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TMI Blog2014 (3) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be set aside would set to nought the direction of the Court in the earlier writ petition – Decided against Assessee. Adequacy of the material disclosed to justify reassessment proceedings - Whether the Revenue is within its right to keep the 2G Spectrum Report from the assessee on the ground of confidentiality or whether the failure to supply the report vitiates the proceedings and Whether the reasons to believe that income has escaped assessment in this case meet the test under Section 148 and judicial directives in that regard – Held that:- Far from holding that all documents used by the AO, let alone specific documents indicated by the assessee, are to be disclosed - Only when the privilege is claimed as regards the reasons recorded or when no material is provided in addition to the mere assertion of the subjective satisfaction of the AO, may the principle denying privilege or confidentiality operate - Even then, the claim for privilege may still prevail in that the Court may consider the manner in which the documents are to be inspected, but such questions does not arise in cases such as the present, where concrete and specific details – which support the belief under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.4.2012. The proceedings were, at this stage, challenged before this Court in W.P.(C) No. 2155/2012. Acorus then contended in those proceedings that the notice under Section 147 was bad in law, as the Assessing Officer ("AO") could have initiated proceedings under Section 143(2) of the Act. The Court rejected this submission, in its judgment, dated 28th May, 2012, holding that: "it is not possible to accept the broad universal affirmative submission of the petitioner that notice under Section 147/148 of the Act cannot be issued when the Assessing Officer could have (sic) issue a notice under Section 143(2) of the Act. This will depend upon the facts." 4. After examining the facts of the case, the Court disposed off the writ petition in the following terms: "23. The writ petition is accordingly disposed of recording that the respondents have agreed to and will be bound by the statement to withdraw notice under Section 147/148 dated 5th July, 2011, but will have liberty and right to issue fresh notice under Section 147/148, after recording reasons to believe. The said notice will not be barred because the respondents had not initiated proceedings by issue of notice under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11, it is seen that eight subsidiaries of Unitech Ltd., had applied for Unified Access Service Licenses (UASL) (SG Spectrum) in September 2007 and were allotted 21 circles by the DOT in January 2008. Post allotment of UASL, M/s. Unitech Ltd. transferred 75% of its stake in these eight telecom subsidiaries (Now merged and known as United Wireless (Tamil Nadu) Pvt. Ltd.) at par i.e. Rs. 10 per share to three of its group companies on the basis of agreement dated 25th October, 2008. One out of these three group companies i.e. M/s Acorus Unitech Wireless Pvt. Ltd. is being assessed in this circle. Simultaneously, the above referred eight telecom companies and subsidiaries of M/s Unitech Ltd. entered into an agreement with Telenor Asia Pvt. Ltd., Singapore, for issue of fresh shares at a huge premium of Rs. 159 per share with Face Value of Rs. 10/-. This agreement was finalized on 28th October, 2008. After considering the above facts, it is clear that M/s Unitech Ltd sold shares of its telecom licensing companies to its three group companies which includes M/s Acorus Unitech Wireless Pvt. Ltd. at a rate lower than the market rate. The market rate was Rs. 169 per share, including the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is not supported by any material on record, and is, in fact, contrary to the communication dated 19.7.2012, wherein the Revenue had admitted that the proceedings were dropped only subsequently, on 19.7.2012. This, it is submitted, justifies the setting-aside of the fresh notice under Section 147/148. Reliance is placed on the decision of the Supreme Court in Trustees of HEH The Nizam's Supplemental Family Trust v. CIT, [2000] 242 ITR 381 (SC), for the holding that: "10…………………………unless the return of income already filed is disposed of, notice for reassessment under Section 148 cannot be issued, i.e., no reassessment proceedings can be initiated so long as assessment proceedings pending on the basis of the return already filed are not terminated." Similarly, reliance is placed on the decision in CESC Ltd. and Anr. v. DCIT, 263 ITR 402 (Cal) to argue that unless the assessment is complete, no suspicion under Section 147/148 can be the basis of a valid notice. 8. Further, learned counsel argues that the earlier proceedings were stated to be based upon a letter of the DIT (Investigation) dated 23.6.2011, as are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid provision could be invoked, there has to be a nexus between the business of the assessee and the purported benefit arising in the course of business, in terms of the judgment in CIT v. Jindal Equipments Leasing and Consultancy Services Ltd, 2010 (325) ITR 87 (Del), which is clearly absent in this case. 9. It is submitted that Acorus merely invested in shares of the telecom companies and had so reflected this fact in its annual balance sheet. The acquisition and sale of shares in this case, it is argued, it clearly for the purpose of investment and not business, and thus the allusion to Section 28 in the reasons to believe that income has escaped assessment is clearly and patently incorrect is terms of the judgment of the Gujarat High Court in ElscopePvt. Ltd. v. CIT, 313 ITR 293 (Guj). It is urged that no benefit or gain accrued to the petitioner, and the mere fact that there was a difference in the share price does not logically lead to the conclusion that a profit was made by the petitioner without disclosing the same. It is further argued that as the funds for the investment were provided by the company who had sold the shares in the first place, the entire econom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Allahabad High Court in Dr. Roop v. CIT, [2012] 209 TAXMAN 421 (All), the Bombay High Court in Spacewood Furnishers v. DGIT, [2012] 340 ITR 393 (Bom), and the Calcutta High Court in Smt. Uma Devi Jhawar v. ITO, 1996 (218) ITR 573 (Cal), for the proposition that confidentiality is not a valid ground for failure to disclose documents relied upon by the Revenue in order to initiate reassessment proceedings against the assessee. It is argued that while the documents may be confidential, they cannot remain as such during Section 147/148 proceedings as the assessee must be given an opportunity to answer the allegations put to it. 12. Counsel for the revenue highlighted that the petitioner cannot question the legality of the notice proposing reassessment in this case, because in the previous judgment of this Court, the option of issuing such notice was expressly kept open. It was argued that having regard to the nature and magnitude of the transaction and the material which the revenue secured subsequently, this was the clearest case where reassessment was warranted in respect of income escaping assessment; there could be no reason to question the notice as not disclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the date 17.7.2012 does not vitiate these proceedings in any way, as the order sheet entries - which are at the very least relevant for this purpose - clear demonstrate that the order of this Court in the earlier writ petition was complied with methodically. The fact that the reasons recorded were prepared (which necessarily precedes the issuance of the notice) before 19.7.2012 is only logical. There is no nexus between the withdrawal of the first reassessment notice issued and the recording of reasons in order to prepare for a subsequent notice, as long as two notices/proceedings are not pending against the same assessee in respect of the same AY at the same time. That, quite clearly, is not the case in the present circumstances. 15. Acorus"s plea that the proceedings would have been justified had intimation of the withdrawal of the earlier notice been given prior to 17.7.2012, as opposed to 19.9.2012, is unpersuasive as it attempts to draw a distinction where none exists. There is complete transparency in the manner in which the reasons were recorded, and the fresh proceedings instituted. Acorus failed to demonstrate how the mere fact that a letter conveying the decision taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. The Court will deal with the second and third questions together, as they relate to the common issue of the adequacy of the material disclosed to justify reassessment proceedings. 18. First, Acorus argues here that the Revenue"s failure to disclose the 2G Spectrum Report, on the basis of which it initiated proceedings under Section 147/148, renders the proceedings void. The Revenue in the present case claims that the 2G Spectrum Report is confidential, and thus has not disclosed the document.Before addressing this question, it is important to restate an accepted, but often neglected, principle, that in its writ jurisdiction, the scope of proceedings before the Court while considering a notice under Section 147/148 is limited. The Court cannot enter into the merits of the subjective satisfaction of the AO, or judge the sufficiency of the reasons recorded, but rather, determine whether such opinion is based on tangible, concrete and new information that is capable of supporting such a conclusion. This was recognized by the Supreme Court in M/s. Phool Chand Bajrang Lal v. Income Tax Officer and Anr., [1993] 203 ITR 456 (SC): "27. Since the belief is that of the Income-tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper tax leviable." 20. Therefore, primary facts in this case - that lead to the AO"s satisfaction - have been spelt-out in this case in the reasons recorded by the AO. These facts are, at the very least, capable of supporting the inference that the sale of shares to the petitioner in this case from Unitech Ltd. was undervalued, and that such undervaluation (compared to the Telenor transaction) was not disclosed by the assessee. Indeed, this is where the Court"s inquiry terminates. The adequacy of the reasons provided by the AO fall outside the Court"s review powers, and within the domain of the AO, at this stage of the proceedings where only a preliminary finding under Section 147/148 has been made. 21. Acorus advanced arguments as to the incorrectness of the AO"s views. Here, various aspects of this transaction have been canvassed before the Court, i.e. the lack of comparability between the Unitech-Telenor transaction and the present case, the difference between the nature of the shares itself in the two cases, the inapplicability of Section 28 of the Act given that the purchase of shares was in the nature of an investment and not a business, the lack of accrual of any benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the minimum requirement under Section 147/148, the petitioner cannot compel the disclosure of other documents that the assessee may have also relied upon. 23. The three cases relied upon by the petitioner to argue that the AO cannot claim privilege over documents utilized by him do not support such a broad ratio, but cohere with the above discussion. In Dr. Roop (supra), the assessee impugned the validity of a search and seizure operation under Section 132 of the Act on the ground that no "reason to believe" arose in that case. There, the Revenue claimed privilege as regards the satisfaction note itself and other material/documents - which in the Revenue"s stance - supported the search and seizure. In essence, no reasons, documents or even the warrant of authorization were communicated to the assessee to demonstrate that there was a "reason to believe", taking the stance rather that the say-so or assertions of the Revenue were sufficient. It was in this context that the Court held that the Revenue cannot claim privilege (in that case, under Section 123 of the Evidence Act) as regards the satisfaction note and the documents supporting the search and seizure operation. In Spacewo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the "materials having a natural nexus to the formation of belief have to be disclosed by the Income Tax Officer", the Court cast some light on the sort of material that have to be disclosed: "22. He can do so by filing an affidavit. The mere disclosure of the belief in the affidavit filed by the Income Tax Officer without setting out any material on the basis of which the belief was arrived at is not sufficient. Where no affidavit is filed by the Income Tax Officer, in spite of the opportunity given, the court may direct production of the records containing materials to establish that there is a direct nexus or live link between the materials and the formation of his belief. If the court allows the Income Tax Officer to produce such records and the court examines the materials to find whether there are tenable reasons, the court must allow inspection of such records to the assessee. The recorded reasons or materials or the letter of proposal sent by the Income Tax Officer to the Commissioner are not privileged documents. In our view, the learned judge was not right in denying inspection of the records to the assessee. No litigant should have a feeling that the procedure ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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