required under Section 148 that the AO gives to the assessee a notice for filing return of not less than 30 days whereas after the amendment, it was required that the assessee should be given a notice to file return within 30 days. The Tribunal found distinction between the expression 'within 30 days' and 'not less than 30 days' and held that since the reassessment proceeding relating to asst. yr. 1988-89, which ended prior to the commencement of the amended provisions w.e.f. 1st April, 1989, the amended provisions were not applicable in relation to the assessment already completed. Since notice to file return within '30 days' was of lesser duration than not less than 30 days, it was invalid.
3. The second ground which prevailed with the Tribunal was that the AO has not recorded his own satisfaction to the escapement of income from levy of tax for asst. yr. 1988-89 but has merely acted on the opinion of another officer making an order under Section 132(5) for the purpose of retaining assets and account books which were seized during the search operations conducted on the premises of the assessee. The search took place in November, 1988. It was found by the Tribunal that the AO, while exercising jurisdiction under Section 147 must act on his own satisfaction and not on derivative satisfaction of some other officer, therefore, the basic precondition for the AO to hold the reason to believe that income has escaped assessment for asst. yr. 1988-89 was lacking.
4. Lastly, it was found that before initiating proceedings under Section 147 for the impugned asst. yr. 1988-89, the reasons for initiating such proceedings were not recorded as required by Sub-section (2) of Section 148. The reasons are purported to have been recorded on 30th Sept., 1991 and notices have been issued on 14th Oct., 1991.
5. The learned counsel for the Revenue has urged as was urged before the Tribunal that there may be some mistake in writing the dates, and therefore, no exception can be made out from some clerical error. According to him, the order dt. 13th Sept., 1991 may have been made on 30th Oct., 1991.
6. We have perused the record of the AO containing the recording of reasons and are satisfied that the third point alone is sufficient to uphold the order of the Tribunal. The note-sheet recording reasons for asst. yr. 1988-89 reads as under:
30th Sept., 1991 'search and seizure was conducted under Section 132 of IT Act. A lot of incriminating documents with valuables found and seized during course of search. The order under Section 132(5) passed by AO in which AO has given his finding that assessee has made increment in out of undisclosed sources during assessment year under consideration. The AO also has been given that the business income also underassessed during assessment year made consideration. Therefore, I have reason to believe that income has escaped for taxation. This fact is on the part of assessee he fails to disclose true facts before AO.
Notice under Section 148 is issued on 14th Oct., 1991 and served on 29th Oct., 1991.'
7. Apparently, the reasons purported to have been recorded on 30th Sept., 1991 and, notice is purported to have been issued on 14th Oct., 1991. However, if the reasons were recorded on 30th Sept., 1991, it could not have been recorded in the very same order that the notice is issued on 14th Oct., 1991 and served on 29th Oct., 1991. Obviously, such an order could not have been drawn until the date of service of notice.
Even if it is assumed that the reasons were recorded on 14th Oct., 1991, still reference to the service of notice of a later date could not have been made in the order.
If recording of the order is 30th Oct., 1991, as the date suggested now, then too it does not alter the position of mentioning of issuance of notice dt. 14th Oct., 1991 and served on 29th Oct., 1991 and makes the initiation of proceedings prior to recording of reasons.
Since satisfaction of AO for holding belief that income has escaped assessment to tax is a condition precedent before assuming jurisdiction, the requirement of recording of reason before issuance of notice under Section 148 is essential safeguard to taxpayer against illegal and unauthorised assumption of jurisdiction without such satisfaction. When validity of notice is challenged on the ground of want of jurisdiction, the existence of the condition precedent has to be proved by the AO. His satisfaction about escapement of income from assessment to tax before issuance of notice is to be reflected from reasons recorded by him. Though sufficiency of reasons is not justiciable but it having relevant nexus to formation of belief on existing material, is open to judicial review. If the reasons are not recorded before issuance of notice, the only safeguard against illegal assumption of jurisdiction is lost. It is trite that satisfaction and existence of reasons to believe about escapement of income from assessment to tax has to be tested on the basis of reasons so recorded by the AO which is statutory requirement before assuming jurisdiction. No other material can be brought to support the existence of belief held by the AO about such escapement except reasons so recorded. Therefore, the requirement to record reasons before issuing notice under Section 148 is mandatory. If the reasons are not recorded, there is no valid assumption of jurisdiction and subsequent proceedings are vitiated. We are fortified in this view by following decisions :
8. CIT v. Maharaja Pratap Singh Bahadur of Gidhaur : [1961]41ITR421(SC) . It was a case of assessment under the Indian IT Act, 1922. Section 34 of the Act was amended by the Income-tax and Business Profits tax (Amendment) Act, 1948 making it retrospectively effective w.e.f. 30th March, 1948 which inter alia make the provisions that the ITO shall not issue a notice under Section 34 unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons that it is a fit case for issue of such notice. Section 34 of the Act of 1922 was corresponding provision to Section 147/148 of the Act of 1961. The notices were issued on 8th Aug., 1949 in which reasons had not been recorded before issuing such notices by taking into account the amended provision which had been given retrospective effect, the Court said :
'It is to be noticed that the notices were all issued on 8th Aug., 1948, when on the statute book must be deemed to be existing an enactment enjoining a duty upon the ITO to obtain prior approval of the CIT, and unless that approval was obtained, the notices could not be issued. The notices were, thus, invalid.'
In Union of India and Ors. v. Rai Singh Deb Singh Bist and Anr. : [1973]88ITR200(SC) while construing Section 34 of the IT Act, 1922, the Court said :
'Before an ITO can issue a statutory notice under Section 34(1)(a), he must have reason to believe that by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for the years in question, income, profits or gains chargeable to income-tax have escaped assessment during those years. Further, before doing so, he must have recorded his reasons for acting under Section 34(1)(a) and the Central .Board of Revenue must have been satisfied on those reasons that it is fit case for the issue of the notice. The recording of reasons in support of belief formed by the ITO and the satisfaction of the Central Board of Revenue on the basis of the reasons recorded by the ITO that it is a fit case for issue of notice under Section 34(1)(a), are extremely important circumstances to find out whether the ITO had jurisdiction to proceed under Section 34(1)(a).'
The Court finding that no recording of reasons have been produced, therefore, there is no proof that the necessary condition before assuming jurisdiction were in existence. The notices were held to be invalid.
The principle was reiterated and applied by various High Courts in India. Reference in this connection, may be made to :
1. P.V. Doshi v. CIT : [1978]113ITR22(Guj)
2. CIT v. Thakurlal : [1981]132ITR398(MP)
3. S.P. Divekar & A.P. Divekar v. CIT : [1986]157ITR629(Bom)
4. CIT v. Sukhlal Ice Cold Storage Co. : [1992]196ITR562(All)
5. CIT v. Kerala State Cashew Development Corporation : [1992]198ITR520(Ker) (Ker).
In Chhugamal Rajpal v. S.P. Chaliha : [1971]79ITR603(SC) , the apex Court was faced with a case where no reasons as required to be recorded by the AO before issuance were produced in response to notice. Instead, report submitted to Commissioner for seeking his approval was submitted. The Court found that ITO did not set out any reason for coming to conclusion that this is a fit case to issue notice under Section 148. The material that he had before him, was not mentioned. He merely stated that certain persons are name-lenders and deposits are bogus. The CIT has merely recorded yes.
The Court found that the AO has not even come to prima facie conclusion that the transactions are bogus. The Court said :
'What that provision requires is that he must give reasons for issuing a notice under Section 148. In other words, he must have some prima facie grounds before him for taking action under Section 148. Further, his report mentions : 'Hence proper investigation regarding these loans is necessary,' In other words, his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under Section 148. Before issuing a notice under Section 148, the ITO must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under Section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the ITO has in consequence of information in his possession, reasons to believe that income chargeable to tax has escaped assessment for any assessment year, unless the requirements of Clause (a) or (b) of Section 147, are satisfied, the ITO has no jurisdiction to issue a notice under Section 148.'
Finding that important safeguards provided under the Act are not followed, the notices were quashed by reversing the judgment of High Court. This case demonstrates reasons supplied subsequent to issuance of notice cannot validate the proceedings.
9. In view of this clear position of law and facts emerging from the record, the conclusion reached by the Tribunal is irresistible that the reasons were not recorded before issuing notice under Section 148 but were recorded after notices have been issued and served on the assessee by ante-dating the same.
10. The recording of reasons before issuing notice under Section 148 being a mandatory requirement for assuming jurisdiction, the Tribunal was right in holding that the reassessment proceedings have been initiated without jurisdiction in breach of the mandatory requirement and cannot fructify in valid assessment orders :
11. In view of this conclusion, we express no opinion for the present on the first two aspects of the matter as the decision on it would not alter the result.
12. The appeal is accordingly dismissed as it does not give rise to any substantial question of law.