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  • Mr. J.P Bhattacharjee, Dr. M.K Sharma & Mr. A.K Saraf,
  • Mr. D.K Talukdar, & Mr. B.J Talukdar,
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  • Hon'ble Mr. Justice Jagat Mohan Srivastava
  • Hon'ble Mr. Justice Sailendu Nath Phukan
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Advocates
  • Mr. J.P Bhattacharjee, Dr. M.K Sharma & Mr. A.K Saraf,
  • Mr. D.K Talukdar, & Mr. B.J Talukdar,
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  • Hon'ble Mr. Justice Jagat Mohan Srivastava
  • Hon'ble Mr. Justice Sailendu Nath Phukan
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Smart Summary

Judicial Opinion Summary — S.N. Phukan, J.

Factual and Procedural Background

This reference under section 256(1) of the Income-tax Act, 1961 arises from seven questions referred by the Appellate Tribunal which were reframed by this Court into three questions. The matter concerns the assessee (a company engaged in growing, manufacturing and sale of tea) and receipts of Rs. 5 lakhs per assessment year (1972–73, 1973–74 and 1974–75) pursuant to an agreement dated 30.3.71 with M/s Assam Forest Products (P) Ltd. for cutting and removal of trees of spontaneous growth. The total consideration under the agreement was Rs. 15 lakhs payable in three instalments; Rs. 5 lakhs received in each of the three assessment years.

In the original assessments the Income-tax Officer (ITO) concluded these amounts were capital receipts (not revenue) and did not include them in total income. A successor ITO recorded reasons on 31.12.76 (referencing a decision at 93 ITR 315) and concluded capital gains had escaped assessment; a notice under section 148 was issued. Subsequently, on 21.3.77 the ITO recorded initiation under section 147(b), relying on the Appellate Assistant Commissioner’s finding in a related Hapjan Tea Co. Ltd. matter, and did not issue a fresh section 148 notice on the ground that an earlier notice had been issued.

The assessee objected; re-assessment orders were passed by the ITO. The Appellate Assistant Commissioner (AAC) allowed the assessee's appeal (cancelling re-assessments), holding that the receipts had been disclosed in Part III of the return, that conversion from clause (a) to clause (b) of section 147 was impermissible, and that section 144B had not been complied with. The revenue appealed to the Appellate Tribunal, which ultimately set aside the AAC's cancellation and held that, although there was no case under clause (a) of section 147, the proceedings initiated under clause (a) could be converted to clause (b); the Tribunal directed the ITO to proceed afresh in accordance with section 144B. Parts of the Tribunal's final order were later corrected on a miscellaneous petition.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, the Tribunal having held that there was no case for reopening the assessment under section 147(a) on the reasons recorded, nor any cause for re-opening under section 147(b) on the reasons recorded on 21.3.77, was justified in law in sustaining the re-opening of assessment under section 147(b) on the reasons and grounds given in the order passed on appeal?
  2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the reassessment proceeding initiated under section 147(a) by issue of notice dated 31.12.76 under section 148 could be validly converted into a proceeding under section 147(b) subsequently?
  3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in setting aside the order of the Appellate Assistant Commissioner canceling the re-assessment orders passed by the Income Tax Officer in ignorance of Section 144B and in directing the Income-tax Officer to resort to the provisions of Section 144B afresh instead of annulling and/or cancelling the re-assessment orders and without also taking into consideration the legal bar of limitation for the passing of re-assessment orders under Section 153 of the Act?

Arguments of the Parties

Appellant's (Assessee's) Arguments — Mr. J.P. Bhattacharjee

  • The Appellate Tribunal's own finding in paragraph 9 (that the reasons recorded on 21.3.77 were insufficient to re-open assessment under clause (a) because primary facts had been disclosed) renders its modification of the AAC's order unsustainable.
  • The assessee had already disclosed the receipt of Rs. 5 lakhs in Part III of the return; therefore clause (a) of section 147 (which requires non-disclosure of material facts) could not be invoked.
  • Change of opinion by a subsequent ITO is insufficient to reopen assessment where primary facts were fully and truly disclosed in the original assessment process.
  • Admission of fundamental primary facts cannot be withdrawn to start a fresh litigation to obtain another assessment on a different inference; the department cannot re-litigate merely because it forms a new view of the inference to be drawn from disclosed facts.
  • The Tribunal erred in directing the ITO to proceed afresh under section 144B without considering the limitation bar under section 153.

Respondent's (Revenue's) Arguments — Mr. D.K. Talukdar

  • Contended that the record did not reflect a conversion from clause (a) to clause (b); rather, the matters recorded earlier actually constituted proceedings under clause (b) — i.e., the earlier action was in substance under clause (b).
  • Argued that because a notice had been issued pursuant to the first order and a return was filed thereafter, the ITO had jurisdiction to proceed; relied on case law (e.g., Niranjan & Co.) holding that a completed assessment can be reopened if the ITO has material from which he reasonably forms the belief of escapement.
  • Relied upon various Apex Court decisions (including Mewalal Dwarka Prasad and others) to support the revenue's position that the reassessment and conversion could be sustained in law.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Calcutta Discount Co. Ltd. v. Income-tax Officer, 41 ITR 191; AIR 1961 SC 372 The expression "material facts" refers only to primary facts; the assessee's duty is confined to disclosure of primary facts and not the inferences to be drawn; once primary facts are before the assessing authority it is for the authority to draw inferences. The Court applied this principle to hold that because the assessee had disclosed the primary facts (receipt shown in Part III of the return), clause (a) of section 147 could not be invoked by the ITO.
Indian and Eastern Newspaper Society v. CIT, New Delhi (119 ITR 996) Cited as authority for the proposition that a change of opinion by the assessing officer cannot justify reopening where primary facts were considered. Referred to as supporting authority for the settled proposition that change of opinion is not sufficient to initiate reassessment under clause (a) of section 147.
Tansukhrai Babulal v. Income Tax Officer, Nowgong, AIR 1961 Assam 35 : 46 ITR 325 Issue of a valid notice under the relevant statutory provision is a condition precedent to exercise jurisdiction; such notice cannot be waived and want of notice affects jurisdiction. Applied to hold that a notice under section 148 is a condition precedent for initiating reassessment under the (old) section and, by analogy, that a fresh notice was required when initiating proceedings under clause (b) of section 147.
Income-tax Officer, I Ward, Calcutta v. Lakhmani Mewal Das, (1976) 103 ITR 437 Two conditions must be satisfied for notices beyond four years (and within eight years): (i) reason to believe that income escaped assessment; and (ii) reason to believe such escapement arose from omission/failure by the assessee (non-disclosure or non-return). Both must co-exist; and reasons must be recorded in good faith. The Court relied on this to support that mere change of opinion by a subsequent ITO is insufficient and that statutory conditions for jurisdiction must exist and be recorded; used to reject reopening based solely on change of opinion.
S. Narayanappa v. Commissioner of Income-tax, Bangalore, (1966) 62 ITR 219 Reiterated that two conditions are conditions precedent for issuing a notice under the relevant section: (i) reason to believe income was under-assessed; and (ii) reason to believe such under-assessment occurred by omission/failure to file return or to disclose material facts; "reason to believe" must be bona fide. Relied upon to emphasise that the belief must be bona fide and that proceedings commence with the service of notice; supported Court's conclusion that jurisdiction had not properly arisen for clause (b) proceedings here.
Sirpur Paper Mills Ltd. v. Income-tax Officer, (1978) 114 ITR 404 Admission of a fundamental or primary fact cannot be withdrawn; the Income-tax Department cannot start fresh litigation merely because it adopts a new view of the inference to be drawn from facts already disclosed. Used to bolster the position that once the primary facts were disclosed and assessed, the department could not reopen the matter simply because it later preferred a different inference.
Abdul Rab Abdul Salam v. Income Tax Officer, 'A' ward, Tinsukia, (1988) 2 GLR 75 Once the assessee disclosed material facts and the assessment is finalised, the assessment cannot later be reopened merely to reach a different conclusion on the same facts. Applied to support the proposition (particularly regarding clause (a)) that reopening is impermissible where primary facts were already disclosed and considered.
Income Tax Officer, Azamgarh v. Mewalal Dwarka Prasad, (1989) 2 SCC 279 : AIR 1989 SC 1088 On the facts of that case, where a notice was issued after four years but it was not indicated under which clause it was issued, the Court considered whether section 147(b) could be invoked; ultimately the notice could not be sustained when issued beyond prescribed time. The Court found this authority of no help to the revenue on the facts before it and noted that in that case the notice issued beyond time could not be sustained.
Hukumchand Mills Ltd. v. State of Madhya Pradesh, (1964) 52 ITR 583 Principle that a wrong reference to the power under which action was taken may not vitiate the action if it could be justified under some other lawful power. The Court held this ratio inapplicable because clauses (a) and (b) of section 147 operate on different grounds and the ITO's orders clearly indicated different intended bases; there was no mere mis-joinder of power here.
Niranjan & Co. Pvt. Ltd. v. Commissioner of Income-tax, West Bengal, 1986 Supp SCC 272 : AIR 1986 SC 1853 A completed assessment can be reopened only if (a) omission/failure on the assessee to disclose material facts, or (b) the ITO has material post-assessment from which he can reasonably form a belief that income escaped assessment; for clause (b) information must be in possession before issuance of notice. The Court observed that the facts in that case differ from the present case: here the primary facts were disclosed and the information relied upon for clause (b) was not in the ITO's possession when he purported to initiate clause (b) proceedings.
R.K. Upadhyaya v. Shanabhai P. Patel, (1987) 3 SCC 96 : AIR 1987 SC 1378 Service of notice is not a condition precedent to the conferment of jurisdiction on the ITO but is a condition precedent to making the order of assessment. The Court found this decision unhelpful to the revenue because the reassessment order in the present matter is not tenable in law unless a proper notice is served on the assessee, and here proper notice for clause (b) was not issued.
Sonai River Tea Co. Ltd. v. Commissioner of Income Tax, Gauhati, (1990) 182 ITR 162 : (1990) 2 GLR 62 Considered the scheme of section 144B and noted that where proposed variations are involved the Income-tax Officer must follow the procedure under section 144B; failure to do so can be more than mere irregularity and can lead to annulment of assessment. Applied to hold that the Tribunal's direction permitting the ITO to proceed afresh under section 144B (instead of annulling/cancelling reassessment orders) was legally unsustainable and that the Tribunal had failed to consider limitation under section 153.
Reference cited by ITO: "93 ITR 315" This citation was referred to by the ITO in his reasons sheet to support the view that capital gains arose on transfer of forest trees. The opinion does not set out the rule or principle from this report; the text only records that the ITO referred to "93 ITR 315".

Court's Reasoning and Analysis

The Court undertook a stepwise legal analysis, applying statutory provisions and the cited precedents to the facts:

  1. Statutory framework: The Court recalled the scope of clauses (a) and (b) of section 147, and the procedural requirements in section 148 (notice), section 144B (draft proposed order and Inspecting AAC procedure), and limitation under section 153 (time for completion). Sections 149 and 151 were also noted in relation to time and sanction.
  2. Application of the "primary facts" principle: Relying on Calcutta Discount Co. Ltd., the Court held that the assessee had disclosed the primary facts (receipt of Rs. 5 lakhs shown in Part III of the return) and the original ITO had considered those facts and reached the conclusion they were capital receipts. Because primary facts were disclosed, clause (a) of section 147 (which requires omission or failure to disclose all material facts) could not be invoked.
  3. On the 31.12.76 order: The successor ITO's recording on 31.12.76 (that capital gains had escaped assessment) was held not sustainable in law because it attempted to characterize the matter as non-disclosure when primary facts had already been disclosed and considered.
  4. Initiation under section 147(b): The 21.3.77 order initiating proceedings under clause (b) was examined. Clause (b) requires the ITO to have, in consequence of information in his possession, reason to believe that income escaped assessment (even where no omission by assessee). The Court found two discrete defects:
    • No fresh notice under section 148 was issued when clause (b) proceedings were initiated; the ITO treated the earlier notice (pursuant to the 31.12.76 order) as sufficient, but the Court held a notice for clause (a) cannot be treated as notice for clause (b) because the two clauses operate on different bases.
    • The information the ITO purported to rely upon (the AAC's order in Hapjan Tea Co. Ltd.) was not in the ITO's possession at the time the 21.3.77 order was recorded. Thus the essential information required under clause (b) to form the requisite belief was absent.
    For these reasons the Court concluded that initiation of clause (b) proceedings was without jurisdiction and bad in law.
  5. Change of opinion: The Court emphasised that a mere change of opinion by a subsequent ITO—i.e., reaching a different inference from the same primary facts—does not justify reopening assessments. The Court relied on Lakhmani Mewal Das and other authorities to reaffirm that the duty of the assessee is to disclose primary facts and it is for the ITO to draw inferences; a later change of view is not a ground for reassessment.
  6. Conversion from clause (a) to clause (b) and "wrong reference" arguments: The Court rejected the revenue's argument that there was no conversion (i.e., that the initial steps were in substance clause (b)). The Court held the ITO's orders were clear and sequential: first clause (a) initiation, later clause (b). The Hukumchand ratio on wrong reference was held inapplicable because clauses (a) and (b) apply on different rationales.
  7. Section 144B procedure and limitation: The Court found admitted non-compliance with section 144B. It relied on the Division Bench decision in Sonai River Tea Co. to hold that the Tribunal's direction allowing the ITO to proceed afresh under section 144B (rather than annulling/cancelling the re-assessment orders) was legally unsustainable. Crucially, the Tribunal had not considered the limitation under section 153; allowing reassessment at that stage would contravene the legislated time-bar and perpetuate endless litigation.
  8. Overall conclusion of law: Combining these strands, the Court concluded (i) there was no case for reopening under clause (a); (ii) the initiation of clause (b) proceedings was invalid for want of requisite information and a fresh section 148 notice; and (iii) the Tribunal erred in directing the ITO to proceed afresh under section 144B without addressing section 153 limitation. The Court therefore answered all three reframed questions in favour of the assessee.

Holding and Implications

Holding: The Court answered all three reframed questions in favour of the assessee and against the revenue: All three reframed questions are answered in favour of the assessee and against the revenue.

Implications and direct consequences:

  • The Court held that reassessment under clause (a) of section 147 was not sustainable because the assessee had disclosed the primary facts; accordingly, there was no ground for reopening under clause (a).
  • The initiation of proceedings under clause (b) of section 147 (as recorded on 21.3.77) was vitiated for lack of the required information in the ITO's possession at that time and for absence of a fresh section 148 notice specific to clause (b); thus clause (b) proceedings were invalid.
  • The Tribunal's direction to the ITO to proceed afresh under section 144B was held to be bad in law, particularly because the Tribunal failed to consider the limitation under section 153; reopening at that stage would run counter to legislative time-limits and risk indefinite litigation.
  • Direct effect on the parties: the Tribunal was not justified in sustaining reopening or converting the proceeding; the re-assessments upheld by the ITO cannot stand for the reasons explained in the opinion.
  • No broader novel legal principle or new precedent was announced beyond application of established authorities and statutory provisions to the facts; the decision applies existing jurisprudence to the case before the Court.

This summary is prepared strictly from the content of the provided opinion. No information not present in the opinion has been added.

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    M/S Tarajan Tea Co. (P) Ltd., Dibrugarh v. The Commissioner Of Income-Tax, N.E Region, Shillong .

    S.N Phukan, J.:— On the prayer of the assessee the appellate Tribunal referred 7 (seven) questions for opinion of this Court under section-256(1) of the Income Tax Act, 1961, for short, ‘the Act’. After hearing Mr. J.P Bhattacharjee, learned senior counsel for the assessee and Mr. D.K Talukdar, learned counsel for the revenue we are of tie-opinion that to pin point the real issues the questions may be re-framed and accordingly by order dated 12.8.91 we have reframed the questions and the said three reframed questions are quoted below:

    1) Whether on the facts and in the circumstances of the case, the Tribunal having held that there was no case for reopening the assessment under section 147(a) of the Income Tax Act, 1961 on the reasons recorded, nor any cause for re-opening of the assessment under Section 147(b) of the Act on the reasons recorded on 21.3.77 was justified in law in sustaining the re opening of assessment under Section 147(b) of the Act on the reasons and grounds given in the order passed on appeal?

    2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the reassessment proceeding initiated under Section 147(a) of the Act by issue of notice dated 31.12.76 under Section 148 of the Act on the reasons recorded, could be validly converted into a proceeding under Section 147(b) of the Act subsequently ?

    3) Whether on the facts and in the circumstances of the case the Tribunal was justified in law in setting aside the order of the Appellate Assistant Commissioner of Income Tax can celling the re-assessment orders passed by the Income Tax. Officer in ignorance of Section 144B of the Act and in directing the Income Tax Officer to resort to the provisions of Section 144-B afresh instead of annulling and/or cancelling the re-assessment orders and without also taking into consideration the legal bar of limitation for the passing of re-assessment orders under Section 153 of the Act ?

    2. The present reference relates to the assessment years 1972–73, 1973–74 and 1974–75. The controversy in the present reference is fop reopening of the assessment under section 147 of the Act. The assessee was carrying on its business in growing, manufacturing and sale of tree. The assessee entered into an agreement with M/S Assam Forest Products (P) Ltd. on 30.3.71 The said Company, namely, Assam Forest Products (P) Ltd. was under the same management of the assessee Company. The agreement is at Annexure-A of the Paper Book. The agreement was entered into as M/S Assam Forest Products (P) Ltd. who was in need of timber of carrying its business and by the said agreement the licence was granted by the assessee to M/S Assam Forest Products (P) Ltd. to cut, fell and remove all tree of spontenous growth from the areas of land earmarked and to be earmarked from time to time so that the land became suitable for cultivation of tea plantation and/or other cultivation. The period of lease was for three years i.e from 1.1.1971 to 31.12.73 and the consideration was Rs. 15 lakhs payable in three instalments. Accordingly, assessee was paid Rs. 5 lakhs for each assessment year in question. The Income Tax Officer after considering various decisions of the Apex Court as well as other Courts came to the finding from the facts and circumstances of the cases for each assessment year that receipt of Rs. 5 lakhs for each assessment year by transfer of forest by the assessee was not a revenue receipt but a capital receipt and accordingly the assessment order was made. Subsequently, another Income Tax Officer on 31.12.76 recorded the following order in the order sheet;

    “The assessee received Rs. 5 lakhs from Assam Forest Products (P) Ltd. towards sale of standing trees of spsntaneous growth in its T.E grant in the accounting year which was duly credited to the P/L account. There was an agreement dt. 30.3.71 between the asssessee and the said company under which the total amounts payable will be Rs. 15,00,000/- in 3 equal instalments during the years 1971, 1972 and 1973, Accordingly, the assessee credited Rs. 5 lakhs for each year. Irr? the assessment made under sec. 143(3) on 28.9.75 it was held after considering judicial decisions that the amounts received? by the assessee were of nature of capital receipt and not revenue-receipt and as such, the same was not included in the total income.

    It now appears that even though the receipts are of capital’ nature but being receipts from transfer of capital assets yielded capital gains liable to tax under the provisions of the-I.T Act. In this connection the decision of the Court in 93 ITR 315 may be referred to.

    I am, therefore satisfied that capital gains liable to tax on transfer of a capital asset, i.e forest trees of sponteneous growth escaped assessment in this case for the year. The ass-essees only claimed that the receipts are exempt from and mentioned in part III of the return. The relevant details as to capital gains were not furnished in the return. I have, therefore, reason to believe that income chargeable to tax escaped assessment for non-disclosure of all material facts fully and truly.

    Issue notice u/s. 148.

    S/d-I.T.O”

    3. Again on 21.3.77 the Income Tax Officer made another entry in the order sheet which is reproduced below;

    “Action u/s. 147(a) was initiated in this case and a notice u/s 148 was served on the assessee. The reafons recoided on 31.12.76 in the connected case of Hapjan Tea Co. Ltd. The question involved was whether sale of standing trees camtituted revenue receipt or capital receipt. The A.A.C in appeal No. 347-Dib/75-76 dt. 25.1.77 held that the receipts were of revenue nature from adventure in the casure of trade. The facts in the present case are identical. The finding of the A.A.C is an information in consequence of which I have reason to believe that income chargeable to tax being receipts of sale of standing trees escaped assessment. Action u/s. 147(b) is-accordingiy initiated. However, a notice u/s 148 had already issued within prescribed time limit, no need of fissue of resh notice.”

    4. The assessee objected to the re-opening of the proceedings-which was rejected by the Income Tax Officer and after considering the merit of the case the officer held that sale of trees of spontaneous growth were not capital receipts nor it was agricultural income and ‘they’ were of the nature of revenue receipts and as such assessable to tax. The re-assessment orders are available at Annexures D1, D2 and D8.

    5. The appeal by the assessee before the Appellate Assistant Commissioner was allowed by a cansolidated order dated 3/1.3.78 at Annexure-E to the Paper Book. The Appellate Assistant Commissioner noted that in the first return filed by the assessee the amount of Rs. 5 lakhs was shown in part III of the Return and the matter was fully dealt with by the Income Tax Officer in the original assessment order and as such there was no failure at any stage by the assessee to disclose the preliminary facts. The Appellate Assistant Commissioner also was of the view that conversion of the proceedings from clause (a) to clause (b) of section 147 of the Act was not permissible and that re assessments were bad inasmuch as section 144B was not complied with. Accordingly, the re-assessments for all the three years were cancelled. The appeal was filed by the revenue before the Appellate Tribunal and by order dated 31.7.80 tte order of the Appellate Assistant Commissioner was set aside, but this order was recalled on an application filed by the assessee on the same day. Subsequently, the Appellate Tribunal after hearing afresh and on consideration of facts and contentions made before it, was of the opinion that there was no case for re-opening of the assessment under clause (a) of section 147 of the Act. However, according to the Appellate Tribunal, as proceedings under clause (a) of section 147 was validly initiated it couid be converted to a proceeding under clause (b) of section 147. The Appellate Tribunal finally accepted the appeals filed by the revenue and modified the order of the Appellate Assistant Commissioner to the extent that instead of cancelling the assessment orders they shall only be set aside and the Income Tax Officer was given liberty to proceed afresh in accordance with section 144B of the Act.

    6. We find that after the final order was passed by the Appellate Tribunal a petition was filed for correction of same mistakes in the final order of the Tribunal and this petition was accepted and from the final order some vital portions of the order were deleted.

    7. According to Mr. J.P Bhattacharjee, learned senior counsel for the assessee in view of the finding recorded by the Appellate Tribunal in para-9 of the order, the final order of the Tribunal is not sustainable. We quote below the said para-9 of the order:

    “Coming to the merits af the case, we are of the opinion that as far as the reasons recorded in the order dt. 21.3.71 are concerned, they are insufficient to re-open an assessment. The question as to whether sale of standing tress constituted capital receipt was not new to the Income-tax Officer. In the original assessment order for the year 1972–73, he had fully gone into the matter and referred to as many as five judgments of the Supreme Court and the various High Courts to held that the income from sale of trees was of capital nature. The decision of the Appellate Assistant Commissioner in Hapjan Purbat Tea Company was not any new information because even before the decision of the Appellate Assistant Commissioner, the Income-tax officer assessing that company had held the income from sale of trees as being of revenue nature. In other words, this was a difference of views between the two Income-tax officers. It is well settled that change of opinion by the Income-tax officer cannot be considered as opinion enabling him to initiate re-assessment proceedings if while making the original assessment he had only considered the relevant provisions of law on the subject. This proposition is an well established that no authorities need be referred for it. But if any authority is required, we may refer to Indian and Eastern Newspaper Society v. CIT, New Delhi (119 ITR 996).” It may be stated that the last line of para 9 of the order namely “we are, therefore, of the opinion that action taken in pursuance of the second notice would not be good in law” was deleted in view of the Misc. petition filed by the assessee as factually no second notice was issued by the ITO before taking action under clause (b) of section 147 of the Act.

    8. We are in full agreement with Mr. Bhattacharjee that in view of the above finding of the Appellate Tribunal there was no scope for the Tribunal to modify the orders of the Appellate Assistant Commissioner.

    9. BJ that as it may, as the questions have been referred to us we have to consider all the questions.

    10. Clause (a) of section 147 of the Act, inter alia, provides that if the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to disclose fatly and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assesement year concerned. Clause (b) of the said section 147 inter alia empowers the Inoome-tax Officer subject to the above provisions of sections 148 to 153 to assess or re-assess any income or recompute the loss or the depreciation allowance if notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer bas inconsequence of information in his possession reason to believe that income chargeable to tax hast escaped assessment for any assessment year.

    11. Section 148 of the Act, inter alia, provides that before making any assessment, re-assessment or re-computation under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139 of the Act and further before issuing such notice the Income-tax Officer shall record his reasons. Section 149 fixes the time limit for such notice. We are not concerned with Section 150 in the present reference. Under Section 151 sanction is necessary for issuance of notice after the expiry of eight years from the end of the relevant assessment year. Section 153 fixes the time limit for completion of assessments and re-assessments and subsection (2) is in respect of proceedings under section 147.

    12. Section 144B was introduced in the Act by the amending Act of 1975 but latter repealed with effect from 1st April, 1989 by amending the Act of 1987. There is no dispute at the bar that the said section is applicable to the present reference. The said section inter alia, provides that if the Income-tax Officer proposes to make any variations in the income or loss returned to such an amount, as may be fixed by the Board, a draft proposed order of assessment has to be sect to the assessee and if it is objected to, the draft order along with the objection shall be sent to the Inspecting Assistant Commissioner, who after going through the records may issue such direction, after giving an opportunity to the assessee, to the Income-tax Officer and such direction shall be binding on the Income-tax Officer.

    13. In Calcutta Discount Co. Ltd. v. Income-tax Officer, 41 ITR 191; AIR 1961 SC 372, the Apex Court had occasion to consider clause (a) of section 34 of the old Income Tax Act of 1922 and held that the expression ‘material facts’ used in the said clause (a) referred only to primary facts and the duty of the assessee was confined to disclosure of primary facts and he had not to indicate what factual or level inferences should properly be drawn from primary facts. The assessee has to disclose fully and trully all material facts necessary for assessment for that year. According to Their Lordships the duty of the assessee does not extend beyond full and truthful disclosure? of all material facts and once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. Their Lordships also held that it is for the assessing authority to decide what inference of facts can be reasonably drawn and what legal inference have ultimately to be drawn and it is not for somebody else far less, the assessee to tell the assessing authority what inferences whether of facts or law should be drawn.

    14. In the case in hand the assessee disclosed the receipt of Rs. 5 lakhs in Part 111 of the Return. In other words, the assessee disclosed fully and truly all primary facts and therefore in view of the law laid down by the Apex Court it cannot he said that clause (a) of section 147 of the Act could be invoked by the Income-tax Officer. It may be stated that in the first assessment order the Income-tax Officer considered this aspect of the matter keeping in view, as stated above, various decisions of the Apex Court and other High Courts and held that the income of Rs. 5 lakhs was capital receipt and not revenue receipt.

    15. The successor Income tax Officer by the above order dated 31.12.76 took a view that income chargeable to tax escaped assessment for non-disclosure of material facts fully and truly. This order dated 31.12.76 is not sustainable in law in view of what has been stated above. Realising the legal position by order dated 21.3.77 proceedings under Section 147(b) was initiated. But in the said order it was recorded that no fresh notice under section 148 is necessary as it was issued earlier in pursuant to order dated 31.12.76 The Appellate Tribunal also rightly held in para 6 of the order that there was no case for reassessing of assessment under section 147(a).

    16. Regarding the initiation of proceeding under clause (b) of section 147 of the Act, our attention has been drawn to a decision of the Full Bench of this Court in Tansukhrai Babulal v. Income tax Officer, Nowgong, AIR 1961 Assam 35 : 46 ITR 325. The Futl Beach of this Court held that issue of a valid notice under section 34 of the Act of 1922 is not merely a procedural requirement but is a condition precedent for the exercise of the jurisdiction by the Income tax Officer to re assess the assessee under the said section 34. The Full Bench went to the extent of holding that such notice cannot be waived and that want of notice effects the jurisdiction of the Income tax Officer to proceed with assessment and therefore affects such proceedings of assessment. The Court was of the opinion that merely filing a return under protest but without prejudice to the contention of the assessee canaot be treated as waiver of the notice.

    17. In the order of the Income tax Officer dated 21.3.77 while initiating the proceeding under clause (b) of section 147 of the Act it was recorded that as notice under section 148 had already been issued within the time limit there was no need of issue of fresh notice. The Income tax Officer was referring to the notice issued in pursuant to order dated 31.12.76 Clauses fa) and (b) of section 147 are meant for two different classes and in our opinion notice under Section 147(a) cannot be Sreated as a notice under Section 147(b). As no fresh notice was issued in pursuant to order dated 21.3.77 by the Income tax Officer we are of the opinion that there was absence of jurisdiction of the Income tax Officer to initiate proceeding under the said sub clause (b) of section 147 of the Act.

    18. The most important requirement for initiation of proceeding under Section 147(b) is the information in possession of the Income tax Officer regarding alleged escased assessment. From the order dated 21.3.77, the Income tax Officer treated the order of the Appellate Assistant Commissioner dated 25.1.77 in Hapjan Tea Co. Ltd. as an information for the purpose of (he above clause (b). From the order of the Appellate Assistant Commissioner we find that this piece of information was not available with the income tax Officer when the order dated 21.3.77 was passed. In view of the above position we hold that the initiation of proceeding by the Income tax Officer under clause (b) of section 147 of the Act is bad in law inasmuch as on that date no information was in possession of the Income tax Officer and that apart, no notice as required under section 148 of the Act was issued.

    19. Another point which has been urged by Mr. Bhattacharjee is that in the first assessment order the Income-tax Officer fully considered the receipt of Rs. 5 lakhs for each assessment year and held? that it was a capital receipt. According to Mr. Bhaltacharjee if an Income-tax Officer draws an inference which appear subsequently to be erroneous mere change of opinion with regard to that inference-would not justify the initiation of action for re-opening assessment-In this connection learned counsel has placed reliance on the decision of the Apex Court in Income-tax Officer, I Ward, district. VI-Calcutta v. Lakhmani Mewal Das, (1976) 103 ITR, 437. We have perused the above decision of the Apex Court and we are in agreement with the learned counsel that in the case in hand merely because the subsequent Income-tax Officer changed his opinion, reopening of the assessment under Section 147(b) of the Act is not tenable in law. Their Lordships further held that two conditions have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, namely, (i) the Income-tax Officer must have reason to believe that income chargeable to tax has escaped-assess-ment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under section 139 for the assessment year to the Income-tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. It was also held that both these conditions must co-exist to confer jurisdiction, on the Income-tax Officer and it is also imperative for the Income-tax Officer to record his reasons before initiating proceedings as required by section 148(2). According to their Lordships another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice and that the duty of the as essee is only to make full and true disclosure of the primary facts at the time of the original assessment. Once the assessee has done, so his duty ends and it is for the Income-tax Officer to draw correct inference from the primary facts.

    20. In S. Narayanappa v. Commissioner of Income-tax, Bangalore, (1966) 62 ITR, 219 the Apex Court reiterated the legal position that two conditions must be satisfied in order to confer jurisdiction on the Income-tax Officer to issue the notice under section 34 of the Income Tax Act, 1922, namely, (i) the Income-tax Officer must have reason to believe that income, Prosts or gains chargeable to income-tax had been under-assessed; and (ii) he must have reason to believe that such under-assessment had occurred by reason of either, (a) omission or failure on the part of the assessee to make a return of his income under section 22, or (b) omission or failure on the part of the assessee to disclose fully and trully all the material facts necessary for his assessment for that year and these conditions are conditions precedent to be satisfied before the Income-tax Officer acquires jurisdiction to issue a notice under the section. Their Lordships also explained the expression ‘reason to believe’ in section 34 and held that this expression does not mean a purely subjective satisfaction on the part of the Income-tax Officer and the belief must be held in good faith; it cannot merely be a pretence.lt was further held that proceedings for assessment or re-assessment start with the issue of a notice and it is only after the service of the notice that the assessee, whose income is sought to be assessed or re-assessed, becomes a party to those proceedings.

    21. Coming to the case in hand we have already recorded that the Income-tax Officer by the subsequent order decided to proceed under clause (b) of section 147 of the Act, but declined to issue notice under section 148 of the Act on the ground that while initiating proceeding earlier under clause (a) of section 147 of the Act notice under section 148 was issued. On perusal of these two clauses we find that these are to be invoked for different purposes and or the basis of different materials. Clause (a) can be invoked if there is non-disclosure of material facts by the assessee and clause (b) can be invoked in consequence of information in the possession of the Income-tax Officer even though there was no omission or failure on the part of the assessee to disclose all material facts. For initiation of proceedings under clause (a) or clause (b) separate notice has to be issued under section 148 of the Act. Unless a notice under section 148 is issued the Income-tax Officer does not set the jurisdiction to proceed with the re-assessment proceeding. We, therefore, hold that subsequent initiation of proceeding under clause (b) of section 147 in bad in law in view of the ratio laid dawn by the Apex Court mentioned above.

    22. Another contention of Mr. Bhattacharjee, is that admission-of fundamental primary facts cannot be withdrawn and a fresh litigation cannot be started with a view to obtain another assessment upon different assumption of facts and the Income-tax Department cannot be permitted to start a fresh litigation because of new views-In this connection Mr. Bhattacharjee has placed reliance on a decision of the Andhra Pradesh High Court in Sirpur Paper Mills Ltd. v. Income-tax Officer, (1978) 114 ITR 404 wherein the Andbra Pradesh High Court held as follows;

    “The admission of a fundamental fact or primary fact cannot be withdrawn and a fresh litigation cannot be started with a view to obtain another assessment upon different assumption of facts. The Income-tax department cannot be permitted to-begin fresh litigations because of new views they entertain on facts or new verrsions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted litigation would have no end, “except when legal ingenuity is exhausted”. To do so, is to divide one argument into two and to multiply the litigation”.

    23. In this connection we may also refer to a decision of the Division Bench of this Court in Abdul Rab Abdul Salam v. Income tax Officer, ‘A’ ward, Tinsukia, (1988) 2 GLR 75. The Division Bench relying on the decision of the Privy Council held that once assessee disclosed meterial facts necessary and assessment is finalisad, later for a different conclusion on the same facts the assessment cannot be reopened. Otherwise litigation will never end and the assessee can never rest in peace. The above ratios are applicable in the case in hand regarding initiation of proceeding under clause (a) of section 147. We have already held that initiation of proceeding under clause (b) of the said section is also bad in law inasmuch as no notice under section 148 was issued and the materials were not available at the time of initiation of the proceeding.

    24. Mr. Talukdar, learned counsel for the revenue has urged that in the present case it is not a conversion of the proceeding from clause (a) to clause (b). According to learned counsel though in the first order the Income-tax Officer recorded initiation of proceeding under clause (a), in fact, it was a proceeding under clause (b). We are unable to accept the contention of learned counsel in asmuch as the orders of the Income tax Officer are very clear and after proper application of mind by the first order it was decided to initiate proceeding under clause (a) and thereafter by the second: order to start proceeding under clause (b).

    25. Mr. Talukdar has placed reliance on a decision of the Apex Court in Income Tax Officer, Azantgarh v. Mewalal Dwarka Prasad, (1989) 2 SCC 279 : AIR 1989 SC 1088 in support of his contention. In that case we find that notice was issued after four years but it was not indicated whether it was a notice under clause (a) or clause (b) of section 147 and on these facts the Court held that Section 147(b) can be invoked. But we find from para 8 of the judgment that the Apex Court held that notice being issued beyond the time provided under the law the notice under section 148 of the Act cannot be sustained in law and accordingly the appeal by the assessee was allowed. This decision, in our opinion, is of no help for the revenue.

    26. Another decision regarding wrong reference has been placed before us and the said decision of the Apex Court was in Hiikum-chand Mills Ltd. v. State of Madhya Pradesh, (1964) 52 ITR 583 wherein it was held that ‘it is well settled that a wrong reference to the power under which action was taken by the Government would not per se vitiate that action if it could be justified under some other power under which the Government could lawfully do the act’. This ratio is also not applicable to the case in hand in view of our earlier findiag that proceeding under clause (a) or clause (b) is to be initiated on different ground and both the orders of the Income-tax Officer are clear on this point. There is no question of mentioning wrong section either in the first order or in the second order of the Income Tax Officer.

    27. In the case in hand after the notice was issued in pursuant to the first order the Return was filed. On the basis of this fact Mr. Talukdar, learned counsel for the revenue has urged that the Income-tax Officer get jurisdiction to proceed with the case and in support reliance has been placed en a decision of the Apex Court in Niranjan & Co. Pvt. Ltd. v. Commissioner of Income-tax West Bengal, 1986 Supp SCC 272 : AIR 1986 SC 1853 : 1986 Tax. LR. 867. In that case the Apex Court clearly held that a completed assessment can only be re-opened either if there was omission or failure on the part of the assessee to disclose fully and truly all material and relevant facts or the Income-tax Officer must have in his possession before he issues notice some material from which he can reasonably form a belief that there was some escapement of income due to some failure or omission on the part of the assessee to disclose fully all relevant or material facts. Regarding clause (b) the Apex Court observed that notwithstanding that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts, the Income-tax Officer in consequence of information in his possession subsequent to the first assessment has reason to believe that income chargeable to tax has escaped assessment. From the facts of the case we find that at the time of original assessment the assessee had tiled along with the return the balance sheet which was taken note of by the Income-tax Officer and thereafter the assesses filed a revised return showing some profit and the Income-tax Officer issued notice under section 147. But in the case in hand it is not so. Primary facts were disclosed in the return by the assessee and for drawing up proceeding under clause (b) the information mentioned in the second order was not available with the Income-tax Officer as recorded by the Appellate Assistant Commissioner. So, the above ratio laid down by the Apex Court is also of no help for the revenue.

    28. Mr. Talukdar has placed reliance on another decision of the Apex Court in R.K Upadhyaya v. Shanabhai P. Patel., (1987) 3 SCC 96 : AIR 1987 SC 1378. In that decision the ratio laid down was that service of notice is not condition precedent to conferment of jurisdiction in I.T.O but it is condition to making of order of assessment. We are unable to see how this decision will help the revenue inasmuch as the reassessment order is not tenable in law unless a proper notice is served on the assessee.

    29. Admittedly, there was non-compliance of the provisions of section 144B. In the order of the Appellate Tribunal it was held that instead of cancelling the assessment orders, the order be set aside with a direction that the Income-tax Officer will be at liberty to proceed afresh in accordance-with section 144B of the Income-tax Act.

    30. A Division Bench of this Court in Sonai River Tea Co. Ltd. v. Commissioner of Income Tax, Gauhati, (1990) 182 ITR 162, (1990) 2 GLR 62 considered the scheme of section 144B and also noted that all orders under the said section are appealable under clause (d) of section 246. It was also noted that second appeal is also provided to the Tribunal under section 254 and there is a rule of limitation under subsection (2A) of section 153. Considering the scheme of the section and other revisions and also various decisions, this Court held that because of the variation in the proposed assessment the Income-tax Officer should have followed the procedure in section 144B, which was not done. The Court noted that instead, the Income-tax Officer arrogated to himself the powers to pass assessment order when in law he was not vested with the power to do so. The Court was also of the opinion that the Income-tax Officer transgressed the Board's notification and transgressed the statutory provision in section 144B. According to the Division Bench this was not a mere irregularity and accordingly annulled the assessment order.

    31. Keeping in view the above ratio of the Division Bench of this Court we held that the direction of the Appellate Tribunal to the Income-tax Officer to proceed afresh in accordance with section 144B of the Act is bad in law. We find that the Appellate Tribunal did not consider the question of limitation as laid down in section 153 of the Act. As under the said section 153 limitation has been provided we held that re-assessment at this stage will be against the legislative mandate as provided in the said section 153 and that apart, if this is allowed the litigation will never end.

    32. For what has been stated above, we are of the opinion that (i) the Tribunal having held that there was no case for re-amending of assessment under clause (a) of section 144 nor any case for reopening of assessment under clause (b) of the said section, the Tribunal was not justified in law in sustaining the re-opening of assessment under clause (b), (ii) that the Tribunal was also not justified in converting the preceeding under clause (a) to proceeding under clause (b), ard (iii) that the Tribunal erred in law in directing the Income-tax Officer to resort to the provisions of section 144B afresh instead of annulling and/or cancelling the re-assessment order without taking into consideration the provisions of section 153 of the Acu Therefore, all the three reframed questions are answered in favour of the asseesee and against the revenue.

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    M/S Tarajan Tea Co. (P) Ltd., Dibrugarh v. The Commissioner Of Income-Tax, N.E Region, Shillong .
    (Feb 3, 1992)