TMI Blog2010 (4) TMI 974X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 of the Act for the assessment years 1999-2000 and 2000-01 are held valid. - Civil Misc. Writ Petition No. 413 of 2004 - - - Dated:- 27-4-2010 - RAJES KUMAR AND PANKAJ MITHAL , JJ. The judgment of the court was delivered by RAJES KUMAR J. By means of the present writ petition, the petitioner seeks the following reliefs: (i) To issue a suitable writ, order or direction in the nature of certiorari, quashing the reassessment proceedings under section 21 of the U.P. Trade Tax Act, 1948 for the assessment years 1997-98 to 2000-01 in pursuance of notices dated March 5, 2004 (annexure 10 to the writ petition). (ii) To issue a writ, order or direction in the nature of certiorari quashing the circular dated September 30, 2003 directing for the imposition of tax on poly pouches in which the country liquor was packed and sold (annexure 12 to the writ petition). (iii) To issue a writ, order or direction in the nature of mandamus or prohibition be issued restraining/prohibiting respondent No. 2 from taking any proceedings for imposition of tax on poly pouches for the assessment years 1997-98 to 2000-01 under the U.P. Trade Tax Act. (iv) To issue any other suitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that the petitioner had imported the bottles and poly pouches from outside the State of U.P. and had separately charged the values of packing materials from the customers, therefore, it is liable to tax and since they have not been assessed to tax in the original assessment orders, there was escaped assessment. Challenging the aforesaid notices under section 21 of the Act, the petitioner filed the present writ petition. Heard Sri Bharat Ji Agrawal, learned Senior Advocate, assisted by Sri Piyush Agrawal, learned counsel for the petitioner and Sri S.P. Kesarwani, learned Additional Chief Standing Counsel. Learned counsel for the petitioner submitted that in the original assessment orders for the assessment years 1997-98 and 1998-99, the assessing authority had examined the issue in details. He submitted that the assessing authority on the consideration of the fact that the petitioner had charged the value of the packing materials separately held that packing material was not liable to tax, as the country liquor was exempted from tax, in view of section 3AB of the Act. He submitted that for the assessment year 1997-98, the notice under section 21 of the Act has been vacat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source and constitutes material to initiate the proceedings and, therefore, it cannot be said that there was no material to form the belief about the escaped assessment. In support of the contention, he relied upon the decisions in the case of Smt. Sarla Devi v. Controller of Estate Duty, U.P. reported in [1975] UPTC 178, Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, Bihar and Orissa reported in [1959] 35 ITR 1 (SC); AIR 1959 SC 257 (para 9) (at page 6 of ITR) and in the case of Indian Eastern Newspapers Society, New Delhi v. Commissioner of Income-tax, New Delhi reported in [1979] 119 ITR 996 (SC); AIR 1979 SC 1960 (paras 6 to 9). Sri Bharat Ji Agrawal, learned counsel for the petitioner, submitted that the Division Bench decision of this court in the case of Majhola Distillery Chemical Works, Majhola, District Pilibhit v. State of U.P. Writ Petition No. 317 of 2004, decided on October 4, 2007(1) requires reconsideration. We have heard learned counsel for the parties and perused the records and given our anxious consideration to the rival submissions. The question on the merit, namely, where the prices for the country liquor and packing materials are separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een charged separately, have been noticed and on the consideration of the aforesaid facts, the assessing authority had held that the value of the bottles and poly pouches were not liable to tax in view of section 3AB of the Act as the country liquor is exempted from tax. Therefore, the reopening of the proceedings for the assessment years 1997-98 and 1998-99 are only on account of change of opinion and cannot be sustained. So far as the assessment years 1999-2000 and 2000-01 are concerned, learned counsel for the petitioner fairly admitted that the issue has not been considered in the original assessment orders, therefore, reopening of the proceedings under section 21 of the Act cannot be said to be on account of change of opinion inasmuch as no opinion has been expressed in the order. It is settled principle of law that each year is a separate assessment year for the purposes of assessment. (See Bharat Sanchar Nigam Limited v. Union of India reported in [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 29 NTN 307). Section 21(1) and (2) of the Act reads as follows: Section 21. Assessment of tax on the turnover not assessed during the year. (1) If the assessing authority has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amended or cancelled by the Commissioner under sub-section (3) of section 4A, the order of assessment or reassessment may be made within one year from the date of receipt by the assessing authority of the copy of the order amending or cancelling the aforesaid certificate or by March 31, 1995, whichever is later: Provided also that the assessment or reassessment for the assessment year 1989-90 may be made by March 31, 1995. Section 21(1) of the U.P. Trade Tax Act contemplates assessment and reassessment is equivalent to section 147 of the Income-tax Act, 1961. Both the sections relate to the assessment of the escaped assessment to tax. In both the sections the proceeding can be initiated only if the assessing authority has a reason to believe that there is escaped assessment. Under section 21(1) of the Act the words are has reason to believe and not reason to suspect . The belief entertained by the assessing officer must not be arbitrary or irrational. It must be reasonable and based on reasons, which are relevant. It must be in good faith and not in mere pretence, should have a rational connection and relevant bearing on the formation of the belief, and should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the required belief by the Income-tax Officer before proceedings can be validly initiated under section 34(1)(a) is a condition precedent: The fulfilment of this condition is not a mere formality, it is mandatory, and failure to fulfil that condition would vitiate the entire proceedings. Further, the formation of the required belief is not the only requirement: The officer is further required to record his reasons for taking action under section 34(1)(a) and obtain the sanction of the Central Board or the Commissioner, as the case may be. In Income-tax Officer v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC); [1976] UPTC 809, the honourable Supreme Court held that the reasons for the formation of the belief contemplated by reopening of an assessment must have a rational connection 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. The honourable Supreme Court further observed that though it is true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act cannot be taken on the whims of the assessing officer by resorting to conjecture of imagination. He has to have before him the facts which are germane to the issue and on the basis of which a rational man can have reason to believe that the whole or any part of the turnover has escaped assessment or has been under-assessed. In Income-tax Officer v. Madnani Engineering Works Ltd. [1979] 118 ITR 1 the honourable Supreme Court while dealing with somewhat similar provision under section 147 of the Income-tax Act, 1961 held that the existence of reason to believe on the part of the ITO was a justificable issue and it was for the court to be satisfied whether in fact the ITO had reason to believe that income had escaped assessment. In Joti Parshad v. State of Haryana [1992] 6 JT 94 (SC) the honourable Supreme Court while dealing with the meaning of expression 'reason to believe' in section 26 of the Indian Penal Code held that the reason to believe is not the same as suspicion and a person must have reason to believe if the circumstances are such that a reasonable man would, by probabale reasoning conclude or infer regarding the nature of the thing concerned. In Income-tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esults on account of concealment practised or fraud played by the assessee or as a result of negligence or ignorance of the assessing authority, in our opinion, is of no consequence, provided the action to reopen the assessment is otherwise justified and the assessing officer is not acting arbitrarily or in a capricious manner. The escapement of assessment contemplated under that section may be due to various reasons. The term 'turnover has escaped assessment to tax' which includes under-assessment, may as well be result of lack of care on the part of the assessing officer or by reason of inadvertence on his part. Section 21 does not prohibit obtaining of information from the investigation of material on the record of the original assessment. The scope of that section is not circumscribed by a rider like the one that exists in section 147(a) of the Income-tax Act, 1961, namely, the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that year, income chargeable to tax has escaped assessment for that year. The escapement envisaged by s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what was being sold by the petitioner was nothing but collar lining and its turnover of sale was held exempt from the Sales Tax Act. Under a notification the assessing authority, however, issued notice under section 21 of the said Act for reassessing the same matter, hence it was held notice under section 21 to be invalid. In the case of Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan reported in [1980] 46 STC 256 (SC); AIR 1980 SC 1552, the apex court held as follows: It does not permit reassessment of turnover which after the due consideration, had been found exigible to tax merely because the assessing authority subsequently comes to take different view of the matter. To the similar effect is another decision where we find under section 34 of the Income-tax Act, 1922, which is similar to the provision of section 21 of the U.P. Sales Tax Act, after considering the provision of section 34 of the said Act the following observation has been made by the apex court in the case of Commissioner of Income-tax v. Bhanji Lavji [1971] 79 ITR 582, which is quoted as under (at page 583 of ITR): When the primary facts necessary for assessment are fully and truly dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed principle of law that the question which has been examined in detail in the original assessment proceeding and thereafter the assessment order has passed, then the said assessment order cannot be reopened under section 21 of the Act on mere change of opinion . In the case of IL and FS Investment Managers Ltd. v. Income-tax Officer reported in [2008] 298 ITR 32; [2007] 209 CTR 1, the Bombay High Court held that the proceeding cannot be reopened merely because the assessing authority is of the view that the depreciation has been wrongly allowed merely on change of opinion. In the case of Anil Kumar Bhandari v. Joint Commissioner of Income-tax reported in [2007] 294 ITR 222 (Cal), the deduction was allowed under section 80HHC. The case has been reopened on the ground that the deduction has been wrongly allowed. The Division Bench of the Calcutta High Court held that the initiation of reassessment proceeding by the assessing authority purported to reopen the assessment upon the change of opinion, the same fact is not justified. Coming to the cases cited by the learned Additional Chief Standing Counsel in the case of Smt. Sarla Devi v. Controller of Estate Duty, U.P. reporte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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