TaxTMI 
TaxTMI 
2011 (2) TMI 738
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....of the Income-tax Rules, 1962, was also annexed with the return in which total details about the project on which deduction under section 80-IB(10) of the Act was claimed, was submitted. The balancesheet and the profit and loss account of the petitioner were also annexed with the return. 3. By a notice dated July 5, 2005, under section 142(1) of the Act, the Assessing Officer called for details enumerated at annexure A and annexure B to the notice. Annexure B to the notice pertained to the projects developed by the petitioner on which deduction under section 80-IB(10) of the Act was claimed by the petitioner. Pursuant to the said notice, the petitioner submitted all details and after scrutinizing the same, the Assessing Officer framed assessment under section 143(3) of the Act on November 28, 2005. Subsequently, by the impugned notice, the assessment for the year 2003-04 is sought to be reopened by the respondent. Pursuant to the notice, the petitioner filed its reply requesting the respondent to treat the return of income filed by the petitioner under section 139(1) of the Act as the return filed in response to notice under section 148 of the Act and also requested the r....
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....its as stated therein and had earned profit of Rs. 37,15,906 which was deductible under section 80-IB of the Act at the rate of 100 per cent. as per law. Certified copy of the approved plan was also furnished with the income-tax return for the assessment year 2001-02. Referring to the notice dated July 5, 2005, issued by the Income-tax Officer under section 142(1) of the Act and more particularly at annexure V thereto, it is pointed out that the Assessing Officer had specifically called for the sale deed of land on which project is developed as well as the development agreement for construction of housing project. Drawing the attention of the court to the assessment order framed under section 143(3) of the Act, it was pointed out that the Assessing Officer had specifically referred to the claim of deduction under section 80-IB(1) of the Act in relation to the work of development and construction of housing project made by the petitioner. It was submitted that in the circumstances, on the basis of the material on record, the Assessing Officer had after calling for necessary information, applied his mind to the aspect of claim of deduction under section 80-IB(1) of the Act and had gr....
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....ed. However, it was subsequently noticed that the petitioner was only a works contractor and not a developer as per the requirements of the stated sections. It was vehemently argued that the Assessing Officer has to support the challenge to the validity of the proceedings under section 147 of the Act on the basis of the reasons recorded by it and cannot supplement the same by bringing any new facts by way of affidavit-in-reply. 9. Reliance was placed upon the decision of the Calcutta High Court in the case of East Coast Commercial Co. Ltd. v. ITO [1981] 128 ITR 326 (Cal), for the proposition that the recording of reasons is not an idle formality but a mandatory requirement of the statute casting a duty and an obligation on the Income-tax Officer to record his reasons for issuing a notice for reassessment. 10. The decision of the Calcutta High Court in the case of Equitable Investment Co. P. Ltd. v. ITO [1988] 174 ITR 714 (Cal), was cited for the proposition that if additional reasons are disclosed for reopening the assessment on which the court might be satisfied as to the validity of the proceedings, that would not validate the proceedings, if the reasons recor....
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....dent that the petitioner had not disclosed all material facts truly and fully as it had made a wrong claim is not justified inasmuch as the petitioner was not required to disclose inferential facts. It was, accordingly, submitted that the impugned notice does not satisfy the requirements of section 147 of the Act and the proviso thereto and as such, the assumption of jurisdiction under section 147 of the Act, is invalid. 13. Next, the learned advocate invited attention to a decision of this High Court in the case of Sadbhav Engineering Co. Ltd. v. Deputy CIT [2011] 333 ITR 483 (Guj) rendered in Special Civil Applications No. 5846 of 2010 and No. 5847 of 2010 dated July 20, 2010, to submit that in a more or less identical set of facts, this court has allowed the petitions, and quashed and set aside the notices under section 148 of the Act which were the subject-matter of challenge in the said petitions. It was submitted that the said decision would apply on all fours to the facts of the present case and as such, the controversy involved in the present case stands concluded by the said decision in favour of the petitioner. 14. Mr. M. R. Bhatt, learned senior advoc....
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....ssessing Officer to place on record the facts regarding non-disclosure by way of affidavit before the court. It was further pointed out that the court had with a view to ascertain whether the Income-tax Officer should have in mind any non-disclosure as a ground for thinking that by reason of such nondisclosure, an under assessment had occurred, apart from what was mentioned in the affidavit, the court had inquired from the counsel of the Assessing Officer whether he could suggest any other non-disclosure that might take place. It was, accordingly, submitted that it is always permissible for the learned advocate representing the Assessing Officer to bring to the notice of the court the non-disclosure that might have taken place. 15. Referring to the affidavit made by the respondent, it was submitted that the affidavit only clarifies and elaborates the aspect of facts and it does not give any additional ground, as is sought to be contended on behalf of the petitioner. It was submitted that the ground for reopening the assessment remains the same, only the aspect of failure is elaborated. 16. The decision of the Supreme Court in the case of Indo-Aden Salt Manufactu....
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....e of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. In the facts of the present case, it cannot be said that material before the Assessing Officer cannot constitute the basis for forming such a belief and as such, the petition being devoid of merit, deserves to be dismissed. 18. Referring to the decisions on which reliance had been placed upon by the petitioner in support of its contention that an affidavit made by the Assessing Officer cannot be looked into in support of the reasons recorded, it was submitted that in none of the said decisions, the decision of the Constitution Bench in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) has been considered. That in any case, the said decisions are decisions of different High Courts whereas, the decision in the case of Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC) is a decision of the Constitution Bench of the Supreme Court and as such, the said decision of the Supreme Court would prevail over all the decisions of the High Court. Referring to the decision of the Calcutta High Court in the case of Equitable Investmen....
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....March 31, 2008, whereas the impugned notice under section 148 of the Act has been issued on March 12, 2010, which is clearly after the expiry of a period of four years from the end of the relevant assessment year. Under section 147 of the Act, if any income has escaped assessment, the Assessing Officer is empowered to bring to tax the income which has escaped assessment if the Assessing Officer records the requisite reasons as provided under section 148(2) of the Act. However, the proviso to section 147 stipulates that in a case where the assessment is framed under section 143(3) of the Act and a period of four years from the end of the relevant assessment year has expired, unless and until the income chargeable to tax has escaped assessment by virtue of failure on the part of the assessee to : (i) file return under section 139(1) ; or (ii) to respond to notice issued under section 142(1) of the Act or section 148 of the Act ; or (iii) to disclose fully and truly all material facts necessary for assessment of the relevant assessment year, no action can be taken by the Assessing Officer. In the present case, admittedly, the first two contingencies do not exist. 23. The onl....
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....s the housing project as a works contract awarded by any person (including the Central Government or the State Government). However, there is not even a whisper as to any failure on the part of the petitioner to disclose fully and truly all material facts. All that is stated is that due to illegitimate claim of deduction of Rs. 13,45,211 made and allowed to the assessee under section 80-IB(10) of the Act, the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. The reasons indicate that the aforesaid view has been taken by the Assessing Officer upon verification of the details submitted by the assessee. In the entire reasons recorded, there is nothing to suggest that there is any failure on the part of the petitioner to disclose fully and truly all material facts. However, to supplement the reasons recorded, the respondent has filed two affidavits in reply. In the first affidavit-in-reply, it is alleged that the petitioner was a works contractor and though was not eligible for deductions, he made incorrect claim and as such, had not disclosed fully and truly all material facts necessary for its as....
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....ome-tax Officer could have had in mind any non-disclosure as a ground for thinking that by reason of such non-disclosure an underassessment had occurred-apart from what was mentioned in the affidavit-we enquired from the 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 repel- ling it." 28. In the case of Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638 (SC), which was a case of reopening of assessment under section 34(1) of the Indian Income-tax Act, 1922, where the existence of the belief of the Income-tax Officer under the said section was challenged, the Supreme Court observed as follows (pages 642-43) : "It is clear from the affidavits filed in the court of first instance that the Income-tax Officer had received information relying upon which he had reason to believe that the assessee had not disclosed fully and truly all material facts necessary for the a....
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....aped assessment. Under those circumstances, one would have expected the officer who issued the notices under section 34(1)(a) to file an affidavit setting out the circumstances under which he formed the necessary belief. We were told that one Mr. Pandey had issued the notices in question. That officer had not filed any affidavit in these proceedings. The proceedings recorded by him before issuing the notices have not been produced nor his report to the Commissioner or even the Commissioner's sanction has not been produced. Hence, it is not possible to hold that the Income-tax Officer had any reason to form the belief in question or the reasons before him were relevant for the purpose." 31. In ITO v. Madnani Engineering Works Ltd. [1979] 118 ITR 1 (SC), the Supreme Court, after considering the affidavit filed by the Income-tax Officer, was not satisfied on the affidavit that the Income-tax Officer had reason to believe that a part of the income of the respondent had escaped assessment by reason of its failure to make true and full disclosure of the material facts. 32. In the case of East Coast Commercial Co. Ltd. v. ITO [1981] 128 ITR 326 (Cal), on behalf of the assesse....
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....to the issue of such notice. The court noted that the observations made by the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) were made with regard to the report of the Income-tax Officer to the Commissioner and not with regard to the recorded reasons. The court further observed that the Income-tax Act does not provide that for the issue of a notice under section 34 of the old Act or section 148 of the new Act, satisfaction of the court was necessary, but such satisfaction under the statute had to be that of the Board or of the Commissioner, as the case may be. Thus, if any additional reasons were disclosed by the Income-tax Officer in his affidavit before the court in support of his action for reopening the assessment on which the court might be satisfied as to the validity of the proceedings, that would not validate the proceedings, if the reasons recorded under clause (iii) of the first proviso to section 34(1) of the old Act or section 148(2) of the new Act were not sufficient for initiation of the proceedings or for the grant of the sanction by the Board or the Commissioner, as the case may be. The Income-tax Officer, however, in his affi....
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....ent, must be determined with reference to the reasons recorded by the Assessing Officer. The reasons which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures against an arbitrary exercise of powers under section 148." 35. The Gauhati High Court in the case of CIT v. Shiv Shakti Flour Mills P. Ltd. [2010] 327 ITR 430 (Gauhati) has followed the decision of the Bombay High Court in the case of Hindustan Lever Ltd. v. R. B. Wadkar, Asst. CIT (No. 1) [2004] 268 ITR 322 (Bom) for holding that the relevant materials must appear from the order by which the Assessing Officer has decided to proceed with the assessment or reassessment under section 147 of the Act. The satisfaction of the Assessing Officer cannot be supplemented by the Revenue by filing an affidavit subsequently inasmuch as the Assessing Officer only on formation of reason to believe on the basis of the materials placed before him that there is escapement of income, can proceed to take action under section 147 of the Act. Such an order must be construed objectively on the basis of reasons given in the order itself and cannot be construed in the light of the explanation subse....
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....sections 148 to 153 of the Act and in case the provision is sought to be invoked after a period of four years from the end of the relevant assessment year, the requirements of the proviso thereto are required to be satisfied. 38. Section 148 of the Act provides for issuance of notice where income has escaped assessment and lays down that before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice as laid down therein. Sub-section (2) thereof mandates that the Assessing Officer shall, before issuing any notice under the said section, record his reasons for doing so. Section 151 of the Act provides for sanction for issue of notice and lays down that in a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by the Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice. The proviso thereto provides that after....
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.... 40. The Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC) has clarified that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing the notice. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order before proceeding with the assessment in respect of the said assessment year. Thus, for the purpose of filing objections to issuance of notice, the assessee is required to be provided with a copy of the reasons for issuing notice. The reasons should set out the reasons for formation of belief of the Assessing Officer that income has escaped assess-ment and in case where the reopening of assessment is after the expiry of a period of four years from the end of the relevant assessment year, the belief should be that, by reason of omission or failure on the part of the assessee to disclose fully and truly the material facts, income has es....
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....said decision related to the reopening of assessment under section 34 of the old Act and there was no controversy that the reasons given by the Income-tax Officer were not in conformity with or were contrary to the reasons recorded by the Assessing Officer for reopening the assessment. 42. In the opinion of this court if on the face of the reasons recorded, by necessary implication it is apparent that there is non-disclosure or failure to disclose fully and truly all material facts, viz., at times the reasons may be self explicit, like in case where suppression, fraud, etc., is alleged, as a natural corollary it implies that there is non-disclosure or failure to disclose true facts, in which case merely because the reasons recorded do not use the expression "failure to disclose fully and truly all material facts" would not mean that the same do not reflect failure on the part of the assessee to disclose all material facts as laid down in the provision. In such a case the reopening would not be invalid. Conversely, if it is neither alleged in the reasons that there is any failure on the part of the assessee to disclose fully and truly all material facts, nor do the reasons....
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....he assessing authority lies on the assessee. To meet the 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-'I 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 'mission 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 Expl....
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.... Supreme Court, a bare perusal of the reasons recorded indicates that there is not even a whisper as regards any failure on the part of the petitioner to disclose fully and truly all material facts, nor is it possible to infer any such failure from the reasons recorded. Merely because of the fact that the assessee had asserted that it is a developer in the returns filed by him, it cannot be said that there is any failure on the part of the petitioner to disclose fully and truly all material facts. At best, the petitioner has made a claim along with supporting documents, namely, development agreements for construction of housing projects, etc. and based upon the said documents, the Assessing Officer had formed an opinion and granted deduction under section 80-IB(10) of the Act. As to whether in a given set of facts, the assessee is a developer or a works contractor is a matter of inference. Hence, the assertion that the petitioner is a developer, without anything more cannot be said to be an incorrect disclosure of facts, as is sought to be contended on behalf of the Revenue. In the circumstances, in the absence of any failure on the part of the petitioner to disclose fully and trul....