9911796707
TMI Blog2011 (4) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, more than 370 companies were promoted by Sri B. Ramalinga Raju and his immediate family members. Commencing March, 2009 assessments, finalized for the year 2002-03, of several of these companies were sought to be reopened, and notices under section 148 of the Income-tax Act, 1961 ("the Act" for brevity) were issued calling upon them to show cause why the assessments should not be reopened under section 147 of the Act. Several of these companies invoked the extraordinary jurisdiction of this court under article 226 of the Constitution of India and filed W. P. No. 28300 of 2009 and batch. Either before writ petitions were filed, or during the period they were pending before this court, the assessing authority passed reassessment orders aggrieved by which some of these companies preferred appeals before the Commissioner of Income-tax (Appeals) ("the CIT(A)" for brevity). Fifty-eight writ petitions filed before this court (in W. P. No. 28300 of 2009 and batch) by companies against whom reassessment orders were passed, were dismissed as infructuous by the order of this court dated February 2, 2011 giving them liberty to raise all questions, including on the jurisdiction of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Central), Hyderabad (CIT). The petitioner was called upon to file their return in the prescribed form. In reply thereto the petitioner vide letter dated May 26, 2009, while enclosing their return for the assessment year 2002-03, requested that the reasons for reopening the assessment be furnished to them as the notice dated March 26, 2009 was bereft of reasons. An order under section 281B of the Act was passed vide proceedings dated August 13, 2009, and the property of the petitioner was attached. The first respondent, vide proceedings dated August 17, 2009, called for various records and information relating to the assessment year 2002-03. On September 14, 2009 the second respondent furnished to the petitioner the reasons for issuance of the notice under section 148 of the Act for the assessment year 2002-03 which, amongst others, records that he had reason to believe that income chargeable to tax, which had escaped assessment, was more than Rs. 1 lakh in terms of section 149 read with section 148 of the Act. The petitioner, vide letter dated September 22, 2009, filed their reply and objections to the assessment for the year 2002-03 being reopened. The firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned notice under section 148 suffers from nonapplication of mind ; there is no material on which the assessing authority could have arrived at his subjective satisfaction that income of the petitioner had escaped assessment ; the reasons assigned in the proceedings dated March 26, 2009, and in the subsequent note dated December 9, 2009, are at variance with each other ; at the stage of issuance of notice under section 148, "reason to believe" should be capable of being co-related with the averments in the counter-affidavit filed by the assessing authority ; and the reasons now furnished to this court, in the counter-affidavits filed by the assessing authority, have no connection with the reasons which were furnished earlier. Learned senior counsel would rely on Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) ; AIR 1961 SC 372, Barium Chemicals Ltd. v. CLB [1966] 36 Comp Cas 639 (SC) ; AIR 1967 SC 295, Sheo Nath Singh v. AAC of I. T. [1971] 82 ITR 147 (SC) ; [1972] 3 SCC 234, Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1 (SC) ; [1981] 3 SCC 143, Manish Maheshwari v. Asst. CIT [2007] 289 ITR 341 (SC), Ramesh Chandra Sankla v. Vikram Cement [2008] 14 SCC 58, Asst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confession of Sri B. Ramalinga Raju on January 7, 2009 ; the authorized officer had caused investigation at his end, and had taken the decision to reopen the assessment of the petitioner for the assessment year 2002-03 ; the Assessing Officer had recorded his reasons and satisfaction which was endorsed by the Additional Commissioner, and the Commissioner of Income-tax ; the Assessing Officer had applied his mind and had caused due verification ; the satisfaction recorded for reopening the assessment cannot be said to be arbitrary as there was material based on which the Assessing Officer had reason to believe that there was escapement of income ; at the stage of issue of notice it would suffice if prima facie material is available with the Assessing Officer ; the Assessing Officer is not required to conclusively establish that there was escapement of income ; as the petitioner did not reply to the show-cause notice dated December 15, 2009, proposals for special audit were sent to the Commissioner of Income-tax for approval ; after due approval the company was directed to get its accounts audited as its financial results were in doubt because of their inter-relationship with SCSL, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The records placed before us, in so far as they relate to the petitioner in W. P. No. 27817 of 2009, contain copies of the shareholders agreement executed on July 2, 2003 between Maytas Infra Limited, M/s. IJM Corporation, Malaysia and M/s. Nagarjuna Construction Co. Ltd. on the one hand and the GVK companies on the other. The said agreement shows that M/s. Maytas Infra Ltd., M/s. IJM Corporation, Malaysia and M/s. Nagarjuna Construction Co. Ltd., together with their affiliates, held 100 per cent. of the equity share capital of the petitioner company and, with effect from the effective date, while M/s. Maytas Infra Limited and M/s. IJM Corporation were to reduce their holding to 20 per cent. each of the petitioner's equity capital, M/s. Nagarjuna Construction Company Limited was to hold 10 per cent. and the remaining 50 per cent. of the equity capital of the petitioner-company was to be held by the GVK companies. The shareholders agreement was signed on behalf of Maytas Infra Ltd. by its director Sri B. Teja Raju. (son of Sri B. Ramalinga Raju). The shareholders agreement was amended initially on June 11, 2004, and later on October 23, 2006, and the shareholding of M/s. Maytas Inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scaping assessment.- If- (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income- tax Officer has in consequence of information in his possession 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). If the Assessing Officer, for reasons to be recorded by him in writing is of the opinion 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 rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. But in section 147 of the Act, with effect from April 1, 1989, the twin conditions of the pre-amended section 147 were given a go-by and only one condition remained, viz., where the Assessing Officer had reason to believe that income has escaped assessment. Post-April 1, 1989, the power to reopen assessment under section 147 is much wider (CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). The scope and effect of section 147 as substituted with effect from April 1, 1989, and sections 148 to 152, are substantially different from the provisions as they stood prior to such substitution. Under the substituted section 147 if the Assessing Officer, for whatever reason, has reason to believe that income has escaped assessment, he has the jurisdiction to reopen the assessment (Rajesh Jhaveri [2007] 291 ITR 500 (SC)). 13. It is only in cases where an assessment under section 143(3) or section 147 has been made for the relevant assessment year that the first proviso to section 147 prohibits action from being taken under section 147 after expiry of fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief (Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). 15. The words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds. The Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief, that the conditions are satisfied, do not exist or is not material or relevant to the belief required by section 147 (Sheo Nath Singh [1971] 82 ITR 147 (SC) ; [1972] 3 SCC 234, Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC)). The belief entertained by the Income-tax Officer must not be arbitrary or irrational. At the stage of initiation of action under section 147, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe" but not the established fact of escapement of income. At the initiation stage the only question is whether there was relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the documents which are relevant, amount to "failure to disclose fully and truly all material facts necessary for his assessment". It is the assessee's duty to disclose all primary facts which could have been discovered by the assessing authority from the documents and other evidence disclosed (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). The assessee's duty to disclose is in the context of the two requirements-called conditions precedent-which must be satisfied before the Income-tax Officer gets jurisdiction to reopen the assessment under section 147/148. This obligation can neither be ignored nor watered down. Nor can anyone suggest that a false disclosure satisfies the requirement of full and true disclosure (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)). Finality of proceedings is certainly a consideration, but that avails one who has fully and truly disclosed all material facts necessary for his assessment for that year-and not to others (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)). 17. All that is necessary to give special jurisdiction is that the Income-tax Officer had, when he assumed jurisdiction, some prima facie grounds for believing that there had be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orming the belief is not for the court to judge. (Phool Chand Bajrang Lal [1993] 203 ITR 456 (SC)). The court cannot investigate into the adequacy or sufficiency of the reasons which weighed with the Income-tax Officer in coming to the belief, but can examine whether the reasons are relevant and have a bearing on matters in regard to which the Income-tax Officer is required to entertain the belief before he can issue notice under section 147. 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 Income-tax Officer could not have reason to believe that any part of the income of the assessee had escaped assessment, and the notice issued by him would be liable to be struck down as invalid (Ganga Saran and Sons P. Ltd. [1981] 130 ITR 1 (SC)). 21. The order of the authority can be challenged if it is beyond the limits of the Act or is passed on grounds extraneous to the Act or if there are no grounds at all for passing it or if the grounds are such that no one can reasonably arrive at the opinion or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 559. 24. While examining the question whether there was relevant material before the assessing authority based on which he had reasons to believe that income has escaped assessment it must be borne in mind that, in sending his report to the Commissioner, the Income-tax Officer might not fully set out what he thought amounted to reasons as it is conceivable that the report may not be drawn up carefully and may not contain a reference to all the reasons that operated on his mind (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). The Calcutta and Delhi High Courts, in Equitable Investment Co. P. Ltd. v. ITO [1988] 174 ITR 714 (Cal) and Sarthak Securities Co. P. Ltd. v. ITO [2010] 329 ITR 110 (Delhi) held that where a notice issued under section 148 of the Act, after obtaining sanction of the Commissioner of Income-tax is challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which sanction of the Commissioner of Income-tax has been obtained ; and the Income-tax Department cannot rely on any other material apart from the report. As the Constitution Bench of the Supreme Court, in Calcutta Discount Co. Ltd. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 188 ITR 247 (SC), the Supreme Court observed (page 251) : "It is undoubtedly true that the notice does not prima facie disclose the satisfaction of the two conditions precedent enjoined under section 147(a), but in the counter affidavit filed by the Income-tax Officer in the High Court he stated all the material facts . . . Thus, though ex facie the notice does not disclose the satisfaction of the requirement of section 147(a), from the record and the averments in the counter affidavit it is clear that the Income-tax Officer had applied his mind to the facts and, after prima facie satisfying himself of the existence of those two conditions precedent, reached the conclusion for reopening the assessment. It is settled law that, in an administrative action, though the order does not ex facie disclose the satisfaction by the officer of the necessary facts, if the record discloses the same, the notice or the order does not per se become illegal. (emphasis supplied)" 28. Even material gathered by other agencies may be relied upon by the Income-tax Officer as reasons for his belief that there has been escapement of income. In Central Provinces Manganese Ore Co. Ltd. [199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer is bound to dispose of the same by passing a speaking order. Learned counsel would contend that the "reason to believe" must be made out only from the reasons furnished by the Assessing Officer to the assessee at the latter's request ; and the records cannot be examined to ascertain whether there was material on record for the formation of belief by the Assessing Officer. Relying on GKN Driveshafts (India) Ltd. [2003] 259 ITR 19 (SC) the Delhi High Court, in Haryana Acrylic [2009] 308 ITR 38 (Delhi), held that a notice under section 148 without the communication of the reasons therefor is meaningless inasmuch as the Assessing Officer is bound to furnish the reasons within a reasonable time ; in a case, where the notice has been issued within the said period of six years, but the reasons have been furnished beyond that period, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice, and the communication and furnishing of reasons, go hand-in-hand. 31. We respectfully disagree with the opinion expressed by the Delhi High Court in Haryana Acrylic [2009] 308 ITR 38 (Delhi). Section 148(2) of the Act merely requires t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act : The principles, culled out from the aforementioned judicial pronouncements of the Supreme Court, and on a literal construction of sections 147 to 149 of the Act, are as under : (i) In section 147 of the Act, with effect from April 1, 1989, the twin conditions of the pre-amended section 147 were given a go-by, and only one condition remained, viz., where the Assessing Officer had reason to believe that income has escaped assessment (Kelvinator of India Ltd. [2010] 320 ITR 561 (SC)). (ii) Post-April 1, 1989, the power to reopen assessment under section 147 is much wider. The scope and effect of section 147 as substituted with effect from April 1, 1989, and sections 148 to 152, are substantially different from the provisions as they stood prior to such substitution (Rajesh Jhaveri [2007] 291 ITR 500 (SC)). (iii) The Assessing Officer has the power under section 147 to reopen assessment provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment (Kelvinator of India Ltd. [2010] 320 ITR 561 (SC)). (iv) However, the conditions stipulated in section 147 of the Incometax Act, 1961 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) ; [1972] 3 SCC 234 and Chhugamal Rajpal [1971] 79 ITR 603 (SC)). (xii) The belief entertained by the Income-tax Officer must not be arbitrary or irrational (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)). (xiii) The expression "reason to believe" cannot be read to mean that the Assessing Officer should have finally ascertained the fact of escapement of income by legal evidence or conclusion (Central Provinces Manganese Ore Co. Ltd. [1991] 191 ITR 662 (SC) and Rajesh Jhaveri [2007] 291 ITR 500 (SC)). (xiv) The words failure to disclose "fully and truly all material facts necessary for his assessment", in the first proviso to section 147, postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). (xv) Every disclosure is not, and cannot be treated to be, a true and full disclosure. A disclosure may be false or true. It may be a full disclosure or it may not. A partial disclosure may very often be misleading. What is required is a full and true disclosure of all material facts necessary for making assessment for that year (Sri Krishna Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 must be given due and equal weight (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)). (xxiv) While sending his report, to the Commissioner, the Income-tax Officer might not fully set out what he thought amounted to reasons as it is conceivable that the report may not be drawn up carefully, and may not contain a reference to all the reasons that operated on his mind (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). (xxv) It is the duty of the assessee, who wants the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been escapement of income (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). (xxvi) It is for the assessee to establish that there existed no belief or that the belief was not at all bona fide or was based on vague, irrelevant and non-specific information (Phool Chand Bajrang Lal [1993] 203 ITR 456 (SC)). (xxvii) At the stage of examining the validity of the notice under section 148/147, the enquiry is only to see whether there are reasonable grounds for the Income-tax Officer to believe, and not whether the omission/failure and the escapement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n whether there was relevant material which led the Income-tax Officer to arrive at his satisfaction that income has escaped assessment (Biju Patnaik [1991] 188 ITR 247 (SC)). (xxxiv) Even if nothing relevant is disclosed an opportunity may be given to the Revenue to produce the records to find out whether the Income-tax Officer had any reason to believe that income had escaped assessment (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC), Sheo Nath Singh [1971] 82 ITR 147 (SC) ; [1972] 3 SCC 234 and Chhugamal Rajpal [1971] 79 ITR 603 (SC)). (xxxv) Material gathered by other agencies can be relied upon by the Income-tax Officer as material forming the basis for his reason to believe that there has been escapement of income (Central Provinces Manganese Ore Co. Ltd. [1991] 191 ITR 662 (SC). (xxxvi) There is no single rule of universal application to determine whether the material before the Income-tax Officer is sufficient for his being satisfied that there has been escapement of income. This aspect would depend on the facts and circumstances of each case (Raymond Woollen Mills Ltd. [1999] 236 ITR 34 (SC)). (xxxvii) The limitation prescribed under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not interfere save manifest injustice or a substantial question of public importance is involved (Rashpal Malhotra v. Mrs. Saya Rajput, AIR 1987 SC 2235 and Council of Scientific and Industrial Research v. K. G. S. Bhatt, AIR 1989 SC 1972). 34. As noted hereinabove, similar to those issued in this batch of writ petitions, notices, under section 148 of the Act, for the assessment year 2002-03 were issued in respect of 58 other companies which were said to have been promoted by Sri B. Ramalinga Raju. These notices were subjected to challenge, in W. P. No. 28300 of 2009 and batch, including on the jurisdiction of the assessing authority to initiate action under section 147, and issue notices under section 148(1) of the Act. Interim orders of stay were granted in these cases on condition of payment of 50 per cent. of the tax with a default clause. When these writ petitions were subsequently listed before us on January 29, 2011 we were informed, that, after receipt of notices under section 148 of the Act, all the companies in the said batch of 58 writ petitions had filed their reply raising objections to the reassessment ; assessment orders were passed under section 147 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls to the Commissioner of Income-tax (Appeals). As the remedy, under article 226 of the Constitution, is discretionary the High Court has always the discre- tion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere (K. S. Rashid and Son v. Income-tax Investigation Commission [1954] 25 ITR 167 (SC) ; [1954] SCR 738). Liberty is given to the petitioners herein to raise all contentions before the assessing authority, including on his jurisdiction to reopen the assessment. Both the assessing authority during the reassessment proceed- ings, and the Commissioner of Income-tax (Appeals) while deciding the appeals filed before him, shall be guided by the principles hereinabove mentioned. The petitioners have effective remedies under the Act, includ- ing an appeal to the Income-tax Appellate Tribunal. If need be, they can invoke the jurisdiction of this court later, as an appeal is provided thereto under section 260A of the Act. We are, therefore, not inclined to exercise discretion under article 226 of the Constitution of India to adjudicate these writ petitions on its merits. 38. Subject to the observations made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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