JUDGMENT M.Y. Eqbal, J. 1. On an application filed under Section 256(2) of the Income Tax Act 1961 (shortly the Act) this Court passed order on 6.4. 1998 directing the Income Tax Appellate Tribunal to refer the following questions: (i) Whether assigning the reason for issuance of notice under Section 148(2) of the Income Tax Act is imperative and under the facts and circumstances whether before issuance of notice, the Income Tax Officer has complied with this imperative provision? (ii) Whether in the absence of any discussion in this regard by the Tribunal, the order suffers from infirmity? 2. The facts relevant for the purpose of deciding the reference case are as under: The assessee is a Private Limited Company carrying on hotel and restaurant business. Original return was filed on 12.4.1989 showing loss of Rs. 646/-. Later on the Assessing Officer received valuation report in respect of investment in the construction of hotel and restaurant building from D.C.L.T. In order to consider the cost of construction, as reported by the departmental valuer, the Assessing Officer issued notice under Section 148 of the I.T. Act on 6.12.1990. In response to the said notice the assessee submitted a letter staring that the return filed on 12.4.1989 should be treated as a return in compliance of the notice under Section 143 of the I Act. Accordingly the Assessing Officer proceeded with the assessment. The assessee challenged the action of the Assessing Officer by preferring appeal before the Commissioner of Income Tax (Appeal) who confirmed the action of the Assessing Officer. The assessee then moved the Tribunal by filing Second Appeal on the ground that the action of the Assessing Officer in issuing notice under Section 148 of the Act was not proper and valid because he had not recorded reasons and his satisfaction for issuing such notice. After considering the facts of the case the Tribunal affirmed the action of the Assessing Officer holding that taking recourse to Sections 147/148 of the I Act by the Assessing Officer was proper and justified. The petitioner, thereafter, filed a petition before this Court under Section 256(2) of the Act for directing the Tribunal to refer the substantial question of law to this Court for answering the same. As noticed above, this Court, by order dated 6.4.1990 directed the Tribunal to refer the substantial questions of law with statements of facts, as quoted hereinabove. 3. The petitioner, thereafter, filed a petition before this Court under Section 256(2) of the Act for directing the Tribunal to refer the substantial question of law to this Court for answering the same. As noticed above, this Court, by order dated 6.4.1990 directed the Tribunal to refer the substantial questions of law with statements of facts, as quoted hereinabove. 3. Mr. Binod Poddar, learned Counsel appearing on behalf of the petitioner, submitted that before issuing the notice, the Assessing Officer has not recorded his satisfaction by passing order nor has informed the assessee about the reasons to believe that the income chargeable to tax has escaped assessment within the meaning of Section 147(a) of the I Act. Learned Counsel submitted that the jurisdiction for initiation of proceeding and issuance of notice is derived from Section 147(a) of the Act and the Assessing Officer has to confine himself only to the recorded reasons. Learned Counsel further submitted that recording reasons is pie-requisite to the assumption of jurisdiction by the Income Tax Officer for initiating proceeding under Section 147(a) of the Act. Learned Counsel, in this regard relied upon the decisions in the cases of Commissioner of Income Tax v. Agarwalla Brothers 189 ITR 786, GKN Driveshafts (India) Ltd. v. Income Tax Officer (2003) 259 ITR, 19) and Hemraj Munshi Ram v. Union of India and Ors. 245 ITR 155. 4. On the other hand, Mr. Jhunjhunwala, learned Counsel appearing on behalf of the Revenue, drawn our attention to explanation (2) to Section 147 of the Act and submitted that since the return filed by the assessee was declared non-est by the Assessing Officer, no reason was required to be assigned while directing the assessee to file return. Learned Counsel submitted that the Tribunal has rightly held that the action of the Assessing Officer was fully justified. 5. Before appreciating the rival contentions of the learned Counsel for the parties, I would first like to refer Section 147 of the Act which reads as under: 147. Income escaping assessment. Learned Counsel submitted that the Tribunal has rightly held that the action of the Assessing Officer was fully justified. 5. Before appreciating the rival contentions of the learned Counsel for the parties, I would first like to refer Section 147 of the Act which reads as under: 147. Income escaping assessment. If the Assessing Officer [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 re-compute the loss or the depreciation allowance or any other allowance, as the case, way be, for the assessment year concerned (hereafter 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 lend of 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. 6. Section 148 of the Act deals with issuance of notice where income has escaped the assessment. Section 148 reads as under: 148 Issue of notice where income has escaped assessment. 6. Section 148 of the Act deals with issuance of notice where income has escaped the assessment. Section 148 reads as under: 148 Issue of notice where income has escaped assessment. (1) Before making the assessment, reassessment or re-computation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him 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, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139.) Provided that in a case: (a) where a return has been furnished during the period commencing on the 1 st day of October, 1991 and ending on the 30 th day of September, 2005 in response to a notice served under this section and; (b) subsequently a notice has been served under Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Sub-section (2) of Section 143, as it stood immediately before the amendment of said sub- section by the Finance Act, 2002 (20 of 2002; but before the expiry of the time limit for milking the assessment, re-assessment or re-computation as specified in Sub-section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice; Provided further that in a case: (a) Where a return has been furnished during the period commencing on the 1 st day of October,, 1991 and ending on the 30 th day of September, 2005, in response to a notice saved tinder this section, and (b) Subsequently a notice has been served under Clause (ii) of Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Clause (ii) of Sub-section (2) of Section 143, but before the expiry of the time limit for making the assessment, re-assessment or re-computation as specified in Sub-section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice.) (Explanation:- For the removal of doubts it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1 st day of October, 2005 in response to a notice served under this section. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.) 7. From bare reading of the aforementioned two provisions it is manifestly clear that the jurisdiction of the Assessing Authority to assess or re-assess under Section 147(a) of the Act is subject to the condition that he has "reason to believe" that the assessee failed to disclose all material facts necessary for assessment for the relevant assessment year. It is also incumbent upon the Assessing Officer to comply with the mandatory requirements of Section 148 which casts an obligation on him to issue notice before making any assessment or reassessment and before issuance of notice he must record his reasons. 8. The question referred in this case is no longer res integra. In the case of GKN Driveshafts (India Ltd. V. Income Tax Officer (supra), the assessee challenged the validity of notice issued under Sections 148 and 143 of the Act. While disposing of the application their Lordships of the Supreme Court observed: We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In then instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years. 9. In the case of Commissioner of Income Tax v. Agarwalla Brothers (supra) the Division Bench of the Patna High Court was considering a similar question. In that case, in the original assessment the Income Tax Officer accepted the cost of construction of the various properties as return. Subsequently on the basis of enquiry, the Income Tax Officer was of the opinion that the cost of construction was understated and assessment was re-opened under Section 147(a) of the Act. In that case, in the original assessment the Income Tax Officer accepted the cost of construction of the various properties as return. Subsequently on the basis of enquiry, the Income Tax Officer was of the opinion that the cost of construction was understated and assessment was re-opened under Section 147(a) of the Act. The Division Bench answering the question held that for determining the validity of assumption of jurisdiction by the Income Tax Officer under Section 147(a) of the Act, the Tribunal has to confine itself only to the recorded reasons and in case the recorded reasons failed to stand the test of " reasons to believe" within the meaning of Section 147(a), the very initiation of the proceeding can be said to be ab initio void rendering all consequential actions including the order of assessment as being ineffective and non-est. The Division Bench, considering the decisions of various High Courts, observed: Therefore, the legislative scheme is that the Income Tax Officer can clothe himself with the jurisdiction to assess or reassess under Section 147(a) of clothe himself with the jurisdiction to assess or reassess under Section 147(a) of the Act only if he records the reasons which can stand the test of relevance in accordance with the judicial pronouncements and after obtaining necessary sanction as stated above notices are issued by hint but if, in any case, it is found that the reasons recorded by him are not germane to the exercise of jurisdiction under Section 147(a) of the Act, then the very assumption of jurisdiction will be ab initio void rendering the entire process of assessment as a nullity. There can be hardly any doubt in holding that the recording of the reasons is a pre-requisite to the assumption of jurisdiction by the Income Tax Officer for initiating the proceedings under Section 147(a), The reasons so recorded acquire much significance when the action is taken under Clause (a) of Section 147 because it is only the recorded reasons which can indicate as to whey the Income Tax Officer was made to believe that income has escaped assessment for the relevant assessment year. Further, the language employed in Section 151 clearly leads to the conclusion that the Board or the Commissioner of Income Tax, while according sanction for issuance of notice under Section 148 and for coming to an objective conclusion authorizing the Income Tax Officer to take action under Section 147(a), are required to confine themselves only to the reasons recorded by the Income Tax Officer. Therefore, looking at the entire scheme and purpose of the Act, I am of the considered view that the validity of the assumption of jurisdiction under Section 147(a) can be tested only by reference to the reasons recorded under Section 148(2) of the Act and the Income Tux Officer is not authorized to refer to any other reason even if it can be otherwise inferred and/or gathered from the records. If the reasons so recorded are such that, on their basis, it can possibly be said that income chargeable to tax has escaped assessment for a certain assessment year because of the omission of failure on the party of the assessee to make a return for that year or to disclose fully and truly all material facts necessary for such assessment, there can be a valid case for invoking the jurisdiction conferred by Clause (a) of Section 147. If, on the contrary, the reasons recorded by the Income Tax Officer cannot lead to such a conclusion, the proceedings initiated by the Income Tax Officer under that clause must be declared as ab initio void. 10. In the instant case, admittedly the assessee filed his original return on 12.4.1989 showing loss of Rs. 646/-. Both the counsels appearing on behalf of the Revenue and the assessee, have filed photo copies of order sheets showing that the Assessing Officer issued notice under Section 148 of the Act. The relevant orders passed are quoted hereinbelow: 3.12.90:- Letter regarding valuation received from D/C Asstt. Range, that is kept in file sd/ I.T.O. 6.12.90:- Issue notice u/s 148 to consider the cost of construction as reported by the department valuer. sd/ I.T.O. 10.1.90.:- Seen assessors reply to real the return filed on 12.4.89 as return in compliance of notice u/s 148. sd/ I.T.O. 11. The Tribunal, in the statement of facts, has mentioned that the notice was issued in prescribed form without assigning any reason. sd/ I.T.O. 10.1.90.:- Seen assessors reply to real the return filed on 12.4.89 as return in compliance of notice u/s 148. sd/ I.T.O. 11. The Tribunal, in the statement of facts, has mentioned that the notice was issued in prescribed form without assigning any reason. It was also mentioned that alter the receipt of notice the assessee requested the Assessing Officer to inform the reasons why action under Section 148 of the Act had been taken. It is, therefore, clear that no reasons have been assigned by the Assessing Officer while issuing notice under Section 148 of the Act nor the Assessee was furnished the detailed reasons for issuance of notice under the provisions of the said section of the Act. Section 148(2) of the Act, in a very specific term, provides that while issuing notice under Section 148(1) of the Act, the Assessing Officer must assign reasons. Admittedly the same has not been done by the Assessing Authority in the instant case. 12. Having regard to the facts of the case and the law discussed hereinabove, I am of the definite view that the mandate of Sections 147 and 148 of the Act have not been complied with and, therefore, the entire proceeding and the consequential orders become void, ab initio. Consequently the action of the Assessing Officer is declared as illegal, arbitrary and unjustified, 13. In the result, the questions referred are answered accordingly.