COMMISSIONER OF INCOME TAX Vs. THAKURLAL

JUDGEMENT

(1.) BY this reference under S. 256(1) of the INCOME TAX ACT, 1961, hereinafter called the Act, the Tribunal, Indore Bench, has referred the following questions of law to this Court for its opinion:

(2.) THE material facts giving rise to this reference briefly are as follows: The assessee is a registered firm carrying on the business of extracting managanese ore and selling it. The assessment year in questions is 1961 -62. The assessment was originally framed by the ITO on 16th January, 1963 Subsequently, the ITO issued a notice under S. 148 of the Act on 31st January, 1966, in exercise of the powers conferred on him by cl. (b) of S. 147 of the Act. The assessee filed a return under protest. The ITO, overruling the objections of the assessee about the validity of reassessment proceedings, completed reassessment on l2th January, 1967, after including a sum of Rs. 45,000 which was paid by the assessee as compensation to M/s Natwarlal Shamaldas & Co., Bombay, for a breach of contract. The assessee preferred appeal before the AAC, which Was dismissed On further appeal before the Tribunal, the Tribunal found that the ITO having failed to record reasons for issuing the notice of reassessment, as required by S. 148(2) of the Act, had no jurisdiction to proceed with the reassessment. The Tribunal, therefore, quashed the reassessment. On merits, the Tribunal found that the loss of Rs. 45,000 claimed by the assessee was a speculative loss, which could not be deducted from the assessee's business income. Aggrieved by the order of the Tribunal, the Department sought a reference. The assessee also submitted an application for making a reference. The Tribunal has referred to this Court for its opinion, the first question at the instance of the Department and the second question at the instance of the assessee.

(3.) IN view of sub -s. (2) of S. 148 of the Act, it is clear that recording of reasons by the ITO before issuing a notice under S. 147(b) is a mandatory requirement under the Act. In the instant case, all that was recorded by the ITO before issuing the notice was as follows: