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TMI Blog2017 (12) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... eard Shri Rakesh Ranjan Agrawal, learned Senior Advocate assisted by Shri Suyash Agrawal, learned counsel for the petitioner and Shri Praveen Kumar, learned counsel for the department. This writ petition has been filed against the initiation of reassessment proceedings for the Assessment Year 2009-10 under the Income Tax Act, 1961 (hereinafter referred to as the 'Act'), vide notice dated 23.03.2016. The petitioner is a company. It is a 100 percent Export Oriented Unit engaged in the manufacture of textile narrow woven fabrics, cords, laces, yarn etc. It also has a unit engaged in dyeing and processing yarn, narrow woven fabrics etc., on job work basis. For the assessment year 2009-10, the petitioner filed its e-return of income disclosing total income ₹ 24,18,597/-. Upon scrutiny assessment being made under Section 143 (3) of the Act, the income of the petitioner was assessed at ₹ 25,94,450, vide assessment order dated 28.12.2011. During those assessment proceedings, various queries were made to the assessee amongst others with respect to the investment made in shares amounting to ₹ 1.45 crores made through a broker Motilal Dhulichand (P) Ltd. and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the aforesaid queries and their replies in the assessment order dated 26.12.2011 for the assessment year 2009-10. Also, he did not make any addition to the income of the petitioner on that count. However, certain other additions were made. Those are not the subject-matter of the present writ petition. Thereafter, an internal audit party of the income tax department appears to have raised some objection/s with reference to the assessment order dated 26.12.2011 whereafter, the reassessment notice was issued to the petitioner on 23.03.2016, to initiate the re-assessment proceedings against it for the Assessment Year 2009-10. In the reasons to believe supplied to the petitioner it is stated that subsequent to the completion of the assessment it came to the notice of the assessing authority that the assessee had made an investment of ₹ 1.45 crores in shares through M/s Motilal Dulichand (P) Ltd. and that such investment had been made from the loan taken by it from Canara Bank. Similarly, it has been alleged that the assessee had invested an amount of ₹ 55,42,976/- in the building at 12B Dada Nagar Kanpur from funds drawn from the aforesaid bank loan and that build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the expiry of the relevant assessment year, there should have been a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, for that assessment year. In the present case, there is merit in the submission which has been urged on behalf of the petitioner that the reasons which have been disclosed, in fact, would indicate that it is from a perusal of the assessment records that the Assessing Officer formed an opinion that income had escaped assessment. (emphasis supplied) Then, it has further been submitted that a bare perusal of the order sheet entry and the reply furnished by the petitioner during the scrutiny of assessment proceedings also make it clear that not only the primary and material facts had been fully and truly disclosed by the petitioner in those proceedings, but the assessing officer had also applied his mind to the same. He first questioned the allowability of both investments i.e. ₹ 1.45 crores in share capital as also the investment made in the construction of the building. The petitioner had given full and complete reply wherein, amongst others, it had also stated that the investment - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amine an issue on the basis of information or material which was already available to the Assessing Officer at the time of the completion of the original assessment. Consequently, before taking any action, the Assessing Officer is required to substantiate his satisfaction with the reasons recorded by him. (emphasis supplied) Then, reliance has also been placed on the judgment of the Bombay High Court in Idea Cellular Ltd. V. Dy. CIT reported in [2008] 301 ITR 407 (Bombay) wherein it has been held that merely because the assessing officer may not express any opinion regarding any matter in the original assessment order, it cannot be said that he had not applied his mind through the entire material was placed by the petitioner before the assessing officer. The relevant portion of that judgment relied upon by the petitioner is quoted below: It was also sought to be contended that since the Assessing Officer had not expressed any opinion regarding this matter in his original assessment order, it could not be said that there was any change of opinion in this case. In our view, once all the material was before the Assessing Officer and he chose not to deal with the several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in share capital from that bank account. If the petitioner had left its reply at that, without giving the details of the surplus, it may have been an arguable issue whether the disclosure of facts was full and true though even in that case the effect of the figures of business surplus available to the petitioner duly reflected in its books of account and audited results as also reflected in the income tax return would remain to be seen. However, in the facts of this case, besides the disclosure of facts contained in its books of account and audited results that itself amounted to a disclosure of facts, the petitioner had also been queried in this regard and it had specifically replied and stated as below: That the assessee has earned profits of ₹ 1,20,01,834/- during the year, and has also shown a profit of ₹ 1,01,63,293/- and 90,00,897/- for the assessment year 2008-09 which is indirectly credited in credit account, as the assessee has no other Bank account. Thus, we find the petitioner had given details of the surplus available being in excess of ₹ 3 crores. It had also disclosed the source of that surplus being business profit for the previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under section 143(3) of the Act. Thus a 'true' disclosure of all necessary primary and material facts had been made by the petitioner during those assessment proceedings. Then as to the completeness of disclosure of such facts, we find, in its reply dated 30.11.2011, the assessee had made plain the fact of it having operated only one bank account, of having sufficient credit balances in excess of ₹ 3.00 crore and; of having made all investments (especially investment in share capital) from that bank account. Thus, to our mind, the disclosure (of material facts pertaining to the two investments) made by the petitioner during regular assessment proceedings was both full and true. It was thereafter up to the assessing officer to form his view on such facts for purpose of making the assessment. This Court in the case of Foramer France Vs. CIT reported in (2001) 247 ITR 436 (AII) has upheld as follows:- In our opinion, we have to see the law prevailing on the date of issue of the notice under Section 148, i.e., November 20, 1998. Admittedly, by that date, the new Section 147 has come into force and, hence, in our opinion, it is the new Section 147 which will appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned that certain income had escaped assessment. It may be worthwhile to revisit the law relevant to this issue arising in the present case. As early as 1961 the Supreme Court had in the case of Calcutta Discount Co. Ltd. Vs. ITO reported in (1961) 91 ITR 91 (SC) held that the duty of the assessee extended to disclosure of primary and material facts and that duty did not extend to disclosure of an inferential fact. This principle enunciated almost six decades ago has withstood the test of time and remains relevant and applicable despite repeated legislative changes to the Act. Then as to the meaning to be given to the phrase 'reason to believe' appearing in section 147 of the Act, it is seen, the same was examined in a similar context by the Supreme Court in Ganga Saran and Sons (P) Ltd. Vs. ITO (1981) reported in 130 ITR 1 (SC) wherein it was held as below:- It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the Income Tax Officer can assume jurisdiction to issue notice under Section 147 (a). First, he must have reason to believe that the income of the assessee has escaped assessment and secondl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court. (emphasis supplied) Then in CIT Vs. Kelvinator of India reported in (2010) 320 ITR 561 (SC), in the context of similar reassessment proceedings, the Supreme Court while upholding the full bench decision of the Delhi High Court held as below:- On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in Section 147 of the Act [with effect from 1st April 1989], they are given a go-by and only one condition has remained, viz., where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pear to exist any tangible material acting which the petitioner's assessing authority may have treated as a 'direct or circumstantial' evidence to form a bona fide 'reason' relevant to the 'belief' of any income having escaped the assessment at the hands of the petitioner. Besides the fact that the material that has been relied upon by the petitioner's assessing authority had already been examined in the course of regular assessment proceedings, even if the same material were to be looked into again the same had to be looked into in entirety. The petitioner's assessing authority could not have taken a blinkered view of the same and he could not have chosen to overlook part of that material to draw a 'belief' or to 'reason' that some income had escaped assessment. He ought to have examined the reply of the assessee submitted in the course of regular assessment proceedings also, wherein it had specifically stated that the petitioner had operated only one bank account and that it had sufficient profits available to it to justify the investments made by it. Had that part of the reply been also taken note of, the petitioner's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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