The main legal point established in the judgment is that the recording of reasons under S.148(2) is mandatory and an essential condition required to vest jurisdiction in the Income Tax Officer to proceed to reopen an assessment under S.147.

Viswanatha Iyer, J.

This reference under S.256(1) of the Income Tax Act 1961 (the act) is at the instance of the Revenue and concerns the reopening of the assessment made on the respondent-assessee for the assessment year 1972-73. The question referred is:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that no reasons had been recorded within the meaning of S.148(2) and so the reopening is not valid?"

2. The assessee, which is a public limited company wholly owned by the Government of Kerala, carries on business in the processing of cashew nuts. The original assessment was completed on February 28,1974. The audit party made a note on August 20,1974 which read as follows:-

"2. In the assessment order, weighted deduction u/s.35B is allowed on an amount of Rs.366547 being commission paid to foreign commission agents. From the details furnished by the assessee it is seen that the amount of Rs.366547 on which weighted deduction u/S.35B has been claimed and allowed includes an amount of Rs.177181 being commission paid to M/s. Drew Brown Ltd., Toronto, Canada. This party does not appear to be a commission agent; but is only a direct buyer of goods from the assessee and what is paid to him as commission is actually "trade discount" which does not qualify for weighted deduction u/s.35B. Therefore, the weighted deduction allowed u/s.35B on the commission of Rs.177181 paid to Drew Brown Ltd. has to be withdrawn. 1/3rd of Rs.177181 vis. Rs.59060/-.

3. Development rebate on plant & machinery costingRs.140041isseenallowedat 25% on the ground that processing of cashew nuts is a priority industry eligible for development rebate at higher rate. Processing of cashew nuts is not apriority industry. Please see decision of the AAC, TV Min appeal No. ITA 202-Q/72-73 dated 20-7-1973 in the case of K. Ravindranathan Nair, A Ward, Quilon PX 4144. So development rebate is allowable only at 15%. Excess Development Rebate allowed to Rs.14002/-."

According to them, there were certain mistakes in the deduction allowed under S.35B, as also in the rate at which development rebate was allowed.

3. An office note was thereafter made in the order sheet on December 28,1974 reading as follows: "Please see 1AP's objections. 154- notice put up. Hearing on 10-1-1975".

In the notice issued to the assessee under S.154, proposing rectification of the assessment the Income Tax Officer referred to the alleged mistakes in the order of assessment mentioned by the audit party as also another, pertaining to the amount of loss computed, and called upon the assessee to show cause why the assessment shall not be rectified. The assessee objected to the proposal with detailed objections, both regarding the merits as well as the jurisdiction to rectify the alleged mistakes, except in regard to the correct amount of loss, which they admitted. The Income Tax Officer thereupon rectified the amount of loss arrived at in the assessment, but dropped the proceedings in relation to the mistakes pointed out by the audit party, with the note: "not to be rectified" on the assessee's letter of objections. Over one year thereafter, an entry appeared in the order sheet on March 15,1976, namely "148 notice put up". Pursuant to this, the Income Tax Officer issued notice of even date stating that he had reason to believe that income chargeable to tax for the year 1972-73 had escaped assessment within the meaning of S.147 and calling upon the assessee to file a return of his income. The assessee objected. But the assessment was made in accordance with the audit note, withdrawing the weighted deduction under S.35B on certain amounts originally allowed, and reducing the development rebate from 25% to 15%.

4. The assessee appealed fo the appellate Assistant Commissioner of Income Tax, who upheld the claims of the assessee on the merits and restored the benefits granted in the original order of assessment. Since the assessee was entitled to succeed