Full Judgment Text
2010:BHC-OS:664-DB
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O. C. J.
WRIT PETITION NO.2508 OF 2009
M/s.Bhavesh Developers having
its office at Ground Floor, Mansarovar
Building, M.G. Road, Kandivali (Wests),
Mumbai400 067. ...Petitioner.
Vs.
1. The Assessing Officer, Ward 25(3)1,
having his office at C11, Room No.307,
rd
3 Floor, Building No.C11, Pratyaksh
Kar Bhavan, Bandra Kurla Complex,
Bandra (East), Mumbai400 051.
2. The Commissioner of Income Tax,
City XXV, having his office at Building
th
No.C11, 6 Floor, Pratyaksh Kar
Bhavan, Bandra Kurla Complex,
Bandra (East), Mumbai400 051.
3. Union of India,
though the Secretary,
Ministry of Finance,
Government of India, North
Block, New Delhi110 101. ...Respondents.
....
Mr.Sanjim M.Shah for the Petitioner.
Mr.Suresh Kumar with Ms.Suchitra Kamble for the Respondents.
.....
CORAM : DR.D.Y.CHANDRACHUD AND
J.P.DEVADHAR, JJ.
January 12, 2010 .
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
Rule. By consent of the Counsel and at their request, made
returnable forthwith and taken up for hearing and final disposal.
2. The challenge in these proceedings under Article 226 of the
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2
Constitution of India, is inter alia to a notice issued under Section 148 of
the Income Tax Act, 1961, seeking to reopen assessment proceedings.
The relevant Assessment Year is 200203.
3. The Petitioner engages in the business of developing and
constructing buildings. During the Assessment Year 200203, the
th
Petitioner filed a return of income on 14 January 2004 and claimed a
deduction of Rs.3,85,75,992/ under Section 80IB(10) of the Act. The
return of income was initially processed under Section 143(1) and the
declared income was accepted by the Assessing Officer. The case of the
Petitioner was thereupon selected for scrutiny. Notices were issued under
Sections 143(2) and 142(1) of the Act. In response, the Chartered
th
Accountant of the Petitioner submitted representations on 30 November
th th
2004 and 20 December 2004. On 17 January 2005, an assessment
order was passed under Section 143(3). In so far as the deduction under
Section 80IB(10) was concerned, the Assessing Officer, while allowing
the deduction, observed as follows:
“During this year the assessee firm has claimed deduction
u/s.80IB(10) of Rs.3,85,75,992/ which is equal to the
hundred per cent of the profits derived in the relevant
previous year from the business of construction of housing
projects. Audit Report in Form No.10CCB under Rule 10BBB
has been filed along with the return of income. After
verification the claim is found to be in order. Accordingly
deduction u/s.80IB(10) is allowed to the extent of the claim
of Rs.3,85,75,992/.”
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3
th
4. On 30 March 2009, a notice came to be issued to the
Petitioner under Section 148 of the Act, proposing to reassess the income
for Assessment Year 200203 on the ground that its income had escaped
th
assessment within the meaning of Section 147 of the Act. On 6
November 2009, the Petitioner was supplied with a copy of the reasons
recorded for reopening the scrutiny assessment for Assessment Year
200203. The following reasons have been recorded:
“On verification of case records, it is seen that the assessee is
claiming deduction u/s80IB for an amount of Rs.
3,85,75.992/. However, as per details filed and P & L A/c. it
is further observed that during the year assessee has other
income of Rs.50,13,307/ which mainly comprises of society
deposit of Rs.47,80,517/, Stilt Parking Rs.1,25,000/ and
Sundry Credit Balances of Rs.1,07,712/. Since this income
does not qualify as the income eligible for deduction u/s.
80IB, I have reason to believe that the income to this extent
has escaped assessment and it is a fit case for issuing notice
u/s.148 of the I.T.Act, 1961.”
5. In assailing the notice under Section 148, Counsel appearing
on behalf of the Petitioner submitted that (i) Admittedly, a notice in the
present case was issued after the expiry of a period of four years from the
relevant Assessment Year, 200203; (ii) The power to issue a notice
reassessing the income after the expiry of four years is conditioned by
the requirement that there is a failure on the part of the assessee to fully
and truly disclose all material facts necessary for his assessment for that
Assessment Year; (iii) The precondition for the exercise of the
jurisdiction spelt out in the proviso to Section 147 is absent in the
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4
present case; and (iv) No finding has been recorded that there was a
failure on the part of the assessee to disclose the material facts and hence,
the exceptional power which is conferred upon the Revenue to reopen an
assessment after the expiry of four years, has not been lawfully exercised.
6. When the Petition came up for admission, we had indicated
to Counsel that having regard to the nature of controversy involved, this
Court is inclined to dispose of the Petition finally at the stage of
admission. Accordingly, an affidavit in reply has been filed on behalf of
the Revenue in which the reasons which have been specified as grounds
for reopening the assessment, have been reiterated.
7. The admitted position before the Court, on the basis of the
material on the record, is that by the notice under Section 148 issued on
th
30 November 2009, the assessment pertaining to the year 200203 was
sought to be reopened after the lapse of four years. Section 147
postulates inter alia that if the Assessing Officer has reason to believe that
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. The proviso to Section 147 stipulates that where
an assessment has been made under subsection (3) of Section 143 or
Section 147 for the relevant Assessment Year, no action shall be taken
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5
after the expiry of four years from the end of the relevant Assessment
Year unless certain preconditions are fulfilled. These conditions are that
the income chargeable to tax must have escaped assessment for such
Assessment Year (i) by reason of the failure on the part of the assessee to
make a return in response to a notice issued under Section 147; or (ii)
by the failure of the assessee to make a return in response to a notice
issued under Section 142(1) or Section 148; or (iii) to disclose fully and
truly all material facts necessary for his assessment for that Assessment
Year. In the present case, what falls for consideration is whether there
was a failure on the part of the assessee to disclose fully and truly all
material facts necessary for the assessment for Assessment Year 200203.
There is no dispute about the fact that there is no failure on the part of
the assessee to make a return under Section 139 of the Act.
8. In support of the claim for deduction under Section 80IB(10),
the assessee had placed certain material before the Assessing Officer. The
material that was filed with the return of income included a duly filled up
Form 10 CCD. The form contained details as specified, including in Item
19, the total sales of the undertaking; in Item 21, the profits and gains
derived by the undertaking from the eligible business; and, in Item 22,
disclosed that the deduction has been claimed under subsection (10) of
Section 80IB. The form was certified by a Chartered Accountant. The
st
statement of total income and the balance sheet as on 31 March 2002
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6
were appended to the return. The profit and loss account for the year
st
ending 31 March 2002 contained a disclosure of other income in the
amount of Rs.50,13,307.16. Schedule G to the balance sheet contains a
break up of the other income of Rs.50.13 lakhs. The constituent
elements of the other income are: (i) Society deposit; (ii) Stilt parking;
(iii) Sundry credit balance appropriated; and (iv) discount received. In
addition to this disclosure, during the course of the assessment
proceedings, a letter was addressed on behalf of the assessee, by its
Chartered Accountant to the Assessing Officer. The letter inter alia
contains an explanation of the other income as reflected in the profit and
loss account. The assessee also furnished to the Assessing Officer a
statement of sales and other income for each wing and for the flats
st
comprised in the construction as of 31 March 2002.
9. In this background, it would be necessary to scrutinize the
basis on which a notice was issued under Section 148 for reopening the
assessment. The basis of the notice is to be found in the reasons disclosed
th
to the assessee on 6 November 2009. The reasons postulate that on a
verification of the case records, it emerges that the assessee was claiming
a deduction under Section 80IB in the amount of Rs.3.85 crores.
However, “as per details filed and P& L A/c.” it was observed that the
assessee had during the year, other income of Rs.50.13 lakhs which
mainly comprised of society deposit, stilt parking and sundry credit
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7
balances. Since this income did not qualify as income eligible for
deduction under Section 80IB, it was stated that there was reason to
believe that the income had, to that extent, escaped assessment. Now,
exfacie, the reasons which have been disclosed to the assessee would
show that the inference that the income has escaped assessment is based
on the disclosure made by the assessee itself. The reasons show that the
finding is based on the details filed by the assessee and from the profits
and loss account. Quite clearly, therefore, it was impossible for the
Assessing Officer to even draw the inference that there was a failure on
the part of the assessee to disclose fully and truly all material facts
necessary for his assessment for Assessment Year 200203. Significantly,
the reasons that have been disclosed to the assessee do not contain a
finding to the effect that there was a failure to fully and truly disclose all
necessary facts, necessary for the purpose of assessment. In these
circumstances, the condition precedent to a valid exercise of the power to
reopen the assessment, after a lapse of four years from the relevant
Assessment Year, is absent in the present case. There is merit in the
submission which has been urged on behalf of the assessee that an
exceptional power has been conferred upon the Revenue to reopen an
assessment after a lapse of four years. The conditions which are
prescribed by the statute for the exercise of such a power must be strictly
fulfilled and in their absence, the exercise of power would not be
sustainable in law. Though an attempt was made on behalf of the
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8
Revenue to urge that the assessee should be relegated to the ordinary
remedy of an appeal against the order of the assessment, we are of the
view that a petition under Article 226 of the Constitution would be
maintainable for questioning reopening of the assessment in a case such
as this where the preconditions for the exercise of the power have not
been fulfilled.
10. The view which we have taken is in consonance with the law
laid down by the Supreme Court and by this Court. In Income Tax
Officer vs. Lakhmani Mewal Das , (1976) 103 ITR 437 (SC), the
Supreme Court had occasion to interpret the erstwhile provisions of
Section 147 and observed thus :
“We may add that the duty which is cast upon the assessee is
to make true and full disclosure of the primary facts at the
time of original assessment. Production before the ITO of the
account books or other evidence from which material
evidence could with due diligence have been discovered by
the ITO will not necessarily amount to disclosure
contemplated by law. The duty of the assessee in any case
does not extend beyond making a true and full disclosure of
primary facts. Once he has done that his duty ends. It is for
the ITO to draw the correct inference from the primary facts.
It is no responsibility of the assessee to advise the ITO with
regard to the inference which he should draw from the
primary facts. If an ITO draws an inference which appears
subsequently to be erroneous, mere change of opinion with
regard to that inference would not justify “initiation of action
for reopening assessment.”
A similar view was taken in a subsequent judgment in Ganga Saran &
Sons (P) Ltd. vs. Income Tax Officer , (1981) 130 ITR 1 where the
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9
Supreme Court held thus:
“It is well settled as a result of several decisions of this Court
that two distinct conditions must be satisfied before the ITO
can assume jurisdiction to issue notice under s.147(a). First,
he must have reason to believe that the income of the
assessee has escaped assessment and, secondly, he must have
reason to believe that such escapement is by reason of the
omission or failure on the part of the assessee to disclose fully
and truly all material facts necessary for his assessment. If
either of these conditions is not fulfilled, the notice issued by
the ITO would be without jurisdiction. The important words
under s. 147(a) are “has reason to believe” and these words
are stronger than the words “is satisfied”. The belief
entertained by the ITO must not be arbitrary or irrational. It
must be reasonable or in other words it must be based on
reasons which are relevant and material. The Court, of
course, cannot investigate into the adequacy or sufficiency of
the reasons which have weighed with the ITO in coming to
the belief, but the Court can certainly examine whether the
reasons are relevant and have a bearing on the matters in
regard to which he is required to entertain the belief before
he can issue notice under s.147(a). If there is no rational and
intelligible nexus between the reasons and the belief, so that,
on such reasons, no one properly instructed on facts and law
could reasonably entertain the belief, the conclusion would
be inescapable that the ITO could not have reason to believe
that any part of the income of the assessee had escaped
assessment and such escapement was by reason of the
omission or failure on the part of the assessee to disclose fully
and truly all material facts and the notice issued by him
would be liable to be struck down as invalid.”
The same view has been reiterated in a judgment of a Division Bench of
this Court in IPCA Laboratories Ltd. vs. Gajanand Meena, (2001) 251
ITR 416 where Hon’ble Mr.Justice S.H.Kapadia (as the Learned Judge
then was), speaking for a Division Bench held thus:
st
“The position of law after 1 April, 1989, is not in dispute. By
virtue of a proviso to s.147, no action can be taken for
reopening after four years unless the AO has reason to believe
that income has escaped assessment by reason of the failure
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10
on the part of the assessee to disclose fully and truly all
material facts necessary for assessment. In the present case,
the affidavit and the reasons disclosed indicate that the
Department has purported to reopen the assessment only on
the basis of change of opinion. This position is, in fact,
th
conceded vide para 3 of the affidavitinreply dt. 13 march,
2001. The reasons also do not spell out failure on the part of
the assessee to disclose fully and truly all material facts. ...
We are satisfied on the facts of the present case that
reopening is sought on the basis of change of opinion.
Further, even in the reasons, there is nothing to indicate that
reopening is sought on the ground of the failure on the part
of the Petitioner to disclose fully and truly all material facts.”
11. For the reasons aforesaid, we are of the view that recourse to
the power under Section 147 cannot be sustained on a mere change of
opinion, there being no failure of the assessee to disclose fully and truly,
all material facts necessary for assessment. The basic condition
prescribed by the statute for the exercise of the power has not been
fulfilled. The Petition has to be allowed.
12. The rule is accordingly made absolute by quashing the
th
impugned notice dated 30 March 2009 (Exhibit ‘J’). There shall be no
order as to costs.
( Dr.D.Y.Chandrachud, J.)
( J.P.Devadhar, J.)
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1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O. C. J.
WRIT PETITION NO.2508 OF 2009
M/s.Bhavesh Developers having
its office at Ground Floor, Mansarovar
Building, M.G. Road, Kandivali (Wests),
Mumbai400 067. ...Petitioner.
Vs.
1. The Assessing Officer, Ward 25(3)1,
having his office at C11, Room No.307,
rd
3 Floor, Building No.C11, Pratyaksh
Kar Bhavan, Bandra Kurla Complex,
Bandra (East), Mumbai400 051.
2. The Commissioner of Income Tax,
City XXV, having his office at Building
th
No.C11, 6 Floor, Pratyaksh Kar
Bhavan, Bandra Kurla Complex,
Bandra (East), Mumbai400 051.
3. Union of India,
though the Secretary,
Ministry of Finance,
Government of India, North
Block, New Delhi110 101. ...Respondents.
....
Mr.Sanjim M.Shah for the Petitioner.
Mr.Suresh Kumar with Ms.Suchitra Kamble for the Respondents.
.....
CORAM : DR.D.Y.CHANDRACHUD AND
J.P.DEVADHAR, JJ.
January 12, 2010 .
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
Rule. By consent of the Counsel and at their request, made
returnable forthwith and taken up for hearing and final disposal.
2. The challenge in these proceedings under Article 226 of the
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2
Constitution of India, is inter alia to a notice issued under Section 148 of
the Income Tax Act, 1961, seeking to reopen assessment proceedings.
The relevant Assessment Year is 200203.
3. The Petitioner engages in the business of developing and
constructing buildings. During the Assessment Year 200203, the
th
Petitioner filed a return of income on 14 January 2004 and claimed a
deduction of Rs.3,85,75,992/ under Section 80IB(10) of the Act. The
return of income was initially processed under Section 143(1) and the
declared income was accepted by the Assessing Officer. The case of the
Petitioner was thereupon selected for scrutiny. Notices were issued under
Sections 143(2) and 142(1) of the Act. In response, the Chartered
th
Accountant of the Petitioner submitted representations on 30 November
th th
2004 and 20 December 2004. On 17 January 2005, an assessment
order was passed under Section 143(3). In so far as the deduction under
Section 80IB(10) was concerned, the Assessing Officer, while allowing
the deduction, observed as follows:
“During this year the assessee firm has claimed deduction
u/s.80IB(10) of Rs.3,85,75,992/ which is equal to the
hundred per cent of the profits derived in the relevant
previous year from the business of construction of housing
projects. Audit Report in Form No.10CCB under Rule 10BBB
has been filed along with the return of income. After
verification the claim is found to be in order. Accordingly
deduction u/s.80IB(10) is allowed to the extent of the claim
of Rs.3,85,75,992/.”
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3
th
4. On 30 March 2009, a notice came to be issued to the
Petitioner under Section 148 of the Act, proposing to reassess the income
for Assessment Year 200203 on the ground that its income had escaped
th
assessment within the meaning of Section 147 of the Act. On 6
November 2009, the Petitioner was supplied with a copy of the reasons
recorded for reopening the scrutiny assessment for Assessment Year
200203. The following reasons have been recorded:
“On verification of case records, it is seen that the assessee is
claiming deduction u/s80IB for an amount of Rs.
3,85,75.992/. However, as per details filed and P & L A/c. it
is further observed that during the year assessee has other
income of Rs.50,13,307/ which mainly comprises of society
deposit of Rs.47,80,517/, Stilt Parking Rs.1,25,000/ and
Sundry Credit Balances of Rs.1,07,712/. Since this income
does not qualify as the income eligible for deduction u/s.
80IB, I have reason to believe that the income to this extent
has escaped assessment and it is a fit case for issuing notice
u/s.148 of the I.T.Act, 1961.”
5. In assailing the notice under Section 148, Counsel appearing
on behalf of the Petitioner submitted that (i) Admittedly, a notice in the
present case was issued after the expiry of a period of four years from the
relevant Assessment Year, 200203; (ii) The power to issue a notice
reassessing the income after the expiry of four years is conditioned by
the requirement that there is a failure on the part of the assessee to fully
and truly disclose all material facts necessary for his assessment for that
Assessment Year; (iii) The precondition for the exercise of the
jurisdiction spelt out in the proviso to Section 147 is absent in the
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4
present case; and (iv) No finding has been recorded that there was a
failure on the part of the assessee to disclose the material facts and hence,
the exceptional power which is conferred upon the Revenue to reopen an
assessment after the expiry of four years, has not been lawfully exercised.
6. When the Petition came up for admission, we had indicated
to Counsel that having regard to the nature of controversy involved, this
Court is inclined to dispose of the Petition finally at the stage of
admission. Accordingly, an affidavit in reply has been filed on behalf of
the Revenue in which the reasons which have been specified as grounds
for reopening the assessment, have been reiterated.
7. The admitted position before the Court, on the basis of the
material on the record, is that by the notice under Section 148 issued on
th
30 November 2009, the assessment pertaining to the year 200203 was
sought to be reopened after the lapse of four years. Section 147
postulates inter alia that if the Assessing Officer has reason to believe that
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. The proviso to Section 147 stipulates that where
an assessment has been made under subsection (3) of Section 143 or
Section 147 for the relevant Assessment Year, no action shall be taken
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5
after the expiry of four years from the end of the relevant Assessment
Year unless certain preconditions are fulfilled. These conditions are that
the income chargeable to tax must have escaped assessment for such
Assessment Year (i) by reason of the failure on the part of the assessee to
make a return in response to a notice issued under Section 147; or (ii)
by the failure of the assessee to make a return in response to a notice
issued under Section 142(1) or Section 148; or (iii) to disclose fully and
truly all material facts necessary for his assessment for that Assessment
Year. In the present case, what falls for consideration is whether there
was a failure on the part of the assessee to disclose fully and truly all
material facts necessary for the assessment for Assessment Year 200203.
There is no dispute about the fact that there is no failure on the part of
the assessee to make a return under Section 139 of the Act.
8. In support of the claim for deduction under Section 80IB(10),
the assessee had placed certain material before the Assessing Officer. The
material that was filed with the return of income included a duly filled up
Form 10 CCD. The form contained details as specified, including in Item
19, the total sales of the undertaking; in Item 21, the profits and gains
derived by the undertaking from the eligible business; and, in Item 22,
disclosed that the deduction has been claimed under subsection (10) of
Section 80IB. The form was certified by a Chartered Accountant. The
st
statement of total income and the balance sheet as on 31 March 2002
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6
were appended to the return. The profit and loss account for the year
st
ending 31 March 2002 contained a disclosure of other income in the
amount of Rs.50,13,307.16. Schedule G to the balance sheet contains a
break up of the other income of Rs.50.13 lakhs. The constituent
elements of the other income are: (i) Society deposit; (ii) Stilt parking;
(iii) Sundry credit balance appropriated; and (iv) discount received. In
addition to this disclosure, during the course of the assessment
proceedings, a letter was addressed on behalf of the assessee, by its
Chartered Accountant to the Assessing Officer. The letter inter alia
contains an explanation of the other income as reflected in the profit and
loss account. The assessee also furnished to the Assessing Officer a
statement of sales and other income for each wing and for the flats
st
comprised in the construction as of 31 March 2002.
9. In this background, it would be necessary to scrutinize the
basis on which a notice was issued under Section 148 for reopening the
assessment. The basis of the notice is to be found in the reasons disclosed
th
to the assessee on 6 November 2009. The reasons postulate that on a
verification of the case records, it emerges that the assessee was claiming
a deduction under Section 80IB in the amount of Rs.3.85 crores.
However, “as per details filed and P& L A/c.” it was observed that the
assessee had during the year, other income of Rs.50.13 lakhs which
mainly comprised of society deposit, stilt parking and sundry credit
::: Downloaded on - 26/06/2024 07:32:06 :::
7
balances. Since this income did not qualify as income eligible for
deduction under Section 80IB, it was stated that there was reason to
believe that the income had, to that extent, escaped assessment. Now,
exfacie, the reasons which have been disclosed to the assessee would
show that the inference that the income has escaped assessment is based
on the disclosure made by the assessee itself. The reasons show that the
finding is based on the details filed by the assessee and from the profits
and loss account. Quite clearly, therefore, it was impossible for the
Assessing Officer to even draw the inference that there was a failure on
the part of the assessee to disclose fully and truly all material facts
necessary for his assessment for Assessment Year 200203. Significantly,
the reasons that have been disclosed to the assessee do not contain a
finding to the effect that there was a failure to fully and truly disclose all
necessary facts, necessary for the purpose of assessment. In these
circumstances, the condition precedent to a valid exercise of the power to
reopen the assessment, after a lapse of four years from the relevant
Assessment Year, is absent in the present case. There is merit in the
submission which has been urged on behalf of the assessee that an
exceptional power has been conferred upon the Revenue to reopen an
assessment after a lapse of four years. The conditions which are
prescribed by the statute for the exercise of such a power must be strictly
fulfilled and in their absence, the exercise of power would not be
sustainable in law. Though an attempt was made on behalf of the
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8
Revenue to urge that the assessee should be relegated to the ordinary
remedy of an appeal against the order of the assessment, we are of the
view that a petition under Article 226 of the Constitution would be
maintainable for questioning reopening of the assessment in a case such
as this where the preconditions for the exercise of the power have not
been fulfilled.
10. The view which we have taken is in consonance with the law
laid down by the Supreme Court and by this Court. In Income Tax
Officer vs. Lakhmani Mewal Das , (1976) 103 ITR 437 (SC), the
Supreme Court had occasion to interpret the erstwhile provisions of
Section 147 and observed thus :
“We may add that the duty which is cast upon the assessee is
to make true and full disclosure of the primary facts at the
time of original assessment. Production before the ITO of the
account books or other evidence from which material
evidence could with due diligence have been discovered by
the ITO will not necessarily amount to disclosure
contemplated by law. The duty of the assessee in any case
does not extend beyond making a true and full disclosure of
primary facts. Once he has done that his duty ends. It is for
the ITO to draw the correct inference from the primary facts.
It is no responsibility of the assessee to advise the ITO with
regard to the inference which he should draw from the
primary facts. If an ITO draws an inference which appears
subsequently to be erroneous, mere change of opinion with
regard to that inference would not justify “initiation of action
for reopening assessment.”
A similar view was taken in a subsequent judgment in Ganga Saran &
Sons (P) Ltd. vs. Income Tax Officer , (1981) 130 ITR 1 where the
::: Downloaded on - 26/06/2024 07:32:06 :::
9
Supreme Court held thus:
“It is well settled as a result of several decisions of this Court
that two distinct conditions must be satisfied before the ITO
can assume jurisdiction to issue notice under s.147(a). First,
he must have reason to believe that the income of the
assessee has escaped assessment and, secondly, he must have
reason to believe that such escapement is by reason of the
omission or failure on the part of the assessee to disclose fully
and truly all material facts necessary for his assessment. If
either of these conditions is not fulfilled, the notice issued by
the ITO would be without jurisdiction. The important words
under s. 147(a) are “has reason to believe” and these words
are stronger than the words “is satisfied”. The belief
entertained by the ITO must not be arbitrary or irrational. It
must be reasonable or in other words it must be based on
reasons which are relevant and material. The Court, of
course, cannot investigate into the adequacy or sufficiency of
the reasons which have weighed with the ITO in coming to
the belief, but the Court can certainly examine whether the
reasons are relevant and have a bearing on the matters in
regard to which he is required to entertain the belief before
he can issue notice under s.147(a). If there is no rational and
intelligible nexus between the reasons and the belief, so that,
on such reasons, no one properly instructed on facts and law
could reasonably entertain the belief, the conclusion would
be inescapable that the ITO could not have reason to believe
that any part of the income of the assessee had escaped
assessment and such escapement was by reason of the
omission or failure on the part of the assessee to disclose fully
and truly all material facts and the notice issued by him
would be liable to be struck down as invalid.”
The same view has been reiterated in a judgment of a Division Bench of
this Court in IPCA Laboratories Ltd. vs. Gajanand Meena, (2001) 251
ITR 416 where Hon’ble Mr.Justice S.H.Kapadia (as the Learned Judge
then was), speaking for a Division Bench held thus:
st
“The position of law after 1 April, 1989, is not in dispute. By
virtue of a proviso to s.147, no action can be taken for
reopening after four years unless the AO has reason to believe
that income has escaped assessment by reason of the failure
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10
on the part of the assessee to disclose fully and truly all
material facts necessary for assessment. In the present case,
the affidavit and the reasons disclosed indicate that the
Department has purported to reopen the assessment only on
the basis of change of opinion. This position is, in fact,
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conceded vide para 3 of the affidavitinreply dt. 13 march,
2001. The reasons also do not spell out failure on the part of
the assessee to disclose fully and truly all material facts. ...
We are satisfied on the facts of the present case that
reopening is sought on the basis of change of opinion.
Further, even in the reasons, there is nothing to indicate that
reopening is sought on the ground of the failure on the part
of the Petitioner to disclose fully and truly all material facts.”
11. For the reasons aforesaid, we are of the view that recourse to
the power under Section 147 cannot be sustained on a mere change of
opinion, there being no failure of the assessee to disclose fully and truly,
all material facts necessary for assessment. The basic condition
prescribed by the statute for the exercise of the power has not been
fulfilled. The Petition has to be allowed.
12. The rule is accordingly made absolute by quashing the
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impugned notice dated 30 March 2009 (Exhibit ‘J’). There shall be no
order as to costs.
( Dr.D.Y.Chandrachud, J.)
( J.P.Devadhar, J.)
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