Sudhir Gensets Limited vs Income Tax Officer
2011 Latest Caselaw 2914 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                       Date of decision: 31st May, 2011.

+               Writ Petition (Civil) No. 7789/2010

Sudhir Gensets Limited                     ....Petitioner
                      Through      Mr. Salil Aggarwal and
                                   Mr. Prakash Kumar, Advocates.

                     VERSUS
Income Tax Officer                        .....Respondent
                     Through        Mr. Deepak Chopra, Advocate.

CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE SANJIV KHANNA

1. Whether Reporters of local papers may be
   allowed to see the judgment?
2. To be referred to the Reporter or not ?        Yes.
3. Whether the judgment should be reported        Yes.
   in the Digest ?

SANJIV KHANNA, J.

The petitioner is engaged in the business of manufacture and sale

of industrial generators and allied products. By the present writ

petition, the petitioner impugns reassessment proceedings initiated

under Section 147/148 of the Income Tax Act, 1961 (Act, for short), vide

notice dated 31st March, 2010 for the assessment year 2003-04 and the

order dated 1st November, 2010, passed by the Assessing Officer

rejecting its objections against the initiation of the reassessment

proceedings.

2. The petitioner's case is predicted on two grounds (i) change of

opinion; and (ii) that the petitioner had made full and true disclosure of

material facts. Therefore, the reassessment proceedings that have been

initiated after four years suffer from lack of 'inherent' jurisdiction.

3. The reasons recorded by the Assessing Officer for reopening, as

communicated to the petitioner vide letter dated 2nd August, 2010,

read as under:-

"Reasons for reopening the case u/s 148

Return of income was filed on 02.12.2003 declaring an income of Rs. 14,72,90,755/- under section 115JB of the Act. Assessment was completed u/s 143(3) on 20.03.2006 determining an income of Rs.14,72,90,756/- u/s 115JB of the Act and Rs, 2,52,08,776/- under normal provision after ollowing deduction ,of Rs. 12,57,29,939/- under section 8OIB of the Act.

As per the provisions of section 80IB(13) of the Income Tax Act, 1961 read with Rule 18BBB of Income Tax Rule, in order to claim deduction under section 80IB, a separate report is to be furnished by each undertaking or, enterprise of the assessee claiming deduction under section 80IB and shall be accompanied by the Profit & Loss account and balance sheet of the undertaking or enterprise as if the undertaking or enterprise were a distinct entity.

It has now been noticed that in the instant case the assessee had four units, out of which, two units were eligible for deduction u/s.80IB. The assessee was required to furnish separate Profit and Loss Account and Balance Sheet in respect of each unit eligible for deduction as if it were a separate entity. However the assessee had not maintained/furnished the separate accounts. The assessee worked out the eligible profit on the basis of ratio of sales and total profit of the whole business. Since the assessee had not filed separate profit and loss account in respect of each unit eligible for deduction as if it were a separate entity the correctness of the claimed and allowed deduction of Rs.12,57,29,939/- was not verifiable and hence, not allowable to the assessee."

'.

4. In respect of the assessment year 2003-04, the petitioner had

filed a return declaring income of Rs.14,72,90,755/- under Section

115JB, and Rs.1,77,92,055/- under the normal provisions. Deduction of

Rs.13,19,53,499/- under Section 80-IB of the Act was claimed while

computing the normal income. Deduction under Section 80-1B of the

Act was in respect of two industrial units out of the four industrial units

of the petitioner. These industrial units, called Units I & II, are located at

Silvassa, Union Territory of Dadra & Nagar Haveli.

5. The petitioner's case was selected for scrutiny and assessment

order under section 143(3) of the Act dated 20th March 2006 was

passed. Deduction claimed by the petitioner under Section 80-IB of the

Act was examined and dealt with. The assessment order specifically

notes that the deduction claimed under the said Section was in respect

of two units and the amount claimed. It records:-

"During the year the assessee has claimed deduction u/s 80 IB for profit earned in respect of the two units at Silvassa to the tune of Rs.13,19,53,499/-. It is seen that the profit computed from manufacturing/trading was shown at Rs.13,53,83,449/-."

6. The Assessing Officer considered whether the interest earned on

FDRs was income derived from qualifying business as referred to in

Section 80-IB. It was held that this interest income cannot be

considered as profit derived from eligible business. Thereafter, the

Assessing Officer re-computed the deduction under Section 80-IB and

the same was reduced to Rs.12,57,29,939.58/-.

7. The aforesaid addition was made subject matter of the appeal

before the Commissioner of Income-tax (Appeals), with substantial

success and disallowance of Rs.62,23,560/- and other miscellaneous

disallowances under section 80-IB were deleted. Revenue preferred an

appeal before Income Tax Appellate Tribunal which was allowed and

the disallowance stands restored.

8. It is well settled that an Assessing Officer cannot reopen or re-

examine under section 147, aspects and questions that had arisen and

were considered for decision in the original proceedings. The power to

reopen cannot be exercised on the basis of change of opinion. It is not

the power to review or reassess aspects and questions that have been

considered at the time of first/original assessment (see Commissioner

of Income Tax Vs. Kelvinator of India Limited (2010) 2 SCC 723).

9. However, the contention of the Revenue is that the Assessing

Officer in the original assessment proceedings had not examined and

considered sub section 13 of Section 80-IB of the Act read with Rule 18

BBB of the Income Tax Rules. It is submitted by the that as per the said

provisions to claim deduction under Section 80-IB, a separate report is

to be furnished in respect of each undertaking or enterprise of the

assessee and should be accompanied with the profit and loss account

and balance-sheet of the undertaking or enterprise as if the

undertaking or enterprise is a distinct entity.

10. It is lucid from the assessment order itself that the Assessing

Officer specifically examined the quantum and computation of the

deduction, claimed under section 80-IB, when he went into the

question whether interest earned on the FDRs has to be excluded.

While doing so he has computed business income of the two units, Unit

I & II separately. The said computation is indeed fairly detailed. The

petitioner submitted that the computation and consideration shows

and establishes the examination of all aspects including requirement of

sub-section 13 to section 80-IB. Revenue contends to the contrary. It is

submitted that this provision was overlooked and the requirement

went unnoticed. Thus, there is no change in opinion. Even if there is

some merit in the contention of the Revenue on the first issue of

change of opinion, we do not think that the reassessment proceedings

can be sustained in view of the second ground/contention raised by the

petitioner for the reasons stated below.

11. First proviso to Section 147 applies when the reassessment

proceedings are initiated after four years from the end of the relevant

assessment year. The said proviso reads as under:-

"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:"

(Emphasis supplied)

12. In the present case there is an original assessment order under

Section 143(3) dated March 20, 2006. The question is whether there

was a failure on the part of the petitioner to disclose, fully and truly, all

material facts necessary for reassessment for that year at the time of

the first/original assessment. There is no such allegation or statement

in the reasons recorded. This contention was specifically raised by the

petitioner in their objections to the reassessment proceedings. The

objection has been rejected in the order dated 1st November, 2010

recording as under:-

"Objection No . 1 : The assessee has objected that since there is no failure on the part of the assessee to disclose full and true all necessary material faets for assessment

under section 147 of the Act, proceedings are without jurisdiction. The assessee has further stated that there is no such allegation even in the purported reasons recorded under section 147 of the Act.

It is an admitted fact that the assessee had failed to get the accounts of its undertakings audited separately and prepare balance sheet and profit and loss account separately for these undertakings which it was required as per section 80IB(13) read with section 80IA(7) of the I.T. Act and Rule 18BBB . The failure to submit these documents during assessment proceedings amounted to failure on its part to submit truly and correctly all material facts. Regarding the objection that there is no such allegation even in the purported reasons recorded under section 147 of the Act, para 4 of the reasons recorded under section 148 of the I. T. Act on 26.2.2010 is reproduced hereunder:

"Return of income was filed on 02.12.2003 declaring an income of Rs. 14,72,90,755/- under section l15JB of the Act. Assessment was completed U/S 143(3) on 20.03.2006 determining an income of Rs.14,72,90,756/- U/S 115JB of the Act and Rs. 2,52,08,776/- under normal provision after allowing deduction of Rs.12,57,29,939/- under section 80IB of the Act."

As per the provisions of section BOIB(l3) of the Income Tax Act, 1961 read with Rule 18BBB of Income Tax Rule, in order to claim deduction under section 80IB, a separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction under section 80 IB and shall be accompanied by the profit and loss account and balance sheet of the undertaking or enterprise as if the undertaking or enterprise were distinct entity.

It has now been noticed that 'in the Instant case the assessee had four units, out of which two units were eligible for deduction u/s 80lB. The assessee was required to furnish separate Profit and Loss Account and Balance Sheet in respect of each unit eligible for deduction as if it were a separate entity. However the assessee had not

maintained/furnished the separate accounts. The assessee worked out the eligible profit on the basis of ratio of sales and total profit of the whole business. Since the assessee had not filed separate profit and loss account in respect of each unit eligible for deduction as if it were a separate entity the correctness of the claimed and allowed deduction of Rs.12,57,29,939/- was not verifiable and hence, not allowable to the assessee.

The escapement of income has been on account of failure on the pa1t of the assessee to truly disclose all the material facts necessary for assessment. In view of the above, I have reason to believe [hat an amount of Rs. 12,57,29,939/- has escaped assessment within the meaning of section 147 of the I.T. Act, 1961."

From above, it is clear that the objection of the assessee on this ground is not valid."

(emphasis supplied)

13. The aforesaid reasoning of the Assessing Officer refers to the

failure of the assessee to submit separate profit and loss accounts of

two units and it is stated that the assessee had worked out eligible

profits on the basis of ratio of sale and profit of the whole business. It

records that the assessee had not maintained or furnished separate

books of accounts in respect of each unit. Therefore, correctness of the

claim and deduction allowed was not verifiable.

14. It is not possible to accept the contention that the aforesaid

reasoning discloses or shows that the petitioner had failed to disclose

fully and truly all material facts. It is incorrectly recorded and stated

that it was "now" noticed that the petitioner had 4 units and the

deduction under section 80-IB was claimed in respect of two units. The

fact that two units out of four were eligible for deduction under section

80-IB is recorded in the first/original assessment order. This is not a

new revelation or a fact discovered or known after the first/original

order. It may be noted here that it has been stated and accepted that in

respect of the units I & II, the petitioner assessee has been claiming

deduction for the last 6 and 4 years respectively. The sentence

"however the assessee had not maintained/furnished the separate

account" shows a lack of clarity and considerable ambiguity with which

the Assessing Officer has proceeded. What was furnished by the

petitioner was on record and not unknown. It was ex facie apparent.

The petitioner had filed the documents/ accounts in support of the

claim before the Assessing Officer along with the return and had

furnished further details during the course of the assessment

proceedings. Accounts and details related to computation and the

method of computing of deduction under section 80-IB of the Act. The

petitioner assessee did not conceal any fact. It had made full and true

disclosure of all material facts. It was for the Assessing Officer

thereafter to examine and consider whether the claim for deduction

was allowable in law. It is not the case of the Revenue that they have

come across any new material or evidence on the basis of which

reassessment has been initiated. At best, the case of the Revenue as

made out in the aforesaid reasoning is that the Assessing Officer, on the

basis of the material disclosed, should not have allowed the deduction

under Section 80-IB of the Act as the legal requirements/preconditions

of subsection 13 to section 80- IB and Rule 18BBB were not satisfied.

The material facts were truly and correctly disclosed to the Assessing

Officer but as per the reasons, he failed to apply "law" to the said facts.

15. The method of computation and whether or not the assessee had

maintained/furnished separate accounts, was known to the Assessing

Officer at the time of first assessment. He did not proceed under any

doubt or his apprehension on the said subject. This is clear, if we

examine the computation made by the Assessing Officer made in the

original assessment order dated 20th March, 2006. The computation

begins with the net profit as shown in the profit and loss appropriation

account from which inadmissible expenses were subtracted. Expenses

disallowed under Section 43B, 36(1)(va) etc. are also subtracted.

Thereafter, the income credited to the profit and loss account but not

considered as a part of business income, was computed and not

included for consideration for the purpose of deduction under Section

80-IB. The Assessing Officer then has computed income of the two

units for deduction under section 80-IB, recording as under:-

"Sales of Silvassa Unit-:I 26,287,287.00

Sales of Silvassa Unit-II, 1,919,621,444.00 Add: Installation charge~ received 596,867.00 Sales of DG Set transferred from Silvassa Unit-II but included in sales of Delhi unit 4,950.674.00 1,925,168,985.00

Sales of Delhi Unit . 11,785,378.05 DG Set sales (Inc. installation & erection) 97,283,825.00 109,069,203.05 Less: Sales of D.G. Set transferred from Silvassa Unit-II' 4,950,674,00 104,118,529.05

Sales of 100% EOU Unit 81,577,256.00 Total Sales of the company ,is computed as under 2,137,152,057.05

Business income attributable to Silvassa Unit In the ratio of sales Is worked out as under:

139,099,406.12 x 26,287,287.00 = 17,10,943.30 2,137,152,057.05

Deduction u/s 80IB in respect of Silvasia unit-II @25%OfRs.17,10,943.30 = 4,27,735.83

Business income attributable to Silvassa Unit-II in the ratio of sales is worked out as under:

139,099,406.12 X 1,925.168,985.00 = 12,53,02,203.75 2,137,152,057.05

Deduction u/s.80lB in respect of Silvassa Unit-II @ 100% of Rs.12,53,02,203.75 = 12,53,02.203.75 Total Deduction u/s.80IB 12.57.29.939.58 "

16. It is clear from all the doubt that the petitioner assessee had

made full and true disclosure of all material facts necessary for the

assessment and there was no concealment. The fact that the petitioner

had not submitted a separate profit & loss account or

furnished/maintained separate accounts was known as without

knowing these facts, the computation or quantification under Section

80-IB was not possible. Inspite of knowing the full and true material

facts, the Assessing Officer computed the said deduction in the original

assessment proceedings. Thus, it cannot be said that the assessee had

not disclosed fully and truly all the material facts necessary for the

assessment. This is a case where the material facts were truly and fully

disclosed by the assessee but as per the case of the Revenue, the

Assessing Officer had made the assessment without considering the

requirements of subsection 13 to section 80-IB of the Act.

17. Learned counsel for the revenue has relied upon explanation 1 to

the proviso to Section 147 which reads as under:-

"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."

18. Explanation 1 to the proviso stipulates that mere production of

books of accounts and other material from which the Assessing Officer

could with due diligence, have discovered escaped income, does not

bar reassessment proceedings. This does not amount to disclosure.

The aforesaid explanation does not help the Revenue in the present

case. As noticed above, the material facts were fully and truly

disclosed. Further inference, or new discovery of facts by exercise of

due diligence, is not the error or ground made out by the Revenue. The

alleged error or mistake pointed out by the Revenue is the failure to

apply the law, i.e. provision of subsection 13 to section 80-IB, to the

known and accepted facts. The Assessing Officer, as per the Revenue,

did not examine and consider whether there was compliance or

violation of section 80-IB(13) and Rule 18BBB of the Rules, inspite of

known and accepted facts recorded in the first/original assessment

order. The petitioner was not required to "disclose" the law. The

proviso and explanation draws out a distinction between law and

disclosure of facts and this is not obliterated. As noticed above,

Revenue has pleaded and stated that the Assessing Officer had

overlooked and disregarded the said provisions and therefore it is not a

case for change of opinion as no opinion was formed at the first

instance. This plea of the Revenue has been accepted. Thus, the

petitioner had disclosed true and full material facts and these were

within the knowledge of the Assessing Officer. The failure alleged by

the Revenue is an alleged error in applying the law to the facts on

record. This is not covered by Explanation 1.

19. Reliance placed by the Revenue on our decision dated February

14, 2011 in W.P. (C) No. 9036/2007, Honda Siel Powers Ltd. v. Deputy

Commissioner of Income Tax and Anr., is inappropriate and

misconceived. In the said case, the contention of the assessee was that

they were required to disclose facts as when they had filed the return.

This contention of the assessee was rejected as disclosure is not only

restricted to the Income Tax return but also relates to the assessment

proceedings.

20. Way back in 1961, the Supreme court in the case of Calcutta

Discount Co. Ltd. Vs. CIT (1961) 41 ITR 191 had observed as under:-

"............It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee-to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts."

..............

............The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an underassessment has resulted from non-disclosure he shall have jurisdiction to start proceedings for reassessment within a period of eight years ; and where he has reason to believe that an under- assessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within four years. Both the conditions,

(i) the Income-tax Officer having reason to believe that there has been underassess-

ment and (ii) his having reason to believe that such under assessment has resulted from non-disclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of four years. The argument that the court ought not to

investigate the existence of one of these conditions, viz., that the Income-tax Officer has reason to believe that underassessment has resulted from non- disclosure of material facts, cannot therefore be accepted."

21. Following this judgment in Income Tax Officer, Calcutta and Ors.

Vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC), it was observed as

follows:-

"7. .........Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. We may add that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income- tax Officer of the account book or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law. 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.

8. The grounds or reasons which lead to the formation of the belief contemplated by Section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the Court to investigate. The sufficiency of grounds which induce the income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on 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. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a Court of law (see observations of this Court in the case of Calcutta Discount Co Ltd. v. Income-tax Officer [1961]41ITR191(SC) and Narayanappa v. Commissioner of Income-tax. [1967]63ITR219(SC)

while dealing with corresponding provisions of the Indian Income-tax Act. 1922)."

22. The decision above holds good even after the amendment with

effect from 1st April, 1989 as has been observed by a Division Bench of

this Court in IPCA Laboratories Ltd. Vs. Gajanand Meena (2001) 251

ITR 461 wherein it has been observed as under:-

"The position of law after 1st April, 1989, is not in dispute. By virtue of a proviso to Section 147, no action can be taken for reopening after four years unless the AO has reason to believe that income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In the present case, the affidavit and the reasons disclosed indicate that the Department has purported to reopen the assessment only on the basis of change of opinion. This position is, in fact, conceded vide para 3 of the affidavit-in-reply dt. 13th march, 2001. The reasons also do not spell out failure on the part of the assessee to disclose fully and truly all material facts.... We are satisfied on the facts of the present case that reopening is sought on the basis of change of opinion. Further, even in the reasons, there is nothing to indicate that reopening is sought on the ground of the failure on the part of the Petitioner to disclose fully and truly all material facts."

"Viewed in this light, the proviso to Section 147 of the said Act, carves out an exception from the main provisions of Section 147. If a case were to fall within

the proviso, whether or not it was covered under the main provisions of Section 147 of the said Act would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of Section 147.

23. The Supreme court in Assistant Commissioner of Income-tax v.

Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 has expounded

and explained:-

"The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped

assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso."

(emphasis supplied)

24. In Haryana Acrylic Manufacturing Co. vs. Commissioner of

Income-Tax and Another, (2009) 308 ITR 38 (Delhi), a division bench of

this Court has observed:-

"Examining the proviso *set out above+, we find that no action can be taken under Section 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied:

(a) an assessment under Sub-section (3) of Section 143 or this section has been made for the relevant assessment year; and

(b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee:

(i) 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

(ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under Section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out 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. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under Section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts.

In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the

proviso to Section 147. If this condition is not satisfied, the bar would operate and no action under Section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wel Intertrade Private Ltd. (supra) we had agreed with the view taken by the Punjab & Haryana High Court in the case of Duli Chand Singhania (supra) that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing officer under Section 147 beyond the four year period would be wholly without jurisdiction...................

With reference to explanation 1, it has been elucidated and clarified:

....In the present case, what is to be seen is whether the petitioner failed to make a full and true disclosure of all the material facts necessary for his assessment for the assessment year 1998-99. Explanation I to Section 147 also makes it clear that mere 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 said proviso. This explanation, however, does not mean that production of account books and other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not

in any event amount to disclosure within the meaning of the said proviso. The said explanation only stipulates that such evidence will not necessarily "amount to disclosure" within the meaning of the said proviso. However, we need not labour on this aspect any further inasmuch as we find that in this case, the Assessing Officer had made specific queries, inter alia, with regard to the share application money of Rs 5 lakhs received from Hallmark Healthcare Limited. The petitioner had supplied, in the course of the original assessment proceedings all the relevant documents such as the share application money form, confirmation from the applicant and the bank statement relating to the receipt of the cheque No. 201845 dated 17.10.1997 from Hallmark Healthcare Limited. It is only thereafter that the assessment was completed by the Assessing Officer on 07.03.2001. We have already noted above that in the assessment order itself, the Assessing Officer has recorded that the details as required were filed and verified. This in itself indicates that the Assessing Officer had applied his mind to the issue of the share application money and had accepted the assessee's claim after due verification. Furthermore, in the impugned order dated 02.03.2005 itself, the Assessing Officer has indicated that during the course of assessment proceedings, the petitioner had filed details in respect of share application money of Rs 5 lakhs in the name Hallmarks Healthcare Limited. However, the Assessing Officer has now sought to wriggle out of his remarks in the assessment order by stating that only photocopies for the application for equity shares were filed and that the copy of the bank account with the Indian Bank which was available did not indicate that verification had been done incorrectly and that the facts as presented by the petitioner had been

accepted in the normal course of assessment proceedings. The Assessing Officer cannot be permitted to retract from the position that he did ask for specific information and that the information was supplied by the petitioner. And, more importantly, that the Assessing officer had examined and verified the information before finalizing the assessment under Section 143(3) of the said Act. In this background also, we feel that the petitioner had not failed to disclose fully and truly all material facts necessary for its assessment in respect of the assessment year 1998-99.

25. In view of the aforesaid reasoning, the present writ petition is

allowed. The writ of certiorari is issued quashing the impugned order

dated 1st November 2010 and the impugned notice dated 31st March

2010. The reassessment proceedings are set aside. In the facts of the

case, there is no order as to costs.

SANJIV KHANNA, J.

CHIEF JUSTICE May 31, 2011 Kkb