Bombay H.C : Proceedings under s. 147 of the Act can be initiated after a period of four years only if the AO had a reason to believe that income chargeable to tax had escaped assessment on account of a failure of the assessee to disclose fully and truly all the material facts necessary for the assessment

High Court Of Bombay At Goa

Sesa Goa Ltd. vs. JCIT & ORS.

Section 147, 148, 149, Art. 226

Asst. Year 1991-92

P.V. Hardas & D.G. Karnik, JJ.

Writ Petn. No. 282 of 2001

6th May, 2004

Counsel Appeared : Soli Dastur with R. G. Ramnik, for the Petitioner : S. R. Revonkar, for the Respondents

JUDGMENT

D.G. Karnik, J. :

By our order dt. 6th May, 2004, we allowed the writ petition and made rule absolute in terms of prayer cls. (a), (b) and (c). We now proceed to give detailed reason for the order. By this petition, the petitioner challenges the notice dt. 31st May, 2001, issued by respondent No. 1, purportedly under s. 148 of the IT Act, 1961 (for short “the Act”), in respect of the asst. yr. 1991-92. The facts giving rise to the petition are briefly stated below. The petitioner is a company mainly engaged in the business of mining and export of iron ore and construction and repairs of marine crafts, and is an assessee under the Act since the asst. yr. 1963-64. The petitioner filed its return of income for the asst. yr. 1991-92 ending 31st March, 1991, on 31st Dec., 1991, showing the total income of Rs. 1,22,56,440 arrived at after claiming an aggregate deduction of Rs. 7,82,43,801 under Chapter VI-A of the Act including a deduction of Rs. 7,74,92,451 under s. 80HHC of the Act. The return was accompanied by a copy of the audited accounts as well as tax audit report required to be filed under s. 44AB of the Act. The claim for deduction under s. 80HHC of the Act was supported by a report from an accountant under sub-s. (4). Initially, an intimation was issued under s. 143(1)(a) of the Act. Subsequently, respondent No. 1 selected the case of the petitioner for scrutiny. After scrutiny of the return, annexures and documents filed along with the return as well as during the course of discussion, respondent No. 1, by an order dt. 22nd March, 1994, assessed the income of the petitioner to be Rs. 1,43,70,410. While doing so respondent No. 1 modified certain figures of income and also modified the figure of deduction under s. 80HHC of the Act to Rs. 8,64,11,622. An appeal filed by the petitioner before the CIT(A), was partly allowed by an order dt. 8th Jan., 1996. Nothing further happened thereafter till May, 2001:

On 31st May, 2001, respondent No. 1 issued the impugned notice purportedly under s. 148 of the Act which was received by the petitioner on 1st June, 2001. By the said notice, respondent No. 1 also directed the petitioner to deliver to him a return of its income in the prescribed form for the asst. yr. 1991-92. The notice did not disclose the reasons recorded by respondent No. 1 under s. 148(2) of the Act. By the reply dt. 28th June, 2001, the petitioner took exception to the said notice and also requested respondent No. 1 to communicate to it the reasons recorded by him under s. 148(2) of the Act. Instead of communicating the reasons recorded under s. 148(2) of the Act, respondent No. 1 on 24th July, 2001, issued a notice under s. 142 of the Act. By a separate letter of even date, respondent No. 1 called upon the petitioner to show-cause why certain income should not be estimated and included in the income of the petitioner. The petitioner, therefore, has filed this petition challenging the approval granted by the CIT under s. 151 of the Act for the issuance of the notice and the notice dt. 31st May, 2001, purportedly issued under s. 148 of the Act, and for prohibiting the respondents from taking any action in pursuance of the said notice.

4. The respondents have appeared and have filed an affidavit-in-reply on 17th Feb., 2004, sworn in by Mr. M.N. Murthy Naik, Asstt. CIT, opposing the petition. Though the reasons recorded under s. 148(2) of the IT Act were not furnished to the petitioner despite demand, a copy of the reasons has been annexed to the affidavit-in-reply dt. 17th Feb., 2004, and they are : “(i) The assessee is an exporter of iron ore and also it has got income by way of sale of vessels, other services, shipping agency fees, etc. For the purpose of deduction under s. 80HHC the certificate is given by the assessee in which the profit from this business was also included in the adjusted business profit. (ii) The Bombay High Court has decided in the case of CIT vs. K.K. Doshi & Co. (2000) 163 CTR (Bom) 472 : (2000) 245 ITR 849 (Bom) that for the purpose of computation of deduction under s. 80HHC the business profit will not include anything which has no linkage with the export activity. In the case of CIT vs. Kantilal Chhotalal (2000) 163 CTR (Bom) 476 : (2000) 246 ITR 439 (Bom), even the reassortment charges (which are incidental to the diamond export business) were held as not includible in the business profits for the purpose of s. 80HHC deduction. Taking into consideration the ratio laid down by the Bombay High Court the profits of the assessee from the abovementioned business is required to be omitted. (iii) During the year the sale of vessels is of Rs. 1,83,83,986 and the profit from the same is determined at 30 per cent of Rs. 55,15,195. The services receipts, are Rs. 13,78,53,269 and the profit from the same is determined at Rs. 6,89,634. The shipping agency fees are at Rs. 2,76,476 and the profit at 50 per cent is determined at Rs. 1,38,238. Thus, the total profit included in the business profit is Rs. 7,45,80,067. Because of this, the excess deduction under s. 80HHC at Rs. 6,10,10,272 was given to the assessee. (iv) I am satisfied that due to furnishing of the false particulars of the income by way of the incorrect certificate which means failure on the part of the assessee to disclose fully and truly all material facts required for assessment, income of Rs. 6,10,10,272 has escaped assessment.” (Though no para numbers are given to the reasons in the annexure to the affidavit/they are given herein for the sake of identification of paras).

5. Mr. Soli Dastur, learned senior counsel appearing on behalf of the petitioner, submitted that the grounds on which the notice dt. 31st May, 2001, has been issued are not only erroneous but in the facts and circumstances of the case respondent No. 1 had no jurisdiction to issue the notice under s. 148 of the Act on the said grounds. He submitted that the petitioner had truly and fully disclosed all the primary facts necessary for respondent No. 1 to make an assessment order. In the return of income the petitioner had separately disclosed (i) income from sale of ore; (ii) income from sale of vessels; (iii) income from services and other proceeds; and (iv) miscellaneous income. The figures of income under the four heads of income mentioned above were given separately in the return of income and annexures thereto. Respondent No. 1 while passing the assessment order under s. 143 (3) of the Act had considered all the relevant facts. He had not accepted the claim made by the petitioner for deduction under s. 80HHC on the ipse dixit of the petitioner but had applied his mind. He had also applied the relevant formula specified in sub-s. (3) of s. 80HHC of the; Act for computation of the deduction under s. 80HHC of the Act. He had made certain allowances and also rejected the petitioner’s claim for the change of method of accounting for sales, despatch and demurrage and valuation of stocks as such change, in his opinion, would have resulted in an excessive deduction being allowed under s. 80HHC of the Act. After carefully examining and scrutinising all the facts and materials, respondent No. 1 had passed an order under s. 143(3) of the Act on 22nd March, 1994. Mr. Dastur also took us through the assessment order dt. 22nd March, 1994, and impressed upon us that not only the petitioner had truly and fully disclosed all the facts but also respondent No. 1 carefully considered the petitioner’s claim for deduction under s. 80HHC, scrutinised it and after applying his mind had allowed the claim with several modifications and to the extent he thought was proper and lawful. He further submitted that the notice was issued only on the basis of change of opinion purportedly based upon the subsequent decisions of the Bombay High Court in (i) CIT vs. K.K. Doshi & Co. (2000) 163 CTR (Bom) 472 : (2000) 245 ITR 849 (Bom), and (ii) CIT vs. Kantilal Chhotalal (2000) 163 CTR (Bom) 476 : (2000) 246 ITR 439 (Bom). He further submitted that any interpretation of law made by a Court can certainly be taken into consideration by the AO while initially making an assessment under s. 143 (3) of the Act. However, interpretation of a law by a Court in a subsequent decision between different parties cannot be a ground for reopening of an assessment under s. 147 of the Act after the expiry of a period of four years.

He submitted that proceedings under s. 147 of the Act can be initiated after a period of four years only if the AO had a reason to believe that income chargeable to tax had escaped assessment on account of a failure of the assessee to disclose fully and truly all the material facts necessary for the assessment. Further, a sanction of the CIT must also be obtained before reopening of the assessment. A mere change of opinion, though such change of opinion is based upon the interpretation of law made in a subsequent decision of a High Court or the Supreme Court is not a ground for reopening of an assessment after the expiry of the period of four years. He further submitted that in the present case, the assessment was sought to be reopened only on the ground of change of opinion of the AO based upon the subsequent decisions of the Bombay High Court rendered in CIT vs. K.K. Doshi & Co. (supra) and CIT vs. Kantilal Chhotalal (supra). Though this could have been done within a period of four years from the date of the assessment order made under s. 143(3) of the Act, it was impermissible to do so after the expiry of a period of four years. He further submitted that in any event, the ratio of the decisions of this Court in CIT vs. K.K. Doshi & Co. (supra) and CIT vs. Kantilal Chhotalal (supra) have not been correctly understood by respondent No. 1. He invited our attention to the two subsequent decisions of this Court rendered in CIT vs. Bangalore Clothing Co. (2003) 180 CTR (Bom) 127 : (2003) 260 ITR 371 (Bom) and Alfa Laval India Ltd. vs. Dy. CIT (2004) 186 CTR (Bom) 390 : (2004) 266 ITR 418 (Bom) and submitted that even on the merits the original order of assessment was right and needed no modification. On the view we have taken about the interpretation of ss. 147, 148 and 149 of the Act, it is not necessary for us to consider to what extent, as submitted by Mr. Dastur, the principles laid down in the cases of K.K. Doshi and Co. (supra) and Kantilal Chhotalal (supra) have been modified/restricted and/or explained in the two subsequent decisions in Bangalore Clothing Co. (supra) and Alfa Laval India Ltd. (supra).

6. Before proceeding further, it would be useful to refer to the provisions of ss. 147, 148 and 149 of the Act which, at the relevant time, read as under : “147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned : Provided that where an assessment under sub-s. (3) of s. 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1. : Production before the AO of account books or other evidence from which material evidence could, with due diligence, have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2. : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely : (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. 148. Issue of notice where income has escaped assessment.—(1) Before making the assessment, reassessment or recomputation under s. 147, the AO shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under s. 139. (2) The AO shall, before issuing any notice under this section, record his reasons for doing so. 149. Time limit for notice.—(1) No notice under s. 148 shall be issued for the relevant assessment year,— (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under cl. (b); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Explanation. : In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Expln. 2 to s. 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-s. (1) as to the issue of notice shall be subject to the provisions of s. 151. (3) If the person on whom a notice under s. 148 is to be served is a person treated as the agent of a non-resident under s. 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year.”

7. A judicial order once made unless set aside in appeal, is binding on the parties. Ordinarily, all statutes confer a power on a Tribunal or judicial authority deciding a matter, to correct typographical or arithmetical errors in its orders. However, power to review one’s own orders is different from the power to correct arithmetic or typographic errors and is not an inherent power in any Tribunal or judicial authority. Power to review is required to be conferred by a statute. This principle is also applicable even to the orders passed by an AO under the IT Act. An assessment order once made is ordinarily final. Sec. 154 of the Act confers a power of rectification of mistakes apparent from the record. Sec. 147 of the Act empowers the AO to assess or reassess the income in the circumstances mentioned therein. The power to reopen an assessment under s. 147 is in the nature of an exception to the general principle that an assessment order once made would be final. The power to reopen an assessment is not unbridled or unrestricted. The power is subject to the proviso embodied in the section itself. The proviso prescribes restrictions on the power of reopening the assessment by limiting the time period to four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee (i) to submit a return under s. 139, or (ii) to respond to the notices issued under s. 142(1), or (iii) to respond to the notices issued under s. 148, or (iv) to disclose fully and truly all material facts necessary for the assessment of the income for that assessment year. Explanation 1 to s. 147 lays down that mere production of the books of account or other evidence from which the AO could, with due diligence, have discovered certain facts would not amount to disclosure within the meaning of the provision. Explanation 2 to s. 147 enumerates cases where it would presume that income chargeable to tax has escaped assessment. If the assessment is to be reopened after the expiry of four years from the end of the relevant assessment year, under the proviso to s. 147 of the Act, following conditions must exist : (i) The AO must have a reason to believe that any income chargeable to tax has escaped assessment for the any assessment year.

The expression “reason to believe” does not mean a purely subjective satisfaction on the part of the AO. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief has a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this extent, action of an AO in starting the proceedings under s. 147 in respect of income escaping assessment is open to challenge in a Court of law. [see observations of the Supreme Court in ITO vs. Lakhmani Mewal Das 1976 CTR (SC) 220 : (1976) 103 ITR 437 (SC) at pp. 445 and 446]; and (ii) The AO must have a reason to believe that such income had escaped assessment by reason of failure on the part of the assessee (a) to make a return under s. 139; or (b) to respond to the notice issued under s. 142(1) or 148 of the Act, or (c) to disclose fully and truly all the material facts necessary for his assessment of income for that year. Both the aforementioned conditions imposed must co-exist to confer jurisdiction on the AO to reopen the assessment under s. 147. Sub-s. (2) of s. 148 of the Act makes it imperative for the AO to record his reasons before initiating proceedings. Where a notice under s. 147 of the Act is to be issued after the expiry of four years from the end of the relevant assessment year, the CIT or the Joint CIT, as the case may be, should be satisfied on the reasons recorded by the AO that it is a fit case for issue of such notice.

8. The power of reassessment conferred under s. 147 of the Act can be exercised within a period of four years from the end of the relevant assessment year without restrictions imposed by the proviso to that section. However, after the expiry of four years from the end of the relevant assessment year, power of the AO is restricted by the limitations imposed under the proviso, as stated earlier. Shri Revonkar, learned counsel for respondents Nos. 1 and 2, relying upon sub-cl. (iii) of cl. (a) of sub-s. (1) of s. 149 of the Act contended that on account of the wrong computation of claim of the deduction under s. 80HHC of the Act, tax or more than Rs. 1,00,000 would be payable and, therefore, the notice could be issued within a period of 10 years from the end of the relevant assessment year. We are unable to agree. Sec. 147 of the Act is the source of power of the AO for reopening of the assessment. Sec. 148 contains procedural restrictions for issuance of a notice for exercise of the power of reopening of an assessment conferred under s. 147. Sec. 149 prescribes the time-limit for issuance of a notice under s. 148. In our opinion, the conditions laid down under s. 147 of the Act for the purposes of reopening the assessment must be satisfied before the notice can be issued. The conditions laid down in s. 147 are the jurisdictional facts necessary for the purpose of exercise of the power under s. 147. The jurisdictional facts prescribed under s. 147 must exist before a notice under s. 148 can be issued. The time-limit prescribed under s. 149 of the Act for issuance of a notice under s. 148 is in addition to and not in derogation with the necessary conditions required to be satisfied under s. 147 of the Act. In other words, if the basic jurisdictional facts required for reopening of an assessment under s. 147 of the Act do not exist it would not be competent for the AO to issue a notice under s. 148. Even where the jurisdictional facts prescribed under s. 147 exist and all conditions laid down under s. 147 and the proviso thereto are satisfied, the notice under s. 148 can be issued only after the AO has recorded his reasons for doing so under sub-s. (2) of s. 148 and has further obtained the necessary sanction for issuance of the notice as required under s. 151 of the Act. Such notice is also required to be issued within the time- limit prescribed under s. 149 of the Act. Sec. 149 of the Act, in our opinion, does not relax the restriction of four years prescribed in the proviso to s. 147 of the Act for issuance of a notice under the proviso to s. 147. The restriction of four years would be applicable unless the income chargeable to tax has escaped assessment by reason of failure of the assessee to make a return under s. 139 or in response to a notice under s. 142 or 148 of the Act or the failure of the assessee to disclose fully and truly all material facts. If the reassessment is required to be made on account of the failure of the assessee to disclose fully and truly all material facts necessary for his assessment, obviously, the restriction of four years put under the proviso to s. 147 would not be applicable and notice can be issued after the expiry of a period of four years, but within the time-limit of 7 or 10 years, as the case may be, prescribed under s. 149 of the Act.

The object of s. 149 in imposing the restriction of seven years or ten years where the income likely to have escaped assessment is less than Rs. 50,000 or Rs. 1,00,000, as the case may be, is not to permit reopening of the assessment where the tax liability would not be significant as compared with the efforts that would be required for reopening of an assessment after a passage of seven or ten years, as the case may be. To repeat, the time-limit imposed under s. 149 of the Act for issuance of the notice is not in derogation of and is not for enlarging the time restriction imposed under the proviso to s. 147 of the Act but to put an additional time restriction even where there is no restriction of time for reopening of the assessment on account of failure of the assessee to disclose fully and truly all material facts.

9. In the present case, the reasons which have been recorded by the AO for reopening of the assessment do not disclose that the assessee had failed to disclose fully and truly all material facts necessary for the purpose of assessment. No doubt, in the last para of the reasons, the first respondent has stated : “I am satisfied that due to furnishing of the false particulars of the income by way of incorrect certificate which means failure on the part of the assessee to disclose fully and truly all material facts required for the assessment, income of Rs. 6,10,10,272 had escaped assessment.” The said statement is clearly made only as an attempt to take the case out of the restriction imposed by the proviso to s. 147 of the Act. As laid down by the Supreme Court in the case of ITO & Ors. vs. Lakhmani Mewal Das (supra), the phrase “reason to believe” does not mean purely subjective satisfaction on the part of the AO and the belief that income has escaped assessment by reason of failure of the assessee to disclose all material facts must be held in good faith and not merely as a pretence. It is open to a Court to examine whether the relevant facts on which the opinion has been formed, have a bearing on the formation of the belief and to that limited extent the opinion is open to challenge in the Court of law. Paragraph Nos. 2 and 3 of the reasons recorded by the ITO state the reason for the belief of the AO that income had escaped assessment. During the relevant assessment year, the assessee had received certain income by way of sale of vessels, other services and shipping agency fees. In the case of CIT vs. K.K. Doshi & Co. (supra), the Division Bench of this Court held that profit earned by the assessee from an activity which has no linkage with the export activity cannot be included in the business profit from an export activity for the purpose of computation of deduction under s. 80HHC of the Act. In view of this decision, according to the AO, the deduction under s. 80HHC was not properly computed in accordance with the principles laid down by the Division Bench of this Court in the case of K.K. Doshi and Co. (supra). This was expressly stated in para No. 2 of the reasons recorded.

In para No. 3 of the reasons, it is stated excess deduction under s. 80HHC of the Act has been allowed on the basis of wrong inclusion of profit from sale of vessels, service receipts and shipping agency fees in computing business profit (of exports) escaped assessment on account of the interpretation of law as laid down by this Court in K.K. Doshi and Co. (supra). It is clear to us that the only ground on which the AO believed that the income of the assessee had escaped assessment was on the basis of erroneous computation of deduction under s. 80HHC of the Act based on the interpretation of the manner of computation of export profits made by the Division Bench of this Court in K.K. Doshi and Co. (supra). It is not the case that the assessee had not disclosed truly and fully all material facts that were necessary. With the help of learned counsel for the parties, we have perused the copies of the return of income filed by the assessee and the annexures thereto including the audit report under s. 44AB of the IT Act. We have also perused the copy of the assessment order dt. 22nd March, 1994, made under s. 143(3) of the IT Act. We are satisfied that the assessee had truly and fully disclosed all material facts necessary for the purpose of assessment. The assessee had clearly disclosed that its income consisted of income from (i) sale of ores, (ii) sale of vessels, (iii) services and other proceeds, and (iv) miscellaneous income. Figures for all four heads of income were separately given in the return along with the necessary details. The assessee had claimed a deduction of Rs. 7,74,92,451 as a deduction under s. 80HHC of the Act. The AO did not accept this claim of deduction claimed by the assessee on the ipse dixit of the assessee but made a recomputation in accordance with formulae under s. 80HHC and came to the conclusion that deduction under s. 80HHC would be Rs. 8,25,24,247. This increase in the deduction of s. 80HHC was allowed by the AO as he had recomputed the income at Rs. 10,16,56,940 instead of Rs. 9,05,00,237 as computed by the assessee in its return of income. Not only true and material facts were disclosed by the assessee truly and fully but they were carefully scrutinised and figures of income as well as deductions were reworked carefully by the AO. Reasons for such recomputation were also recorded by the AO in his assessment order. Thus, this is not a case where the assessment is sought to be reopened on the reasonable belief that income had escaped assessment on account of failure of the assessee to disclose truly and fully all material facts that were necessary for computation of income; but this is a case wherein the assessment is sought to be reopened on account of change of opinion of the AO about the manner of computation of the deduction under s. 80HHC in the light of a subsequent decision of the Division Bench of this Court in K.K. Doshi & Co. (supra).

10. In Lakhmani Mewal Das (supra), relied upon by Shri Dastur, the apex Court, while considering s. 34 of the Indian IT Act, 1922, has held that while it is the duty of the assessee to fully and truly disclose all primary facts necessary for the purpose of assessment, it is no part of his duty to point out what legal inference should be drawn from the facts disclosed. It is for the ITO to draw an appropriate inference. Shri Dastur also relied upon the judgment of the decisions of the Gujarat High Court in Meghdoot Laminart (P) Ltd. vs. Rajiv Sinha or his successor in office of the Dy. CIT (1999) 155 CTR (Guj) 386 : (1999) 238 ITR 918 (Guj) at p. 922, the Calcutta High Court in Mercury Travels Ltd. vs. Dy. CIT (2003) 179 CTR (Cal) 314 : (2002) 258 ITR 533 (Cal) at pp. 537 to 540 and the Madras High Court in Fenner (India) Ltd. vs. Dy. CIT (1999) 155 CTR (Mad) 165 : (2000) 241 ITR 672 (Mad). In all these decisions, it has been held that law casts an obligation on the assessee only to disclose fully and truly all material facts, i.e., primary facts and there is no obligation on the assessee to instruct the AO as to what inference should be drawn on the basis thereof. It is the duty of the AO to draw the necessary inference based on the primary facts disclosed by an assessee. We respectfully follow these decisions.

In our opinion, a subsequent decision of a Court cannot justify the reopening of an assessment after a period of four years as the subsequent decision does not mean failure on the part of an assessee to disclose fully and truly all material facts. We are fortified in our view by the decisions of the Calcutta High Court in Indra Co. Ltd. vs. ITO (1971) 80 ITR 559 (Cal) at pp. 562 to 565, and the Gujarat High Court, rendered in Arvind Mills Ltd. vs. Dy. CIT (1999) 157 CTR (Guj) 156 : (2000) 242 ITR 173 (Guj) and CIT vs. Gujarat Ginning & Manufacturing Co. Ltd. (1995) 123 CTR (Guj) 289 : (1994) 205 ITR 40 (Guj) to which our attention was drawn by Mr. Dastur. He also relied upon a decision of the Calcutta High Court in Simplex Concrete Piles (India) Ltd. vs. Dy. CIT & Ors. (2003) 183 CTR (Cal) 47 : (2003) 262 ITR 605 (Cal). In the case of Simplex Concrete Piles (India) Ltd. (supra), the Division Bench of the Calcutta High Court, after considering the law as it stood prior to the amendment of s. 147 (made w.e.f. 1st April, 1989) as also the law after the amendment, held that there has been no substantial change in the principles on which assessment can be reopened either before 1st April, 1989, or thereafter. The Division Bench further held that action for reopening of an assessment cannot be taken after the expiry of four years unless the given case falls under the proviso to s. 147 of the Act, i.e., the income has escaped assessment on account of failure of the assessee to disclose truly and fully all material facts or on account of some other contingencies (with which we are not concerned here) specified in the proviso. We are wholly in agreement with the view expressed by the Division Bench of the Calcutta High Court in the case of Simplex Concrete Piles (India) Ltd. (supra). Relying upon the decision of the apex Court in GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 179 CTR (SC) 11 : (2003) 259 ITR 19 (SC), Mr. Revonkar contended that when a notice under s. 148 of the IT Act is issued, the proper course of action for the noticee is to file a return and, if he so desires, to seek reasons for issuing of the notices. On receipt of the reasons, the noticee is entitled to file objections to issuance of the notice and the AO is bound to dispose of the same by passing a speaking order. Mr. Revonkar, therefore, submitted that the petitioner should have sought for the reasons recorded by the AO for issuance of the notice under s. 148 and thereafter should have raised before the AO its objections thereto. Thereupon, the AO would have decided the objections raised by the petitioner by passing a speaking order. The petitioner should not have rushed to the Court and this Court, in exercise of its jurisdiction under art. 226, should not quash the impugned notice.

The ratio of the decision of the Supreme Court in GKN Driveshafts India Ltd.’s case (supra) has been considered and explained by two Division Benches of this Court in Caprihans India Ltd. vs. Tarun Seem, Dy. CIT (2003) 185 CTR (Bom) 157 : (2004) 266 ITR 566 (Bom) and Ajanta Pharma Ltd. vs. Asst. CIT & Ors. (2004) 186 CTR (Bom) 521 : (2004) 267 ITR 200 (Bom). In the former decision, the Division Bench held that the petition which was filed by the assessee challenging the notice could not be dismissed as the reasons subsequently disclosed by the AO show that there was no prima facie finding that the assessee had failed to make true and full disclosure of all material facts. The Division Bench entertained the petition and quashed the notice. In the present case, the petitioner by his letter dt. 28th June, 2001, did request respondent No. 1 to inform him the reasons recorded under s. 148(2). Despite this request the reasons were not furnished but, on the other hand, notice under s. 142 was issued on 24th July, 2001. Though the writ petition was filed as early as on 31st August, 2001, reasons were disclosed for the first time on 17th Feb., 2004, by annexing a copy of the reasons to the affidavit-in-reply sworn in by N.N. Murthy Naik. On account of the non-disclosure of the reasons, despite demand, there was no occasion for the petitioner to make a representation to the AO and object to those reasons. Rule was issued by this Court on the writ petition on 16th Oct., 2001, and it would not be proper for us to dismiss the writ petition at this stage after a lapse of more than two and a half years on the ground that the petitioner, after the reasons are disclosed after two and a half years should now object to the reasons by filing objections before the AO. Furthermore, we have held that the AO had sought to reopen the assessment not on the ground of non-disclosure of the facts truly and fully but on the ground of change of opinion based upon the decision of this Court in the case of K.K. Doshi & Co. (supra). As we have held earlier that change of opinion based upon a subsequent decision of a Court is no ground of reopening of an assessment under s. 147 of the Act after the expiry of a period of four years, thus, in the present case, there is inherent lack of jurisdiction in the respondents to reopen the assessment.

The notice relates to the asst. yr. 1991-92 ending 31st March, 1991. The notice has been issued on 31st May, 2001, and was received by the petitioner on 1st June, 2001. The notice was issued after the expiry of 10 years from the end of the relevant assessment year. For the reasons, we allow the writ petition and make the rule absolute in terms of prayer cls. (a), (b) and ©.

[Citation : 294 ITR 101]

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