TMI Blog2011 (4) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... r of confession dated January 7, 2009 being addressed to the board of directors of Satyam Computer Services Limited ("SCSL" for short) by Sri B. Ramalinga Raju, the then chairman. This was followed by his alleged confession in prison on February 23, 2009 to the effect that the books of account had been fudged ; Rs. 1,230 crores was arranged to SCSL to run their operations ; and money was raised by pledging the shares of M/s. Maytas Infra Limited, apart from the shares of SCSL. Several agencies, including the Income-tax Department, caused investigation into different aspects of the "scam". According to the Income-tax Department, more than 370 companies were promoted by Sri B. Ramalinga Raju and his immediate family members. Commencing March, 2009 assessments, finalized for the year 2002-03, of several of these companies were sought to be reopened, and notices under section 148 of the Income-tax Act, 1961 ("the Act" for brevity) were issued calling upon them to show cause why the assessments should not be reopened under section 147 of the Act. Several of these companies invoked the extraordinary jurisdiction of this court under article 226 of the Constitution of India and filed W. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the accounting year relevant to the assessment year 2007-08, they had not commenced business and, therefore, did not submit their profit and loss account. The second respondent assessed the returns filed by the petitioner, under section 143(1) of the Act, and granted refund of tax. 4. Thereafter, in exercise of his powers under section 148 of the Act, the second respondent issued notice dated March 26, 2009 informing the petitioner that, since their income for the assessment year 2002-03 had escaped assessment, he proposed to reopen the assessment after obtaining sanction of the Commissioner of Income-tax (Central), Hyderabad (CIT). The petitioner was called upon to file their return in the prescribed form. In reply thereto the petitioner vide letter dated May 26, 2009, while enclosing their return for the assessment year 2002-03, requested that the reasons for reopening the assessment be furnished to them as the notice dated March 26, 2009 was bereft of reasons. An order under section 281B of the Act was passed vide proceedings dated August 13, 2009, and the property of the petitioner was attached. The first respondent, vide proceedings dated August 17, 2009, called for v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up way back in the year 2003 ; during the said period the father of Sri B. Ramalinga Raju was the director of the petitioner-company ; the petitioner's case falls within the proviso to section 147 ; while suspicion may be the initial trigger for exercising jurisdiction under sections 147 and 148, the reason to believe that income has escaped assessment must be based on the material on record and should be certain ; no fishing expedition or a roving enquiry is permissible ; the "reasons to believe" should be relatable to non-disclosure, fully and truly, of all material facts ; the impugned notice under section 148 suffers from nonapplication of mind ; there is no material on which the assessing authority could have arrived at his subjective satisfaction that income of the petitioner had escaped assessment ; the reasons assigned in the proceedings dated March 26, 2009, and in the subsequent note dated December 9, 2009, are at variance with each other ; at the stage of issuance of notice under section 148, "reason to believe" should be capable of being co-related with the averments in the counter-affidavit filed by the assessing authority ; and the reasons now furnished to this court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were part of the Satyam group of companies for the year 2001-02 ; they were under the influence and control of Sri B. Ramalinga Raju who had set up as many as 370 companies including the petitioner ; in the light of the "scam" in SCSL necessary steps to protect the interests of the Revenue were required to be taken ; when SriB. Ramalinga Raju confessed to have fudged accounts, the completed proceedings under section 143(3) of the Act was required to be looked into again ; reopening of the assessment was on the basis of information gathered by the Department after the confession of Sri B. Ramalinga Raju on January 7, 2009 ; the authorized officer had caused investigation at his end, and had taken the decision to reopen the assessment of the petitioner for the assessment year 2002-03 ; the Assessing Officer had recorded his reasons and satisfaction which was endorsed by the Additional Commissioner, and the Commissioner of Income-tax ; the Assessing Officer had applied his mind and had caused due verification ; the satisfaction recorded for reopening the assessment cannot be said to be arbitrary as there was material based on which the Assessing Officer had reason to believe that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) ; A. L. A. Firm v. CIT [1991] 189 ITR 285 (SC) ; IAC of IT v. V. I. P. Industries Ltd. [1991] 191 ITR 661 (SC) ; Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662 (SC) ; Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC) ; ITO v. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC) ; Sri Krishna P. Ltd. v. ITO [1996] 221 ITR 538 (SC) ; Associated Stone Industries (Kotah) Ltd. v. CIT [1997] 224 ITR 560 (SC), Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) and Rajesh Jhaveri [2007] 291 ITR 500 (SC). Material on record 8. The records placed before us, in so far as they relate to the petitioner in W. P. No. 27817 of 2009, contain copies of the shareholders agreement executed on July 2, 2003 between Maytas Infra Limited, M/s. IJM Corporation, Malaysia and M/s. Nagarjuna Construction Co. Ltd. on the one hand and the GVK companies on the other. The said agreement shows that M/s. Maytas Infra Ltd., M/s. IJM Corporation, Malaysia and M/s. Nagarjuna Construction Co. Ltd., together with their affiliates, held 100 per cent. of the equity share capital of the petitioner company and, with effect from the effective date, while M/s. Maytas Infra Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 147 of the Income-tax Act, 1961 as it originally stood, after it was amended by the Direct Tax Laws (Amendment) Act, 1987, and later by the Amending Act, 1989, in juxtaposition with each other. Prior to the Direct Tax Laws (Amendment) Act, 1987, -section 147 read as under : After enactment of the Direct Tax Laws (Amendment) Act, 1987, i.e., prior to 1st April, 1989, section 147 of the Act, read as under : After the Amending Act, 1989, section 147 read as under : 147. Income escaping assessment. 147. Income escaping assessment. 147. Income escaping assessment. If (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income- tax Officer has in consequence of information in his possessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d only if the Income-tax Officer had reason to believe that income chargeable to tax had escaped assessment under two situations, i.e., (i) omission or failure on the part of the assessee to make a return under section 139 for any assessment year ; or (ii) disclose fully and truly all material facts necessary for his assessment. 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 companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. But in section 147 of the Act, with effect from April 1, 1989, the twin conditions of the pre-amended section 147 were given a go-by and only one condition remained, viz., where the Assessing Officer had reason to believe that income has escaped assessment. Post-April 1, 1989, the power to reopen assessment under section 147 is much wider (CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). The scope and effect of section 147 as sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer to reopen assessments, on the basis of "mere change of opinion", which cannot per se be a reason to reopen assessment. The Assessing Officer has no power to review. He has the power to reassess. But reassessment has to be based on fulfilment of certain pre-conditions and, if the concept of "change of opinion" is removed, then, in the garb of reopening the assessment, review would take place. The concept of "change of opinion" must be treated as an in-built test to check abuse of power by the Assessing Officer. Hence, after April 1, 1989, the Assessing Officer has the power to reopen 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 (Kelvinator of India Ltd. [2010] 320 ITR 561 (SC). 15. The words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure may very often be misleading. What is required is a full and true disclosure of all material facts necessary for making assessment for that year (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)). What facts are material, and necessary for assessment, will differ from case to case (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). The duty of disclosing all primary facts, relevant to the decision on the question before the assessing authority, lies on the assessee. The assessee's omission to bring to the assessing authority's attention particular items in the account books, or the particular portions of the documents which are relevant, amount to "failure to disclose fully and truly all material facts necessary for his assessment". It is the assessee's duty to disclose all primary facts which could have been discovered by the assessing authority from the documents and other evidence disclosed (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). The assessee's duty to disclose is in the context of the two requirements-called conditions precedent-which must be satisfied before the Income-tax Officer gets jurisdiction to reopen the assessment under section 147/148. This obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on vague, irrelevant and non-specific information. 20. All the requirements stipulated by section 147 must be given due and equal weight (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)). The court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by him and further whether that material had any rational connection or a live link for the formation of the requisite belief. Since the belief is that of the Income-tax Officer the sufficiency of reasons for forming the belief is not for the court to judge. (Phool Chand Bajrang Lal [1993] 203 ITR 456 (SC)). The court cannot investigate into the adequacy or sufficiency of the reasons which weighed with the Income-tax Officer in coming to the belief, but can examine whether the reasons are relevant and have a bearing on matters in regard to which the Income-tax Officer is required to entertain the belief before he can issue notice under section 147. If there is no rational and intelligible nexus between the reasons and the belief so that, on such reasons, no one properly instructed on facts and law cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a fact, a writ of certiorari lies. The underlying principle is that, by erroneously assuming existence of a jurisdictional fact, an inferior Tribunal or authority cannot confer upon itself jurisdiction which it otherwise does not possess. The existence of a jurisdictional fact is thus the sine qua non or condition precedent for the exercise of power by an authority or a Tribunal of limited jurisdiction (Ramesh Chandra Sankla [2008] 14 SCC 58, Arun Kumar v. Union of India [2006] 286 ITR 89 (SC) ; [2007] 1 SCC 732 and Carona Ltd. v. Parvathy Swaminathan and Sons [2007] 8 SCC 559. 24. While examining the question whether there was relevant material before the assessing authority based on which he had reasons to believe that income has escaped assessment it must be borne in mind that, in sending his report to the Commissioner, the Income-tax Officer might not fully set out what he thought amounted to reasons as it is conceivable that the report may not be drawn up carefully and may not contain a reference to all the reasons that operated on his mind (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). The Calcutta and Delhi High Courts, in Equitable Investment Co. P. Ltd. v. ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure obviously indicate that the assessee disclosed that a surplus resulted from the sales which were also disclosed." 27. Even if the reasons furnished by the Income-tax Officer to the assessee do not, ex facie, disclose his satisfaction of the basic facts essential for exercise of jurisdiction under section 147 of the Act, the court can look into the records produced before it to ascertain whether there was relevant material which led the Income-tax Officer to arrive at his satisfaction that income has escaped assessment. In ITO v. Biju Patnaik [1991] 188 ITR 247 (SC), the Supreme Court observed (page 251) : "It is undoubtedly true that the notice does not prima facie disclose the satisfaction of the two conditions precedent enjoined under section 147(a), but in the counter affidavit filed by the Income-tax Officer in the High Court he stated all the material facts . . . Thus, though ex facie the notice does not disclose the satisfaction of the requirement of section 147(a), from the record and the averments in the counter affidavit it is clear that the Income-tax Officer had applied his mind to the facts and, after prima facie satisfying himself of the existence of those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced by Ms. K. Mamatha, learned counsel for the petitioners, on the observations of the Supreme Court, in GKN Driveshafts (India) Ltd. [2003] 259 ITR 19 (SC), that when a notice under section 148 of the Act is issued the proper course of action for the assessee is to file his return and, if he so desires, to seek reasons for issuing the notice ; the Assessing Officer is bound to furnish reasons within a reasonable time ; and, on receipt of reasons, the assessee is entitled to file objections to the issuance of notice, and the Assessing Officer is bound to dispose of the same by passing a speaking order. Learned counsel would contend that the "reason to believe" must be made out only from the reasons furnished by the Assessing Officer to the assessee at the latter's request ; and the records cannot be examined to ascertain whether there was material on record for the formation of belief by the Assessing Officer. Relying on GKN Driveshafts (India) Ltd. [2003] 259 ITR 19 (SC) the Delhi High Court, in Haryana Acrylic [2009] 308 ITR 38 (Delhi), held that a notice under section 148 without the communication of the reasons therefor is meaningless inasmuch as the Assessing Officer is bound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in it (State of Orissa v. Sudhansu Sekhar Misra, AIR 1968 SC 647, Quinn v. Leathem [1901] AC 495 (HL)). We are unable, therefore, to accept the submission of Ms. K. Mamatha, learned counsel for the petitioners, that the limitation of six years should be reckoned not with reference to the date on which the notice is issued, but the date on which reasons are furnished by the Assessing Officer at the assessee's request. 32. Principles governing exercise of jurisdiction to reopen assessment-and the scope of sections 147 to 149 of the Act : The principles, culled out from the aforementioned judicial pronouncements of the Supreme Court, and on a literal construction of sections 147 to 149 of the Act, are as under : (i) In section 147 of the Act, with effect from April 1, 1989, the twin conditions of the pre-amended section 147 were given a go-by, and only one condition remained, viz., where the Assessing Officer had reason to believe that income has escaped assessment (Kelvinator of India Ltd. [2010] 320 ITR 561 (SC)). (ii) Post-April 1, 1989, the power to reopen assessment under section 147 is much wider. The scope and effect of section 147 as substituted with effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SC)). (xi) These words suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds. 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, do not exist or is not material or relevant to the belief required by the section (Sheo Nath Singh [1971] 82 ITR 147 (SC) ; [1972] 3 SCC 234 and Chhugamal Rajpal [1971] 79 ITR 603 (SC)). (xii) The belief entertained by the Income-tax Officer must not be arbitrary or irrational (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)). (xiii) The expression "reason to believe" cannot be read to mean that the Assessing Officer should have finally ascertained the fact of escapement of income by legal evidence or conclusion (Central Provinces Manganese Ore Co. Ltd. [1991] 191 ITR 662 (SC) and Rajesh Jhaveri [2007] 291 ITR 500 (SC)). (xiv) The words failure to disclose "fully and truly all material facts necessary for his assessment", in the first proviso to section 147, postulate a duty on every assessee to disclose fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ometax Officer had, when he assumed jurisdiction, some prima facie grounds for believing that there had been some non-disclosure of material facts. Whether these grounds are adequate or not, for arriving at the conclusion that there was non-disclosure of material facts, would not be open for the court's investigation (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). (xxiii) All the requirements stipulated by section 147 must be given due and equal weight (Sri Krishna Pvt. Ltd. [1996] 221 ITR 538 (SC)). (xxiv) While sending his report, to the Commissioner, the Income-tax Officer might not fully set out what he thought amounted to reasons as it is conceivable that the report may not be drawn up carefully, and may not contain a reference to all the reasons that operated on his mind (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). (xxv) It is the duty of the assessee, who wants the court to hold that jurisdiction was lacking, to establish that the Income-tax Officer had no material at all before him for believing that there had been escapement of income (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC)). (xxvi) It is for the assessee to establish that there exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Chand Bajrang Lal [1993] 203 ITR 456 (SC) and Ganga Saran and Sons P. Ltd. [1981] 130 ITR 1 (SC)). (xxxiii) Even if the reasons furnished by the Income-tax Officer to the assessee does not, ex facie, disclose his satisfaction of the basic facts essential for the exercise of jurisdiction under section 147 of the Act, the court can look into the records, produced before it, to ascertain whether there was relevant material which led the Income-tax Officer to arrive at his satisfaction that income has escaped assessment (Biju Patnaik [1991] 188 ITR 247 (SC)). (xxxiv) Even if nothing relevant is disclosed an opportunity may be given to the Revenue to produce the records to find out whether the Income-tax Officer had any reason to believe that income had escaped assessment (Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC), Sheo Nath Singh [1971] 82 ITR 147 (SC) ; [1972] 3 SCC 234 and Chhugamal Rajpal [1971] 79 ITR 603 (SC)). (xxxv) Material gathered by other agencies can be relied upon by the Income-tax Officer as material forming the basis for his reason to believe that there has been escapement of income (Central Provinces Manganese Ore Co. Ltd. [1991] 191 ITR 662 (SC). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself, is that it would not exercise jurisdiction unless substantial injustice has ensued or is likely to ensue. It would not allow itself to be turned into a court of appeal to set right mere errors of law which do not occasion injustice (Sangram Singh v. Election Tribunal, AIR 1955 SC 425). Even if a legal flaw might be electronically detected, this court would not interfere save manifest injustice or a substantial question of public importance is involved (Rashpal Malhotra v. Mrs. Saya Rajput, AIR 1987 SC 2235 and Council of Scientific and Industrial Research v. K. G. S. Bhatt, AIR 1989 SC 1972). 34. As noted hereinabove, similar to those issued in this batch of writ petitions, notices, under section 148 of the Act, for the assessment year 2002-03 were issued in respect of 58 other companies which were said to have been promoted by Sri B. Ramalinga Raju. These notices were subjected to challenge, in W. P. No. 28300 of 2009 and batch, including on the jurisdiction of the assessing authority to initiate action under section 147, and issue notices under section 148(1) of the Act. Interim orders of stay were granted in these cases on condition of payment of 50 per cent. of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner companies had escaped assessment. 37. The petitioners have an effective remedy under the Act to appear before the assessing authority in the reassessment proceedings, raise all grounds available to them in law including that he lacks jurisdiction to reopen the assessment and, in case an adverse order is passed, to prefer appeals to the Commissioner of Income-tax (Appeals). As the remedy, under article 226 of the Constitution, is discretionary the High Court has always the discre- tion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere (K. S. Rashid and Son v. Income-tax Investigation Commission [1954] 25 ITR 167 (SC) ; [1954] SCR 738). Liberty is given to the petitioners herein to raise all contentions before the assessing authority, including on his jurisdiction to reopen the assessment. Both the assessing authority during the reassessment proceed- ings, and the Commissioner of Income-tax (Appeals) while deciding the appeals filed before him, shall be guided by the principles hereinabove mentioned. The petitioners have effective remedies under the Act, includ- ing an appeal to the Income-tax Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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