TMI Blog2022 (5) TMI 1350X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed period of four years only if the petitioner - assessee had failed to fully and truly disclose all material facts for the purpose of assessment; failure on the part of the assessee to fully and truly disclose all facts which are material, relevant and germane for the purpose of assessment is a sine qua non for the purpose of reopening the assessment. In the present case details contained in the income tax returns submitted by the petitioner clearly falsifies the allegation of the respondents that the book value of the shares had not been mentioned/stated by the petitioner; so also, undisputedly, in order to attract Section 56 (2) (vii) (c) of the I.T. Act, the aggregate fair market value should exceed Rs. 50,000/-; the aforesaid details mentioned in the income tax returns are sufficient to indicate that even if the market value of 49,07,14,120 shares is taken at 1 paise per share, it would exceed the aforesaid fair market value of Rs. 50,000/- for the purpose of income tax; in other words, in the light of all the details furnished by the petitioner in the returns including the total number of shares, the methodology adopted to compute/quantify the number of shares, the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its returns were sufficient and that the petitioner had fully and truly disclosed all material facts. In the instant case, all relevant material facts viz., details of shares for the assessment years 2011-12 and 2012-13 have been stated including the breakup, face value of the shares at Rs. 2/- per share, the details of the shares for the previous year, market value of all the quoted investments including the shares etc., have been furnished by the petitioner and accepted at the time of assessment without any demur; under these circumstances, the respondents are not entitled to invoke the proviso to Section 147 of the I.T. Act in order to contend that the income from the shares has escaped assessment on account of failure on the part of the petitioner to fully and truly disclose all material facts. Viewed from this angle also, the impugned notice and the reasons assigned by the respondents deserve to be quashed. It is the settled legal position that an assessee is under a duty or obligation to disclose only the basic and primary facts relating to his assessment and thereafter, it is for the Assessing officer to make further enquires and draw inferences and if he does not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettlor firms, the settler companies, the petitioner and the beneficiary companies are all part of the promoter group of Wipro Ltd., of which, Mr. Azim Hasham Premji is the promoter. As a part of an inter se transfer within the promoter group, the APT received certain securities being listed shares of Wipro Ltd., from the settlor firms in financial year 2012-13 and the settlor companies in financial year 2010-11 as a gift to be held as the corpus of APT and these transactions were duly disclosed contemporaneously to the stock exchanges and this information was also disseminated to the public at large. It is contended that the aforesaid gifts were duly disclosed in the audited financial statements of APT for the respective financial years. (ii) It is contended that thereafter, pursuant to a thorough examination and verification of all the material placed on record by the petitioner which clearly constituted the true and full disclosure on its part of all the material information sought and required for the purpose of its assessment under the Act, an assessment order came to be passed in the case of the petitioner under Section 143(3) of the Income Tax Act, 1961 (for short 't ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s less than the fair market value, the same shall be treated as the income of the recipient. The proviso to Section 56(2)(vii)(c) of the I.T. Act provides that this clause shall not apply to any property received from any relative as defined or on the occasion of the marriage of the individual. The term relative is defined in Explanation (e) to Section 56(2)(vii) in terms (of brother, sister, spouse etc.) which make it absolutely clear that individual means only a natural person and not a corporate entity. (vii) During the year ending 31.03.2013, the petitioner received gift of Rs. 29.55 crore number of WIPRO shares from 3 Premji Group firms. This gift was fully disclosed in the petitioner's Balance Sheet for the financial year 2012-13, where the number of WIPRO shares received as gift, their face value and the market value of the shares at the date of the Balance Sheet were all disclosed. Indeed, there are no other details or particulars which could possibly be disclosed regarding the said WIPRO shares received as gifts. (viii) It is contended that during the regular assessment proceedings for A.Y 2013-14, the Assessing Officer (A.O) issued a notice under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ossibly be accused of failing to disclose information which is in the public domain and is continuously available to everybody. In any event, the reasons recorded do not even attempt to claim that the non-application of Section 56(2)(vii)(c) of the I.T. Act and the consequent alleged escapement of income was because the Assessing officer was allegedly unaware of the market price of WIPRO shares. For application of Section 56(2)(vii)(c) of the I.T. Act, even if a price as nominal as one paise is assigned to be the market value of each Wipro share received as a gift with the number of shares received as a gift being Rs. 29.55 crores, the aggregate value would exceed the limit of Rs. 50,000/- specified in Section 56(2)(vii)(c) of the I.T. Act. Thus, in the facts of the case, it is axiomatic that the Assessing officer considered Section 56(2)(vii)(c) of the I.T. Act not to be attracted at all rather than being unaware of the market price of WIPRO shares as alleged. The market price of these shares is irrelevant because in the reasons recorded, nowhere it is specifically allege and establish that the alleged escapement of income was by reason of the so-called non-disclosure of the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .T. Act before the assessing officer and the higher authorities and as such, the petition is not maintainable on this ground also. 3.2. It is also contended that though the prescribed period of six years to reopen the assessment of the petitioner for the assessment year 2013-14 expired on 31.03.2020, in view of Section 3 of the Taxation and other Laws (relaxation and amendment of certain provisions) Act, 2020, the period of limitation was extended upto 31.12.2020 and thereafter, upto 31.03.2021 vide Notification dated 29.10.2020 issued by invoking the enabling powers under the said Section 3 of the said Act. It is therefore contended that the impugned notice dated 31.03.2021 is within the extended period of limitation and the contention of the petitioner that the impugned notice is beyond the period of limitation is liable to be rejected. 3.3. The respondents have contended that in the return of income filed by the petitioner for the assessment year 2013 - 14, the petitioner merely disclosed the receipt of gifts in the balance sheet as part of long term investments at NIL value and neither the book value nor the market value of the shares of Wipro Ltd., were disclosed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with address, PAN and the amount donated. The petitioner issued a reply dated 22.06.2015 furnishing all the details sought for by the respondents, pursuant to which, the respondents passed an assessment order dated 31.03.2016 accepting the returns submitted by the petitioner. 7. Subsequently, on 11.03.2020, the respondents issued a notice under Section 133(6) of the IT. Act calling upon the petitioner to provide information relevant for the proceedings in relation to financial year 2016-17; in the said notice, it was stated that the petitioner - assessee had been filing returns as AOP/BOI and in view of the decision of the Delhi High Court, the petitioner is to be assessed as an individual and reasons for filing the returns of income in the status of AOP/BOI is to be furnished by the petitioner to the respondents. 8. The petitioner submitted a reply dated 19.03.2020 explaining in detail to the respondents that apart from the fact that the decision of the Delhi High Court was not applicable to the petitioner, the income tax returns and assessments made by the respondents categorizing the petitioner as a company was correct and proper and that the petitioner cannot be assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied before the Income Tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years but within the period of eight years, from the end of the year in question. 7. No dispute appears to have been raised at any stage in this case as regards the first condition not having been satisfied and we proceed on the basis that the Income Tax Officer had in fact reason to believe that there had been an under-assessment in each of the assessment years, 1942-43, 1943-44 and 1944-45. The appellant's case has all along been that the second condition was not satisfied. As admittedly the appellant had filed its return of income under Section 22, the Income Tax Officer could have no reason to believe that underassessment had resulted from the failure to make a return of income. The only question is whether the Income Tax Officer had reason to believe that there had been some omission or failure to disclose fully and truly all material facts necessary for the assessment for any of these years in consequence of which the under-assessment took place. 8. Before we proceed to consider the materials on record to see whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments . His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to omission to disclose fully and truly all material facts necessary for his assessment . Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them - including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed. 10. Does the duty however extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of material facts. 15. Clearly 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 such non disclosure. To establish this the company has relied on the statements in the assessment orders for the three years in question and on the statement of Kanakendra Narayan Banerjee in the report made by him to the Commissioner of Income Tax for the purpose of obtaining sanction to initiate proceedings under Section 34 and also on his statement in the affidavit on oath in reply to the writ petition. The report is in these words: Profit of Rs. 5,48,002 on sale of shares and securities escaped assessment altogether. At the time of the original assessment the then Income Tax Officer merely accepted the company's version that the sale of shares were casual transactions and were in the nature of mere change of investments. Now the results of the Company's trading from year to year show that the Company has really been systematically carrying out a trade in the sale of investments. As such the Company had failed to disclose the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d been of the nature of a trading sale, made in pursuance of an intention to make a business profit, and not of the nature of a change of investment, made in pursuance of an intention to put certain capital assets into another form. If that be so, it is equally clear that the Income Tax Officer who, by the way, was a successor to the officers who had made the original assessments, was not merely changing his opinion as to facts previously known, but was taking notice of a new fact. 17. The learned Chief Justice seems to have proceeded on the basis that when from certain facts inferences are to be drawn there is a duty on the assessee to state what the correct inference should be and if he has made a wrong statement as regards the inferences to be drawn that also is an omission or failure to disclose a material fact . For the reasons given earlier we do not think that this is the correct position in law. 18. It is clear therefore that if one looked at this report only it would not be possible to say that the Income Tax Officer had any non-disclosure of material facts by the assessee in mind when he assumed jurisdiction. It has to be remembered however that in sending a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scovered that the petitioner was in fact carrying on business in shares contrary to its representation that it was not. The Company filed appeals before the Appellate Assistant Commissioner, which were rejected in September 1950, and the assessments were confirmed. The Company thereafter filed a second appeal before the Income Tax Tribunal which appeals are now pending. 7. With reference to para 5 of the said petition, I deny that I pretended to act under Section 34 of the Income Tax Act as alleged. I have reasons to believe that by reason of the omission or failure of the Company to disclose fully and truly all material facts necessary for its assessments, the income, profits and gains chargeable to income Tax had been under assessed. I recorded my reasons and made three reports one for each year) in the prescribed form and submitted them before the Commissioner of Income Tax and the latter was satisfied that it was a fit case for issue of a notice under Section 34 of the Income Tax Act. Thereafter I issued the prescribed notices under Section 34 of the Income Tax Act. The said reports were made and notices issued in respect of all the three years mentioned in the petition an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... randum and articles of association of the Company had not been shown. This suggestion is against the record and we have no hesitation in repelling it. Not only is it not the ground set out by the Income Tax Officer at any stage not even in the affidavit in court, but the matters mentioned by the officer that the assessee had claimed that the profits realised were of a casual nature obviously indicate that the assessee disclosed that a surplus resulted from the sales which were also disclosed. 21. The assessment orders it is true do not mention the details of the sales. They state however that the audited accounts of the Company were furnished. The sales of shares were expressly mentioned in the report. In these circumstances it is reasonable to believe that as regards sale of shares full details were in fact disclosed. 22. Nor can we believe that the two Income Tax Officers L.D. Rozario and K.D. Banerjee concluded the proceedings without referring to the memorandum and articles of association of the company. These officers knew well that the Company was claiming to be an investment company only. They had to consider the question whether sales were of the nature of trade o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer has reason to believe that an underassessment has resulted from non-disclosure he shall have jurisdiction to start proceedings for re assessment within a period of 8 years; and where he has reason to believe that an underassessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within 4 years. Both the conditions, (i) the Income Tax Officer having reason to believe that there has been underassessment, and (ii) his having reason to believe that such underassessment has resulted from nondisclosure of material facts, must co-exist before the Income Tax Officer has jurisdiction to start proceedings after the expiry of 4 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. 26. Mr. Sastri next pointed out that at the stage when the Income Tax Officer issued the notices he was not acting judicially or quasi-judicially and so a writ of certiorari or prohibition cannot issue. It is well settled however that though the writ of prohib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason to believe that any income had escaped assessment? 15. Learned counsel for the petitioner has relied upon the following decisions in support of his contentions: Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC). As laid down by the Supreme Court in Calcutta Discount Co. Ltd.'s case [1961] 41 ITR 191, if certain primary facts are disclosed by the asses-sees in the return, then the limited jurisdiction of the High Court would be to find out whether this information was sufficient for the Income-tax Officer to probe into the matter further and apply his mind to the aspect of clubbing the income that arose to the minor beneficiaries under section 64 of the Income-tax Act. 16. CIT v. Bhanji Lavji [1971] 79 ITR 582, wherein the Supreme Court held that it is for the Income-tax Officer to establish that the assessee has failed to disclose certain facts and material necessary for the assessment of income which had escaped assessment. 17. Learned counsel had relied upon the following decisions: Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC); Y.V. Anjaneyulu v. ITO [1990] 182 ITR 242 (AP). 18. These two decisions we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessable income, it would be a case of bringing to tax the said part of the income which had escaped assessment. The Supreme Court was explaining the scope and the meaning of the word information , and held that it includes information as to the true and correct state of the law and so would cover the information as to relevant judicial decisions. This observation was made by the Supreme Court in the context of what is information for purposes of section 34(1)(b) of the Act. On the facts of the said case, certain income had escaped assessment owing to inadvertence or oversight of the Income-tax Officer and it was held that, in such a case, the assessment could be reopened by invoking section 34(1)(b). 26. The said decision is distinguishable on the facts of the present case and can have no application and does not help the Department's case. S. Narayanappa v. CIT [1967] 63 ITR 219 (SC). 27. It was a case arising under section 147(a) of the Income-tax Act. The Supreme Court enumerated the conditions required to confer jurisdiction on the Income-tax Officer to issue the notice under section 34 beyond the period of four years. On the facts of the said case, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher compensation by the civil court and the assessee had failed to disclose the pendency of the claim for higher compensation before the civil court. That decision turned on the peculiar facts of the case, and has no analogy with the present case. 35. Miheer Hemant Mafatlal v. N. Rama Iyer, ITO [1986] 159 ITR 515 (Bom). 36. In this case, each of the petitioners had submitted that their share in the income of the estate was not liable to assessment in their hands pending administration of the estate. It was held that there was no ground to reopen the assessment and the information furnished was sufficient. This case helps the petitioner in this case, rather than the Department. 37. VXL India Ltd. v. ITO [1988] 173 ITR 124 (P H). 38. It was held by the High Court that whether the income chargeable to tax has escaped assessment has to be decided under the provisions of the Act itself, including the jurisdiction of the Income-tax Officer, and not by way of a writ petition. 39. This view of the High Court is contrary to the rulings of the Supreme Court on the question of jurisdiction. 40. On these facts, the question that arises for consideration is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is that the burden is on the Department to show that the escapement has occurred on account of the failure on the part of the assessee to disclose the full particulars of the income. The other aspect of the case is, whether the Income-tax Officer had reason to believe that the escapement had occurred on account of the omission or failure on the part of the assessee. The formation of belief must have a nexus to the failure of the assessee to disclose true and full particulars as held by the Supreme Court in Bhanji Lavji's case [1971] 79 ITR 582. It is sufficient if the assessee has disclosed all the primary facts and any further enquiry or investigation that is called for should be done by the Income-tax Officer. On the facts of the present case, it is clear that the information furnished by the petitioner in Part III of the returns was sufficient for the Income-tax Officer to enquire further into the matter and to take steps to include the income accruing to the minors in the assessment of the petitioner. This was a clear case of failure on the part of the Income-tax Officer rather than the assessee. 45. I am, therefore, of the opinion that, on the facts of the case, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income Tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income Tax Officer did not hold the belief that there had been such nondisclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. Again the expression reason to believe in Section 34 of the Income Tax Act does not mean a purely subjective satisfaction on the part of the Income Tax Officer. The belief must be held in good faith: it cannot be merely a pretence. To put it differently it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income Tax Officer in starting proceedings under Section 34 of the Act is open to challenge in a court of law. (See Calcutta Discount Co. Ltd. v. Income Tax Officer, Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re change of investments were accepted, but that the company's accounts showed that it had been really and systematically carrying on a trade in the sale of investments, that the purchase and sale of shares were not casual transactions and that there has been a non-disclosure of the true intention behind the sale of shares. The Supreme Court, after dealing with the scope of section 34 of the Act exhaustively, if we may say so with respect, held that the question whether the sale of shares were by way of change of investments or by way of trading in shares had to be decided by the Income-tax Officer on a consideration of different circumstances, including the frequency of the sales, the nature of the shares sold, the price received as compared with the cost price, and several other relevant facts, that though it was the duty of the company to disclose all the primary facts which had a bearing on that question, the law did not require the company to state the conclusion that could reasonably be drawn from the primary facts, and that the Income-tax Officer who issued the notices did not have any material before him for believing that there had been any material non-disclosure by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment, (ii) such underassessment has resulted from the nondisclosure of primary and material facts; and (2) that if all the primary and material facts had been placed by the assessee before the Income-tax Officer at the stage of the original assessment, the assessee cannot be said to be guilty of non-disclosure as the Income-tax Officer failed to draw a proper factual or legal inference from those basic and primary facts. 18. In S. Narayanappa v. Commissioner of Income-tax [ [1967] 63 I.T.R. 219, 221, 222; [1967] 1 S.C.R. 590 (S.C.).] the Supreme Court again reiterated the same principle thus: But the legal position is that if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any nondisclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of course open for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st reassessment was made the primary facts necessary for reassessment of the family were in the possession of the Income-tax Officer, that at the time of the first reopening of the assessment of the Hindu undivided family and of the individual members the question of assessment of the entire amount represented by the high denomination notes was under direct consideration, that it was open to the Income-tax Officer to assess the whole amount of Rs. 19,000 and Rs. 1,10,000 in the hands of the Hindu undivided family at that stage, and that the escapement, if any, therefore, took place by reason of the failure of the Income-tax Officer to assess the family with respect to the sum of Rs. 1,10,000 when he was in full possession of all the material facts. On appeal, the Supreme Court affirmed the decision of the High Court holding that because the primary facts were within the knowledge of the Income-tax Officer when he completed the first reassessment, the escapement of income took place by reason of the failure of the Income-tax Officer to include the sum of Rs. 1,10,000 in the assessment of the Hindu undivided family when he was in full possession of all the necessary and material fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commence, but they have to be disclosed to the court when his jurisdiction to issue the notice is challenged on the ground that there is no reason to believe that certain income has escaped assessment by omission or failure of the assessee to disclose fully and truly all material facts necessary for his assessment, and the Income-tax Officer has to justify his assumption of jurisdiction only on those recorded reasons. 22. The learned counsel for the petitioner submits that the Income-tax Officer, at the stage of the original assessment proceedings, had thoroughly examined all the facts which are now referred to in the counter-affidavit and was satisfied with the explanations given by the petitioner, and, therefore, the Income-tax Officer had no reason to believe that by reason of the omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the various years the income, profits and gains, chargeable to income-tax for those years, have escaped assessment. According to the learned counsel, once the petitioner disputes that the Income-tax Officer had any reason before him to entertain the requisite belief an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r had escaped proper assessment. The nature of the enquiry held at the stage of the assessments is said to be not quite relevant for the purpose of finding out whether the impugned notices have been properly issued. In support of his contention that even in cases where there has been full and elaborate enquiries at the stage of original assessment, section 147(a) could still be invoked, he refers to the decisions in Income-tax Officer v. Bachu Lal Kapoor [ [1966] 60 I.T.R. 74; [1966] 3 SCR. 68 (S.C.).], Kantamani Venkata Narayana Sons v. First Additional Income-tax Officer [ [1967] 63 I.T.R. 638; [1967] 1 S.C.R. 984 (S.C.).] Commissioner of Income-tax v. T.S.P.L.P. Chidambaram Chettiar [ [1971] 80 I.T.R. 467 (SC).] and K.P. Arthanariswamy Chettiar v. First Income-tax Officer [ [1972] 84 I.T.R. 51 (Mad.).]. In Income-tax Officer v. Bachu Lal Kapoor [ [1966] 60 I.T.R. 74; [1966] 3 SCR. 68 (S.C.).] the Supreme Court laid down the proposition that the acceptance of a return or the completion of the assessment does not take away the jurisdiction of the Income-tax Officer to issue a notice to reassess on the ground that the information supplied by the return was not correct. In Kantama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and materials were not true or complete, he would have reason to believe that income has escaped assessment due to the assessee's failure to disclose truly and fully all materials necessary for the assessment. 24. Though the impugned notices do not indicate whether the reopening is proposed under clause (a) or clause (b), the learned counsel for the revenue states the Income-tax Officer proposes to reopen the assessments only under clause (a) and not under clause (b), and this, the learned counsel says, is clear from the notices themselves. He points out that reference to the sanction obtained from the Commissioner of Income-tax or the Central Board of Revenue in the notices indicates that action is being taken only under clause (a) of section 147, as no such sanction is necessary or contemplated in cases coming under clause (b). 25. We, therefore, proceed to consider whether the impugned notices could be sustained as having been validly issued for initiating proceedings under section 147(a). Clause (a) of section 147 may be usefully set out at this stage: 147. Income escaping assessment.-If- (a) the Income-tax Officer has reason to believe that, by re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in certain information which the Income-tax Officer is said to have received subsequent to the completion of the assessments for the nine years in question, as also his reasons for issuing the notice under section 148(1). Those reasons are contained in the reports submitted by him to the Commissioner of Income-tax and also the Central Board for getting the requisite sanction under section 151 for initiating action under section 147(a). From those reasons set out for the various years it is seen that some new materials which were not available before the Income-tax Officer at the time of the original assessment have come to his possession from various sources. 29. The learned counsel for the petitioner, however, states that there is no allegation of non-disclosure of primary facts in the counter-affidavits, that if the averments made therein are taken to indicate the substance of the materials available, they would not constitute any new material, for all those materials had been considered in elaborate detail by the Income-tax Officer at the stage of the original assessment, that a mere change of opinion on the part of the Income-tax Officer on the same materials will not enab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer even at the stage of the assessments, and that the Income-tax Officer merely in the guise of acting on a new material purports to change his earlier opinion. The petitioner's learned counsel also states that once the matter comes before the court on a challenge being made by the assessee on the question of jurisdiction of the Income-tax Officer to issue a notice under section 148, the attempt to satisfy only the court about the existence of the material is not sufficient, that it is not a private matter between the Income-tax Officer and the court and that all materials which are disclosed to the court should also be disclosed to the assessee so that he will assist the court in deciding the question of jurisdiction. What the learned counsel in effect says is that the court will not be justified in deciding the question of jurisdiction on the files and records being shown to the court without the petitioner having the benefit of the information available therefrom, and that the court will have to decide the question of jurisdiction only after the disclosure of that information to the petitioner. The learned counsel, however, concedes that in exceptional cases where confid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility 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 justifiable 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans from various parties of Calcutta. From D.I.'s Inv. No. A/P/Misc. (5) D.I./63-64/5623 dated August 13, 1965, forwarded to the office under CIT, Bihar and Orissa, Patna's letter No. Inv. (Inv.) 15/65-66/1953-2017 dated Patna September 24, 1965 it appears that these persons are name-lenders and the transactions are bogus. Hence, proper investigation residing these loans is necessary. The names of some of the persons from whom money is alleged to have been taken on loan on hundis are: 1. Seth Bhagwan Singh Sricharan 2. Lakha Singh Lal Singh 3. Radhakissen Shyam Sunder The amount of escapement involved amounts to Rs. 1,00,000. In dealing with that report this Court observed: From the report submitted by the Income Tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year; nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words definite information which were there in Section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in Section 147 of the Act of 1961 would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 1999-2000. The assessment of the petitioner for that year had been finalised under Section 143 of the Income Tax Act. An order in that behalf was passed earlier on 28-3-2002 determining the income of the petitioner as Rs. 27.72 crores. Thereafter the first respondent sought to reopen the assessment and the reasons for reopening the assessment recorded vide his letter dated 27-3-2006 disclose that it is essentially after having another look at the annual accounts which had been furnished earlier. The officer records that now it is noticed that during that year the assessee Company had incurred a loss in trading in shares. The officer thereafter discusses the various entries appearing in the opening and closing stocks and purchases and sales of those stocks. Thereafter the officer has concluded that there is a loss of Rs. 19.86 crores and that the loss was speculative one. He has therefore come to a conclusion that the income chargeable to tax to the extent of Rs. 19.86 crores has escaped the assessment and that is how he has passed the order under Section 147 of the Income Tax Act although almost four years have gone after the assessment of the year concerned. 6. Mr. Mistr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the petitioner when called upon. Thereafter the assessment was completed under Section 143(3) of the Income Tax Act. Now, on a mere relook, the officer has come to the conclusion that the income has escaped assessment and he is of course justified in his analysis. In our view, this is not something which is permissible under the proviso to Section 147 of the Income Tax Act which speaks about a failure on the part of the assessee to make a proper return. In the present case, no such case is made out on the record. 15. In the case of New Delhi Television Ltd., vs. Deputy Commissioner, (2020) SCC online 446 the Apex Court held as under:- 11. In our opinion, the following issues arise for consideration in this case:- (i) Whether in the facts and circumstances of the case, it can be said that the revenue had a valid reason to believe that undisclosed income had escaped assessment? (ii) Whether the assessee did not disclose fully and truly all material facts during the course of original assessment which led to the finalisation of the assessment order and undisclosed income escaping detection? (ii) Whether the notice dated 31.03.2015 along with reasons commun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess 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: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject-matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, the transaction of issuance of US$ 100 million convertible bonds was not questioned. Therefore, according to the assessee there was no fresh material before the assessing officer to have reason to believe that the undisclosed income of the assessee had escaped assessment. 16. On behalf of the assessee it has been urged that once the transaction of step-up coupon bonds has been accepted to be correct, then the revenue cannot re-open the same and doubt the genuineness of the transaction. We are not in agreement with the first part of the submission but we make it clear that we are not commenting on the genuineness of the transaction, which will be considered by the concerned assessing officer. 17. On the other hand, on behalf of the revenue it is submitted that at the stage of issue of show cause notice the revenue only has to establish a tentative and prima facie view. At this stage, this Court is not expected to go into the merits of the case but can only ascertain whether the revenue has prima facie ground to show that it had reasons to believe that income has escaped assessment. It is further submitted that the scope of judicial review in such matters is very limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf, we shall make reference to only a few. 22. In Claggett Brachi Co. Ltd., London v. Commissioner of Income Tax, Andhra Pradesh, this Court held as follows:- 7. Two points have been urged before us by learned counsel for the assessee. It is contended that the Income Tax Officer has no jurisdiction to take proceedings under Sections 147 and 148 of the Income Tax Act because the conditions prerequisite for making the reassessments were not satisfied. The re-assessments were made with reference to clause (b) of Section 147 of the Act, and apparently the Income Tax Officer proceeded on the basis that in consequence of information in his possession he had reason to believe that income chargeable to tax had escaped assessment for the two assessment years. From the material before us it appears that the Income Tax Officer came to realise that income had escaped assessment for the two assessment years when he was in the process of making assessment for a subsequent assessment year. While making that assessment he came to know from the documents pertaining to that assessment that the overhead expenses related to the entire business including the business as commission agents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. In Ess Kay Engineering Co.(P) Ltd. v. Commissioner of Income Tax, Amritsar, this Court held as follows:- This is a case of reopening. We have perused the documents. We find there was material on the basis of which the Income Tax Officer could proceed to reopen the case. It is not a case of mere change of opinion. We are not inclined to interfere with the decision of the High Court merely because the case of the assessee was accepted as correct in the original assessment for this assessment year. It does not preclude the Income Tax Officer from reopening the assessment of an earlier year on the basis of his findings of fact made on the basis of fresh materials in course of assessment of the next assessment year. The appeal is dismissed. No order as to costs. 25. A perusal of the aforesaid judgments clearly shows that subsequent facts which come to the knowledge of the assessing officer can be taken into account to decide whether the assessment proceedings should be re-opened or not. Information which comes to the notice of the assessing officer during proceedings for subsequent assessment years can definitely form tangible material to invoke powers vested with the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the revenue can take the benefit of the extended period of limitation of 6 years for initiating proceedings under the first proviso Section 147 of the Act. This can only be done if the revenue can show that the assessee had failed to disclose fully and truly all material facts necessary for its assessment. The assessee, in our view had disclosed all the facts it was bound to disclose. If the revenue wanted to investigate the matter further at that stage it could have easily directed the assessee to furnish more facts. 30. The High Court held that there was no true and fair disclosure in view of the law laid down by this Court in Phool Chand's case (supra), and the judgment of the Delhi High Court in Honda Siel Power Products Limited v. Deputy Commissioner Income-Tax. We have already referred to the judgment in Phool Chand's case (supra), wherein it was held that where the transaction of a particular assessment year is found to be a bogus transaction, the disclosures made could not be said to be all true and full . Relying upon the said judgment the High Court held that merely because the transaction of convertible bonds was disclosed at the time of origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as bound to disclose this to the Assessing Officer. The Assessing Officer before finalising the assessment of 03.08.2012 had never asked the assessee to furnish the details. 34. The revenue now has come up with the plea that certain documents were not supplied but according to us all these documents cannot be said to be documents which the assessee was bound to disclose at the time of assessment. The main ground raised by the revenue is that the assessee did not disclose as to who had subscribed what amount and what was its relationship with the assessee. As far as the first part is concerned it does not appear to be correct. There is material on record to show that on 08.04.2011 NNPLC had sent a communication to the Deputy Director of Income Tax (Investigation), wherein it had not only disclosed the names of all the bond holders but also their addresses; number of bonds along with the total consideration received. This chart forms part of the assessment orders dated 03.08.2012 in the case of M/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd. The said two assessment orders were passed by the same officer who had passed the assessment order in the case of the assessee on the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents. His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, will amount to omission to disclose fully and truly all material facts necessary for his assessment. Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them - including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed. (10) Does the duty however extend beyond the full and truthful disclosure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e already dealt with the same while deciding Issue No. 1. However, that cannot lead to the conclusion that there is non-disclosure of true and material facts by the assessee. 37. It is interesting to note that whereas before this Court the revenue is strenuously urging that the assessee is guilty of nondisclosure of material facts, before the High Court the case of the revenue was just opposite. We may quote a portion of the counter-affidavit filed by the revenue in response to the writ petition filed by the assessee before the High Court which reads as follows:- ...It is evident from these facts that second proviso to Section 147 is clearly attracted in this case and first proviso to Section 147 is not applicable to facts of this case, i.e. in this case, the only requirement to reopen assessment U/s 147 was that the AO has reason to believe that any income chargeable to tax has escaped assessment. The second condition that the income should have escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for making assessment is not relevant to decide issue before the Hon'ble Court 38. This submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had concluded the assessment proceedings and passed an assessment order on 31.03.2016, the impugned Demand notice dated 31.03.2021 which was issued beyond the period of limitation of four years was illegal, arbitrary and without jurisdiction or authority of law. It is also contended that a perusal of income tax returns as well as the reply submitted by the petitioner on 22.06.2015 to the notice dated 09.06.2015 issued by the respondents will indicate that the face value/book value of the shares as well as the total market value of all the quoted investments including the shares had been mentioned/stated in the returns in addition to other material particulars and details and consequently, there has not been any failure of full and true disclosure of material facts for the purpose of assessment. 18. Per contra, it is contended by the respondents that the petitioner had not disclosed and full and true facts in as much as the book value and the market value of the shares gifted in favour of the petitioner was not disclosed either in the returns or in the reply submitted by the petitioner and as such, the respondents were entitled to invoke the proviso to Section 147 of the I.T. Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is the public limited company whose share value is available readily in the public domain, it cannot be said that the petitioner had failed to fully and truly disclose all material facts necessary for its assessment. 21. As stated supra, in the light of all the aforesaid material and relevant facts being fully disclosed by the petitioner in its returns, which were more than sufficient to complete the assessment, mere non-disclosure of the market value of the shares separately by the petitioner in its returns cannot lead to an inference that the petitioner has not fully and truly disclosed all material facts necessary for assessment; to put it differently, so long as all other material and relevant facts had been furnished and disclosed and it can be clearly discerned from the returns and the documents that the market value of the shares was in excess of Rs. 50,000/-, simply because the market value of 49,07,14,120 shares had not been separately stated/mentioned, it cannot be said that the respondents were entitled to take shelter under the proviso to Section 147 of the IT. Act and seek to reopen the concluded proceedings of 2016 beyond the period of limitation on 31.03.2021. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A which proceed on the sole premise that the petitioner had not disclosed the boom value and the market value of the shares which tantamount to not fully and truly disclosing material facts are clearly illegal, arbitrary, factually incorrect and perverse and contrary to the material on record warranting interference by this Court in the present petition. 24. As held by the Apex Court and other High Courts including this Court, in the aforesaid decisions, in order to invoke the proviso to Section 147 of the I.T. Act, it is incumbent upon the respondents to establish that the relevant material facts essential for the purpose of assessment had not been disclosed by the petitioner; it cannot be gainsaid that all facts/particulars which have not been stated/mentioned in the returns are not material facts and it is only those facts which would have an impact/bearing upon the assessment that can be construed or treated as essential. In the instant case, all relevant material facts viz., details of shares for the assessment years 2011-12 and 2012-13 have been stated including the breakup, face value of the shares at Rs. 2/- per share, the details of the shares for the previous year, mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is readily available and it cannot be said that the petitioner has failed to disclose the information which is in the public domain and is continuously available to everybody. Further, the reasons recorded do not even attempt to claim that the non-application of Section 56(2) (vii)(c) of the I.T. Act and the consequent alleged escapement of income was because the Assessing officer was allegedly unaware of the market price of WIPRO shares. For application of Section 56(2)(vii)(c) of the I.T. Act, even if a price as nominal as one paise is assigned to be the market value of each Wipro share received as a gift with the number of shares received as a gift being Rs. 29.55 crores, the aggregate value will far exceed the limit of Rs. 50,000/- specified in Section 56(2)(vii)(c) of the I.T. Act. Thus, in the facts of the case, it is axiomatic that the Assessing officer considered Section 56(2)(vii)(c) of the I.T. Act not to be attracted at all rather than being unaware of the market price of WIPRO shares as alleged. The market price of these shares is irrelevant because in the reasons recorded, nowhere it is specifically alleged and established that the alleged escapement of income was by r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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