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2016 (7) TMI 706 - MADHYA PRADESH HIGH COURT

2016 (7) TMI 706 - MADHYA PRADESH HIGH COURT - [2016] 385 ITR 14 - Reopening of assessment - "reason to believe" that income chargeable to tax had escaped assessment - whether material collected by the Department and relied upon, namely the entries/notings made as indicated in the loose slip has no nexus to the petitioner and therefore, the entire proceeding should be quashed.? - Held that:- When we analyse the material available on record, we find that it is a case where the enquiry into the ma .....

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verything to the Assessing Officer, who, after considering each and every aspect of the matter including the judgments relied upon by the petitioner and the objections to be raised to decide the matter. - It is indicated by the Revenue that the petitioner played a key role in controlling the decision making process which ultimately led in eliminating all other companies, shortlisting the two companies in question and it has been held that by acting as intermediate between Nagar Nigam and Co .....

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s stage to interfere as enquiry into various aspects of the matter which was the prime consideration which weighed with the Revenue for proceeding in the matter may be required. The Revenue on a just and proper consideration has taken the decision and therefore, we are not inclined to accept this contention advanced by Shri Kishore Shrivastava. - In the present set of circumstances we are not inclined to interfere into the matter because for interfering into the matter we will be required to .....

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kre, Advocate For the Respondent : Sanjay Lal, Advocate JUDGMENT Rajendra Menon, J. 1. In this writ petition filed by the petitioner-assessee under article 226 of the Constitution, challenge is made to an order annexure P-1, dated July 23, 2014 passed by the Deputy Commissioner of Income-tax, Bhopal, issuing a notice under section 148 of the Income-tax Act, 1961 for reopening of assessment for the assessment year 2009-10 by virtue of the provisions conferred under section 147 of the Income-tax A .....

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231008092. Records further indicates that at the relevant time the petitioner was working as the Commissioner, Department of Urban Administration, Government of Madhya Pradesh, Bhopal. It is the case of the petitioner that he worked as Commissioner in the Department of Urban Development and Administration between January 13, 2006 to December 11, 2007, thereafter was posted on deputation with the Government of India, he was relieved from the post of Commissioner, Urban Administration on December .....

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t the petitioner's income with respect to the assessment year 2009-10 has escaped assessment within the meaning of section 147, therefore, it was proposed to assess/reassess the income for the said assessment year. The petitioner was required to submit his return in the prescribed form for the said purpose. In response to the same the petitioner vide letter annexure P-2 on April 15, 2014, requested for certain material. It is said that the petitioner did not receive any reply to the same and .....

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e requested that the same be treated as compliance of the notice under section 148. The petitioner also requested for supply of copies of documents based on which the reopening of assessment was ordered. It is said that vide annexure P-5 on January 15, 2015 the reasons for reopening were communicated to the petitioner and thereafter, the petitioner was directed to appear in the office of the respondent on February 2, 2015 vide notice annexure P-6 for getting clarification on certain points. Howe .....

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n the premises of one Shri Mukesh Sharma and as a consequence of the search operation a large number of documents including official papers, notings, correspondence relating to the Department of Urban Administration, Government of M.P. were found and it is alleged that based on these documents, it was established that Shri Mukesh Sharma was a liasioning agent for award of contract by the Department of Urban Administration, Government of Madhya Pradesh and in the award of contracts to two compani .....

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reason supplied that in LPS No.1 page 155 in the back side depicts the figure of "267" which corresponds to the value of the contract awarded to M/s. Nagarjuna Construction Co. Ltd. wherein the following notings were made : 267 M 6% 16.02 267 P 1.25% 3.33 267 C ½% 1.335 267 M 1% 2.67 267 - ½% 1.335 4. It was said that listing as indicated hereinabove depicts the vertical chain of Government hierarchy involved in the allotment of Indore Sewage Project and in this, the figu .....

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he Deputy Commissioner, Income-tax has reasons to believe that the petitioner as Commissioner, Urban Administration Development in the year in question, received illegal gratification to the tune of ₹ 2.21 crores which has escaped assessment for the assessment year 2009-10, the notice was issued. The petitioner denied each and every allegations levelled and raised various grounds in a detailed written objection submitted. The petitioner also sought for documents pertaining to the forming o .....

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s the figure "C" appearing in the documents against which a payment of 0. 50 per cent. is shown and this figure "C" is said to be denoting "Commissioner for Urban Administration". The petitioner vide annexure P-11 submitted a detailed reply, wherein it has been pointed out that he was the Commissioner for Urban Administration in the Department in question and held charge between January 2006 to December 2007. On December 11, 2007, relinquished his charge and proceed .....

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e petitioner indicates various facts to say that the contract in question was not awarded by the Department of Urban Administration and Development. The contract was for a work given by the Indore Municipal Corporation, as per the Government notification issued in the matter of delegation of power under the provisions of section 37 read with section 73 and section 433 of the Madhya Pradesh Municipal Corporation Act, 1956, the Mayor-in-Council has been delegated with the full financial power for .....

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pending, vide annexure P-13 dated March 19, 2015 objections of the petitioner were rejected and it had been held that the petitioner was a key person engaged in controlling the decision making process for award of contract to both these companies and as he was the intermediary between the Municipal Corporation and the Urban Administration Department based on the notings made in the papers seized and reproduced hereinabove, it is held that figure "C" appearing in the slip denotes the C .....

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unicipal Corporation. It was the Indore Municipal Corporation which invited the tender on June 28, 2007. As a single tender was received, in response to this notice it was not opened and on October 1, 2007 the second tender was invited by the Indore Municipal Corporation. Initially the date for submission of tender was November 27, 2007, the tender was opened on December 24, 2007 much after the petitioner was transferred on December 11, 2007. It is said that the tender was finalised on January 1 .....

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ct itself was finalised after the petitioner had gone on deputation. Referring to the tabulated data available at pages 44, 45 and 46 of the paper book and the documents pertaining to award of the contract, Shri Kishore Shrivastava emphasised mainly on two points : (1) That the entire contract was awarded for a work in the Indore Municipal Corporation, (2) The award of the work was done after the petitioner was transferred on deputation to the Government of India and even in the decision making .....

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e to point out that except for certain loose papers filed by the petitioner and by the respondents as annexure R-1, R-2, R-3 and R- 4 showing the figure 267, the alphabet "C" and "½" per cent. written in the loose papers, there is nothing to indicate that the petitioner was in any way connected with any award of the contract or the work to the contractors in question. Shri Shrivastava also invited our attention to annexure P-15 dated February 12, 2015, the communicatio .....

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nt had informed the Income-tax Department that the entire contract is awarded by the Indore Municipal Corporation, records are with the Indore Municipal Corporation, the Urban Administration and Development Department in the Government of Madhya Pradesh has got nothing to do with the award of contract, therefore directions were issued by the Government of Madhya Pradesh through the Commissioner, Municipal Corporation to handover all the documents to the Income-tax Department. Taking us through a .....

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th the petitioner. 6. Shri Kishore Shrivastava invited our attention to the provisions of sections 147 and 148 of the Income-tax Act and argued that under section 147 the income escaping assessment can be subjected to assessment or re- assessment, if the Assessing Officer has "reasons to believe" that certain income chargeable to tax has escaped assessment for the assessment year. He emphasised that the words appearing in the said section particularly "has reasons to believe" .....

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e material is not co-related to the assessee, the conduct and work of the assessee and has no nexus with the petitioner, the assessee against whom the impugned action is proposed to be taken under the statutory provisions. He took us through the following judgments : Calcutta Discount Co. Ltd. v. ITO [1961] 2 SCR 241 ; [1961] 41 ITR 191 (SC), Union of India v. Rai Singh Deb Singh Bist [1973] 88 ITR 200 (SC) ; [1973] 3 SCC 581, Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) ; [197 .....

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sh Industries Ltd. v. ITO [1965] 57 ITR 637 (SC), Madhya Pradesh Industries Ltd. v. ITO [1970] 77 ITR 268 (SC), Sheo Nath Singh v. AAC of I. T. [1971] 82 ITR 147 (SC), Arjun Singh v. Assistant DIT (Investigation) [2000] 246 ITR 363 (MP), Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC), G. Sukesh v. Deputy CIT [2001] 252 ITR 230 (Ker). 7. Primarily, to say that "the reason to believe" which is a prime requirement for initiating the proceeding under section 147 read with section .....

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gs are in progress and when only the return filed by the petitioner is being scrutinized, as certain material has been received in the search and seizure conducted in the house of Shri Mukesh Sharma, inquiries into the matter are being conducted in the assessment proceeding, therefore, at this stage interference into the matter by this court, exercising its extraordinary jurisdiction in a petition under article 226 of the Constitution is not called for. Shri Lal argued that under the statutory p .....

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ge is not called for. Thereafter, it was argued by Shri Sanjay Lal that the material collected by the Revenue, based on search and seizure conducted in the premises of Shri Mukesh Sharma and in subsequent enquiry conducted are certain relevant material which goes to show that undue favour was done to the contractor for which illegal gratification was received. This material is sufficient enough to initiate the action impugned. Sufficiency or tenability of the material is not a question to be con .....

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tory proceedings by the Assessing Officer is completed and therefore, interference by this court is not permissible. He heavily relies upon a judgment of the Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC) ; [2007] 210 CTR (SC) 30 and argued that in this case the assessment has not been completed, the return filed by the assessee was only processed under section 143(1) and in the absence of there being conclusion to the assessment proceeding .....

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r at this stage is not called for. He relied upon following judgments in support of his contentions to say that at this stage interference into the matter is not called for CIT v. Vijaybhai N. Chandrani [2013] 357 ITR 713 (SC) ; [2013] 85 CCH 191 (SC), Joint Commissioner v. Kalanithi Maran [2014] 366 ITR 453 (Mad) ; [2014] 89 CCH 152 (Mad), EMA India Ltd. v. Asst. CIT [2009] 226 CTR (All) 659, Bhajan Lal v. CIT [2001] 250 ITR 399 (P&H) ; [2001] 169 CTR (P&H) 287, W. P. No. 8173 of 2009 S .....

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aring was primarily based on the requirement of law as contemplated under section 147 of the Income-tax Act in the matter of forming, "reason to believe" that income chargeable to tax had escaped assessment. Apart from raising various grounds, the main contention advanced on behalf of the petitioner was to the effect that based on the material available with the Assessing Officer conclusion cannot be drawn nor an opinion formed to say that he has reason to believe that income chargeabl .....

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ilable cannot be said to be sufficient enough to come to the conclusion that the Assessing Officer has reasons to believe that income chargeable to tax has escaped assessment. He had said that for recording a finding and to say that the Assessing Officer has reasons to believe the material available should show nexus to the assessee, and the evidence and various other factors are required which is lacking in this case. 10. That being so, it would be appropriate to first examine the legal questio .....

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e authority from acting without jurisdiction. The availability of alternate remedy in the Income-tax act was considered in this case and it was emphasised that the condition precedent for assumption of jurisdiction under section 34, if not satisfied, then there is no reason to refuse a proper relief in a petition under article 226 of the Constitution. Section 34 was considered in detail and the import and meaning of the words "reason to believe" was taken note of and the principle laid .....

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e part of the assessee to disclose fully and truly all material facts necessary for assessment for the year in question, some income, profit or gain chargeable to Income-tax has escaped assessment. It has been held in this case that existence of this pre-condition is an extremely important circumstance which is required to be satisfied to enable exercise of jurisdiction by the Income-tax Officer. Thereafter the case of Chhugamal Rajpal v. S. P. Chaliha [1971] 1 SCC 453 ; [1971] 79 ITR 603 (SC) i .....

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to believe" as a condition precedent for exercising jurisdiction is considered and it is held that an Income-tax Officer acquires jurisdiction to issue notice under section 148 if he has reason to believe that income chargeable to tax has escaped assessment, it is held that merely based on the fact that there is some omission or failure on the part of the assessee, action cannot be taken if the omission or failure is not established and the requirement of reason to believe is not fulfilled. .....

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uld not be vague and indistinct or farfetched. It is held that reason for formation of belief must be held in good faith and should not be mere pretence, there has to be live-link or close nexus which should be there in the material and the assessee. Finally a single Bench of this court had also considered this question in the case of Arjun Singh (supra), after detailed analysis of various judgments, both the questions with regard to exercise of the jurisdiction in a petition under article 226 o .....

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rfetched fanciful, remote information or allegation is not sufficient. It is held that there should be clear nexus between the material and the reason to believe. Accordingly, on a complete reading of the case law in extensio cited by Shri Kishore Shrivastava before us, we find that most of the cases deal with two aspects, first, the jurisdiction available to this court in such matters under article 226 of the Constitution and the principles to be followed for recording a finding to say that the .....

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d that there are "reasons to believe" in the mind of the competent authority to say that income liable for tax has escaped assessment. However, the Revenue has relied heavily upon the case of Rajesh Jhaveri Stock Brokers (supra) and they say at this stage when the assessment is in progress, this court need not interfere into the matter and relied upon the principle of existence of statutory alternate remedy to say that interference into the writ petition is not called for. 12. Shri San .....

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ir Liaison Officer Shri Mukesh Sharma. He submits that by analysing all these material when the matter is to be considered by the Assessing Officer, this court at this stage cannot go into the sufficiency of the material and interfere. That being so, we will consider the judgment rendered by the Supreme Court in the case of Rajesh Jhaveri Stock Brokers (supra) as Shri Sanjay Lal had placed heavy reliance on this judgment. In the case of Rajesh Jhaveri Stock Brokers (supra) even though as stated .....

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be noticed is that intimation under section 143(1)(a) is given without prejudice to the provisions of section 143(2). Though technically the intimation issued was deemed to be a demand notice issued under section 156, that did not per se preclude the right of the Assessing Officer to proceed under section 143(2). That right is preserved and is not taken away. Between the period from April 1, 1989 and March 31, 1998, the second proviso to section 143(1)(a), required that where adjustments were m .....

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thstanding that no tax or interest was found due from the asses see concerned. Between April 1, 1998 and May 31, 1999, sending of an intimation under section 143(1)(a) was mandatory. Thus, the legislative intent is very clear from the use of the word 'intimation' as substituted for 'assessment' that two different concepts emerged. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under .....

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king the permissible adjustments only. As a result of insertion of the Explanation to section 143 by the Finance (No. 2) Act of 1991 with effect from October 1, 1991, and subsequently with effect from June 1, 1994, by the Finance Act, 1994, and ultimately omitted with effect from June 1, 1999, by the Explanation as introduced by the Finance (No. 2) Act of 1991 an intimation sent to the assessee under section 143(1)(a) was deemed to be an order for the purposes of section 246 between June 1, 1994 .....

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rocedure laid down in the Act for imposing liability upon the taxpayer'. In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a) as it stood prior to April 1, 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, .....

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ted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is pay able by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any 'assessment' is done by t .....

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, does not arise." (emphasis supplied) Finally, after taking note of the provisions of sections 148 and 147 and its amendment from time to time in para 16, the matter has been dealt with in the following manner (page 511 of 291 ITR) : "Section 147 authorizes and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word 'reason' in the phrase 'reason to believe .....

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fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662 (SC), for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. A .....

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)." (emphasis supplied) From a perusal of the aforesaid principle of law laid down by the Supreme Court, we find that the expression "reason to believe" cannot be read to say that the Assessing Officer should have finally ascertained the effect by legal evidence or conclusion. At the stage when the matter is pending, the final outcome of the proceeding is not relevant. At the stage when only notice has been issued, the only consideration would be as to whether there was reasonable .....

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ock Brokers (P) Ltd. (supra), the words "intimation" and "assessment" used under section 143 in different places is considered to be with reference to different context and in the judgment the final conclusion is that if the assessment has not been completed, accuracy and sufficiency of the material should not be examined. This also is the principle laid down in the case of Raymond Woollen Mills Ltd. (supra) relied upon by Shri Sanjay Lal. The Kerala High Court in the case of .....

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of the Act was considered by the Supreme Court in Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC) ; [1993] 113 CTR (SC) 436. After reviewing several judicial precedents on the subject, a two Judges Bench of the Supreme Court held as under : 'From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax, Act 1961 only if on the basis of specific, re .....

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re not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. 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 but it .....

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link for the formation of the requisite belief. It would be immaterial whether the Income-tax Officer at the time of making the original assessment could or, could not have found by further enquiry or investigation, whether the transaction was genuine or not, if on the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in section 147(a) of the Act, that the assessee had not made a full and true disclosure of the materi .....

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tude." (emphasis supplied) 13. If we analyse the facts of the present case in the backdrop of the aforesaid legal principle, we find that the petitioner wants this court to hold that the material collected by the Department and relied upon, namely the entries/notings made as indicated in the loose slip has no nexus to the petitioner and therefore, the entire proceeding should be quashed. Whereas, the Revenue wants this court to hold that if these loose papers are considered and if they are .....

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still in progress and considering the fact that the Revenue has indicated that the petitioner was a key person having control over the decision making process, it is not appropriate for this court to hold that material produced are not sufficient enough or reliable enough to proceed in the matter. On the contrary, when the law says that sufficiency or correctness of the material is not to be looked into at this stage by a writ court, this court has to leave everything to the Assessing Officer, w .....

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equirement of "reason to suspect" and "reason to believe" and cognizance to be taken of loose paper and the nexus between the material collected and the assessee, etc. but all those cases were decided in the context of legal principle applicable mostly after orders of assessment were passed or assessment were reopened after they had been concluded, unlike in this case wherein in view of law laid down in the case of Rajesh Jhaveri Stock Brokers (supra), we have to hold that as .....

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en after the petitioner had left on deputation to the Government of India. This aspect of the matter has been considered by the Revenue in the detailed reason given for proceeding further in the matter and they have indicated in the said reasons that when the petitioner was holding the post of Commissioner Urban Administer and Development in M.P., various process in pursuance to the tender earlier issued and subsequently issued on modification took place and shortlisting of the two contractors, .....

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lready taken for awarding the contract to these parties and as all major decisions except exclamation of project cast was undertaken, while the petitioner was holding the key post of Commissioner, Urban Administration and Development. It is indicated by the Revenue that the petitioner played a key role in controlling the decision making process which ultimately led in eliminating all other companies, shortlisting the two companies in question and it has been held that by acting as intermediate b .....

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f the Constitution at this stage to interfere as enquiry into various aspects of the matter which was the prime consideration which weighed with the Revenue for proceeding in the matter may be required. The Revenue on a just and proper consideration has taken the decision and therefore, we are not inclined to accept this contention advanced by Shri Kishore Shrivastava. 16. On the contrary, it is a fit case where the Department should be granted liberty to proceed in the matter and thereafter tak .....

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Court in the said case that in the stage of assessment of the proceeding the High Court ought not to have entertained the writ petition, instead should have directed the assessee to appear before the Assessing Officer, permit him to take a decision and after framing of assessment order, the assessee should seek indulgence into the matter. In para 16 and 17 of the said judgment, the hon'ble Supreme Court has dealt with the matter in the following manner (page 718 of 357 ITR) : "In the p .....

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n the same before the forum provided under the Act. In view of the above, without expressing any opinion on the correctness or otherwise of the construction that is placed by the High Court on section 153C, we set aside the impugned judgment and order. Further, we grant time to the assessee, if it so desires, to file reply/objections, if any, as contemplated in the said notices within 15 days' time from today. If such reply/objections is/are filed within time granted by this court, the asses .....

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