Gujarat H.C : the Assessing Officer in the present case did not travel beyond expressing his clear intention to withdraw the notice.

High Court Of Gujarat

Marwadi Shares And Finance Limited vs. DCIT

Section 143(3), 148, 127(2)(a)

Asst. Year 2010-11

Akil Kureshi & B. N. Karia, JJ.

Special Civil Application No. 17698 of 2017 With 17699 of 2017

7th March, 2018

Counsel appeared:

R K Patel AND Darshan R Patel for the Petitioner.: Pranav G Desai, Manish Bhatt, Mauna M Bhatt for the Respondent

AKIL KURESHI, J.

These petitions involve similar facts. Special Civil Application No. 17698 of 2017 is treated as a lead matter. For convenience, we would record facts from such petition and note the facts from the other petition only to the extent they differ.

The petitioner is a private limited company and is engaged in share broking. The petitioner has challenged a notice dated 29.03.2017 issued by respondent No. 2, Assistant Commissioner of Income Tax seeking to reopen the petitioner’s assessment for the assessment year 2010-11.

For the said assessment year 2010-11, the petitioner had filed the return of income on 29.09.2010. Such return was taken in scrutiny. Assessing Officer passed order of assessment under section 143(3) of the Income Tax Act, 1961 [‘the Act’ for short] on 28.02.2013. To reopen such assessment, the Assessing Officer issued notice under section 148 of the Act on 31.03.2015. In order to do so, he had recorded following reasons:

“M/s. Marwadi Shares and Finance Pvt. Ltd (PAN:AABCM5192K), Rajkot-A.Y. 2010-11.: In this case, return of income for the A.Y. 2010-11 showing income of Rs. 33,31,55,229/-was filed on 29.09.2010 and the assessment was finalized vide assessment order u/s. 143(3) determining income of Rs. 33,31,80,070/-.

Information has been received by this office in respect of fictitious losses created by some brokers by misusing the client code modifications facility in F & O segment on NSE during March 2010. The assessee M/s. Marwadi Shares and Finance Ltd. is reported to be one of the beneficiaries of such fictitious losses by misuse of client code modification facility. This fictitious loss have been adjusted by the assessee against the profits in the A.Y. 2010-11 which has resulted in suppression/reduction of taxable income to the tune of Rs. 5,73,65,135/-.

In view of the above, I have reason to believe that the income to the extent of Rs. 5,73,65,135/-as stated above ha escaped assessment within the meaning of section 147 of the Income Tax Act, 1961.

Issue Notice u/s. 148 of the Income Tax Act, 1961.”

4. The petitioner challenged such notice of reopening by filing Special Civil Application No. 2120 of 2016. Such petition was disposed of by an order dated 21.06.2016 in the following manner: “After hearing learned counsel for the parties for some time previously and today, learned counsel Shri Pranav G.Desai for the Department stated on instructions that the respondent Assessing Officer would withdraw the impugned notice for re-opening of the assessment based on the reasons supplied to the petitioner, with a view to issuing a fresh notice after recording fresh reasons. In that view of the matter, it is not necessary to decide the validity of the notice which is under challenge in this petition. Learned counsel for the petitioner however submitted that if fresh notice is issued, the petitioner may consider challenging it in accordance with law. Petition disposed of accordingly.”

5. The Revenue thereafter filed Misc. Civil Application No. 2789 of 2016. In the said petition seeking review of the said order, the prayer made in the said Misc. Civil Application was “to hold that fresh notice to be issued be treated as notice within four years from the end of the relevant assessment year under consideration in the interest of justice.” The Revenue thus agreed before the High Court that the notice of reopening would be withdrawn and a fresh one may be issued. This notice was issued within a period of four years from the end of the relevant assessment year. The fresh notice to be issued would be beyond four years. The request of the revenue therefore was that the fresh notice be treated as continuation of the old notice and therefore be considered as having been issued within four years. Such a request was rejected by the Court by an order dated 28.09.2016. The order reads as under:

“1. Heard learned counsel Mr. Pranav Desai for the Revenue and Mr. B.S.Soparkar for the respondent-assessee. The original petition was filed by the assessee challenging the notice dated 31.03.2015 issued by the Assessing Officer reopening the petitioner’s assessment for the assessment year 2010-11. During the course of hearing of this petition, we confronted the counsel for the Revenue with our prima facie impression that the reasons recorded by the Assessing Officer for issuing the notice may not satisfy the requirement of the Assessing Officer having a bona fide belief that income chargeable to tax had escaped assessment. In view of the unsatisfactory recording of reasons, the counsel for the Revenue had taken time to take instructions whether the Assessing Officer would like to withdraw the notice and issue a fresh notice of reopening after recording proper reasons. Under the instructions from the concerned authority, Shri P.G.Desai conveyed to us that the Assessing Officer would withdraw the notice for the purpose of issuing a fresh notice. However, he pointed out that original notice was issued within a period of four years and any fresh notice now would be beyond a period of four years from the end of the relevant assessment year. He, therefore, made a request that we should clarify that the fresh notice would also be treated as one having been issued within four years since it would be in continuation of the original notice. We conveyed our inability to do so in view of clear legal position and again asked him whether in view of such situation, the authority would go ahead with the proposal to withdraw the notice for issuing the fresh one. Once again on the same day, after taking instructions, he conveyed to us that the Assessing Officer would go by the initial offer of withdrawal of the notice. It was, thereupon, that we disposed of the writ petition by an order dated 21.06.2016, in which, we permitted the Assessing Officer to withdraw the impugned notice with a view to issuing a fresh notice after recording fresh reasons.

What transpired during the course of the hearing and which is recorded hereinabove does not form part of our order dated 21.06.2016 but learned counsel for both sides agreed that this is as far as possible an accurate recording of what actually had transpired.

In that view of the matter, when the Assessing Officer had consciously withdrawn the notice of reopening even without the permission to treat the fresh notice as continuation of the original and therefore having been issued within a period of four years from the end of the relevant assessment year, he now cannot resile from such a decision as is sought to be done through this application.

Under the circumstances, this application is dismissed.”
6. Respondent No.2 thereafter issued fresh notice of reopening on 29.03.2017 recording fresh reasons which read as under:

“Background of the case

1. In this case, for the AY under consideration reasons were earlier recorded by the DCIT Circle 1(1) Rajkot who was then having jurisdiction over the assessee. Thereafter a notice u/s. 148 was issued on 31.03.2015 and the same was duly served upon the assessee on 31.03.2015. Thereafter, the assessee vide Special Civil Application No. 2120 of 2016, challenged the reopening of proceedings and issue of notice, before the Hon. Gujarat High Court. The Hon’ Gujarat High Court, vide its order dated 21.06.2016 directed as under:

After hearing learned counsel for the parties of some time previously and today, learned counsel Shri Pranav G. Desai for the department stated on instructions that the respondent Assessing Officer would withdraw the impugned notice tor reopening of. the assessment based on the reasons supplied to the Petitioner. with a view to issuing a fresh notice after recording fresh reasons. in that view of the matter, it is not necessary to decide the validity of the notice which is under challenge in this petition. Learned Counsel for the petitioner however submitted hat if fresh notice is issued, the petitioner may consider challenging it in accordance with law. Petition disposed off accordingly.

2. Based on the above direction. the DCIT Cir 1(1) had not recommended SLP. The Chief CIT Rajkot. vide approval letter No. CC/RJT/HQ-1/JUD/SLP-22/2016-17 dated 15.7.2016, addressed to the Pt. ClT-1 Rajkot, agreed to the proposal of non-filing of SLP, but observed as under:

NO SLP review petition may be filed

On perusal of the GHC’s order, it is seen that the Hon’ble GHC has mentioned that learned counsel for the petitioner, however submitted that if fresh notice is issued, the petitioner may consider challenging it in accordance with law. Thus, the Hon’ble GHC has taken note of the representation made by the learned Counsel for the petitioner. However, the Hon’ble GHC’s order is silent about the prayer of the AO to treat the fresh notice issued as notice within four years from the end of the assessment year under consideration. Thus, the Hon’ble GHC has not taken note of the AO’s prayer.

Accordingly, the DCIT Circle 1(1) Rajkot, vide his letter No. DCIT/Cir-1(1)/Review Petition/Marwadi S & FL/2016-17 dated 28.07.2016 had requested the Sr.Standing Counsel, Shri Pranav Desai to file Review Petition before the Hon. Gujarat High Court.

In the meantime, the case was centralized with the circle. The Review Petition filed by the department has been dismissed by the Hon’ble Guajrat High Court (on 28/09/2016) on the ground that the A.O. has consciously withdrawn the notice of the re-opening there is no need for reviewing earlier order.

However, as directed by the Hon’ Gujarat High Court, fresh reason is recorded herewith as under. Reasons for reopening of assessment

a. The assessee M/s. Marwadi Shares & Finance Ltd (PAN:AABCM5192K) is a broker who facilitates share trading activities for its clients. Besides, it is also engaged in trading of shares and providing other financial services. The Directorate of Income Tax (Intelligence and Criminal Investigation) carried out a thorough investigation in respect of certain brokers who were indulging in the practice of transferring fictitious profit or loss by misusing the client code modification facility in F & O segment on NSE during March 2010, to different client/beneficiaries, according to their requirements to enhance or reduce the tax liability. The Directorate obtained client code modification (CCM) data for AY 2009-10 from NSE and mapping was done of such data to ascertain the exact amount of fictitious profits/losses in each case. The analysis revealed that the brokers (including the assessee) had misused the client code modification facility and created non-genuine losses and profits for its clients. The losses were utilized to reduce tax liability and the profits were utilized to cover up undisclosed income or to set off these profits against huge losses. On spot verification carried out by the DIT (I & CI), the brokers admitted to have misused the CCM facility to create fictitious losses/profits and admitted to have received commission ranging from 0.5% to 2% on the amount of losses/profits for transferring such losses/profits to their clients.

b. The DIT(I & CI) sought expert opinion from NSE to broadly distinguish a genuine CCM and non-genuine CCM. As per NSE, the following constituted genuine CCM.

i) Error due to communication and/or punching or typing such that the original client code/name and the modified client code/name are similar to each other.

ii) Modification within relatives.

iii) Any similar genuine error.

c. Some of the most popular Non genuine client code modification constituted as under:

i) Percentage of modified traded value is significantly higher than the total traded value of any trading members/clients.

ii) “Number of modified trades is significant to total number of trades of any trading members/clients.

iii) Profit/loss arising on account of all modifications by trading member/client is significant in comparison to the profit/loss in the trades where no modifications have been carried out.

iv) Profit/loss arising due to modification is significant.

v) Trades have been modified to unrelated parties.

vi) Both buy and sell leg of different trades have been modified to same client.

vii) The same sets of client are observed to be making profit/loss due to the modifications carried out.

viii) Total number of trade modifications increased before closing of the financial year.

d. All the above non-genuine CCMS were observed while analyzing the data of the brokers including the assessee by the I&CI Wing of the Income Tax Department. The assessee had claimed losses to the tune of Rs. 5,69,52,995/-by resorting to such non-genuine CCM practices. These facts were not disclosed by it in its return of income. Also these facts were not disclosed while finalizing its assessment u/s. 143(3) on 29.09.2010. This claim of fictitious loss had resulted into under assessment to the tune of Rs. 5,69,52,995/-.

e. In view of the above, I have reason to believe that the income of the assessee has escaped tax to the extent of Rs.5,69,52,995/-as stated above and this escapement is within the meaning of section 147 of the Income Tax Act, 1961.

f. As the present case fall in the time limit of 4 years to 6 years from the end of the relevant assessment year, the approval of the Pr. CIT is sought. As the reason are being re-recorded again as per the direction of the Hon Gujarat High Court, the approval for reopening is sought again as per law.”

7. The petitioner raised objections to the notice of reopening under letter dated 20.07.2017. Such objections were, however, rejected by an order dated 17.08.2017. The petitioner has therefore, filed this petition challenging the notice of reopening. Before issuance of the impugned notice, it appears that the petitioner’s assessment was transferred from the jurisdiction of his normal Assessing Officer through the process of centralization. It is the Central Circle Officer who has issued the impugned notice. The petitioner has also raised doubt about legality of this transfer without a formal prayer challenging the same.

8. In Special Civil Application No. 17699 of 2017, facts are substantially similar, except for the fact that the petitioner therein is not a share broker but a client of the broker who is the petitioner of Special Civil Application No. 17698 of 2017.

9. In background of such facts, learned counsel for the petitioner raised following contentions:

(i) The reasons recorded by the Assessing Officer proceeded on incorrect facts when they refer to the Court’s direction for withdrawal of the earlier notice and issuance of fresh notice. He contended that the High Court had never given any such directions.

(ii) There is no material difference in the reasons recorded by the Assessing Officer for issuance of earlier notice of reopening and those recorded in the present case while issuing the impugned notice.

(iii) Counsel contended that the first notice dated 31.03.2015 was never withdrawn. Without withdrawal of such notice by the Officer who had issued it, it was not permissible for the Revenue to issue a fresh notice. The law does not recognize issuance of notice of reopening when the assessment or re-assessment is still pending.

(iv) In support of this contention counsel relied on the following decisions:

In case of Aditya Medisales Ltd vs. Deputy Commissioner of Income Tax, Circle 1(1) reported in [2016] 73 Taxmann.com 197 [Guj.];

In case of Kunal Organics (P.) Ltd vs. Deputy Commissioner of Income Tax reported in [2014] 44 Taxman.323 (Gujarat)

Inc case of India Gelatin and Chemicals Ltd. vs. Assistant Commissioner of Income Tax (No. 2) reported in [2014] 52 taxmann.com 141 (Gujarat)

(v) Counsel next contended that the reasons recorded are invalid reasons and do not demonstrate that any income chargeable to tax in the hands of the assessee had escaped assessment. There was no failure on part of the assessee to disclose truly and fully all material facts. Notice of reopening which has been issued beyond a period of four years was therefore bad in law. Counsel also contended that the Assessing Officer has proceeded on the borrowed satisfaction without independent application of his own mind.

(vi) Counsel argued that the transfer of jurisdiction was also invalid. There was no concurrence between the two Commissionorates before the jurisdiction assessment of the petitioner was transferred from one authority to the another.

(vii) Counsel lastly contended that there is no valid sanction for reopening the assessment. There is nothing on record that the competent authority applied its mind before granting any such sanction.

10. On the other hand, learned counsel Mr. Bhatt for the department opposed the petition. He contended that incorrect narration of facts in the reasons recorded by the Assessing Officer pertaining to the directions issued by the Court are severable and would not destroy the very core of the reasons recorded by him demonstrating that income chargeable to tax had escaped assessment and that the same occasioned due to failure on part of the assessee to disclose truly and fully all necessary facts.

(i) Counsel further contended that even though there was no formal order or communication of an order withdrawing the previous notice of reopening, the conscious decision of the authority to withdraw his notice and issuing a fresh one can be culled out from the documents and materials on record. There is no standard format in which such withdrawal of the notice must be expressed. As long as the first notice has been abandoned clearly indicating the intention to withdraw the same, the second notice of reopening would be permissible.

(ii) Counsel submitted that the Assessing Officer has recorded elaborate reasons referring to the material placed for his consideration and demonstrating application of mind on his part before forming a belief that the income chargeable to tax had escaped assessment.

(iii) Counsel submitted that there was concurrence between the two Commissionorates with respect to the requirement of the transfer of petitioner’s assessment. In this context, in addition to the affidavits filed by the respondents, he also relied on the original files.

(iv) Once again, relying on the affidavits and the original files, counsel contended that there was proper sanction granted by the competent authority after due application of mind. In short, his submission was that the petition should be dismissed.

11. Though in our opinion the petition could have been decided on only one of the several contentions raised by the petitioner, in view of the possibility that the aggrieved party may carry the matter further, we would like to express our opinion on all contentions raised before us. For consideration of such contentions, we would club all arguments except of withdrawal of the first notice of reopening which would be considered separately. We may recall, the department previously issued a notice dated 31.03.2015. We have reproduced the reasons recorded by the Assessing Officer for issuing such notice. This notice was challenged by the petitioner before this Court. After some discussion at the bar, counsel for the Revenue, under instructions, stated that the notice of reopening of the assessment would be withdrawn by the Assessing Officer with a view to issuing a fresh notice after recording fresh reasons. Thereupon, fresh notice came to be issued on 29.03.2017. We have also reproduced reasons recorded by the Assessing Officer for issuance of such notice. In the previous notice, the reasons recorded merely stated that the information was received by the office in response to fictitious losses created by some broker by misusing client code modifications facility. The petitioner M/s. Marwadi Shares and Finance Ltd was reported to be one of the beneficiaries of misuse of such facility. Such fictitious losses had been adjusted by the assessee against the profits of other years. Thus, it could be argued that the Assessing Officer had merely proceeded on the information received by him. His approach was therefore possible of being faulted as having acted on bare information without his own application of mind and thus relying on borrowed satisfaction. In the fresh reasons, he gave some background facts which, to be honest, were highly jumbled up. He referred to the past litigation and recorded that the High Court had directed recording of fresh reasons. This obviously was a clear error. Ordinarily, we would not give any such direction. In any case, the order of the High Court which is reproduced in this judgement nowhere records any such direction. However, this by itself would not be fatal to the cost of the Revenue. The background facts are clearly severable from the reasons which succeed which formed the core of the recorded reasons by the Assessing Officer. Thus, the reasons summarized the information available with the Assessing Officer principally suggesting that there was systematic misuse of the client code modification facility with a view to buy losses to be offset against the profit of the year. The Assessing Officer has taken a note of the investigation report and, in particular, cited instance of such exercise in case of the assessee. He formed a belief that the assessee had claimed fictitious losses of Rs.5.69 crores (rounded off) through this process.

Clearly the Assessing Officer having recorded his reasons which were based on information supplied to him, this is not a case where the Assessing Officer had mechanically proceeded on the basis of the borrowed satisfaction. Even beyond the period of four years, the reasons recorded were good enough to sustain a notice of reopening. At this stage, when the Court is examining the validity of notice of reopening, the Court would only prima facie consider the reasons recorded by the Assessing Officer. It is not necessary for the Assessing Officer to demonstrate beyond doubt that invariably and unfailingly additions will be made in the hands of the assessee. What is required to be seen is whether the Assessing Officer had some tangible material at his command permitting him to form a bona fide belief that income chargeable to tax had escaped assessment. The petitioner’s contentions of the previous reasons and the fresh reasons being identical that there was lack of application of mind on part of the Assessing Officer; he having acted on borrowed satisfaction; that notice could not have been issued beyond the period of four years since there was no failure on part of the assessee to disclose truly and fully all material facts or that the reasons are invalid, must fail.

Coming to the question of unauthorized transfer of jurisdiction, we notice that there is no formal challenge to such transfer. However, when a legal issue has been raised, we have examined the same. In an affidavit dated 20.11.2017, respondent No.2 has stated that though the petitioner has not challenged the transfer of the case, to complete the record, copy of the order under section 127(2)(a) read with section 127(3) of the Act is produced. Since there is no formal challenge to the transfer of the assessment, the respondents cannot be faulted for not making any further factual averments in this regard. Nevertheless, to satisfy ourselves, we have perused the original files which show that the question of transfer of assessment emanated from the Office of the Director General of Income Tax (Investigation) as can be seen from a letter dated 16.09.2016 written to the Principal Director of Income-tax (Inv), Ahmedabad. He had requested to write to the Principal Chief Commissioner of Income Tax having jurisdiction of the group of cases requesting the authorities to pass necessary orders under section 127(2) of the Act transferring the cases to the concerned Assessing Officers in the jurisdiction. In turn, on 18.10.2016, Deputy Director of Income Tax (Investigation), Ahmedabad, wrote to the Principal Commissioner of Income Tax, Rajkot, to whom the Assessing Officer of the petitioner was subordinate requesting for transfer of the case under section 127(2) of the Act. On 07.11.2016, the Principal Commissioner of Income Tax, Rajkot, granted approval for transfer of the case of the petitioner. Since the transfer of the jurisdiction was within the same city, there was no requirement of hearing the assessee. Copies of necessary documents, letters and file notings in this regard tendered by the counsel for the Revenue are taken on record. We have taken note of such material and we are satisfied that there is no lack of concurrence between the two offices.

Regarding the contention of invalid sanction, the petitioner has not made any further elaboration. However, to satisfy ourselves, we have also perused original files of the department. The original file would show that the proposal for sanction was placed before the Commissioner of Income Tax, Central Circle, Ahmedabad alongwith the reasons dated 22.03.2017 recorded by the Assessing Officer. This was presented for his consideration in tabular form giving specific details such as the name of the assessee, the assessment year concerned, the quantum of income which had escaped assessment etc. This proposal was first placed before the Joint Commissioner of Income Tax for his comments who had, in his own handwriting, commented as “fit case for reopening u/s. 147 of the Income Tax Act, 1961”. On 28.03.2017, the Principal Commissioner of Income Tax, Central, Ahmedabad in response to a column where he was satisfied on the reasons recorded that it was a fit case for issuance of notice under section 148. He had in his own writing remarked “yes it is a fit case”. It appears that simultaneously submissions were also placed before him on 28.03.2017 for placing the case for his consideration and approval. He had placed his signature approving the same. Thus, there was clear application of mind on part of the sanctioning authority who had, after perusing the reasons recorded by the Assessing Officer and other materials, granted necessary sanction.

Despite such observations and conclusions recorded above, the question is, should the reassessment process be allowed to continue? Answer to this question would depend on the question of validity of the fresh notice, without, as contended by the counsel for the petitioner, withdrawing the previous notice. In this regard, we may peruse the materials on record more minutely. We may recall that in the earlier round of litigation before the High Court, the Assessing Officer made statement through the counsel that he would withdraw the impugned notice which was based on the reasons supplied to the petitioner “with a view to issue a fresh notice after recording fresh reasons.” Counsel for the petitioner had however, stated that if such fresh notice is issued, the petitioner may consider challenging the same in accordance with law. In view of this, the petition was disposed of. Thus, clearly, till the disposal of the petition, the notice was not yet withdrawn. It was only conveyed to the Court that the same would be withdrawn. Even when the Revenue filed a review petition being Misc. Civil Application No. 2789 of 2016 clearly there was no formal order passed withdrawing the notice. In fact, the prayer of the Revenue was that the fresh notice which may be issued should be treated to have been issued within a period of four years. This is significant since previous notice of reopening was issued within a period of four years. By the time the High Court disposed of the writ petition in the manner noted above, four years had lapsed from the end of the relevant assessment year. Any fresh notice therefore would be beyond a period of four years. The Revenue desired that in view of the special events, the fresh notice may be treated as an extension of the original notice and deemed to have been issued within four years from the end of the relevant assessment year. The Court while rejecting such a prayer did make a passing remark and perhaps inadvertent reference if we may say so, that the Assessing Officer had consciously withdrawn the notice of reopening. When the prayer to treat the fresh notice as continuous of the original, this passing remark would not change the factual position. An admitted factual position is that the first notice of reopening was not withdrawn when the earlier writ petition was disposed of by the High Court, when the department filed an Misc. Civil Application for review or recall or even when Assessing Officer issued a fresh notice dated 29.03.2017 which is impugned in this petition. Fact of the matter is there is no formal withdrawal of notice till date.

The law on subject is sufficiently clear. There can be only one process of assessment or reassessment. Pending any such assessment or reassessment, there cannot be a notice of reopening. The Courts have held that there cannot be reopening of assessment which is not yet complete. Counsel for the petitioner has referred to several decisions in this regard which we have noted. Reference to only one of them would be sufficient. This Court in case of Aditya Medisales Ltd (supra) had occasion to take into consideration various judgements of High Courts and Supreme Court in background of facts which were thus. The petitioner had filed the return of income for the assessment year 2005-06. Notice of reopening the assessment issued by the Assessing Officer. Such notice was challenged by the petitioner before the High Court. High Court had admitted the petition and granted interim relief staying further proceedings pursuant to such notice. When the petition was pending, the Assessing Officer issued yet another notice under section 147 of the Act seeking to reopen the petitioner’s assessment for the same assessment year, however, on the basis of independent reasons possibly upon availability of fresh material. This second notice of reopening was challenged on various grounds including on the ground that in face of the pendency of the first notice of reopening, there could not be successive second reopening of the assessment. The Court held and observed as under:

“7. There cannot be two parallel assessments based on two notices. As long as first assessment is not completed, question of reassessment would not arise. Once a notice is issued under section 148 of the Act, it triggers initiation of proceedings for assessment or reassessment of income which may have escaped assessment earlier. During such assessment, any income which may come to the notice of Assessing Officer may also be brought to tax. Till this assessment is not completed, it would not be possible for him to form a belief that income chargeable to tax had escaped assessment. Until the assessment, be it original or reopened, is pending before the Assessing Officer, the question of issuing notice for reopening would not arise. As noted, in case of Ranchhoddas Karsondas (supra), the Supreme Court had taken a view that till the assessment proceedings are pending, it cannot be stated that there was escapement of income. To our mind, there is no distinction whether the pending assessment is pursuant to the return filed by the assessee originally or in response to the notice of reassessment issued by the Assessing Officer. In either case within the contours of the provisions for assessment, the assessment of the income of the assessee at the hands of the Revenue is at large.

We are conscious that the conclusion that we have arrived at, may lead to a piquant situation for the revenue. In a given case, it may so happen that notice for reopening may have been issued within the period of four years from the end of relevant assessment year, on the reasons recorded, which may have no relevance to non disclosure of material facts. After four years it is entirely possible that the Revenue may chance upon further materials not disclosed by the assessee in the original return or during the assessment proceedings which may have a bearing on income escaping assessment. The suggestion that if additional information is available with the Revenue later on, it is always open for the Assessing Officer to withdraw the first notice and issue second notice including both sets of reasons, would fail in such an example. In the example cited, the Revenue would have a difficult choice to make whether to rest on the notice already issued and the reasons recorded for the same which would deprive the revenue of the additional grounds to support reopening or after withdrawing the first notice to issue a fresh notice which would be beyond a period of four years and thereby sacrifice the reasons already recorded, which would not sustain the test of failure on part of the assessee to disclose truly and fully all material facts. However, such difficulty in making a choice, would not govern the interpretation of statutory provisions or would permit us to enlarge the scope of reassessment by holding that the second notice of reopening pending reassessment would also be permissible. We do not discern any concept of alternative or protective notice of reassessment. In the result, impugned notice of reopening is bad in law. This is despite the fact that the first notice came to be quashed on the ground that on the basis of reasons recorded, it cannot be stated that income chargeable to tax had escaped assessment.

To this conclusion, we may however add a caveat. In a given case, if it is found that the notice itself is invalid being nonest or ab initio void, it would be no valid notice in eye of law, pursuant to which any valid assessment proceedings would initiate. For example, if the notice is issued by an authority who was simply not competent or was issued without the sanction of the Commissioner when so required, the notice would be void, nonest and having no effect in eye of law. Such a notice would not reopen an assessment, would not commence assessment proceedings and whenever so declared, such a declaration would relate back to the original issuance thereof. In such a situation, if the Revenue has issued a second notice for reopening, the same would not be rendered invalid. In this context we may recall, the Supreme Court in case of Ranchhoddas Karsondas (supra), in the context of notice of reopening issued pending a return of nil income filed by the assessee linked the validity of the notice to the validity of the return observing that if the return filed by the assessee was no return, the conditions of section 34 (of the Act of 1922) would apply and the Assessing Officer could carry out the assessment.”

17. When therefore in the present case the first notice of reopening of assessment was not withdrawn, there was no scope, nor permissible in law to issue fresh notice of reopening. Counsel for the Revenue, however, vehemently contended that such withdrawal of notice of reopening must be deduced from facts and attendant circumstances. His contention was that the Revenue had, all along, intended to withdraw the notice and the fact, that such notice was abandoned, was sufficient to establish withdrawal thereof. We, however, hold a slightly different belief. A notice of reopening which is once issued would remain in operation unless it is specifically withdrawn, quashed or gets time barred. First instance would be at the volition of the Assessing Officer as the person who had issued the notice. He can recall the notice for valid reasons and may even issue a fresh notice which is not impermissible in law. Nevertheless, there has to be an action of withdrawal. Mere intention, a stated intention or even an intention which is otherwise put in practice cannot be equated with withdrawal of the notice. By mere intention to abandon the proceedings arising out of the notice, the Assessing Officer cannot bring about the desired result of withdrawing the notice. The notice was either withdrawn or is stood as it is, may be without any follow up action on part of the Assessing Officer .

The material on record would clearly demonstrate that the Assessing Officer in the present case did not travel beyond expressing his clear intention to withdraw the notice. He had so stated before the High Court through his advocate on 21.06.2016 when Special Civil Application No. 2120 of 2016 was being disposed of. He has so stated at multiple places in the reply dated 20.11.2017 filed before us. At no stage, either he passed and communicated the order of withdrawal of the notice to the petitioner. Even the files do not show any such formal withdrawal of the notice with or without communication thereof to the petitioner. The conclusion that we have reached would invariably result in frustrating the Revenue’s attempt to reopen the assessment and may have been seen to be based on somewhat technical reasons. Having succeeded on all other grounds, the Revenue may legitimately feel somewhat disappointed. Nevertheless, our duty is to give effect to the legal principles. The law does not recognize two parallel assessments. In absence of withdrawal of the first notice of reassessment, the proceedings would survive making the subsequent notice of reopening invalid.

Petition is allowed only on this ground. Disposed of accordingly.

[Citation : 407 ITR 49]