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TMI Blog2022 (5) TMI 1350X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned proceedings initiated by the 2nd Respondent under Sections 147 and 148 of the Income-tax Act, 1961, are wholly without jurisdiction, barred by limitation and, therefore, without the authority of law; (v) Declaring that Section 56(2)(vii)(c) of the Income-tax Act, 1961, has no application to the gift of shares of Wipro Ltd. Received by the Petitioner in the previous year relevant to the Assessment year 2013-14, and (vi) Pass such other or further orders as this Hon'ble Court may deem fit in the facts and circumstances of the case, and in the interests of justice and equity". 2. Briefly stated, the various contentions urged by the petitioner are as under:- (i) The petitioner is a private limited company and is the sole Trustee of a private discretionary Trust called "Azim Premji Trust" (for short 'the APT'). As per the trust deed of APT, there are three settler partnership firms and three settlor companies. The settlor 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 AP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly contrary to the provisions of Sections 2(31) and 56(2)(vii)(c) of the I.T. Act. (v) It is contended that in any event, there is no failure or omission whatsoever on the part of the petitioner to disclose any material facts necessary for its assessment for Assessment Year 2013-14. The impugned Section 148 Notice is therefore patently time barred and without jurisdiction; the statutorily required sanction under section 151 has been granted by the 1st respondent without any application of mind and without any consideration of the materials on record relating to the Petitioner's assessment for assessment year 2013-14. (vi) Alternatively, it is contended that Section 56(2) (vii) (c) of the IT. Act provided that where an individual or Hindu Undivided Family receives any movable property in any year during the period 01.10.2009 to 01.04.2017 with a fair market value of more than Rs. 50,000/- for a consideration which is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income returned by the petitioner. It is contended that in a case of reopening covered by the proviso to Section 147, the reasons recorded must set out the exact particulars of the failure to disclose on the part of the assessee, on account of which the escapement of income has taken place and a ritual repetition of the proviso to Section 147 would not be sufficient. In the present case, the reasons recorded only state that though the number of WIPRO shares received as a gift were disclosed but neither the book value nor the market value of the shares was disclosed in the Balance Sheet. This is factually incorrect because the face value of the WIPRO shares (Rs. 2/- per share) and also their market value as on 31.03.2013 are clearly disclosed. (xi) In any event, share of WIPRO is widely quoted and frequently traded and its market value from minute to minute is readily available. The petitioner cannot possibly 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment notice under Section 148 of the I.T. Act and seek reasons for reopening and file objections before the assessing officer, who is required to pass an order on the same and only upon the assessing officer passing such an order, the petitioner would be entitled to challenge the same in accordance with law. It is contended that since the petitioner has approached this Court without filing objections or the assessing officer passing orders, the present petition is not maintainable. 3.1. The respondents have further contended that the challenge to the impugned circulars dated 03.08.2012 and 31.12.2018 are also misconceived and devoid of merits and the same are liable to be rejected. It is contended that the challenge to the applicability of Section 56 (2) (vii) (c) of the I.T. Act is also not sustainable in view of the equally efficacious and alternative remedy available to the petitioner under the I.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard Sri. S. Ganesh, learned Senior counsel appearing for Sri. Sandeep Huilgol for the petitioner and Sri. K.V. Aravind, learned counsel for the respondents and perused the material on record. 5. The material on record discloses that undisputedly, during the financial year 2012-13, which corresponds to assessment year 2013-14, the petitioner received equity shares of Wipro Ltd., from 3 donors. The petitioner filed its returns which are produced along with the auditor's report as Annexure-F to the petition. The said gift transactions were disclosed in the audited financial statements for the year ending 31.03.2013. 6. On 09.06.2015, the Income tax officer issued a Notice to the petitioner under Section 142(1) of the I.T. Act calling upon the petitioner to furnish details regarding assessment proceedings. In the said notice, petitioner was called upon to produce complete list of donors 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Limited vs. Income Tax Officer - AIR 1961 SC 372, wherein it was held as under:- 6. To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. The first is that the Income Tax Officer must have reason to believe that income, profits or gains chargeable to income tax have been under-assessed. The second is that he must have also reason to believe that such "underassessment" has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under Section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. 9. There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income Tax Officer might have discovered, the legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example - "/have produced the account books and the documents: You, the assessing 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, amount to "omission to disclose fully and truly all material facts necessary for his assessment". Nor will he be able to contend suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this. 14. The position therefore is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary 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 notices under Section 34. Whether these grounds were adequate or not for arriving at the conclusion that there was a non disclosure of material facts would not be open for the court's investigation. In other words, all that is necessary to give this special jurisdiction is that the Income Tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change the form of investment and not with the intention of making a business profit cannot be expected to say that his true intention was other than what he contended it to be. Dealing with this question the learned Chief Justice has said: "The expression that the respondent had failed to disclose 'the true intention behind the sale of shares' may lack directness, but that deficiency of language is not sufficient to enable the respondent to contend, in view of the circumstances alleged, that no failure to disclose facts was being complained of. On the facts as stated by the Income Tax Officer, it is clear that there had been a failure to disclose the fact that the respondent was a dealer in shares and what the Income Tax Officer meant by the language used by him was that the respondent had not disclosed that the sale of shares had 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a letter to me setting out the contentions of their clients and inter alia stated that throughout the whole history the Company bought no shares whatsoever. Sri K.D. Banerjee was accordingly led to believe that the dealings in shares were casual transactions and were in the nature of mere change in investments and the profits resulting therefrom were not taxable. The assessment orders were made on the basis that the petitioner did not carry on any business dealings in shares. A copy of the said letter dated 18th August, 1944, as also the relevant portion of the note sheet are included in the schedule hereto annexed and marked A'. 6. In the assessments for 1945-46 and 1946-47, which were completed in April 1950, the profits on sale of shares were included in the total assessable income of the Company it having been then discovered 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the matter which it was the Income Tax Officer's task to decide. No duty lay on the Company to admit that these transactions were by way of trade. The fact that on behalf of the Company Mr. Smith of Lovelock & Lewes stated that the Company was not a dealer in shares and securities does not therefore amount to an omission to disclose fully and truly any material fact. 20. To ascertain whether the Income Tax Officer could have had in mind any non-disclosure as a ground for thinking that by reason of such nondisclosure an underassessment had occurred - apart from what was mentioned in the affidavit - we enquired from respondent's counsel whether he could suggest any other non-disclosure that might have taken place. Mr. Sastri suggested two. One is that the sales had not been disclosed; the other that the memorandum 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment had occurred "by reason of nondisclosure of material facts" should not be investigated by the courts in an application under Article 226, learned counsel seems to suggest that as soon as the Income Tax Officer has reason to believe that there has been underassessment in any year he has jurisdiction to start proceedings under Section 34 by issuing a notice provided 8 years have not elapsed from the end of the year in question, but whether the notices should have been issued within a period of 4 years or not is only a question of limitation which could and should properly be raised in assessment proceedings. It is wholly incorrect however to suppose that this is a question of limitation only not touching the question of jurisdiction. The scheme of the law clearly is that where the Income Tax Officer has reason to believe that an underassessment has resulted from non-disclosure he shall have jurisdiction to start proceedings for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief in fit cases and the courts would be failing to perform their duty if relief is refused without adequate reasons. In the present case we can find no reason for which relief should be refused. 12. In the case of Mohini Bai M. Sard a vs. First Income Tax Officer, this Court held as under:- 14. Therefore, the question that arises for consideration on these facts is, whether the Income-tax Officer was put on notice that there was a trust created by the petitioner settling certain properties in favour of eight minor beneficiaries and that exemption was claimed in respect of the said income in her assessment? If this is the undisputed fact, can it be said that there was any failure on the part of the assessee-petitioner to furnish full and correct particulars, and if so whether there was reason 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Co's case [1990] 181 ITR 319, the Bombay High Court found that there was disclosure of havala transactions by the assessee in the returns and for the fault of the Department in not investigating the matter further as to the genuineness of the hundis, it was not open to the Income-tax Officer to reopen the assessment under section 147(a). 24. As against this, learned counsel for the Department has relied upon the following decisions: Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 : AIR 1959 SC 257. 25. That was a case arising under section 34(1)(b) of the 1922 Act. It was held that even in a case where a return had been submitted disclosing certain facts, if the Income-tax Officer erroneously fails to tax a part of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leading to the belief that the income has escaped assessment or under-assessed. 31. CIT v. Ayodhyakumari [1985] 154 ITR 604 (Raj). 32. The High Court laid down that where reassessment has been made under section 147(a), it is open to the Appellate Assistant Commissioner, to treat it as one properly made under section 147(b) provided that on the material on record all the necessary conditions prescribed under section 147(a) are satisfied. This has no application to the facts of the present case. 33. T.M. Kousali v. Sixth ITO [1985] 155 ITR 739 (Kar). 34. This was a case where proceedings taken under section 147(a) were sustained under section 147(b). That was a case of the assessee being awarded 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 admini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner had disclosed the primary fact in her returns, viz., that the petitioner had executed a trust in favour of the eight minors. There was, therefore, no reason for the Income-tax Officer to say that the income had escaped assessment on account of the failure of the petitioner-assessee to disclose the income that has accrued to the petitioner which should have been taxed in her hands. 43. So far as the decisions relied upon by learned counsel for the Department are concerned, I have stated, while referring to them in their order, that they are all distinguishable and have no application to the facts of the present case. 44. On the other hand, the law that is well settled 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 Bha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of his income under Section 22, or (ii) omission of failure on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income Tax Officer acquires jurisdiction to issue a notice under the section. 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 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 "reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 34(1) for the first time. In that case in the original assessments for the assessment years 1942-43, 1943-44 and 1944-45, profits realised by a company by sale of shares were not assessed to tax on the ground that they were in the nature of mere change in investments. The Income-tax Officer later proposed to initiate reassessment proceedings against the company by issuing notices under section 34, and in his reports to the Commissioner for the purpose of obtaining sanction he had stated that at the time of the original assessments the representations made on behalf of the company that the sales of shares were casual transactions in the nature of mere 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is necessary to give this special jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for thinking that there had been some non-disclosure of material facts. 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 nondisclosure." 17. The above decision is clearly an authority for two propositions, (1) that the court must be satisfied as to the existence of the two conditions, namely, (i) reason to believe that there has been underassessment, (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e five members in respect of the respective notes encashed by them. Two days later, i.e., on February 2, 1955, the Income-tax Officer issued a notice under section 34(1)(a) of the Indian Income-tax Act, 1922, seeking to include the sum of Rs. 1,10,000 in the hands of the family on the ground that the notes encashed by the five members belonged to the Hindu undivided family. The Tribunal upheld the said reassessment. The validity of that notice was challenged and ultimately the matter came to the High Court on a reference. The High Court held that the notice dated February 2, 1955, was not valid, since it was found that when the first 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue a notice under section 148 is made conditional on the Income-tax Officer recording his reasons under sub-section (2). The Income-tax Officer is bound to record his reasons before issuing a notice under sub-section (1), and it is on the basis of those reasons recorded by him the Commissioner's or the Board's sanction must be obtained in cases where action is taken after the lapse of four years or eight years, as the case may be, as contemplated in section 151. Such reasons recorded by the Income-tax Officer need not be communicated or disclosed to the assessee before reassessment proceedings under section 147 actually 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haustive enquiry by the assessing officer at the stage of the assessments on the question of exemption of the income of the trust. According to him even if a thorough and exhaustive enquiry has been made by the Income-tax Officer at the stage of the original assessments, still section 147 could be invoked if fresh material which subsequently came to the possession of the department shows that the disclosure made by the petitioner at the stage of the original assessments was neither full nor true, and in this case the assessing officer had sufficient material before him to entertain a belief that the income of the petitioner 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld invoke section 147(a) on the basis of the subsequent information secured from a co-ordinate official who made the assessment on the banker, which, if accepted, would lead to a reasonable belief that the disclosure made by the assessee in the first instance was not true. Thus, we find the recent trend of judicial decisions to be that even if the Income-tax Officer has at the stage of assessment been satisfied with the facts and materials disclosed by the assessee and completed the assessment on the basis of such materials disclosed, if, subsequently, on receipt of information, he has reason to believe that some of the facts 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 ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7(a). Condition No. 6 will not arise at this stage when the reassessment proceedings are yet to commence. The question is whether conditions Nos. 1 and 2 are satisfied in these cases. 28. To show that the above two conditions are satisfied, the learned counsel for the revenue has placed before us all the files relating to the issue of the impugned notices. While the assessment files show the nature of the enquiry conducted at the original stage as also the materials available before the Income-tax Officer at that time, the files relating to the issue of the impugned notices contain 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings under section 147, by disclosing such materials as are in his possession to the court and also to the assessee so that whatever explanation he could offer in relation to those materials may be placed before the court so as to enable the court to properly appreciate the contentions of both the parties relating to the jurisdiction of the Income-tax Officer. It is pointed out that if a particular material is shown to be before the Income-tax Officer, the assessee if he becomes aware of that material may satisfy the court that the same material was before the Income-tax Officer 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 cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd full disclosure of the primary facts at the time of the original assessment. Production before the Income Tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income Tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income Tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income Tax Officer with regard to the inference which he should draw from the primary facts. If an Income Tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. 8. The grounds or reasons which lead to the formation of the belief contemplated by Section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon that ground. Regarding that ground, the learned Judge who was in the minority observed that no basis had been indicated as to how it became known that those creditors were known name-lenders and when it was known. The majority while not relying upon that ground placed reliance upon the case of Chhugamal Rajpal. In that case the Income Tax Officer while submitting a report to the Commissioner of Income Tax for obtaining his sanction with a view to issue notice under Section 148 of the Act stated: "During the year the assessee has shown to have taken loans 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod from April 1, 1957 to March 31, 1958 which is the subject-matter of the assessment sought to be reopened. The report was made on February 13, 1967. In the absence of the date of the alleged confession. It would not be unreasonable to assume that the confession was made a few weeks or months before the report. To infer from that confession that it relates to the period from April 1, 1957 to March 31, 1958 and that it pertains to the loan shown to have been advanced to the assessee, in our opinion, would be rather far-fetched. 11. 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 Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had escaped assessment because of his failure or omission to disclose fully and truly all material facts. We would, therefore, uphold the view of the majority and dismiss the appeal with costs. 14. In the case of Assistant Commissioner of Income Tax vs. ICICI - (2012) 13 SCC 514, it was held as under:- 5. We have noted the submissions of both the parties. The petitioner is a public limited company engaged in the business of carrying on various non-banking financial activities. The present petition is concerning Assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found to be definite, specific and reliable. This subsequent information included the confession of the Managing Director that the company had not advanced any loan to any person during the period covered and for which certain cash loans were supposed to have been advanced. It was in the facts of this particular development that the Apex Court held that the reopening was justified. 9. In the facts of the present case, there is nothing new which has come to the notice of the Revenue. The accounts had been furnished 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 follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year: 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer before he passed the order of assessment dated 03.08.2012. According to the assessee there is an attempt on behalf of the revenue to deliberately mix-up the transactions relating to the Netherlands subsidiary with the U.K. subsidiary. According to the assessee the order of the DRP for the assessment year 2009-10 is in two distinct compartments. While the DRP held the Netherlands' transactions of Rs. 642 crores to be a sham, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issuance of the notice in question. 21. Whether the facts which came to the knowledge of the assessment officer after the assessment proceedings for the relevant year were completed, could be taken into consideration for coming to the conclusion that there were reasons to believe that income had escaped assessment is the question that requires to be answered. Though a number of judgments have been cited in this 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction to act under Section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the ITO acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and furthermore the management structure of these companies. We are not in agreement with this submission of the revenue. It is apparent from the records of the case that the revenue was aware of the entities which subscribed to the convertible bonds. It has been urged that these are bogus companies, but we are not concerned with that at this stage. The issue before us is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets, and profit and loss account for the relevant period as was mandatory under the provisions of the Indian Companies Act, 1956. It is not disputed that the assessee had obtained an exemption from the competent authority under the Companies Act, 1956 from providing such details in its final accounts, balance sheets, etc. As such it cannot be said that the assessee was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no duty on the assessee to disclose further facts, which on due diligence, the Income- tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above. In view of the Explanation, it will not be open to the assessee to say, for example - "/have produced the account books and the documents: You, the assessing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts disclosed to him did not doubt the genuineness of the transaction set up by the assessee. This the assessing officer could have done even at that stage on the basis of the facts which he already knew. The other facts relied upon by the revenue are the proceedings before the DRP and facts subsequent to the assessment order, and we have 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 beli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 17. In the instant case, it is the specific contention of the petitioner that all relevant and material facts had been stated and disclosed by the petitioner in its income tax returns as well as the reply to the queries put forth by the respondents and the same having been accepted without any demur by the respondents who 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 petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the number of shares, the total number of shares for the previous assessment year, the face value/book value of the shares being shown as Rs. 2/- each and the total market value of the quoted investments including the gifted shares coupled with the fact that the market value of the shares of Wipro Ltd., which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts proceeded to complete/conclude the assessment proceedings and passed an assessment order on 31.03.2016 accepting the returns submitted by the petitioner. Under these circumstances, I am of the considered view that the impugned notice at Annexure-A and the reasons for reopening the same vide Annexure-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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the WIPRO shares (Rs. 2/- per share) and also their market value as on 31.03.2013 which is included in the total market value of the quoted investments are clearly disclosed. In any event, the share of WIPRO is widely quoted and frequently traded and its market value from minute to minute 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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