Allahabad High Court

M/S Amrit Corp. Ltd. (Formerly M/S ... vs The Additional Commissioner Of ... on 29 April, 2014

Bench: Rajes Kumar, Shashi Kant




HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

Reserved
 
Court No.33
 

 
Case :- WRIT TAX No. - 48 of 2010
 

 
Petitioner :- M/S Amrit Corp. Ltd. (Formerly M/S Amrit Banaspati Co. Ltd.)
 
Respondent :- The Additional Commissioner Of Income Tax
 
Counsel for Petitioner :- R.S. Agrawal
 
Counsel for Respondent :- C.S.C. (IT-Dept),A.N.Mahajan
 
And
 
Case :- WRIT TAX No. - 47 of 2010
 

 
Petitioner :- M/S Amrit Corp Ltd. (Formerly M/S Amrit Bannaspati Co. Ltd.)
 
Respondent :- The Additional Commissioner Of Income Tax
 
Counsel for Petitioner :- R.S. Agrawal
 
Counsel for Respondent :- C.S.C. (IT-Dept),A.N.Mahajan
 
Alongwith
 

 
Case :- WRIT TAX No. - 49 of 2010
 

 
Petitioner :- M/S Amrit Corp. Ltd. (Formerly M/S Amrit Banaspati Co. Ltd.)
 
Respondent :- The Additional Commissioner Of Income Tax
 
Counsel for Petitioner :- R.S. Agrawal
 
Counsel for Respondent :- C.S.C. (IT-Dept),A.N.Mahajan
 
                             And
 
Case :- WRIT TAX No. - 50 of 2010
 

 
Petitioner :- M/S Amrit Corp. Ltd. (Formerly M/S Amrit Banaspati Co. Ltd.)
 
Respondent :- The Additional Commissioner Of Income Tax
 
Counsel for Petitioner :- R.S. Agrawal
 
Counsel for Respondent :- C.S.C. (IT-Dept),A.N.Mahajan
 

 

 
				****
 

 

 
Hon'ble Rajes Kumar,J.

Hon'ble Shashi Kant,J.

(Delivered by Hon'ble Rajes Kumar, J.)

Since in all these four writ petitions, similar controversy is involved, therefore, these writ petitions are being decided by this one and common judgment.

By means of these petitions, the petitioner is challenging the validity of the notices, all dated 8.7.2009, under Section 148, read with Section 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act) for the assessment years 2003-04, 2004-05, 2005-06 and 2006-07 and the proceedings initiated in pursuance thereof.

Writ Petition No. 48 of 2010 relates to the assessment year 2003-04, Writ petition No. 47 of 2010, relates to the assessment year 2004-2005, Writ Petition No. 49 of 2010, relates to the assessment year 2005-06 and Writ Petition No. 50 of 2010 relates to the assessment year 2006-07.

Writ Petition No. 48 of 2010, relating to the Assessment Year 2003-04

The brief facts, giving rise to the present petitions, are that the petitioner is Company, incorporated under the Indian Companies Act, 1956, which is engaged in the manufacturing of Banaspati product. The petitioner-company was having the land measuring 77638 sq. yard at Amrit Nagar, G.T. Road, Ghaziabad since 1940-41, value of which has been shown in the Books of Accounts at Rs. 84,580/=. The petitioner-company has been declared as a sick unit by the Board of Industrial and Financial Reconstruction (in short 'BIFR') vide order dated 9.2.2001 wherein it has been observed that "The movable and the immovable assets of the Ghaziabad Vanaspati Unit, which had been closed down on 28th February, 1998 would be disposed of and the sale proceeds estimated at Rs.9 crores are proposed to be utilised for meeting the cost of rehabilitation and repayment of loans." It appears that in pursuance of the order passed by the BIFR, for the financial year 2001-02, the petitioner approached the U.P. Government for necessary permission to convert the land in residential plots, which was approved by the U.P. Government through the notification dated 15.11.2001. In lieu of the approval for the development of the land, the Ghaziabad Development Authority charged Rs.1,95,04,314/- and determined the saleable area of land at 46232 sq. yard. A further expenditure amounting to Rs.66,15,618/= was also incurred for levelling, sewer and water system and for the development of the plots. These activities were carried out in the financial year 2002-03, relevant to the assessment year 2003-2004. During the year under consideration, the petitioner has sold 687.568 sq. yard of land for a sum of Rs.20,60,000/= . The petitioner filed the income tax return, declaring nil income. Under the head 'Capital Gain', a sum of Rs.10,87,593/= was disclosed. The assessing authority passed the assessment order on 14th March, 2006, under Section 143(3) of the Act whereby certain additions and disallowances were made, against which the petitioner filed the appeal before the Commissioner, Income Tax (Appeal), which has been allowed in part. Further, the petitioner filed Second Appeal before the Tribunal, which was also partly allowed.

It may be mentioned here that so far as the 'Long Term Capital Gain' disclosed by the petitioner at Rs.10,87,593/- is concerned, the same has been accepted by the assessing authority.

The assessing authority issued the notice dated 8.7.2009, under Section 148, read with Section 147, of the Act.

On the request of the petitioner, the copy of the reason recorded for issuance of the notice was supplied to the petitioner on 21.10.2009. The petitioner objected to initiation of the re-assessment proceeding vide objection dated 28.10.2009, which has been rejected on 16.12.2009.

Heard Sri Rupesh Jain, learned counsel for the petitioner and Sri Bharat Ji Agarwal, learned Senior Advocate, Senior Standing Counsel, Union of India, assisted by Sri Dhanjai Awasthi, Senior Standing Counsel, Income Tax Department.

Learned counsel for the petitioner submitted that initiation of the proceeding under Section 147, by issuing a notice under Section 148, is patently illegal for the reason that:

(i) It is barred by time inasmuch as it has been issued beyond the period of four years. He submitted that there was no failure on the part of the assessee to disclose any material fact and no such case has been made out, therefore, the limitation to issue the notice was four years.

(ii) There existed no 'reason to believe' to initiate the proceeding under Section 147 as no fresh material came before the assessing authority to form the belief about the escaped assessment. On the basis of the material existed on the assessment record by re-appraisal of the fact and by inference on the basis of the change of the opinion, the proceeding has been initiated.

(iii) Complete details relating to the 77638 sq. yard land situated at Amrit Nagar, G.T. Road, Ghaziabad and sale of land during the relevant assessment years have been furnished alongwith the returns and further on the queries being made by the assessing authority during the course of assessment proceeding under Section 143(3) of the Act. The details of the computation of 'Long Term Capital Gain' was furnished and on application of mind the Assessing authority has passed the assessment order under section 143(3) of the Act.

To substantiate aforesaid submission, it is submitted that the complete details relating to the land were submitted before the assessing authority. Alongwith the return, a computation chart of the income has been filed wherein the 'Long Term Capital Gain' on the sale proceeds of the land has been computed. The total sale consideration at Rs.20,60,000/= was shown and after making the computation, in accordance to the procedure provided, under Section 48 of the Act, 'Long Term Capital Gain' at Rs.10,87,593/= was computed. The complete details of granting permission by the State Government and the payment of development charges to the Ghaziabad Development Authority were furnished. Further, during the course of the assessment proceeding, as required by the assessing authority, vide letter dated 27.2.2006, further details regarding working of profit on the sale of land was furnished vide letter dated 27.2.2006. The assessing authority, after making deep scrutiny and making necessary enquiries, in respect of the land owned and sold by the petitioner, passed the assessment order wherein 'Long Term Capital Gain' on the sale of land at Rs.10,87,593/= has been assessed. He further submitted that the petitioner has never converted the capital asset (land) into stock in trade nor has treated the same as stock in trade. No such evidence has been brought on record in this regard. Merely on the basis that the permission has been granted by the State Government and the development charge has been paid to the Ghaziabad Development Authority and the land has been sold, it has been inferred, in the reason recorded that the said land has become stock-in-trade and accordingly the petitioner is liable for 'Capital Gain', under Section 45(2) of the Act. It has been submitted that in the order dated 16.12.2009, the materials available on record, relating to the land have been referred and on these materials an inference has been drawn by making an observation that "All this action was taken in the F.Y. 2002-03, which clearly shows that assessee converted its capital asset (industrial land) into stock-in-trade (residential plots)." In the said order, it is observed that it is a clearcut case of erroneous application of law. He submitted that a bare perusal of the reason recorded and from the order, dated 16.12.2009, it is apparent that no case has been made out that the assessee has not disclosed fully and truly all the material facts, necessary for his assessment for the assessment years in dispute. He referred, paragraphs 18, 19 and 20, which have been replied in paragraph 14 of the counter affidavit wherein the averments made in the aforesaid paragraphs of the writ petition have not been disputed and it has been stated that the averments made in these paragraphs being argumentative in nature and refer to certain documents, the same shall be replied at the time of final hearing after exchange of affidavits. He also referred averments made in paragraphs 22 and 28 of the writ petition, reply of which has been given in paragraph 15 of the counter affidavit wherein the averments made in these paragraphs of the writ petitions have specifically not been denied.

It has further been submitted that in the present case, Section 45(2) of the Act does not apply. Section 45(2) provides that "Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income tax......." For application of Section 45(2), it is necessary that the transfer by way of conversion should be (a) by the owner of the capital asset or by way of the treatment of the capital asset by him as stock-in-trade of business. In the present case, neither the petitioner has converted the capital asset into the stock-in-trade nor, at any point of time, treated the capital asset as stock-in-trade. The conversion or the permission of conversion of the land from industrial to residential land does not amount to conversion of capital asset (land) into stock-in-trade nor it amounts to treatment of such land by the assessee as stock-in-trade. It cannot be inferred as stock-in-trade. There should be a positive act on the part of the owner of the asset. Since in the present case the petitioner (owner of the capital asset) has neither converted the capital asset as stock-in-trade nor treated such capital asset as stock-in-trade, the provision of Section 45(2) of the Act is not applicable. There is nothing on record to show that the petitioner has converted or treated such capital asset as stock-in-trade.

He submitted that there is no case of failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment of the petitioner for the years under consideration.

It is also submitted that the limitation to issue the notice under Section 148 would be only four years. Admittedly, in the present cases, the notice was issued on 8.7.2009, which was beyond a period of four years, which expired on 31st March, 2008.

Learned counsel for the petitioner has placed reliance on the following decisions:-

A-Meaning of the expression "reason to believe"

1- Sheo Nath Singh v. AAC, Calcutta 82 ITR 147 (SC)

2- ITO v. Lakshmi Mewal Das 103 ITR 437 (SC)

3- CIT v. Kelvinator of India 320 ITR 561 (SC)

4- CIT v. Kelvinator of India 256 ITR 1 (Del)

5- Sheth Bros v. JCIT 169 CTR 519 (Guj)

6- Ganga Saran & Sons v. ITO 130 ITR 1 (SC)

7- United Electrical Co. v. CIT 258 ITR 317 (Del)

8- Jay Bharat Maruti Ltd. v. CIT 223 CTR 269 (Del)

B- Notice under Section 148 being quashed in writ proceedings on account of it being a mere change of opinion

1- Foramer France v. CIT 247 ITR 436 (All)

2- CIT v. Foramer France 264 ITR 566 (SC)

3- CIT v. Eicher Ltd. 294 ITR 310 (Del)

4- JP Bajpai, HUF v. CIT 269 ITR 40 (All)

5- KLM Royal Dutch v. ADIT 292 ITR 49 (Del)

6- CIT v. Usha Internation Ltd. : 348 ITR 485 (FB) (Del)

7- Atma Ram Properties Pvt. Ltd. v. DCIT: 343 ITR 141

8- CIT v. Purolator India Ltd. : 343 ITR 155 (Del)

C- Material facts refers only to "primary facts"

1- Calcutta Discount Co. v. ITO 41 ITR 191 (SC)

2- Oriental Carpet Manufacturers v. ITO 168 ITR 296 (P & H)

3- G.B. Bros & Konda Rajgopala v. ITO: 176 CTR 572 (AP)

4- ACIT v. Sarvamangala Properties: 257 ITR 722 (Cal)

5- CIT v. A.R. Enterprises: (2002) 255 ITR 121 (Raj)

6- Ranbaxy Laboratories Ltd. v. DCIT: 351 ITR 23 (Del)

D- Notice of reassessment to re-examine not valid after expiry of four years--no specific finding by the assessing officer that the escapement of income was because of failure on part of the assessee to disclose fully and truly material facts necessary for assessment.

1- CIT v. Pradeshiya Ind'l & Invt Corp 230 CTR 131 (All)

2- Mahavir Spinning Mills Ltd. v. CIT: 270 ITR 290 (P&H)

3- Hindustan Lever Limited: 268 ITR 332 (Bom)

4-Jarshan Textile Mills (P) Ltd. v. DCIT 284 ITR 542 (Bom)

5- German Remedies Ltd. v. DCIT 287 ITR 494 (Bom)

6- CIT v. Shri Tirath Ram (HUF) 306 ITR 173 (Del)

7- Haryana Acrylic Mfg. Co. v. CIT: 175 Taxman 262 (Del)

8- CIT v. Motor & General Finance 184 Taxman 465 (Del)

9- Kaira District Cooperative v. ACIT 216 ITR 371 (Guj)

10- Vishwanath Prasad Ashok Kumar Sarraf v. CIT: 327 ITR 190 (All)

11-Vikram Kothari (HUF) v. State of U.P.: 200 Taxman 152 (All)

12-CIT v. Pradeshiya Industrial and Investment Corporation of Uttar Pradesh Ltd. 332 ITR 324 (All)

13- Dhampur Sugar Mills Ltd. v. ACIT: 339 ITR 72 (All)

14- Smt. Raj Rani Gulati v. UOI: 329 ITR 370 (All)

E- Intention of trade--key element to decipher the adventure in the nature of trade

1-Bhohilal H. Patel vs. CIT: 74 ITR 692 (Bom)

2- CIT v. Anandlal Becharlal & Co: 107 ITR 677 (Bom)

3- Janki Ram Bahadur Ram v. CIT: 57 ITR 21 (SC)

4- CIT v. MLM Mahalingam: [1977] 107 ITR 236 (Mad)

5- Kaur Singh v. CIT: 144 ITR 756 (P&H)

6- CIT v. A. Mohammed Mohideen: 176 ITR 393 (Mad)

7-CIT v. B.K. Bhaumik: 245 ITR 614 (Del)

8-CIT v. Mohakapur Ice & Cold Storage: 281 ITR 354 (All)

9-Badrilal Bholaram v. CIT 135 ITR 216 (MP)

10- CIT v. Suresh Chand Goyal: 298 ITR 277 (MP)

Sri Bharat Ji Agrawal, learned Senior Advocate, submitted that the petitioner has been granted permission for change of land use from industrial land to the residential land and the development was carried out by the Ghaziabad Development Authority, during the year under consideration for which the petitioner has paid substantial amount in the year consideration, therefore, such act of the petitioner amounts to conversion or the treatment of the capital asset as stock-in-trade. In the circumstances, the petitioner ought to have disclosed the 'Capital Gain' under Section 45(2) and also ought to have disclosed the business profit, but since 'Capital Gain' under Section 45(2) has not been disclosed, there was an escaped assessment and the notice has rightly been issued under Section 148 of the Act. He further submitted that the petitioner has calculated 'Long Term Capital Gain' taking the rate of the land at Rs.190/= per sq. yard on the basis of the valuation report as on 1.4.1981, while the assessing authority, on the basis of the letter of the UPSIDC, has taken the valuation at Rs. 20/- per sq. yard and this amounts to non-disclosure of the correct rate and is sufficient material to initiate the proceeding.

Learned counsel for the respondent has placed reliance on the following decisions:

1- M/S. Rohilkhand Educational Charitable Trust vs. Chief Commissioner of Income Tax & others, reported in (2104 U.P.T.C.--286)

2-Indian Oil Corporation v. Income-Tax Officer, reported in [1986] 26 Taxman 336 (SC)

3- Indi-Aden Salt Mfg. & Trading Co. (P.) Ltd. v. Commissioner of Income-Tax, reported in [1986] 25 Taxman 356 (SC).

We have considered rival submissions and perused the materials on record.

It would be appropriate to refer Section 147, relevant part of Section 148 (1) and Section 149 of the Income Tax Act, which are being reproduced below:

"147. Income escaping assessment.--If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 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 (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under sub-section (3) of section 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 section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer 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 Assessing Officer 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 under-assessed; 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 section 147, the Assessing Officer 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 section 139.

149. (1) No notice under section 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 clause (b) [or clause (c)];

(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.]

[(c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.]

Explanation.--In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.]

(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.

(3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under section 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 [six years] from the end of the relevant assessment year.

[Explanation.--For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.]

It would also be appropriate to refer Section 45(1) & (2), which reads as under:

"45. Capital gains.--(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under the head ''Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place.

(2) Notwithstanding anything contained in sub- section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock- in- trade of a business carried on by him shall be chargeable to income tax as his income of the previous year in which such stock- in- trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

Before issuing the notice, under Section 148, the assessing authority has recorded the reason, a copy of which has been annexed alongwith the counter affidavit, which reads as under:

"Reasons for the belief that income has escaped assessment:

The assessee had owned industrial land since 1940-41, at Amrit Nagar, G.T. Road, Ghaziabad, measuring total area of 77638 Sq. yard. The total value of this land was shown in its books of account at Rs.84,580/-. In the F.Y. 2002-03, the assess has decided to sale this land after converting it into residential plots. Since the assessee has converted capital assets into stock-in-trade, as per provisions of Section 45(2) of the IT Act, capital gain as well as income from business is chargeable to tax in the hands of the assessee in the previous year in which the stock-in-trade have been sold or otherwise transferred. In view of the above, there are two aspects which are applicable in the assessee's case, one is determination of long term capital gain on total area of land i.e. 77638 sq. yard by taking FMV in the year of conversion into stock-in-trade as a sale price. Secondly the business profit will also be assessable on actual sale price by reducing FMV as on date of conversion adding the cost of improvement/development charges into it. The assessee has shown profit on sale of land at Rs.16,70,285/- in its profit and loss account and in its computation of income the long term capital gain on sale of land was shown at Rs.10,87,593/-. The profit on sale of land has been deducted from the business income in its computation of income with the remarks that 'the same will be considered separately' under the head 'Long Term Capital Gain'. The calculation of long term capital gain given by the assessee is as under:

Sale consideration for sale of 687.568 sq. yard land      Rs. 20,60,000/-
 

 
Less: Cost of acquisition :
 
a) Cost of 687.568 sq. yard of land sold
 
@ Rs. 190/- per sq. yard as per valuation
 
report as on 1.4.1981                                                     Rs. 1,30,638/-
 
indexed cost of land
 
130638x447/100                                                             Rs. 5,83,952/-
 

 
Add: Cost of improvement of 687.568 sq. yard.
 
@ Rs. 564.97 per sq. yard                                              Rs. 3,88,455/-
 
                                                                                        Rs. 9,72,407/-
 

 
Long term capital gain                                                     Rs. 10,87,593/-

The above computation of long term capital gain is not as per law because the assessee has not taken FMV for determination of Long term capital gain. The Actual computation of long term capital gain comes to Rs. 17,34,019/-.

As per below computation :

Rate as on 1.4.1981 at Rs.20/- per sq. yard.

Total cost of land as on 1.4.1981=      77638 x 20= 15,52,760/-
 
Indexed cost of acquisition =   1552760 x 447/100 = 69,40,837
 
Fair Market Value as on 1.4.02 =77638 x 1500 = 11,64,57,000
 
Capital Gain as on 1.4.02 =11,64,57,000- 69,40,837 =   10,95,16,163
 
For 2002-03
 

 
	It would be relevant here to refer relevant part of the order dated 16.12.2009, which reads as under:

3- In support of above three grounds, you have also cited several judicial pronouncement of different Courts. I have carefully gone through the facts of the case narrated by you regarding challenging of reassessment proceedings and also judicial pronouncement cited by you. The reasons for reopening of the cases for A.Y. 2003-04 to 200607 are the same for each year. The facts of the case are as under:

i) On perusal of the assessment records from F.Y. 2002-03 to 2006-07, it is seen that the company owned industrial land 1940-41 at Amrit Nagar, 100, G.T. Road, Ghaziabad measuring total areas of 77638 sq. yards. The total value of this land was shown at Rs.84,580/-. In F.Y. 2001-02, the company approached to UP Govt. for necessary permission to convert the land in residential plots. The same was approved by UP Govt. through notification dated 15.11.2001. The necessary permission to convert the industrial land into residential land was taken from the GDA. In lieu of approval, GDA charged at Rs.1,95,04,314/- and determined saleable area at 46232 sq. yards. An expenditure of Rs.66,15,518/- for levelling, sewer & water system and development of plot. All this action was taken in the F.Y. 2002-03 which clearly shows that assessee converted its capital assets (industrial land) into stock in trade (residential plots). However, no business profit was declared by the assessee on account of sale of land only capital gain was shown which was also not worked out correctly.

ii) As per provisions of section 45(2) of IT Act, capital gain as well as income from business was also assessable in the hands of the company in the previous year in which the stock in trade was sold or otherwise transfer. Section 45(2) reads as under:

"Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital assets into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income tax as his income of the previous year in which such stock in trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset."

iii) Section 2(47) of IT Act treats the conversion of capital assets into stock in trade as transfer.

iv) In view of above two things are applicable in this case, one is determination of long term capital gain on total area of land i.e. 77638 sq. yards in the year of conversion into stock in trade, and fair market value is to be taken as sale price. However, capital gain tax will be charged in the year in which actual sale is made. Secondly the business profit will also be worked out on actual sale price by reducing FMV as on date of conversion adding the cost of improvement into it.

v) In A.Y. 2003-04 to 2006-07, you have shown only long term capital gain and no business profit was shown. The long term capital gain shown by you was also not correctly worked out. In Y.A. 2007-08, you have shown profit under the both head i.e. capital gain as well as business profit whereas the facts were the same from F.Y. 2002-03 till 2006-07.

4. In view of above it is clear cut case of erroneous application of law. There is no second thought to it as by way of conduct the land was converted into stock in trade in F.Y. 2002-03. It does not provide you option to treat the same as and when desired. Since you have failed to offer the business profit on sale of plots and further the capital gain income was also not correctly worked out in A.Y. 2003-04 to 2006-07, therefore, income chargeable to tax has not been truly disclosed and the income was under assessed. Therefore, the reopening of the cases of above assessment years were on bona fide interpretation of law, information and reasons to believe.

As far as reopening of A.Y. 2006-07 is concerned in this regard it is to state that as per the provisions of Section 147 explanation 2 (c) of IT Act even if the assessment order is passed u/s 143(3), reopening of the case can be made u/s 147 of the IT Act. The relevant portion of the same is reproduced as under :

"Whereas assessment has been made, but-

i) income chargeable to tax has been under assessed; 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."

Thus your case is clearly covered as per explanation (2)(c)(i) of Section 147 of IT Act. The jurisdictional Hon'ble Hihg Court in the case of Thakur Das Tej Prakash vs. ITO 1970 75 ITR 523 (All) has held that discovery of erroneous application of law by the successor officer constitutes information.

Paragraph nos. 18, 19 and 20 of the writ petition, which have been replied by paragraph 14 of the counter affidavit wherein the averments made in the said paragraph have not been disputed would be relevant to be referred, which are being quoted below:

18- It is emphatically submitted, at the cost of duplicity, that in the facts of the petitioner's case, the predecessor assessing officer of the petitioner was fully aware/conscious of transfer of land by the petitioner during the financial years 2002-03 to 2005-06, and accepted the capital gains declared by the petitioner only after making necessary enquiries and due application of mind.

19- To elaborate/substantiate the aforesaid, kind attention is invited to the following disclosures/enquiries conducted by the assessing officer in the assessment year 2003-04, the first year in which the assessee started selling the surplus land;

In the return of income filed for the assessment year 2003-04, the petitioner-company separately declared 'Long-term capital gains on sale of land" in the computation of income. Along with the said return of income, the petitioner-company enclosed the following documents in support:

(a) Working of profits on sale of land;

(b) Copy of valuation report of government approved valuer for adopting fair market value of the land as on 1.4.1981 for the purpose of determining the indexed cost of acquisition of land for computing capital gains.

In the audited financial statements for the financial year ending 31st March, 2003, filed along with return of income, gain on sale of land was shown as part of 'Extraordinary Income' in Schedule 'K'. Further, the cost of land sold was appropriately adjusted in Schedule 'E--Fixed Assets'.

Following Note 7 (f) was given in Schedule 'P--Notes to accounts' in the audited financial statements for the financial year ending 31st March, 2003:

(f) The Company has taken effective steps for development and sale of the surplus land of the erstwhile Ghaziabad Banaspati Unit at Ghaziabad. The expenditure on land development upto 31.3.2003 amounting to Rs.261.20 lacs has been capitalized and added to the cost of the land. During the year under review, a sum of Rs.20.60 lacs has been realized out of the sale of the land of which a sum of Rs.16.70 lacs has been booked as capital gains and shown as extra-ordinary income in the Profit & Loss Account."

During the course of assessment proceedings for the assessment year 2003-04, the assessing officer required the petitioner to furnish further details regarding working of profit on sale of land, which was duly furnished vide letter dated 27th February, 2006.

20- Based on the aforesaid, the assessing officer, after due application of mind, accepted the claim of the assessee-company in the assessment completed vide order dated 14th March, 2006 under section 143(3) of the Act.

Paragraph nos. 22 and 28 of the writ petition, which have been replied by paragraph 15 of the counter affidavit, are also relevant for proper adjudication of the case, the same are being reproduced below:

22- Apart from the aforesaid enquires conducted in the assessment years 2003-04 to 2005-06, the assessing officer during the assessment year 2006-07, again independently verified the claim of the petitioner-company and made necessary enquiries before accepting the long term gains declared in the return of income as is evident from the following disclosures/enquiries:

Profit on sale of land was shown separately under the head "Extraordinary income" in Schedule 'K--Other income'.

Following Note 6 (a) was given explaining the nature of Extraordinary Income in Schedule 'P--Notes to Accounts':

"6. The Extra-ordinary income comprises of--

(a) Profit from sale of surplus land belonging to the erstwhile Ghaziabad Vanaspati Unit (since closed) of the Company amounting to Rs.393.94 lacs. The Company has developed a township at Ghaziabad named as 'Gagan Enclave' where it is selling the developed plots;

........................."

During the course of assessment proceedings, the assessing officer, vide order sheet dated 6th February, 2008 directed the petitioner-company to furnish, inter alia, the following details/documents:

"(F) Fixed Assets

(a) Furnish complete documents, regarding purchase of land as well as sale of land. Area of the land purchased as well as purchased cost be given. Similarly, are of the land sold, cost of acquisition, indexed cost of acquisition as well as selling price be given for the land sold.

(H). Extra-ordinary income and other income.

(a) Give complete working of profit on sale of land along with names and addresses of the parties to whom land has been sold.

(b) Give a descriptive note regarding income from sale of paper brands/trade marks, substantiate earning of this income with supporting evidence.

(d) Head wise details of miscellaneous receipts amounting to Rs.9650772/-, supporting documentary evidence regarding each receipts be produced for verification.

(e) Give complete details of the following:

(i) Profit on sale of assets.

(ii) Profit on sale of units.

(iii) Profit on Foreign Exchange Fluctuation"

In response to the aforesaid order sheet entry, the petitioner-company furnished elaborate details vide letter dated 1st March, 2008 along with, inter alia, the working of profit on sale of land and details of parties to whom land was sold.

28- Based on the aforesaid independent enquiries/documents called for by the assessing officer and after due application of mind on all the material/information on record, the assessing officer accepted the capital gains declared by the petitioner-company in the return of income for various assessment years. It is further pertinent to mention that in the assessment order dated 27.3.2008 passed under section 143(3) of the Act for the assessment year 2006-07 with regard to sale of land, the assessing officer passed the following order:

"(D). SALE OF LAND

Assessee-company has been engaged in sale of plots of land year after year since A.Y. 2003-04. It was having 46232 sq. yards of land out of which 27864.006 was available for sale as on 1st April, 2005. Rest of the land had been sold in earlier years. Out of this, 13480.727 sq.yards of land was sold in the assessment year under consideration. The cost of this land was shown at Rs.47578343/- on which further sum of Rs.21337225/- is claimed to have been incurred for improvement etc. Thus the total cost has been claimed to be Rs.68915568/- for the entire area of 27864.006 sq.yard. Area of 13480727 is claimed to have been sold for a sum of Rs.72735775/- and the profit declared is Rs.39394124/-. This profit has been worked out by taking proportionate value of land after including the cost of improvement. The value of remaining land of 14383.279 sq.yards has been shown at Rs.35573917.11/- (Rs.47578343 + Rs. 21373225 = 68915568-Rs.33341651). Details of parties to whom 13480.73 sq.yards of land was sold has been furnished with assessee-company's letter of 1st March, 2008."

Section 147 of the Act says that if the assessing office has 'reasonable belief' that any income chargeable to tax has escaped assessment for any assessment year, he may assess or re-assess the said income. First proviso to Section 147 provides that where an assessment under sub-section (3) of Section 143 has been made, no action shall be taken under this Section after expiry of four years from the end of the relevant assessment year, unless an income chargeable to the tax has escaped assessment of such assessment year by reason of failure on the part of the assessee to make a return under Section 139 or in response to a notice under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Therefore, unless a case of failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or failure to disclose fully and truly all material facts necessary for the assessment of the relevant assessment year is made out, no assessment can be made after the expiry of four years. In the present case, there is no case that there was any failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148. The respondent tried to make out a case that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the relevant assessment year.

Now the question for consideration is that whether on the facts and circumstances, there was any failure to disclose fully and truly all material facts necessary for the assessment. We are of the view that, on the facts and circumstances, no such case has been made out. Relating to the land in question, full and complete facts have been disclosed before the assessing authority. The land owned by the petitioner, measuring 77638 sq. yard at Amrit Nagar, G.T. Road, Ghaziabad was available on record. The approval granted by the State Government vide notification dated 15.11.2001, granting permission for conversion of the land use from industrial to residential was made available. The payment of Rs.1,95,04,314/- made to the Ghaziabad Development Authority and further expenses at Rs.66,15,518/- incurred for levelling, sewerage and water system and development of the plots were also available on record. The sale of 687.568 sq. yard land in the year under consideration was also on record. The computation of the 'Long Term Capital Gain' at Rs.10,87,593/- were furnished during the course of the assessment proceeding. Along with the computation chart, a valuer's report has been filed alongwith the return and further on the query being made, vide letter dated 27.2.2006, it has been stated in paragraph 15 that "the working of profit of sale of land and 'Long Term Capital Gain' on sale of land alongwith the Valuer's report have been filed with your goodself at the time of filing the return. The letter received from Government of India (Department of Revenue), dated 09.06.2003, allowing us to set off the unabsorbed losses/depreciation from 'Long Term Capital Gain' upto Assessment year 2005-06 is enclosed herewith. The Company have sold 687 sq. yards of land only for Rs.20,60,000/- @ 3000/- per sq. yard approximately. The copy of the circule rate for Rs.1200 is enclosed. The copy of the reply dated 27th February, 2006 is Annexure-1 to the Supplementary Affidavit. Alongwith the return, the balance sheet, profit and loss account, the details of the assets and the computation chart of the taxable income have been furnished. The averments made in this regard made in paragraphs 18, 19, 20, 22 and 28 of the writ petition have not been disputed. As stated in Paragraph-22 of the writ petition, in the assessment year 2006-07, the assessing authority has sought the details regarding purchase of land as well as sale of the land, area of the land purchased as well as the purchase cost. Index cost of acquisition as well as selling price of the land has also been demanded. The petitioner filed elaborate details relating to the land in dispute vide letter dated 1st March, 2008. In the assessment order itself, the details are mentioned as follows:

"(D). SALE OF LAND

The assessing authority, on consideration of the aforesaid reply, has calculated and assessed the "Long Term Capital Gain" as follows, which is mentioned in the assessment itself:

 
	LONG TERM CAPITAL GAIN
 
Brand                                                      Rs.6,03,52,000/-
 
Land 31.03.2006
 
Sales Consideration         Rs.7,27,35,775/-
 
Les: Index Cost
 
Cost of acquisition   Rs.1,27,29,850/-
 
F.Y.1981-82
 
2561338/100*497
 
Cost of improvement  Rs.3,33,00,766/-
 
F.Y.2005-06
 
3,33,00,766/497*497   Rs.4,60,30,616/-  Rs.2,67,05,159/-  Rs.8,70,57,159/-
 
	Thus, on the facts and circumstances, stated above, we are of the view that there was complete disclosure of material fact on the part of the petitioner, about the land in question.    The assessment was made under Section 143(3), after making necessary scrutiny and enquiries and thereafter, 'Long Term Capital Gain' shown at Rs.10,87,593/- has been accepted, under Section 45(1) of the Act.

In view of the above we are of the view that there was fully and truly disclosure of all material facts relating to the land by the assessee during the course of the assessment proceeding and there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment for the year under consideration.

As stated above, in respect of the land in question, complete material facts have been disclosed by the petitioner at the time of the original assessment proceeding. On the basis of the disclosed and available material, the assessing authority has assessed 'Long Term Capital Gain' in respect of the land sold during the year consideration at Rs.10,87,593/-, under Section 45(1) of the Act. From perusal of the reason recorded, it is apparent that on the basis of of same material, the assessing authority intended to infer that there was a conversion of the capital asset into the stock-in-trade and as such the income is chargeable to tax under Section 45(2) of a business carried on by him.

It is pertinent to mention here that in the order dated 16.12.2009, the assessing authority has observed that "it is a clearcut case of erroneous application of law. There is no second thought to it as by way of conduct, the land was converted into into stock-in-trade in Financial year 2002-03. It does not provide you option to treat the same as and when desired. Since you have failed to offer the business profit on sale of plots and further the capital gain income was also not correctly worked out in Assessment year 2003-04 to 2006-07, therefore, income chargeable to tax has not been truly disclosed and the income was under assessed".

The aforesaid observation shows that that on the existing material fact, the assessing authority intended to infer that the capital asset has been converted into the stock-in-trade. The assessing authority, on the basis of material on record assessed the 'Long Term Capital Gain' under Section 45(1) of the Act and not invoked Section 45(2).

It is a settled principle of law that the proceeding under Section 147 cannot be initiated on account of change of opinion. Change of opinion and review of the assessment is not permissible.

The Apex Court in the case of Shiv Nath Singh v. Appellate Commissioner of Income Tax (Supra) has held that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. In the case of Income Tax Officer v. v. Lakmani Mewal Das (Supra), it has been held by the Apex Court that the expression "reason to believe" does not mean a purely subjective satisfaction the part of the Income-tax Officer. It has been further held by the Apex Court that the reason must be held in good faith. It cannot be merely a pretence. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. In the case of Commissioner of Income Tax v. Kelvinator of India Ltd. (Supra), the Apex Court, while examining amended Section 147, has held that under Section 147, the assessing authority has no power to review and the proceeding cannot be taken on account of change of opinion.

Now coming to the question that whether, on the facts and circumstances, the provision of Section 45(2) of the Act is applicable.

Section 45(2), as referred hereinabove, provides the profit or gain arising from the transfer by way of conversion by the owner of the capital asset into, or its treatment by him as, stock- in- trade of a business carried on by him shall be chargeable to income tax as his income of the previous year in which such stock- in- trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

Section 45(2) is applicable in a situation where there is a transfer by way of conversion by the owner of a capital asset into stock-in-trade of a business or owner has treated such capital asset as stock-n-trade of a business. To make the provision application, there must be a positive act on the part of the owner of the capital asset to transfer the asset by way of conversion into stock-in-trade or treating such capital asset as stock-in-trade of a business. In the absence of such a positive act on the part of the owner of the capital asset, the provision of Section 45(2) does not apply. In the present case, it is not the case of the revenue that the owner has transferred, by way of conversion of the capital asset, converted the capital asset into stock-in-trade or has treated such capital asset as stock-in-trade of a business. There is no such material in this regard on record. The assessing authority, while initiating the proceeding, under Section 148, read with Section 147, has inferred such conversion of capital asset into the stock-in-trade and applied the provision of Section 45 (2), which is wholly erroneous.

As held by us hereinabove that there is no failure on the part of the petitioner to disclose fully and truly all material facts, in the assessment of the relevant assessment year, exception to proviso to Section 148 is not applicable. The limitation to take action is four years from the end of the relevant assessment year. The four years' period for the assessment year 2003-04 expired on 31st March, 2008, while notice under Section 148 has been issued on 8.7.2009, that is, after expiry of four years' period, which is barred by limitation.

In the case of Fenner (India) Ltd. v. Deputy CIT, reported in (2000) 241 ITR 672 (Mad.), the Madras High Court has held that in case where the initiation of proceeding is beyond a period of four years from the end of the assessment year, the assessing authority must necessarily record not only his reasonable belief that the income has escaped the assessment, but also the default or failure committed by the assesee and failure to do so could vitiate the notice and the entire proceeding.

In the case of Vikram Kothari (HUF) v. State of U.P., reported in (2011) 200 Taxman 152(All.), the Division Bench of this Court, in paragraphs 14 and 15, held as follows:

"Thus, on the plain reading of Section 147 and Section 149 legal position in respect of limitation emerges as follows:

(i) In view of proviso to Section 147 no action can be taken under Section 147 beyond the period of four years if the case does not fall within the exception of the proviso mentioned in the proviso itself namely, if there is no case of failure on the part of the assessee to disclose fully and truly all material facts which are necessary for assessment for the year of assessment etc.

(ii) If the case falls under the exception mentioned in the proviso to Section 147, namely there is failure on the part of the assessee to disclose fully and truly all material facts which are necessary for assessment for the year of assessment etc., then action can be taken beyond four years subject to the issue of notice under Section 148 of the Act within the limitation provided under Section 149 of the Act.

(iii)Where case falls under the exception to proviso to Section 147 and escaped income exceed rupees one lac the notice under Section 148 can be issued beyond the period of 4 years but within 6 years under Section 149 (1) (b).

(iv) In case when the escaped income is less than rupees one lac the limitation to issue the notice under Section 148 is only four years, even if the case falls under the exception of proviso to Section 147.

15. It may be mentioned here that our above view is supported by the decision of the Bombay High Court in the case of Anil Radhakrishna Wani Vs. Income-tax Officer and others, reported in (2010) 323 ITR, 564 (Bom), in the case of Multiscreen Media P. Ltd. Vs. Union of India and another (No.1), reported in (2010) 324 ITR 48 (Bom), in the case of IPCA Laboratories Ltd. Vs. Gajanand Meena, Deputy Commissioner of Income-Tax and others (No.2), reported in (2001) 251 ITR, 416, and in the case of Supreme Treves Pvt. Ltd. Vs. Deputy Commissioner of Income-Tax and others, reported in (2010) 323 ITR, 323 (Bom) and the decision of the Gujrat High Court in the case of Arvind Mills Ltd. Vs. Deputy Commissioner of Income-Tax (Assessment), reported in (2000) 242 ITR, 173, in the case of Gujarat Fluorochemicals Ltd. Vs. Deputy Commissioner of Income-tax, reported in (2009) 319 ITR, 282 (Guj.) and in the case of Inducto Ispat Alloys Limited Vs. Assistant Commissioner of Income-Tax (OSD), reported in (2010) 320 ITR, 458 (Guj).

The Full Bench of Delhi High Court, in the case of CIT v. Kelvinator India Limited, reported in (2002) 256 ITR 1, held that when a regular order of assessment is passed under Section 143 (3) of the Act, a presumption could be raised that such an assessment order has been passed with due application of mind. We are of the considered view that the same analogy is applicable in the case before us that the Assessing Officer, when passed assessment order under section 143 of the Act, had considered with due application of mind the claim of the assessee under section 36(1)(viii) of the Act. Not only this, we observe, as mentioned, hereinabove, that there is no averments by the Department in the reasons recorded that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year and hence we are of the considered view that the proviso to section 147 of the Act will be applicable. Since notice issued under Section 148 of the Act has been issued after expiry of four years from the end of the relevant assessment year under consideration, we are inclined to accept the contention of the assess that the said notice was barred by limitation and thus subsequent proceedings are also bad in law. In view of the above, we hold that initiation of reassessment proceedings by the Assessing Officer under section 148 of the Act is not a valid assessment being barred by limitation and consequently the assessment order passed pursuant to the said notice is also not valid in law."

Similar view has been taken by the Division Bench of this Court in the cases of Dhampur Sugar Mills Ltd. v. Assistant Commissioner of Income Tax and others (Supra) and in the case of Smt. Raj Rani Vulati v. Union of India and another (Supra).

In the case of Shiv Nath Singh v. Appellate Assistant Commissioner of Income Tax (S.C.) (Supra), the Apex Court has considered the word "reason to believe". The Apex Court held as follows:

"In our judgment, the law laid down by this court in the above case is fully applicable to the facts of the present case. There can be no manner of doubt that the words 'reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not 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.

There is no material or fact which has been stated in the reasons for starting proceedings in the present case on which any belief could be founded of the nature contemplated by section 34(1A). The so-called reasons are stated to be beliefs thus leading to an obvious self-contradiction. We are satisfied that the requirements of section 34(1A) were not satisfied and, therefore, the notice which had been issued were wholly illegal and invalid."

In the case of Income Tax Officer, I Ward, Distt. VI, Calcutta and others v. Lakmani Mewal Das (Supra), the Apex Court has observed as follows:

"..The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment."

"...The expression "reason to believe" does not mean a purely subjective satisfaction the part of the Income-tax Officer. 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 have 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...."

"....As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922, at one time before its amendment in 1948, are not there in section 147 of the Act of 1961, would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefininte, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence."

"....The live link or close nexus which should be there between the material before the Income-tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assess from assessment because of the latter's failure of omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment....."

In the case of Commissioner of Income Tax v. (1) Kelvinator of India Ltd. (Supra), the Apex Court held as follows:

"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., that 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 which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 dated October 31, 1989([1990] 182 ITR (St.) 1, 29), which reads as follows:

"7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe' in section 147.--A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same."

Now let us examine various decisions relied upon by the learned counsel for the respondent.

The decision of the Division Bench of this Court in the case of M/s. Rohilkhand Educational Charitable Trust v. CIT & others (Supra) is based on its own fact.

In the said case, a complaint was received from one Mr. Jitendra Kumar, alleging that the expenditure disclosed by the assessee therein was not genuine. In his statement he alleged that the trust is debiting various expenditure, especially salary of teachers, doctors which are not genuine and are inflated, and the capitation fee received from students is being shown as donation to the trust and further that though the assessee has made addition in corpus of Rs.11,20,010/-, but no comment has been made in the assessment order.

On the facts of the said case, it has been held by the Court that the assessing authority has relevant material in its possession to form the belief that income chargeable to tax has escaped the assessment. The sufficiency or the correctness of the material is not to be considered at this stage. It has been further observed that the 'reason to believe' recorded by the assessing authority as well as the order dated 3.6.2009, rejecting the objection of the assessee leave no manner of doubt that prima facie the assessing authority was having the material to form the belief in good faith that there was failure on the part of the assessee to disclose fully and truly the material facts for his assessment for the assessment years in question.

The decision of the Apex Court, in the case of Indian Oil Corporation v. Income-tax Officer (Supra) also does not help the respondent, rather it helps the petitioner. On the facts and circumstances of the said case, the Apex Court held that the assess had disclosed all primary facts and re-opening of the assessment, under Section 147 was not justified. In the said case, in the assessment proceeding, after making the necessary enquiry, the Assessing authority has accepted assessee's explanation regarding reasonableness of the claim of administrative charges. Subsequently, in the light of the observations of the Auditors' for the assessment year 1963-64 that administrative charges were not reasonable, the assessing authority re-opened assessee's assessment for the years from 1957-58 to 1959-60. On the facts and circumstances, the Apex Court has held initiation of the proceedings as invalid. There was no failure on the part of the assessee to disclose fully and truly all the basic facts.

In the case of Indi-Aden Salt Mfg. & Trading Co. (P.) Ltd. v. Commissioner of Income-tax (Supra), the Tribunal, on the facts and circumstances of that case held that there was no fully and truly disclosure of primary facts on the part of the assessee. The Apex Court held that the findings recorded by the Tribunal is basically a question of fact. This decision is clearly distinguishable and is not applicable to the facts of the present case.

In view of the above discussions, the notice issued under Section 148 of the Income Tax Act is barred by limitation and also invalid. The proceeding in pursuance of the said notice is also invalid and is liable to be quashed.

Writ Petition No. 47 of 2010

This writ petition relates to the assessment year 2004-05. The issue involved in the present writ petition is similar to the issue involved in Writ Petition No. 48 of 2010. The limitation in the present case to take action, under Section 147, was upto 31st March, 2009, while notice, under Section 148 was issued on 8.7.2009, which is barred by limitation. .

For the reasons stated above, the notice issued under Section 148 of the Income Tax Act and the proceedings in pursuance thereof are illegal and barred by limitation and as such are liable to be quashed.

Writ Petition Nos. 49 & 50 of 2010

These two writ petitions relate to the assessment years 2005-06 and 2006-07. In both the writ petitions, the issue involved is similar to the issue involved in Writ Petition No.48 of 2010, except the question of limitation, which is not involved in these petitions. In these cases, the notices, under Section 148, have been issued within time.

For the reasons stated above, the notices issued under Section 148 of the Income Tax Act are illegal and the proceedings in pursuance there of are also invalid and are liable to be set aside.

In view of what has been discussed above, in the result, all the four writ petitions stand allowed. The notices issued under Section 148 of the Income Tax Act, for the assessment years 2003-04, 2004-05, 2005-06, and 2006-07, and further proceedings in pursuance thereof are hereby quashed. The petitioner is also entitled for the cost, which we quantify at Rs.25,000/- (Rupees Twenty Five Thousand only).

Order Date :-29.4.2014

bgs/