Bombay H.C : By this petition under Art. 226 of the Constitution of India, the petitioners, a registered partnership firm, have challenged the legality and validity of the notice dated March 21, 1984, issued under s. 148 r/w s. 147(a) of the IT Act.

High Court Of Bombay

Dossabhoy Hormasji Bhiwandiwalla & Co. vs. Inspecting Assistant Commissioner & Ors

Khan Bahadur Hormasji Maneck Ji 

Sections 147, 147(a), 148

Asst. Year 1975-76

T.D. Sugla. J.

Writ Petn. No. 371 of 1986

26th March, 1990

Counsel Appeared

D.H. Dwarkadas with S.H. Paralkar, for the Petitioner : G.S. Jetley Smt. Manjula Singh with Miss.S.G. Shah, for the Respondents

T. D. SUGLA, J. :

By this petition under Art. 226 of the Constitution of India, the petitioners, a registered partnership firm, have challenged the legality and validity of the notice dated March 21, 1984, issued under s. 148 r/w s. 147(a) of the IT Act. 1961 for the petitioners’ assessment for the asst. yr. 1975-76. The assessment was originally completed under s. 143(3) r/w s. 144B on December 30, 1977. This assessment was set aside by the CIT (A), Bombay, by his order dated March 24, 1979. Fresh assessment was completed under s. 143(3) r/w s. 144B on September 24, 1981. Both in this and the original assessment, the assessees’ income under the head “Capital gains” on sale of shares was computed at Rs. 69,09,658. This was on the basis of the assessees’ statement as under : Statement showing the basis of computation of capital gains in respect of shares of the Great Eastern Shipping Co. Ltd. 60 ….. 1953 ….. 10 600 6549 ….. 1957 ….. 10 65,490 …. 11,105 1952 ….. 10 1,11,050 ….. 11,762 1956 1 share for every 5 shares held 223,524 ….. 36,249 1965 1 share for every 5 shares held 3 1,08,747 ….. 41,422 1967 1 share for every 5 shares held 2 82,844 ….. 21,849 1968 1 share for every 5 shares held 3 65,547 1004 10 10,040 7,613+ 1,22,387= 1,30,000 shares 4,67,842 1,30,000 shares were sold at the rate of Rs. 56.75 realising Rs. 73,77,500 as against the cost price of Rs. 4,67,842. Subsequently, the ITO felt that full details as to how the value of the bonus shares was computed by the assessees was not furnished at the time of the original assessment. He required the petitioners to furnish necessary details. When the assessees did not furnish the details as required, the ITO issued the impugned notice under s. 148 r/w section 147(a) to file a return of income in response thereto. However, during the pendency of this writ petition, the reassessment was completed as a result of which the income under the head “capital gains” was computed at Rs. 69,93,879 as against Rs. 69,09,658 computed originally.

2. The first question that requires consideration is whether the reasons recorded by the ITO for reopening the assessment under s. 147(a) have a direct nexus or live link with the formation of the belief that the income of the assessee chargeable to tax had escaped assessment. For this purpose, it is desirable to refer to the reasons recorded by the ITO. They are : “It is seen from the records that the assessee has shown long-term capital gains of Rs. 69,09,658 on the sale of the shares of the Great Eastern Shipping Co. Ltd. The shares sold include bonus shares also. The details of the basis on which the cost of the bonus shares have been calculated has not been furnished by the assessee. Accordingly, the assessee was asked to furnish the details, vide letter of even No. dated February 22, 1984, fixing the case for February 29, 1984 (11 A. M.). No details have been furnished in this respect till date. Therefore, I have reason to believe that, by reason of omission or failure on the part of the assessee to disclose truly and fully all the material facts necessary for the asst. yr. 1975-76, income chargeable to tax has escaped assessment for the asst. yr. 1975-76.”

It is evident that the ITO merely observed that the assessee had not filed complete particulars as regards computation of the valuation of the bonus shares. From that fact, he assumed that the assessee’s income chargeable to tax must have escaped assessment. For the present, it may be assumed that the petitioners had not given the basis as to how they had valued their bonus shares at Rs. 2 per share in some years and at Rs. 3 per share in other years and this amounted to nondisclosure of full particulars. However, this Court is not in agreement with Shri Jetley that nondisclosure of certain facts must necessarily lead to the formation of belief that income chargeable to tax had escaped assessment. At best, such a nondisclosure could lead to suspicion that the income assessed might or might not have been the correct income. To illustrate the point, let us assume the case of an assessee who does not file his returns of income. The mere fact that returns of income were not filed cannot, by any stretch of imagination, lead to the belief that income assessable to tax had escaped assessment. For the formation of that belief, you require something more than the mere fact of non-filing of return or non-disclosure of what is considered by the ITO to be full particulars. Indirect support for the view is available in the decisions of the Supreme Court in the case of ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 and in the case of ITO vs. Madnani Engineering Works Ltd.(1979) 12 CTR (SC) 144 : (1979) 118 ITR 1.

In the above view of the matter, the notice issued is without jurisdiction and is hereby quashed. As a consequence thereof, the assessment made in pursuance thereof will also have to be quashed.

In the result, the rule is made absolute in terms of prayer cl. (a) and the amended prayer (c) (i). No order as to costs.

[Citation : 188 ITR 203]

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