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[Cites 41, Cited by 0]

Income Tax Appellate Tribunal - Delhi

Shri Suraj Mal, Huf vs Income Tax Officer on 17 August, 2007

Equivalent citations: (2007)110TTJ(DELHI)834

ORDER

Vimal Gandhi, President

1. On account of difference between learned Members of Income Tax Appellate Tribunal 'F' Bench, New Delhi, this matter with following points of difference has been referred to me Under Section 255(4) of the Income Tax Act:

1. Whether on the facts and circumstances of the case, it can be said that there is a valid initiation of the proceedings Under Section 147 in the case of the assessee HUF although no reason to believe were recorded in the case of the assessee HUF nor any notice was served to the assessee HUF?
2. Whether there was valid service of notice Under Section 143(2) on the assessee HUF?
3. Whether on the facts and circumstances of the case, the assessment order passed must be annulled or confirmed so far it relates to the validity of the proceedings initiated Under Section 147 and service of notice on the assessee Under Section 143(2) is concerned?
4. Whether in the facts and circumstances of the case, the Assessing Officer erred in framing the assessment in the status of HUF on the basis of consent given by the assessee although the notices were issued in the status of the individual?

2. The facts of the case are that the assessee (exact status is a matter of controversy) sold some land, in the period relevant to AY 1996-97, on which, according to the revenue, taxable capital gain had accrued. The Assessing Officer accordingly initiated action to assess gain and issued notices Under Section 148 of the Income Tax Act. First notice dated 28.11.00 is alleged to have been issued by ITO, Ward-2, Gurgaon. However, reasons as per requirement of Section 148(2) were found to be recorded on 29.11.00. As notice could only be issued after recording reasons, the above illegality appears to have been noticed and, therefore, a second notice on 12.12.00 was issued after recording the reasons which are as under:

1. The assessee is a resident of Village Islampur, Gurgaon.
2. He has sold his agricultural land measuring 18B-08B to the company Kareshekh Builders (P) Ltd. during the AY 1996-97 for Rs. 13,80,000.
3. The landfalls within 8 km of the municipal limits of Gurgaon. Hence, as per notification dated 6.1.94. It falls within the definition of capital assessment Under Section 2(14).
4. Hence, capital gain on the above sale is leviable.
5. The value of this land as on 1.4.81 is estimated at Rs. 1 lakh per acre as per the sales of that time because urbanization of Gurgaon and surrounding has started w.e.fi 1988-89 onward only. The total cost of this land is worked out as under: 
 Estimated cost of land as on 1.4.81       Rs. 920000
Indexed cost of land                          258520
 

6. The amount liable to capital gain is calculated as under:
 
 Sale consideration        Rs. 1980000
Less indexed cost              258520
Net amount                    1121480
Hence an amount of Rs. 112140 liable to capital gain @20% has escaped assessment.

3. The assessee claimed that none of the notices were served on him. In response to notice dated 28.12.01 and 13.2.02 Under Section 142(1), a return was filed declaring nil income and agricultural income at Rs.40,000 for rate purposes.

4. The above return was filed in the status of an individual. In the course of assessment proceedings, the Assessing Officer records as under:

Shri R.P. Gupta, Adv. appearing along with Shri Suraj Mal. Return of income declaring nil income filed and has shown agri. income at Rs. 40,000/-. Written reply filed. You have claimed the cost price as on 1.4.1981 @Rs.2.50 lakh per acre. However, Addl. CIT, Faridabad in another case adopted the rate at Rs. 2,00,000/- per acre. PI. explain why it should not be taken at Rs. 2 lakh per acre. You have claimed the status of the assessee as individual whereas the land sold were ancestral, why the status of HUF should not be taken, if the HUF status is taken then the rebate Under Section 54B is not allowable.
As regards the construction of house, you are required to explain the cost of constructions. Case adjourned to 28.2.2002.
Shri R.P. Gupta, Adv. along with Shri Suraj Mal appeared. Written submission filed. He has stated that the status of the assessee should be taken as HUF as the lands were ancestral. As regards the cost of land on 1.4.1981 he has no objection for taking it at Rs. 2,00,000 per acre as taken in the other case of Shri Subh Ram Vill. Ishlampur (assessed by Addl. CIT Spl. Range, Faridabad). He argues that the rebate Under Section 54B is not allowable to the HUF. For the construction cost he has filed the valuation report which is at Rs.3,54,000/- + Rs. 3,38,000/- Rs. 6,92,000/-. But assessee claimed the rebate in the rebate Under Section 54B at Rs. 6,00,000/-. No bank interest or any other income admitted.
Agri. Income has been shown at Rs.40,000.

5. The Assessing Officer accordingly completed the assessment in the status of the HUF and took net assessable capital gain at Rs. 1,65,100 vide order dated 31.3.96.

6. The assessee impugned above assessment and in appeal before the Commissioner of Income-tax (Appeals) and challenged validity of notices Under Section 148 of the Income-tax Act. The status in which the assessment was made was also challenged. Ld. Commissioner of Income-tax (Appeals), after considering facts and circumstances of the case, did not find any force in any of the contentions raised in appeal before her. Accordingly the appeal was dismissed.

7. The challenge to the assessment was then brought before the Income Tax Appellate Tribunal. Apart from merit, the assessee strongly contested legality of initiation of proceedings Under Sections 147/148 and the status in which the assessment was made. The entire process was challenged as legal and without jurisdiction. After hearing, the ld. Members of the bench did not agree on the order to be passed and issued dissenting proposed orders.

8. The ld. AM, as per his proposed order, has taken the view that assessment made in the status of the HUF without issuing any notice to the assessee HUF was bad in law. He has observed that if assessment was to be made in the capacity of the HUF, ld. Assessing Officer should have issued fresh notice to the HUF after recording reasons Under Section 148 of the Income Tax Act. Ld! AM noticed decision of Hon'ble Punjab & Haryana High Court in the case of Kanshi Ram Wadhwa v. CIT 138 ITR 830 strongly relied upon by the revenue and held that the same was distinguishable on facts. The ld. AM further held that neither any valid notice was issued in this case to the assessee nor reasons were recorded regarding escapement of income of HUF. Hence, proceedings against HUF were void ab initio. Moreover, he found that reasons recorded related to evasion of sum of Rs.68.54 lakh and Rs. 13.80 lakh respectively against assessment in this case of made at income of Rs. 1.65 lakh only. Apparently, reasons recorded relate to some other person of some other property. The ld. AM further found that no notice was issued Under Section 143(2) of the Income Tax Act on return filed on 25.2.02. In the opinion of the ld. AM, the entire proceedings of assessment were illegal. In the present case, the Assessing Officer further had "no reason to believe that income had escaped assessment" to take action Under Section 147 of the Act. The matter was treated as covered against the revenue as per decision of Delhi High Court in the case of Mahanagar Telephone Nagar Limited v. Chairman, CBDT 246 ITR 173. The ld. AM also held that conditions of Sections 147/148 were not satisfied. Ld. AM relied upon the decision in the case of CWT v. Ridhkaran & Ors. 84 ITR 705 where question was whether return filed as HUF could be assessed as individual without fresh return. Hon'ble High Court held that WTO is not competent to assess them in the status of individual without serving them with notice to file fresh return as individual. The ld. AM categorically held that conversion of status from individual to HUF and vice versa cannot take place on the same return. In the present case, notice was issued to an individual Under Section 148 and return also filed by an individual and, thus, question of determination of status did not arise. If the Assessing Officer was of the opinion that notice has wrongly been issued to the individual, he had every right to issue fresh notice to the HUF but no such action was taken. He, therefore, annulled the assessment. The ld. AM, also in the penultimate paras of the proposed order, relied upon the decision of the Special Bench in the case of Rahul Kumar Bajaj.

9. The ld. JM did not agree with the above view. He reproduced the grounds raised by the assessee before the Tribunal. He noted that assessment was made in the status of HUF although notice was received in the name of Shri Suraj Mai individual Under Section 148 of the Income Tax Act. For disposal of the appeal, ld. J.M. noted entry dated 28.2.2002 in the order sheet of the Assessing Officer and held that the assessee had consented to be assessed in the status of the HUF although the notice was issued to the assessee in individual capacity. Had the assessee not consented to the assessment in the status of HUF, the Assessing Officer might have examined the issue of status and issued notice to the assessee in that status. Having consented to assessment in the status of HUF, now the assessee cannot be allowed to turn around and argue that such an order was incorrect or unwarranted. The Assessing Officer had first obtained the consent of the assessee and, thereafter, proceeded to make assessment on 28.2.2002. The ld. Commissioner of Income-tax (Appeals) in the impugned order had rightly relied upon the decision in the case of Kanshi Ram Wadhwa (supra). He held that principle of Estoppel as Rule of Evidence and Section 115 of Evidence Act recognizes this rule were applicable. The basis of Estoppel is that it would be unfair and unjust to allow a party to depart from a particular state of affair, which another has taken to be correct. The ld. JM upheld the assessment and dismissed the appeal in his proposed order.

10. The Third Member case was fixed for hearing and Shri K.P. Garg CA has been heard on behalf of the appellant. Shri Durga Charan Das, CIT (DR) and Shri Amit Govil, Sr.DR have been heard for the Revenue. The first question required to be considered is whether any legal and valid notice Under Section 148 was issued in this case. As already noted, first notice Under Section 148 was issued on 28.11.00. But that is not the notice which is relied upon or mentioned by the Assessing Officer in the assessment order. Apparently, this notice was issued without recording reasons Under Section 148(2) of the Income-tax Act on 28.11.2000 whereas reasons were recorded a day later i.e. on 29.11.00. Perhaps, for the above reasons, the Assessing Officer ignored and issued second notice on 12.12.00 (wrongly written as 22.12.2000 in the assessment order). I have already noted reasons Under Section 148(2) of Income Tax Act for issuing the said notice. The said notice suffers from several legal infirmities. In the first place, the transaction noticed related to sale of some agricultural land sold to Kale Shekli Builders Pvt. Ltd. and not by the assessee. Further sale consideration is taken at a sum of Rs. 13,80,000. This is not the transaction with which the assessee was connected. So, notice was issued in respect of some other transaction carried by some other person. Secondly, the notice is admittedly issued to the assessee Suraj Mai, individual. No notice was issued to the HUF in which status the assessment was subsequently made. The assessee has vehemently contended throughout that no notice Under Section 148 was served on the assessee. There is neither any finding nor there is any material to refute the claim of the assessee. In the above circumstance, it is difficult to hold that a valid notice Under Section 148 of the I.T. Act was issued in this case. "Reason to believe that income had escaped assessment" was formed by taking a transaction not carried by the assessee. The status in which notice was issued was also wrong as even as per the Assessing Officer, the land was ancestral and, therefore, notice should have been issued to the assessee in the status of HUF. Notices were issued without application of mind.

11. It is a settled law that there must be valid reasons, material and circumstances leading to belief that income had escaped assessment. Any good or bad reason is not sufficient to sustain initiation of proceedings Under Sections 147/148 as valid. Therefore, I agree with the reasons given by the ld. AM for holding that no valid proceedings were initiated in this case Under Section 147/148 of the I.T. Act.

12. The other important question required to be considered is whether having initiated proceedings Under Section 147/148 of the Income Tax Act in the case of an individual, could the Assessing Officer make valid assessment in the status of HUF without issuing any notice Under Section 148 of the Income Tax Act. The ld. AM has held the view that this could not be done. The ld. JM, on the other hand, has approved the action of the revenue authorities by mainly relying upon the decision of the Hon'ble Punjab & Haryana High Court in the case of Kanshi Ram Wadhwa (supra).

13. The ld. JM has held the view that assessee, having consented to the assessment in the status of the HUF, cannot be allowed to turn around and argue that such an order was incorrect or unwarranted. According to ld. JM, Principle of Estoppel is applicable in this case. In my view, the Income Tax Act recognizes status of HUF different from individual status of Karta of the HUF. Two are treated as different legal entities. Therefore, it is necessary that notice Under Section 148 of the Income Tax Act should be sent in a correct status because jurisdiction to make assessment is assumed by issuing valid notice. Admittedly, in this case, it was sent to the individual. The assessment of HUF is taken to be justified on the basis of the decision of Hon'ble Punjab & Haryana High Court in the case of Kanshi Ram Wadhwa (supra). The head note of the said case is as under:

The essence of the scheme of the Indian Income-tax Act is that depreciation is allowed, year after year, on the actual cost of the assets as reduced by the depreciation actually allowed in earlier years. It follows, therefore, that even in the case of assets acquired before the previous year, where in the past no depreciation was computed, actually allowed or carried forward, for no fault of the assessee, the "written down value" may, under Clause (b) of Section 43(6) also, be "the actual cost of the assets to the assessee ". The profits Under Section 41(2) should be computed by deducting depreciation actually allowed Under Section 32 and not any notional depreciation allowable under Section 32.
Where the assessment order for 1971-72 showed that the assessee had agreed to his income being taken at a particular figure, and that depreciation had been allowed as agreed to by the assessee, and, for the assessment year 1972-73, the assessee contended that no depreciation had been actually allowed in the earlier year:
Held, that the assessee having derived the benefit of an agreed order of assessment, could not contend that the ITO did not allow any depreciation during the relevant assessment year. The Tribunal was right n holding that depreciation was computed and allowed actually in 1971-72.

14. It is clear from above that assessee had claimed depreciation on asset used by the assessee in the return for AY 1971-72. Subsequently, assessment for the above year was made on an agreed basis. In the following assessment year 1972-73, the assessee claimed that no depreciation was actually allowed to the assessee. Therefore, for purposes of written down value, depreciation claimed for AY 1971-72 should not be deducted. This contention of the assessee was rejected for the reason given in the head note.

15. The aforesaid decision, in my view, has no application to the facts of the case and has rightly been distinguished by the ld. AM. It is well-settled that Principle of Estoppel or res judicata do not apply to the proceedings under the Income Tax Act. Their lordships of Punjab & Haryana High Court in the case of Kanshi Ram Wadhwa (supra) did not hold that above principles are applicable to the income tax proceedings. It s also settled law that assessment under the Income Tax Act has to be made in accordance with statutory provisions and not on agreement or consent of the assessee. The jurisdiction to make assessment can be assumed only on satisfaction of condition as prescribed under the law. It cannot be conferred with consent of the parties. Therefore, in my view, after having issued notice Under Section 148 of the Income Tax Act to the individual, the ITO had no jurisdiction to assess HUF of the assessee. He could assume jurisdiction by issuing valid notice Under Section 148 of the Income Tax Act after satisfying conditions laid down Under Section 147. This was not done and, therefore, entire proceedings have rightly been held by the ld. AM to be illegal and without jurisdiction. In the case of CIT v. K. Adinarayana Murty 65 ITR 607 (S.C.), the notice was issued by the Assessing Officer to HUF but assessment was made in the status of the individual. Their Lordships observed as under:

Under the scheme of the Income Tax Act, the "individual" and the "Hindu Undivided family " are treated as separate units of assessment and if a notice under Section 34 of the Act is wrongly issued to the assessee in the status of an individual and not in the correct status of a Hindu undivided family, the notice is illegal and all proceedings taken under that notice are ultra vires and without jurisdiction.
Held, that since the correct status of the respondent was that of a "Hindu undivided family", the first notice issued in the status of individual was illegal and without jurisdiction and the Income Tax Officer could not have validly acted on the return filed by the respondent pursuant to that notice, notwithstanding that it was made in the status of a Hindu undivided family, and any assessment made on such a return would have been invalid. The Income Tax Officer was entitled to ignore that return as non est in law. The second notice issued on February 12, 1958, was valid and the return filed in response to that notice and the assessment thereon were valid.
(Underlined to emphasize)

16. In the case of Appellate Asstt. Commissioner v. Late B. Appaiah Naidu 84 ITR 259, their Lordships held as under:

Now coming to the second question as noticed earlier, the assessment was made in respect of the income of Appaiah Naidu on his legal representative, his son Sriramamurthy, in the status of an individual and not as the karta of his Hindu undivided family. The department cannot now be permitted to change its case and contend that in reality the assessee is the Hindu undivided family.

17. It is clear from above that the department cannot be permitted to change the status from individual to HUF. In the first place, the Assessing Officer had no jurisdiction to assess HUF as he did not issue any notice Under Section 147/148 in the case of the HUF. This defect of jurisdiction could not be cured by obtaining consent from the assessee. Therefore, the assessment has to be held to be without jurisdiction. It was rightly directed to be cancelled by the ld.(sic).

18. In the light of the above discussion on main questions, the assessment cannot be sustained and has rightly been cancelled by the ld. A.M. For the aforesaid reasons, I agree with the proposed order of the ld. A.M.

19. Matter may now be placed before the regular Bench for decision in accordance with law.

(VIMAL GANDHI) PRESIDENT

1. Hon'ble President Income tax Appellate Tribunal Lok Nayak Bhawan, Khan Market, New Delhi-110003 Hon'ble Sir, The Ld. Judicial Member has proposed his order in the case of Shri Suraj Mal HUF, Faridabad in ITA No. 1125/Del/2005 to which the Ld. Accountant Member did not agree and has drafted his separate order.

We therefore, request your honour to refer the following point/question of difference to the third member.

Point of difference:

1. Whether on the facts and circumstances of the case , it can be said that there is a valid initiation of the proceedings Under Section 147 in the case of the assessee HUF although no reasons to believe were recorded in the case of the assessee HUF nor any notice was served to the assessee HUF ?
2. Whether there was valid service of notice Under Section 143(2) on the assessee HUF ?
3. Whether on the facts and circumstances of the case, the assessment order passed must be annulled or confirmed so far it relates to the validity of the proceedings initiated Under Section 147 and service of notice on the assessee Under Section 143(2) is concerned ?
4. Whether in the facts and circumstances of the case, the Assessing Officer erred in framing the assessment in the status of HUF on the basis of consent given by the assessee although the notices were issued in the status of individual ?

Thanking you. 

 (P.K. Malhotra)                             (P.K. Bansal)
 Judicial Member                            Accountant Member
 

ORDER
 

P.K. Malhotra, Judicial Member

1. The assesses is in appeal before us against the order dated 15.12.2004 of Ld. CIT(A), Panchkula for the assessment year 1996-97 on the following grounds:

1. That the appellant denies his liability to be assessed in the status of HUF granted and denies liability to be assessed at total income of Rs. 1,65,100/- and accordingly denies his liability to pay tax, interest demanded thereon and ld. CIT(A) has erred in holding the appellant liable to be assessed at the income of Rs. 1,65,100/-.
2. That having regarding to the facts and circumstances of the ld. CIT(A) has erred in law and on facts in confirming the action of the Assessing Officer in framing the impugned assessment upon the appellant even though nothing was chargeable to tax upon him.
3. That having regard to the facts and circumstances of the ld. CIT(A) has erred to confirming the action of the Assessing Officer in framing the impugned assessment Under Section 147 more so when statutory conditions prescribed were not complied with.
4. In any view of the matter in any case, faming of the impugned assessment Under Section 147 was bad in law and against the facts of the case.
5. That having regards to the facts and circumstances of the case, ld. CIT(A) has erred in law and on facts and confirming the action of the Assessing Officer in framing the impugned assessment without serving the notice and without giving opportunity.
6. That having regards to the facts and circumstances of the case ld. CIT(A) has erred in law and on facts in confirming the action of the Assessing Officer not allowing the deduction on account of Section 54B.
7. In any view of the matter and in any case, disallowance of investments made on purchase of agricultural land amounting to Rs.6,00,000/-was bad in law and against the facts and the circumstances.
8. That having regards to the facts and circumstances of the case ld. CIT(A) has erred in law to confirm the order of Assessing Officer and framing the assessment in the status of HUF and the notice was issued Under Sections 147/148 in status of individual.
9. That having regards to the facts and circumstances of the case, ld. CIT(A) has erred in law and on acts in upholding the action of the Assessing Officer in charging interest Under Section 234A & 234B.

2. The decision in this appeal basically depend upon two issues:

1. Liability to be assessed in the status of HUF & not as an individual whereas return was filed as an individual.
2. Action of ld. CIT(A) in confirming the order of Assessing Officer in the status of HUF when the notice was issued Under Section 147/148 in the status of individual.
3. Before the ld. CIT(A) it was submitted by the assessee that assessment in this case was completed under Section 143(3) of the Act on an income of Rs. 1,65,100/- vide order dated 28.2.2002. The assessment was made in the status of HUF whereas notice was received Under Section 148 in the name of Surajmal (Individual), if the assessment was to be made in the capacity of HUF, ld. Assessing Officer should have issued notice Under Section 148 to the assessee in the capacity of HUF.
4. Ld. CIT(A) called for a report from the Assessing Officer v. on the above submission of the assessee. ITO, Gurgaon videhis letter dated 26.7.2004 submitted his comments as under:
The main grounds of appeal .taken by the assessee are as under:
i) That the assessment has made in the status of HUF whereas the notice was issued in the name of Shri Suraj Mai (Ind.).
ii) Requested for rebate under Section 54B.
iii) The counter comments are as under:
A notice Under Section 148 dated 22.12.00 was issued to the assessee for the assessment year 1996-97 as he had sold agrl. Lands situated at VPo Ishlampur, Gurgaon to some private builders. In compliance to notice Under Section 142(1) Shri RP Gupta Advocate attended the proceedings and filed return of income for the assessment year 1996-97 on 2.4.02 stating nil income and agri. Income of Rs. 40,0007- Only during the course of hearing Shri RP Gupta Adv. And the assessee submitted an affidavit stating that he had sold his ancestral agr,. land in VPo Ishlampur, Gurgaon for a consideration of Rs. 9,59,540/-. Though the assessee filed his returned of income in the status of indl. But as per note sheet entry dated 22.2.02 he was asked:
You have claimed the status of assessee as indll, whereas the land sold were ancestral. Why the status of HUF should not be taken. If the HUF status is taken the rebate Under Section 54B is not allowable.
Shri RP Gupta Adv. Along with Shri Suraj Mai the assessee attended on 28.2.202 stated as under:
Shri RP Gupta along with Shri Suraj Mai appeared. Written submissions filed. He has stated that the status of the assessee should be taken as HUF as the land were ancestral. He agreed that the rebate Under Section 54B is not allowable to HUF.
In view of the above the status of the assessee was held as HUF and keeping in view the Hon'ble Madras High Court judgment in the case of CIT v. Devarajalu 191 ITR 211 (Mad.) the rebate Under Section 54B was not allowed. In addition to the above, the land stated to have been purchased by the assessee not in his own name, nut in the name of his sons. Accordingly rebate Under Section 54B is not allowable.
It is further submitted that status of the brother of the assessee Shri Bharat Singh, s/o Shri Shera, VPo Ishlampur, Gurgaon was assessed as HUF and in the similar circumstances and the appeal filed by the assessee's brother was dismissed by the ld. CIT(A), Faridabad vide his order dated 25.8.03 in Appeal No. 38/2002 -03 (copy of order of ld. CIT(A) Faridabad, in the case of Shri Bharat Singh. S/o Shri Shera is placed on record). The decision in the Bharat Singh is squarely applicable in this case. Since the assessment has correctly been made in the status of HUF, to which the assessee agreed. Theappeal filed by the assessee deserves to be dismissed.
5. In reply, the assessee's representative vide letter dated 6.12.2004 denied that the assessee consented to the status of HUF. It was requested that assessment may be framed in the status of individual and if assessment has to be made in the status of HUF, afresh notice be issued.
6. In his order dated 15.12.2004, ld. CIT(A) noted that there is no specific ground regarding notice having been issued in the name of individual and assessment having been made in status of HUF but the only issue is regarding disallowance of deductions Under Section 54B of the Act. However, in his submissions, the assessee raised the issue that assessment was bad in law as notice was issued in the status of individual whereas the assessment was made in the status of HUF.
7. Ld. CIT(A) while dealing with this issue has considered the submissions of the assessee and also reply of the Assessing Officer. He has observed that at the time of initiation of proceedings Under Section 148 of the Act, it is not incumbent on the Assessing Officer to be aware of all the facts of the case. What the law requires from him is that at the stage of initiation of proceedings under Section 148, there is prima facie belief that income had escaped assessment. After considering the decisions reported as 236 ITR 832, 217 ITR 597, 188 ITR 247 and 41 ITR 191 (SC) and looking to the facts of the case Ld CIT(A) held as under:
In this case, there was information that land belonging to one Shri Suraj Mal had been sold and that income from capital gains in respect of this land has escaped assessment. The assessee filed a return and indeed showed income under the head capital gains but declared its status as that of the individual. At this stage while filing the return or while filing the challan the assessee claimed the status of the individual. But, however, it was only during the assessment proceedings that it came to the knowledge of the Assessing Officer that the land was ancestral land and it was only after the division of the ancestral land that the assessee had sold his share of And these facts are so special to the present case that the cases relied upon by the counsel do not apply to the facts of this case. At the time of initiation of proceedings Under Section 148 it is not the mandate of the law that the Assessing Officer should also have been aware of the status in which he should be assessed. The reasons clearly show that the Assessing Officer was aware of income escaping assessment under the head capital gains for the lands belonging to one Shri Suraj Mal without mentioning the status. The action of the Assessing Officer was well within the parameters of law. It is also a fact which is not being rebutted by the counsel that the assessee's brother Shri Bharat Singh s/o Shri Shera has filed his return of income in the status of HUF as for the sale of the same ancestral land which were also sold by the appellant in respect of the land falling in his share. The fact that both the brothers had claimed the status of the HUF at the time of issue of ITCC has also not been rebutted or refuted.
8. Ld. CIT(A) further observed that the assessee who had accepted an agreed order, cannot be allowed to (sic) around and urge that such an order was incorrect or unwarranted. In support Ld. CIT(A) has placed reliance on the decisions of P & H High Court in the case of Kanshi Ram Wadhwa v. CIT 138 ITR 830 where the court had observed as under:
...It is a matter of common knowledge that at the time of final arguments the assessee sometimes prefer to have an agreed order passed by the ITO and the orders passed is sometimes not strictly in accordance with the return.
...Had the assessee not consented to have an agreed order of assessment, the ITO would have perhaps held an enquiry for determining his actual income for that year. The assessee having derived the benefit of an agreed order cannot be allowed to turn round and urge that such an order was incorrect or unwarranted.
9. Ld. CIT(A) therefore held that the Assessing Officer was fully justified in holding the status of the assessee as that of HUF as against the claim of the status of an individual.
10. Relying on the decisions reported as 191 ITR 211 (Mad.), 195 ITR 483 (Mad.) and 208 ITR 11 (Raj.), Ld. CIT(A) also held that the assessee is not entitled to deduction under Section 54B when the status is that of HUF.
11. Before us, Ld counsel for the assessee not only disputed the orders of the lower authorities, he also challenged that there was no valid notice to the assessee and hence the proceedings are void ab inito. It was submitted that notice dated 12.12.2000 at page 54 of the paper book was in the name of individual and the property referred to therein does not belong to the assessee. Even the notice dated 29.11.2000 at page 56 of the paper book was also issued to the individual. Return dated 25.2.2002 at page 51 of the paper book was also filed as an individual. Therefore, assessment could not have been made in the capacity of HUF. No notice was ever served in the capacity of HUF. It was further submitted that ITAT has dealt with other cases relating to similar properties in respect of other assessee and assessment has been made in individual capacity. Our attention was drawn to the order of ITAT/CIT(A)/Assessing Officer at pages 60-77 of the paper book.
12. Ld. DR justified the action of lower authorities submitting that notice Under Section 148 was validly issued. The reasons were duly recorded as is evident from page 58 of the paper book. With regard to specific query from the Bench whether any notice was issued in the name of HUF, Ld. DR replied in the negative but submitted that the assessee had consented to the assessment in the status of HUF and therefore action of Assessing Officer is justified. In support, Ld. DR placed reliance on the decision reported as 149 ITR 567. It was further submitted that even if there was any procedural defect, the authorities are competent to rectify the same. In support, Ld. DR relied on the decisions reported as 276 ITR 1 (Del.) and 72 ITR 807 (SC). Ld. DR further submitted that order passed by Ld. CIT(A) is well reasoned. IN assessee's brother's case also the authorities have decided the case on similar line which has acquired finality, and hence other cases cited by assessee are not relevant.
13. We have considered the rival submissions and also perused the documents on record. There is no denial of the fact that notices were issued to the individual and not to the HUF. The whole case depends on the issue whether the statement made by the assessee before Assessing Officer that status of assessee should be taken as HUF as the lands in question were ancestral can be acted upon or not. In this regard following minutes as recorded in the order sheet, a copy of which is available at page 29 & 31 of the paper book, are relevant:
Shri R.P. Gupta, Adv. Appearing along with Shri Suraj Mal. Return of income declaring nil income filed and has shown agri. income at Rs. 40,000/-. Written reply filed. You have claimed the cost price as on 1.4.1981 @ Rs. 2.50 lakhs per acre. However, the Addl. CIT, Fridabad in another case adopted the rate at Rs. 2,00,000/- pe acre. PI. explain why it should not taken at Rs. 2 lakhs per acre. You have claimed the status of the assessee as individual whereas the land sold were ancestral, why the status of HUF should not be taken, If the HUF status is taken than the rebate Under Section 54B is not allowable.
As regards the construction of house, you are required to explain the cost of constructions. Case adjourned to 28.2.2002.
Shri RP Gupta, Adv. Along with Shri Suraj Mal appeared. Written submission filed. He has stated that the status of the assessee should be taken as HUF as the lands were ancestral. As regards the cost of land on 1.4.1981 he has no objection for taking it at Rs. 2,00,000/- per acre as taken in the other case of Shri Subh Ram Vill. Ishlampur (Assessed by Addl. CIT Spl. Range, Faridabad). He argues that the rebate Under Section 54B is not allowable to the HUF. For the construction cost he has filed the Valuation report which at Rs. 3,54,000/- + Rs. 3,38,000/-Rs. 6,92,000/-. But assessee claimed the rebate in the rebate Under Section 54B at Rs. 6,00,000/-. No bank interest or any other income admitted.
Agri. income has been shown at Rs.40,000/-.
14. It will be seen that the assessee had consented to be assessed in the status of HUF although the notice was issued to assessee in the capacity of individual. Had the assessee not consented to assessment in the status of HUF, the Assessing Officer might have examined the issue whether the assessment has to be done in the status of individual or in the status of HUF. In such case, he might as well have issued notice to the assessee in the status of HUF. Having consented to assessment in the status of HUF now the assessee cannot be allowed to turn round and argue that such an order was incorrect or unwarranted. The Assessing Officer had first asked the assessee on 22.2.2002 as to why assessment should not be made in the sfetus of HUF and then only on 28.2.2002, on his consent and that too in the presence of his counsel Assessing Officer decided to proceed in the assessment proceedings.
15. Ld. CIT(A) has rightly relied on the decision in the case of Kanshi Ram, Wadhwa v. CIT 138 ITR 830 (P&H) in this regard. Further where a person has, by his declaration act or omission permitted another believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed to deny its truth. Estoppel is a rule of evidence and Section 115 of the Evidence Act recognizes this rule. The basis of estoppel is that it would be unfair or unjust to allow a party to depart from a particular state of affair which another has taken to be correct.
16. None of the cases copies of which have been placed in the paper book at pages 60-77, are of the any assistance to the assessee as the issue in question has not been discussed in those cases. Additionally, it is not disputed by the assessee that under similar circumstances and in respect of the same property brother of the assessee, Shri Bharat Singh was also assessed in the status of HUF and decision in his case is squarely applicable in the case of the assessee.
17. Looking at the totality of the facts and circumstances of the case, we are of the considered view that there is no infirmity or illegality in the order passed by the lower authorities.
18. We are, therefore, not inclined to interfere with the order passed by the ld. CIT {A).
19. In the result, appeal filed by the assessee is dismissed.
20. Pronounced in the open court on. 
    (P.K. BANSAL)         (P.K. MALHOTRA)
  ACCUNTANT MEMBER       JUDICIAL MEMBER
 

P.K. Bansal, Accountant member
1. I have gone through the proposed order of my learned brother, but I could not be able to agree with the said proposed order of my learned brother both with regard to the reasoning and the conclusion arrived at. I, therefore, proposed to write my separate order along with the reasoning.
2. The brief facts of the case are that Shri Suraj Mal and his brother Bharat Singh inherited agricultural land in vill. Ishlampur, Distt. Gurgaon on the death of their father in-testate. As per assessment order, the assessment proceedings in this case was initiated on 22.12.2000 by issue of notice under Section 148 of the Income Tax Act to Suraj Mal individual on the basis of information that the assessee sold his agricultural land measuring 18B-08B situated in village Ishalampur to the company Kareshekh Builders pvt. Ltd. For a consideration of Rs. 13.8 lacs and 109B-110Bto the company Vaibhav software & Estate Pvt. Limnited for a consideration of Rs. 8462500/- during the period relevant to A.Y. 1996-97 but neither the copy of the reasons recorded nor the copy of the notice was found on record as agreed by ld. DR before us. The reasons for issuing the notice were recorded on 29.11.2000 and notice was issued on 28.11.2000 in the individual capacity as per photocopy at page 58 and 56 of the paper book respectively. Again on 12.12.2000 proceedings Under Section 148 were initiated in the case of suraj mal individual by recording reasons on 12.12.2000. The agricultural land referred to in the reasons dt. 12.12.2000 does not belong to the assessee. No proceedings Under Section 148 has been initiated against the assessee HUF. Neither any reasons were recorded nor any notice under Section 148 was served on the assessee. Even the Ld. DR accepted this fact in the Bar that there is no evidence in this regard in the records of the revenue. The order sheet starts with the issue of notice Under Section 142(1) on 5.2.2002 to Suraj Mal -Indl., asking him to file his return, who attended the proceedings with his Authorised representative on 13/2/2002 & 22/2/2002. On 22.2.2002 following proceedings were noted on the order sheet as per the copy filed before us:
Sh. R.P. Gupta Advocate appeared alongwith Sh. Suraj Mal. Return of income declaring nil income filed and has shown agricultural income at Rs.40000/-. Written reply filed. You have claimed the cost price as on 1.4.81 @ Rs. 2.5 lacs per acre. Holver as the addl. CIT FBD in another case adopted the value at Rs. 200000/- per acre, pl. explain why it should not be taken at Rs. 2 lakh per acre. You have claimed the status of the assessed as individual whereas the lands sold Were ancestral, why the status of HUF should not be taken. If the HUF status is taken then the rebate Under Section 54B is not allowable. As regards the construction of house, you are required to explain the cost of construction with index. Case adjourned to 28.2.2002.
As per the record, the return was filed by the assessee in individual capacity on 25.2.2002 and the same was initialed by ITO Ward 3 on 26.2.2002. the copy of the same is available at page 51 of the paper book. No notice under Section 143(2) was issued on this return. The DR could not produce the copy of the return filed on 22.2.2002 as recorded by the assessing officer in the order sheet or the copy of the notice being served on the assessee individual or HUF capacity under Section 143(2).
The impugned assessment was made on 28.2.2002 at determining the total income of Rs. 165100/- by recording following notings on the order sheet in the status of the HUF without recording any reasons to believe in the case of the assessee HUF and without issuing any notice to the assessee HUF and on the basis of the return, the evidence for the filing of which are not on record:
28.2.02 Sh. R.P. Gupta Adv,. Alongwith Sh. Suraj Mal appeared. Written submission filed. He has stated that the status of the assessee should be taken as HUF as the lands Were ancestral. As regards the rate of the laird as on 1.4.81, he has no objection for taking it at Rs. 200000/- per acre as taken in the other case of Sh. Subha Ram Vill. Islampur (assessed by Addl. CIT Spl. Range FBD). He agrees that the rebate Under Section 54 B is not allowable to the HUF for the construction cost he has filed the valuation report which is at Rs.354000+338000/- = Rs.692000/-. But assessee claimed this rebate in the return Under Section 54F at Rs. 600000/-. No Bank wenterest or any other income admitted. Agril. Income has been shown at Rs.40000/-." These notings Were duly signed by Shri RP Gupta counsel and thumb impression of Sh. Suraj mal was put up.

3. The assessee went in appeal before the CIT(A). Before the ld. CIT(A) it was submitted by the assessee that the assessment was made on Suraj Mal HUF whereas notice was issued Under Section 148 in the name of Suraj mal (individual) s/o Shri Shera. If the assessment was to be made in the capacity of HUF, Ld Assessing Officer should have issued a fresh notice Under Section 148 by recording reasons to the assessee HUF and in the absence of such a notice no valid assessment in law could be made on assessee HUF. It was also contended that no notice under Section 143(2) or under Section 148 was received or served on the assessee. After calling for the remand report from the A.O., The CIT(A) confirmed the order of the Assessing officer on its validity by observing as under:

18. When the A.R. agreed, it meant that the return etc. filed by him becomes that of the HUF. Having once agreed, he therefore, cannot go back.
19. The assessee who had accepted an agreed order cannot be allo ld. to turn around and urge that such an order was incorrect or unwarranted. In this regard reliance is also placed on the Punjab & Haryana High Court decision in the case of Kanshi Ram Wadhwa v. CIT 138 ITR 830. Though this decision was given in regard to the calculation of depreciation but the principle laid down by the High Court in this case applies squarely to the assessee's case also. The Lordships had observed in this case:
...It is a matter of common knowledge that at the time of final arguments the assessee sometimes prefer to have an agreed order passed by the Income Tax Officer and the orders passed is sometimes not strictly in accordance with the return.
...Had the assessee not consented to have an agreed order of assessment, the Income tax officer would have perhaps held an enquiry for determining his actual income for that year. The assessee having derived the benefit of an agreed order cannot be allo ld. to turn round and urge that such an order was incorrect or unwarranted....
20. In view of the above, there is no merit in the contentions raised by the assessee. The assessing officer was fully justified in holding the status of the assessee as that of the HUF as against the claim of the status of an individual.

The action of the assessing officer denying the relief Under Section 54B was also confirmed and thus the appeal of the assessee was dismissed.

4. Before us, Ld. AR not only disputed the orders of the lower authorities, he also challenged that there was no initiation of the proceedings Under Section 147 in the case of the assessee. Neither any valid notice was issued to the assessee nor reasons were recorded in the case of assessee HUF and hence the proceedings are void abinitio. According to him the notices dated 28.11.2000 and 12.12.2000 were never served on the assessee either in individual capacity or karta of HUF. As per copies, now given to the assessee, both these notices appear at P.54 and 56 of the paper book, and even copy was made available to the assessee after inspecting the file at this stage. Copies of any other notice Under Section. 148 was not available to the assessee as there is no such notice dt.22.12.2000 as referred in the assessment order. When the Bench confirmed from the Ld. DR he was fair enough to concede that no notice dt. 22.12.2000 is on record. Both notices dt.28.11.2000 and 12.12.2000 are addressed and issued to Shri Suraj Mal son of Shera. It was further submitted that even otherwise the notice dated 28.11.2000 (page-56 of PB) could not have been issued, since the reasons were recorded only on 29.11.2000 (page 58 of the paper book). Moreover the reasons recorded indicate evasion of Rs. 68.54 lacs and Rs. 13.80 lacs respectively as against assessment was made only at an income of Rs. 1.65 lacs. Apparently the reasons recorded relate to some other person of similar name. The Assessment Order and the remand report confirm all these facts. Therefore, assessment could not have been made Under Section.147 on the basis of any of these notices, none of which was served on the assessee. It is only the notice Under Section 142(1) dated 5.2.2002 which was served on Suraj Mal not on the assessee HUF. Our attention was also brought to the order sheet, copy of which is at page-29 to 31 of the paper book, which starts from 5.2.2002 and records the proceedings0 dated 5/2, 13/2, 22/2 and 28/2/02 only. It was vehemently submitted that no proceedings could be said to have taken place before that date. It was also denied that any return was filed on or before 25.2.2002. The return was filed only on 25.2.2002, as admitted in the assessment order itself in the individual capacity and that the assessee had attended only in response to notice Under Section 142(1) on 13.2.2002 and again on 22.2.2002 and finally on 28.02.02 as is clear from the order sheet. Thus the question of any discussion on 22.2.02 on return already filed and the claim of status therein does not arise. No notice under Section 143(2) was issued on the return filed on 25.2.2002. Even on that ground the order passed under Section 143(3) read with Section 147 without issuing notice under Section 143(2) is invalid. The assessment order, remand report and the order sheet contradict each other and no valid order can be made on the face of such contradictions & assumed facts. Regarding consent, the Ld. A.R. argued that there cannot be any consent against the law, and any such order passed on the basis of such consent is bad in law. The A.R. of the individual did not have any power of attorney from the assessee huf. There has been no investigation on the existence of such huf of late Shri Shera, on the basis of which the two brothers are stated to have formed their separate smaller hufs. The only meaning allotted to such consent could be that the assessment is not to be made on the individual and it may be made on HUF, but by issue of a notice to the HUF as specifically stated therein. Reliance was placed on the judgments of the Hon'ble Supreme Court in C.I.T. v. Adinarayana Murty (K.) followed in CWT v. Ridhkaran 84 ITR 705 (Raj.) and AAC v. Appaiah Naidu (late) (B) and Ors. On this ground also, it was vehemently argued that the assessment is bad in law.

5. It was further submitted that the issue of status of inherited property has been dealt with by ITAT in the cases of Ishwar Singh s/o. Rattan Singh & others (five brothers) relating to similar properties in respect of other assessee and assessment has been made in individual capacity in the same village on the same set of circumstances of inheritance and accepted by the same A.O. Our attention was drawn to the order of ITAT/CIT(A)/Assessing Officer at pages 60-77 of the paper book, asserting that in the case of Shri Ishwar Singh the same AO under the same circumstance discussed in detail at page-3 (page-80) of paper book the issue of status and came to the conclusion that the assessee had to be assessed only as an individual, relying on several judgments of the Supreme Court & High Courts quoted therein. It was further stated that in the case of Bhim Singh the learned CIT(A) relied on the judgment of Hon'ble Punjab & Haryana High Court, "that the assessee Is governed by customary law whereby the status of HUF cannot be imposed on the appellant. And this fact has been recognized by the same AO himself in the case of Sh. Ram Singh and Sh. Chet Ram/' The learned AR further relied on the written submissions filed on 2.1.2006.

6. With regard to cost of acquisition, it was submitted that the Hon'ble ITAT in the case of Ishwar Singh set aside the case to the A.O. to take the value as on 1.4.1981 as taken by him/CIT(A) in similar other cases of the same village, which it was urged, as per orders brought on record at pages 70 and 75, was Rs. 4 lacs per acre. It was, therefore, contended that in this case also the same value be adopted as on 1.4.1981.

7. The Ld. DR justified the action of lower authorities submitting that notice Under Section 148 was validly issued. But when questioned by the bench, he agreed that there is no notice issued to the assessee HUF. Even there is no notice on record for initiating proceedings Under Section 148 on 22.12.2000. It was also conceded that no notice Under Section 143(2) was issued on the return filed by the assessee in individual capacity on 25.2.2002. The reasons were duly recorded on 29.11.2000 as is evident from page 58 of the paper book. With regard to specific query from the Bench whether any notice was issued in the name of HUF, Ld. DR replied in the negative but submitted that the assessee had consented to the assessment in the status of HUF and therefore action of Assessing Officer is justified. In support, Ld DR placed reliance on the decision of Munnilal Shivnarain Kothari v. CIT reported in 149 ITR 567(Raj). It was further submitted that even if there was any procedural defect, the authorities are competent to rectify the same. In support, Ld DR relied on the decisions of Remfry and Sons v. Commissioner of Income Tax reported as 276 ITR 1 (del) and that of CIT v. Durga Prasad More 72 ITR 807 (SC). Ld. DR further submitted that order passed by Ld CIT(A) is well reasoned.

8. I have carefully considered the rival submissions as well as the case laws relied on before us from both the sides. I have also gone through the decisions of the tax authorities. This is an admitted fact that the proceedings Under Section 147 were initiated in the case of suraj mal individual on 22.12.2000 as mentioned in the assessment order and claimed by ld. DR but there is no evidence or material for the same in the file of the revenue, which they produced before us and to which I verified. The record only relate to the initiation of the proceedings Under Section 147 on 28.11.2000 and 12.12.2000 not in the case of the assessee but in the case of individual. The reasons for initiating even the proceedings in individual case were recorded on 29.11.2000 that is after initiation of the proceedings on 28.11.2000. Therefore on that account it self the assessment in our opinion is liable to be struck down as recording of the reasons cannot take place after the issuance of the notice under Section 148. Even no reasons as required under Section 148(2) were recorded in the case of the assessee HUF. No notice neither under Sections 148 or 143(2) or 142 was issued in the case of the assessee HUF. The assessee HUF filed no return. The proceedings Under Section 147 were initiated in the case of Shri Suraj Mal in individual capacity although even no evidence for the service of the notice Under Section 148 on Shri Suraj mal is available on record. The return of income was filed on 25.2.2002 while the assessing officer has mentioned in the order sheet on 22.2.2002 that the return of income declaring nil income was filed in the case of suraj mal. No evidence was filed by the Ld. DR before us to prove that the assessee either in individual or HUF capacity filed the return on 22.2.2002 although the ld. DR has brought the assessment record. In my opinion, no valid assessment can be framed under Section 143(3) on the return which was never filed or if filed until and unless the notice under Section 143(2) is issued to the assessee. I have seen the order sheet and found that there is nothing on record for issuance of notice Under Section 143(2) either in respect of the return which assessing officer presumed to have been filed on 22.2.2002 or in respect of the return which was in reality filed on 25.2.2002. From this, it appears that the assessment has been framed by the assessing officer in a manner avoiding all the provisions of law to which he is duty bound to follow while framing the assessment. The assessing officer In our view should understand that he is exercising the quasi-judicial power and in doing so he must act in a fair and not a partisan manner. Although it Is part of his duty to ensure that no tax which is legitimately due from the assessee should remain unrecovered, he must also at the same time not act in a manner as might indicate that he thought himself as if he is the creater or framer of the Income Tax Act forgetting that he is one of the administrative authority created under the said Act and in that process he ignores to comply with the obligations which are entrusted on him under the various provisions of the Income tax Act while passing the assessment order. The powers should not be exercised in a manner that the scales are weighted against the assessee. Issuance of notice under Section 143(2) is mandatory and the foundation for passing an order under Section 143(3). It cannot be regarded to be an irregularity, which could be cured. Non-issue of the notice under Section 143(2) before passing an assessment order under Section 143(3) is an illegality. Since in this case, no notice under Section 143(2) was issued to the assessee in individual or HUF capacity, the order passed under Section 143(3) is a nullity and accordingly I annul the same on this basis also. Since both the parties has argued at length and put extraneous labour on the various issues arising in this appeal. Therefore, I would like to deal with the other pleas being raised before us relating to the legality of the assessment order.

9. I now deal with the issue whether the consent of the assessee in individual capacity will make the assessment valid in this case specially when there is no initiation of the proceedings under Section 147 in the case of the assessee HUF. There is no denial of the fact that during the course of proceedings in the case of Shri Suraj Mal Individual, the counsel of Shri Suraj mal individual alongwith the karta of the HUF agreed that the assessment should be made on the assessee HUF. The question arises whether such an assessment on the assessee HUF is valid one or not. Relevant provisions of Section 147 are as under:

...If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this Section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in Sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
From the reading of the above, it is clear that the AO must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Thus, reason to believe is necessary for reassessing or assessing the assessee Under Section 147 of the I.T Act. Reassessment means that the assessee has already been assessed and is being assessed again. Assessment simply means that the assessee has not already been assessed earlier and assessed for a.y. for the first time. Proviso to this section is applicable, if the assessment has been framed Under Section 143(3) or Under Section 147 and action is taken by the AO, after expiry of four years from the end of the relevant assessment year. Therefore the first requisite for exercising jurisdiction under Section 147 is that there must be the reasons to believe in the case of the assessee HUF. The Ld. DR before us was fair enough to concede that no reasons to believe were found on record in the case of the assessee HUF. The case of Mahanagar Telephone Nigam Ltd. v. The chairman CBDT 246 ITR 173 of jurisdictional High Court is squarely applicable for the reasons to believe to be the main requisite to be complied with by the assessing officer before initiating the proceedings Under Section 147 . The view of Hon'ble High Court in 246 ITR 173 is reproduced hereunder:
Section 147 authorises and permits the AO to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word 'reason' in the phrase Yeason to believe' would mean cause or justification. If the AO has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. The function of the AO is to administer the statue with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the apex court in Central Provinces Manganese Ore Co Ltd v. ITO 191 ITR 662, for initiation of action Under Section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initial stage, what required is 'reason to believe', but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the AO is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. 217 ITR 597 (SC) ; Raymond Woollen Mills Ltd. v. ITO 236 ITR 34 (SC).
The scope and effect of Section 147 as substituted w.e.f. 1.4.89, as also Sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of Section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or re-assessed. To confer jurisdiction Under Section 147(a) two conditions Were required to be satisfied, firstly, the AO must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment, and, secondly, he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions are conditions precedent to be satisfied before the AO could have jurisdiction to issue notices Under Section 148 read with Section 147(a). But under the substituted Section 147, existence of only the first condition suffices. In other words, if the AO for whatever reason has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled, if the case falls within the ambit of the proviso to Section 147. The case at hand is covered by the main provision and not by the proviso.
Hon'ble High Court considered the provisions of Section 147 prior to amendment and after the amendment in the case of Bawa Abhai Singh's 253 ITR 83 (Delhi) relied on by ld. DR, at page 88, it was clearly held:
The crucial expression is 'reason to believe'. The expression predicates that the assessing officer must hold a belief...by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons inducing the belief. Such a belief may not be based merely on reasons but, it must be founded on information. As was observed in Ganga Saran and Sons P. Ltd. v. ITO 130 ITR 1 (SC), the expression 'reason to believe' is stronger than the expression Ms satisfied'. The belief entertained by the assessing officer should not be irrational and arbitrary. To put it differently, it must be reasonable and must be based on reasons, which are material. In Section Narayanappa v. CIT 63 ITR 219, it was noted by the apex court that the expression 'reason to believe' in Section 147 does not mean purely a subjective satisfaction on the part of the assessing officer, the belief must be held in good faith; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have rational nexus or relevant bearing to the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To that limited extent, the action of the Assessing officer in initiating proceedings under Section 147 can be challenged in a court of law.
It was further observed:
Upto March 31, 1989, two conditions were required to be fulfilled to confer jurisdiction on the assessing officer to act under Section 147(b). They are (1) he must have information which comes into his possession subsequent to the making of the original assessment order, and (2) that information must lead to his belief that income chargeable to tax has escaped assessment, or that it has been under assessed or assessed at too low a rate or has been made the subject of excessive relief. After April 1, 1989, the position is somewhat different. Section 147 with effect from April 1, 1989, provides that where the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the provisions of Sections 148 to 153. He may assess or reassess the income, which has escaped assessment. It is to be noted that Section 147 as it stands with effect from April 1, 1989, not only merges clauses (a) and (b) of the pre-amended Section 147 but also brings about a significant change in the preliminary requirement of certain conditions mandatory in character before reassessment proceedings should be initiated in the pre-amended section. The conditions precedent for initiation of action under Section 147(a) or 147(b) of the pre-amended situation is highlighted above. The amended provisions are contextually different and the cumulative conditions spelt out in clause (a) or (b) of Section 147 prior to its amendment, are not present in the amended provision. The only ^condition for action is that the assessing officer Should have reason to believe that the income has escaped assessment, which belief can be reached in any manner and is not qualified by a precondition of faith and true disclosure of material fact by an assessee as contemplated in the pre-amended Section 147(a) of the Act and the Assessing Officer can under the amended provisions legitimately reopen the assessment in respect of an income which has escaped assessment. Viewed in that angle the power to reopen assessment is much wider under the amended provision and can be exercised even after the assessee has disclosed fully and truly all the material facts. To similar view were the conclusions of this court in Rakesh Aggarwal v. ACT 225 ITR 496, it is to be noted at this juncture that the twin conditions must be fulfilled if the case is one, which is covered by the proviso to Section 147 operative w.e.f. April 1, 1989.

10. The expression "reason to believe as used in Section 148 connotes bonafide belief entertained in good faith by a person of normal prudence that income has escaped assessment. Such belief should be founded on materials on record. The belief should be rational and not arbitrary. Further Section 148(2) make it obligatory on the part of the assessing officer to record his reasons to believe before issuing notice under this section. Serving of the notice on the assessee is also mandatory under Section 148(1) requiring the assessee to furnish within such period as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year. Thus in view of the provisions of Sections 147 and 148, all the following conditions must be satisfied for a valid action being taken by the assessing officer:

a-The assessing officer must have the reasons to believe that the assessee has escaped income chargeable to tax.
b-The reasons to believe must be recorded by the assessing officer prior to the issuing of any notice to the assessee.
c-Before making the assessment, the assessing officer must serve notice on the assessee requiring him to furnish the return in accordance with the provisions of Section 148(1).

11. Looking to the facts of the case, I find that none of the conditions as stipulated above has been complied with by the assessing officer what to talk of complying with all the conditions while passing the order in the case of the assessee HUF. Rather, this fact was conceded by the Ld. D.R. but he stressed that the assessment order is valid because Shri Suraj mal has given the consent during the course of the assessment proceedings relating to the individual, for being assessed in HUF capacity. Under Section 2(31), an Individual and a Hindu undivided family are different persons and are regarded to be the separate assessee. Conditions complied with in the case of one assessee cannot be deemed to have been complied with in the case of another assessee even if that another assessee agreed to it. This is the settled proposition of law that there cannot be an estoppels against the statue. Initiation of the valid proceeding is the foundation for passing a valid assessment. I am of the view that noncompliance of the conditions as laid down in Section 147 and 148 are not mere irregularity but it is an illegality which cannot be cured by the consent of the parties. An irregularity can be cured but not an illegality.

12. In the case of Kanshi Ram Wadhwa v. CIT (supra) as relied by CIT(A) and cited by Ld. DR, the issue was that the assessee had agreed at particular amount of income after depreciation and subsequently the assessee contended that the depreciation was not actually allowed, on these facts it was held by Hon'ble M.P. High Court "Held, that the assessee having derived the benefit of an agreed order of assessment, could not contend that the ITO did not allow any depreciation during the relevant assessment year. The Tribunal was right in holding that depreciation was computed and allowed actually in 1971-72." This case in our opinion will not help the revenue because in that case assessee was the same and he agreed for the income during the course of assessment proceedings, which was validly initiated. In the case before us, there is no initiation of the assessment proceedings against the assessee HUF and there is no question of agreeing to the quantum of income. The case of Munni lal shiv narain Kothari v. CIT (supra) 149 ITR 567 (Raj) pertains to assessment of an AOP as firm, where under the 1922 Act, the ITO was given discretion Under Section 3 read with S.30 either to assess the firm or its partners, an AOP or the members of the associations individually, but now under the Income Tax Act 1961 such a discretion is not available. Thus, this case relates to specific provisions of the Act which empowers the assessing officer to assess the firm as an AOP and cannot be applied generally for assessing any person in any other capacity or status. Further this case does not relate to an assessment passed Under Section 143(3) read with Section 147. Initiation of the valid proceedings was not in dispute. Thus this case also in our opinion will not assist the revenue. The other case of CIT v. Durga Prasad More (supra) relates to the issue whether the department is bound to locate source of receipt assessable as income. Question was if an income liable to tax in India was earned by the assessee the department had not to prove the source thereof. Once again this too "did not relate to the determination of the status of the assessee and the validity of the initiation of the proceedings Under Section 147. Now coming to the case of Remfry and sons v. CIT (supra), in this case Hon'ble High Court has dealt with the meaning of "illegality" which has been defined as contrary to law or unlawful and that it is distinguishable from irregularity, which has been defined as a want of adherence to prescribed rule or mode of proceedings and consist of omitting to do what is necessary. The word illegality on the other hand denotes a complete defect in jurisdiction or proceedings. "In this case the assessee had not properly signed the MOA and the appeal was dismissed on this ground by CIT(A) and confirmed by ITAT, but the High Court in the light of above distinction held that non signing of MOA was a mere irregularity which was curable. It was not illegal or unlawful. This case in my opinion supports the case of the assessee not that of revenue. Because in the absence of compliance of the provisions of Section 147 and 148, I am of the view that the assessing officer does not have any jurisdiction and this tantamount to complete defect in the jurisdiction and proceedings as has happened in this case. In the cases reported in 191 ITR 211, 208 ITR Oil and 214 ITR 483, the limited issue was whether an existing HUF who filed its returns as HUF were entitled to the deduction Under Section 54-B and the Hon'ble Court decided against the assessee but a significant difference between an individual and HUF by stating, "that only an individual can have a parent and that an HUF cannot have a parent" and hence the assessee or a parent of his can only mean an individual and thus the deduction is not available to any other entity of assessment including HUF which is also a separate and district entity under the Act. Thus this case also would support the case of the assessee that "individual" and HUF are two distinct entities under the Act with separate and distinct rights and obligations in accordance with the provisions of the Act. There is no provision in the act to make assessment on another person i.e. HUF by converting the return filed by an individual. Yes it could be done by initiating separate proceedings against the HUF if the Assessing Officer was of the opinion that a particular income belonged to the HUF and was taxable in the hands of the HUF, which has not been done in this case.

13. Coming to the case of CIT v. Adianarayan Murthy (K) 65 ITR 607 (SC), on which the Ld. AR has strongly relied, the facts in this case are that the respondent was a HUF. Subsequent to the original assessment, the ITO had information that the respondent had done some procurement business and earned large profits which had escaped assessment for the assessment year 1949-50. Since for the assessment year 1954-55, the ITO had taken the status of the respondent to be that of an 'individual', he issued a notice Under Section 34 of the Income tax Act on March 22, 1957 to reopen the assessment for the assessment year 1949-50 in the status of an individual, having taken the sanction of the CIT to make the reassessment in that status. The respondent, however, filed a return in the status of a "Hindu Undivided family". Pending the proceedings the AAC, in an appeal against the assessment for the year 1954-55 held that the status of the respondent was that of a HUF. Thereafter the ITO issued a fresh notice under Section 34 on February 12, 1958, to reassess the income of the respondent for the year 1949-50 as a "HUF". A second return was duly filed pursuant to the second notice and the ITO made an assessment on August 16, 1958. Both the notices were, however, in identical terms. The question was whether the assessment made pursuant to the second notice and the second return, ignoring the first return filed pursuant to the first notice, was valid, the Hon'ble Supreme Court on these facts held that since the correct status of the respondent was that of a "HUF" the first notice issued in the status of individual was illegal and without jurisdiction and the ITO could not have validly acted on the return filed by the respondent pursuant to that notice, notwithstanding that it was made in the status of a Hindu undivided family, and any assessment made on such a return would have been invalid. The ITO was entitled to ignore that return as being non-est in law. The second notice issued on February 12, 1958, was valid and the return filed in response to that notice and the assessment thereon were valid. This judgement in our opinion supports the proposition of law that the initiation of the proceedings should be against the assessee on which an assessment order is passed.

14. In the case of CWT v. Ridhkaran 84 ITR 705 the Hon'ble Rajasthan High Court dealt with a similar question as is before me. The question was whether the return filed as HUF in response to notice Under Section 14(2) of wealth Tax Act can be assessed as individual without fresh return". Hon'ble High court held that the wealth Tax Officer is not competent to assess them in the status of individuals without serving them with notices to file fresh returns as individual.

15. In the case of AAC v. Appaiah Naidu B. Late 84 ITR 259 the Hon'ble Supreme Court specifically answered the question of "time barred assessment". In this case assessment was made under the Mysore Act on the death of assessee in the hands of legal representative XS' where the High Court held that there was no provisions corresponding to Section 24B of the Income Tax Act 1922 in the Mysore Act to make an assessment on legal representative and cancelled the assessment. The Revenue wanted that the assessee should therefore be given the status of HUF (as envisaged by the Mysore Act) because no reassessment could be made against the family as It was barred by time. The Supreme Court held, "that since the assessment was made In respect of assessees' Income on his legal representative In the status of an Individual and not as the karta of his Huf, the department could not be permitted to change Its case at the stage before the Supreme Court and contend that In reality the assessee was the family.

16. In view of aforesaid discussion, I hold that conversion of status from Individual to HUF and vice versa cannot take place on the same return. For this a fresh notice has to be Issued to that assessee who is proposed to be assessed on the Income so evaded/escaped assessment. The cases of voluntary return filed for the first time Under Section 139(1), where the status Is to be determined for the first time stand on totally different footing where the claim Itself Is to be determined. In the present case the notice was Issued to the Individual Under Section 148 and return also filed by the Individual and thus the question of determination of status did not arise.

If the Assessing Officer was of the opinion that the notice had been wrongly issued to the individual he had every right to issue a fresh notice to the HUF and proceed on that, and assess the individual to nil income, which has not been done. Thus even on this ground also the assessment on the HUF fails. I, therefore, annul the assessment passed by the assessing officer on the HUF.

17. Since I have cancelled the assessment, the other grounds taken by the assessee will not survive. Further I may point out that in the case of Rahulkumar Bajaj (special Bench), in which it was held-

...The purpose of the Tribunal is to render justice and not to negate it. In the instant case, it was proved that three issues were before the Tribunal. First issue, i.e. reopening of the assessment, was the paramount/nodal issue and the other two issues were subsidiaries/alternative issues. The first issue was admittedly decided by the Tribunal in favour of the assessee. Once the jurisdictional issues were decided in favour of the assessee, there was no requwerement/necessity to decide the other issues.

The judgment of the special bench is binding on us.

18. In the result, the appeal of the assessee is allowed.

(P.K. Bansal) Accountant Member ORDER A.D. Jain, Judicial Member

1. In this case, the learned Third Member has agreed with the order passed by the learned Accountant Member, whereby the assessment has been cancelled. In' accordance with the said order passed by the learned Third Member, the assessment stands cancelled.

2. In the result, the appeal filed by the assessee stands allowed.

Order pronounced in the Open Court on 17th August, 2007.