TaxTMI 
TaxTMI 
2022 (5) TMI 1350
X X X X Extracts X X X X
X X X X Extracts X X X X
....pondent (Annexure - 'C') (iv) Declaring that the impugned 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 P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsive reliance has been placed upon the two impugned Board Circulars of 2012 and 2018 despite them being directly 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.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n connection with the assessment proceedings and had submitted the required details which were taken on record. The assessment was completed by accepting 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 ev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....statement of objections inter alia contending that the petition is premature, since the petitioner - assessee is required to file return of income to the impugned assessment 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 thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct and proper. Putting forth these contentions and denying the various contentions urged by the petitioner, respondents have sought for dismissal of the petition. 4. I have heard 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts necessary for assessment" came up for consideration before the Apex Court while dealing with identical provisions in Section 34 of the I.T. Act, 1922, in the case of Calcutta Discount Company 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 reassessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose "inferences" to draw the proper inferences being the duty imposed on the Income Tax Officer. 13. We have therefore come to the conclusion 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 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d so the assessee's omission to state his "true intentions behind the sale of shares" cannot by itself be considered to be a failure or omission to disclose any material fact within the meaning of Section 34. Indeed, an assessee whose contention is that the shares were sold to 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....45 and my order dated 7th July, 1944 that Mr. Smith of M/s. Lovelock & Lewes attended before me and stated that the profits of the Company arising out of dealings in shares were not taxable as the Company was not a dealer in shares and securities. Subsequently on 18th August, 1944, M/s. Lovelock & Lewes wrote 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 ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng an investment company certain sales of shares wherefrom the Company made a profit were by way of trading in shares and not by way of changing the form of investment. Whether these sales by an investment company should in law be treated as trading transactions, and the profits made from the sales trading profits liable to tax, 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 associat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se of jurisdiction under Section 34 of the Income Tax Act did not exist and the Income Tax Officer had therefore no jurisdiction to issue the impugned notices under Section 34 in respect of the years 1942-43, 1943-44 and 1944-45 after the expiry of four years. 25. Mr. Sastri argued that the question whether the Income Tax Officer had reason to believe that underassessment 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 rea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Company contends that the conditions precedent for the assumption of jurisdiction under Section 34 were not satisfied and come to the court at the earliest opportunity. There is nothing in its conduct which would justify the refusal of proper relief under Article 226. When the Constitution confers on the High Courts the power to give relief it becomes the duty of the courts to give such relief 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee guilty of suppression and the section 147(a) notice was quashed. It was also held that the information furnished by the Assistant Director of Inspection was very vague. 22. In Thanti Trust's case [1989] 177 ITR 307, the Madras High Court held that the assessee had disclosed the primary facts relevant for the assessment and he was under no obligation to instruct the Income-tax Officer about the inference. The notice under section 147(a) was, therefore, struck down. 23. In Murlidhar Bhagwandas 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 disc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Income-tax Officer to form an opinion about the escapement in that case, and the notice issued under section 34(1)(a) was upheld. 29. Anandji Haridas and Co. P. Ltd. v. S.P. Kushare [1967] 66 ITR (Sh. N.) 13 : AIR 1968 SC 565. 30. That was an appeal arising under the C.P. and Berar Sales Tax Act from Bombay. The Supreme Court explained the meaning of the word "information" occurring in section 34(1)(b) of the Income-tax Act and observed that it need not be necessarily from an outside agency and such information can be gathered from the assessment record itself 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 whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e returns. This information was sufficient to alert the Income-tax Officer to make further enquiries as to why the income arising to the minor beneficiaries should not be taxed in her hands under section 64(1)(vi) of the Income-tax Act. The Income-tax Officer having overlooked to take steps to assess the income of the minors in the hands of the petitioner, if it was permissible in law, it is not open to the Income-tax Officer to reopen the assessments in the petitioner's case invoking the provisions of section 147(a) of the Income-tax Act. 42. The decisions relied upon by the petitioner support her contentions. It cannot be disputed that the petitioner 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sment". In our opinion, there is no substance in any one of these arguments. It is true that two conditions must be satisfied in order to confer jurisdiction on the Income Tax Officer to issue the notice under Section 34 in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year. The first condition is that the Income Tax Officer must have reason to believe that the income, profits or gains chargeable to income tax had been underassessed. The second condition is that he must have reason to believe that such "underassessment" had 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Commissioner of Income-tax [ [1967] 63 I.T.R. 219; [1967] 1 SCR. 590 (S.C.).] and Commissioner of Income-tax v. Hemchandra Kar [ [1970] 77 I.T.R. 1; [1971] 1 S.C.R. 283 (S.C.).] in support of his plea that section 147 is intended to prevent unnecessary harassment of the assessees by the Income-tax Officers changing opinions at different stages on the same materials and that, therefore, the respondent can invoke the authority under section 34 of the old Act and section 147 of the new Act only if the conditions set out therein exist and not otherwise. 16. In Calcutta Discount Co. Ltd. v. Income-tax Officer [ [1961] 41 I.T.R. 191; [1961]2 S.C.R. 241 (S.C.).] the Supreme Court came to consider the scope of section 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 sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ese conditions, viz., that the Income-tax Officer has reason to believe that under-assessment has resulted from nondisclosure of material facts, cannot therefore be accepted. 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 'under-assessment', 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. 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. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he income has escaped assessment was entertained. 20. In Commissioner of Income-tax v. Hemchandra Kar [ [1970] 77 I.T.R. 1; [1971] 1 S.C.R. 283 (S.C.).], an assessee, a Hindu undivided family consisting of six members, had originally been assessed for the assessment year 1946-47. Following the demonetisation of high denomination notes in January, 1946, the assessee encashed notes of the value of Rs. 19,000 and five members of the family encashed notes of the aggregate value of Rs. 1,10,000. The Income-tax Officer reopened the assessments of the assessee and of the five members and by his reassessment orders made on January 31, 1955, included the sum of Rs. 19,000 in the reassessment of the family and the sum of Rs. 1,10,000 separately in the assessments of the 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. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....son for such a belief, or specify the item of income which has escaped assessment or the source of income, or indicate whether it is issued under clause (a) or clause (b) of section 147, that the Income-tax Officer is, however, bound to disclose all the necessary materials to the assessee at the stage of the reassessment proceedings so as to enable him to put forward all his objections to the proposed reassessment. It is also well established by now that the Income-tax Officer is not required to convene the assessee, or to intimate to him the nature of the alleged escapement or to give him an opportunity of being heard, before he decides to issue a notice under section 148 (vide Commissioner of Income-tax v. Mahaliram Ramjidas [ [1940] 8 I.T.R. 442 (P.C.).]). The power to issue 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 eigh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome of petitioner-trust at the stage of the assessments, that all the relevant materials had been considered at that stage, and that the respondent proposed to initiate reassessment proceedings only on the basis of a change of opinion. He referred us to the various queries made by the Income-tax Officer at the stage of the assessments for the various years and also the replies given by the petitioner on various matters. 23. Though in the counter-affidavit it has been stated that the deponent was not aware of the fact that the earlier orders of exemption had been granted after a thorough and exhaustive enquiry by the Income-tax Officer, Mr. T V. Viswanatha Iyer, the learned counsel appearing for the revenue, submits that we may proceed on the basis that there was a thorough and exhaustive 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 d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld have further inquired into that matter but did not do so, did not take the case out of section 34(1)(a). In the fourth case, in the original assessment of an assessee, a borrowal from a banker was accepted as true and the interest paid thereon allowed as deduction. But the said banker in the course of his assessment proceedings denied the advance to the assessee. Then a notice under section 147 was issued. That notice was challenged by the assessee contending that all the primary facts were before the assessing officer when the assessment was completed. A Bench of this court, to which one of us was a party, held that, notwithstanding the fact that the item of the borrowal from the banker was considered and allowed at the stage of the original assessment, still the Income-tax Officer could 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elieve that such escapement was by reason of the omission or failure on the part of an assessee to disclose fully and truly all material facts for his assessment for that year. (3) He must issue a notice under section 148 calling for a return of income within the time limit prescribed in section 149. (4) He must, before issuing such a notice, record his reasons for doing so. (5) The notice under section 148 should be issued only after obtaining the prior sanction of the Commissioner or the Board under section 151 in cases where action is taken after the lapse of four or eight years respectively. (6) The assessment or reassessment under section 147 should be completed within the time limit prescribed under section 153(2). 27. It cannot be disputed that conditions Nos. 3, 4 and 5 are satisfied in those cases which fall under section 147(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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....circumstance alone, we are not in a position to say that all the materials which are now before the Income-tax Officer have been investigated at the assessment stage. We are unable, therefore, to say that the Income-tax Officer has not acted in good faith and that he has issued the notices only with a view to have a fresh roving enquiry as alleged by the petitioner. 30. The learned counsel for the petitioner makes certain submissions with regard to the materials produced by the revenue before us whose details have not been set out in the various counter affidavits. It is contended that once a challenge is made by an assessee that the Income-tax Officer had no materials before him to entertain a belief that the income has escaped assessment the Income-tax Officer has to satisfy the court that he has acted within his jurisdiction in issuing the notice under section 148 and in initiating proceedings 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under Section 139 for the assessment year to the Income Tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must coexist in order to confer jurisdiction on the Income Tax Officer. It is also imperative for the Income Tax Officer to record his reasons before initiating proceedings as required by Section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income Tax Officer that it is a fit case for the issue of such notice. We may add that the duty which is cast upon the assessee is to make a true and 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 necessaril....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing provisions of the Indian Income Tax Act, 1922). 9. Keeping the above principles in view, we may now turn our attention to the facts of the present case. Two grounds were mentioned in the report made by the Income Tax Officer for reopening the assessment of the assessee respondent with a view to show that his income had been underassessed because of his failure to disclose fully and truly material facts necessary for the assessment. One was that Mohansingh Kanayalal, who was shown to be one of the creditors of the assessee, had since confessed that he was doing only name-lending. The other ground was that Narayansingh Nandalal, D.K. Naraindas, Bhagwandas Srichand etc whose names too were mentioned in the list of the creditors of the assessee, were known name-lenders. So far as the second ground is concerned, neither the majority of the Judges of the High Court nor the learned Judge who was in the minority relied 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 gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come of the respondent assessee chargeable to tax had escaped assessment for that year because of the failure or omission of the assessee to disclose fully and truly all material facts. All the three learned Judges of the High Court, in our opinion, were justified in excluding the second ground from consideration, 10. We may now deal with the first ground mentioned in the report of the Income Tax Officer to the Commissioner of Income Tax. This ground relates to Mohansingh Kanayalal, against whose name there was an entry about the payment of Rs. 74 annas 3 as interest in the books of the assessee, having made a confession that he was doing only name-lending. There is nothing to show that the above confession related to a loan to the assessee and not to someone else, much less to the loan of Rs. 2500 which was shown to have been advanced by that person to the assessee-respondent. There is also no indication as to when that confession was made and whether it relates to the period 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 confessio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessment has been completed. The provisions of the Act in this respect depart from the normal rule that there should be, subject to right of appeal and revision, finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, essential that before such action is taken the requirements of the law should be satisfied. The live link or close nexus which should be there between the material before the Income Tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned Judges in the High Court, in our opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the assessee respondent 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter the expiry of four years. In the instant case, nothing of the kind has happened. 7. Mr. Kotangale, learned counsel for the respondents, has drawn our attention to a judgment of the Apex Court in Srikrishna (P) Ltd. v. ITO [ (1996) 9 SCC 534 : (1996) 221 ITR 538]. In this case, what is held by the Apex Court is that where certain loan transactions were relied upon and which were subsequently discovered to be false, reassessment proceedings were validly initiated. What is however material to note is that in that particular case the Court has given a clear finding that the assessee had created and recorded bogus entries of loan and, therefore, the Court held that the assessee could not say that it had truly and fully disclosed all material facts necessary for the assessment for the year concerned. 8. The second judgment relied upon by Mr. Kotangale is Phool Chand Bajrang Lal v. ITO [ (1993) 4 SCC 77 : (1993) 203 ITR 456]. In this case, the reopening was permitted in view of subsequent information which was found to be definite, specific and reliable. This subsequent information included the confession of the Managing Director that the company had not advanced any....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er the revenue has sufficient reasons to believe that undisclosed income of the assessee has escaped assessment and therefore there are grounds to issue notice. Obviously, during the assessment proceedings the assessee will have the right to place material on record to show that the transaction in question was a genuine transaction. 14. It is trite law that an assessing officer can only re-open an assessment if he has 'reason to believe' that undisclosed income has escaped assessment. Mere change of opinion of the assessing officer is not a sufficient to meet the standard of 'reason to believe'. Relevant portion of Section 147 reads as follows:- 147. Income escaping assessment.-If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on which he was so required under section 92E; (c) where an assessment has been made, but- (i) income chargeable to tax has been under assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. (ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. xxxxxxxxx 15. The case of the assessee is that the transaction of step-up coupon bonds was scrutinised....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ired by Universal Studios International B.V., Netherlands, indirectly by subscribing to the shares of NNIH. As already noted above it was recorded in the reasons communicated on 04.08.2015 that NNPLC was not having any business activity in London. It had no fixed assets and was not even paying rent. Other than the fact that NNPLC was incorporated in the U.K., it had no other commercial business there. NNPLC had declared a loss of Rs. 8.34 crores for the relevant year. It was also noticed from the order of the assessing officer that the assessee is the parent company of NNPLC and it is the dictates of the assessee which are important for running NNPLC. 19. Pursuant to the directions of the DRP, the assessing officer passed the final assessment order for AY 2009-10 on 21.02.2014 which also disclosed similar facts. 20. According to the revenue Tax Evasion Petitions were filed by the minority shareholders of the assessee company on various dates, i.e., 11.03.2014, 25.07.2014, 13.10.2014 and 11.03.2015, which complaints describe in detail the communication between the assessee and the subsidiaries and also allegedly showed evidence of round tripping of the assessee'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act, and that, therefore, the High Court is right in holding against the assessee." 23. In Phool Chand Bajrang Lal v. Income Tax Officer, this Court held as follows:- "19...Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of original assessment is different from drawing a fresh inference from the same facts and material which was available with the ITO at the time of original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the ITO would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he second question as to whether there was failure on the part of the assessee to make a full and true disclosure of all the relevant facts. The case of the assessee is that it had disclosed all facts which were required to be disclosed. 28. The revenue has placed reliance on certain complaints made by the minority shareholders and it is alleged that those complaints reveal that the assessee was indulging in round-tripping of its funds. According to the revenue the material disclosed in these complaints clearly shows that the assessee is guilty of creating a network of shell companies with a view to transfer its un-taxed income in India to entities abroad and then bring it back to India thereby avoiding taxation. We make it clear that we are not going into this aspect of the matter because those complaints have not seen light of the day either before the High Court or this Court and, therefore, it would be unfair to the assessee if we rely upon such material which the assessee has not been confronted with. 29. Even before the assessment order was passed on 03.08.2012, the assessing officer was aware of the entities which had subscribed to the convertible bonds. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessing officer. The assessing officer knew who were the entities who had subscribed to other convertible bonds and in other proceedings relating to the subsidiaries the same assessing officer had knowledge of addresses and the consideration paid by each of the bondholders as is apparent from assessment orders dated 03.08.2012 passed in the cases of M/s. NDTV Labs Ltd. and M/s. NDTV Lifestyle Ltd. Therefore, in our opinion there was full and true disclosure of all material facts necessary for its assessment by the assessee. 32. The fact that step-up coupon bonds for US$ 100 million were issued by NNPLC was disclosed; who were the entities which subscribed to the bonds was disclosed; and the fact that the bonds were discounted at a lower rate was also disclosed before the assessment was finalised. This transaction was accepted by the assessing officer and it was clearly held that the assessee was only liable to receive a guarantee fees on the same which was added to its income. Without saying anything further on merits of the transaction we are of the view that it cannot be said that the assessee had withheld any material information from the revenue. 33. Acco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly all material facts necessary for his assessment. What facts are material, and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise - the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and that the assessee must disclose what inferences - whether of facts or law - he would draw from the primary facts. (11) If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn?" A careful analysis of this judgment indicates that the Constitution Bench held that it is the duty of the assessee to disclose full and truly all material facts which it termed as primary facts. Nondisclosure of other facts which may be termed as secondary facts is not necessary. In light of the above law, we shall deal with the facts of the present case. 36. In our view the assessee disclosed all the primary facts necessary for assessment of its case to the assessing officer. What the revenue urges is that the assessee did not make a full and true disclosure of certain other facts. We are of the view that the assessee had disclosed all primary facts before the assessing officer and it was not required to give any furthe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all material facts necessary for its assessment and, therefore, the revenue cannot take benefit of the extended period of limitation of 6 years. We answer Question No. 2 accordingly. 16. As held in the aforesaid decisions, the respondents - Revenue are entitled to invoke the proviso to Section 147 of the I.T. Act and reopen the proceedings even after the prescribed 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 other words, in the absence of any material to show that the facts which were not fully and truly disclosed by the assessee were material, relevant and germane for the purpose of assessment which had been concluded by the revenue, the revenue did not have jurisdiction or authority of law to reopen the assessment beyond the prescribed period of four years; so also, even assuming that all facts had not been disclosed by the assessee at the time of assessment, so long as t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at Sl. No. A, in which, shares of Wipro Ltd., having a face value of Rs. 2/- each are shown as 49, 07,14,120 in number. (iii) At Page No. 2 of the aforesaid schedules annexed to the returns, the details of the Wipro shares received by the petitioner as gift have been explained including how the aforesaid number of 49,07,14,120 had been arrived at by the petitioner. (iv) At Page No. 1 referred to supra, the total number of shares for the previous year i.e., 19,51,87,120 has also been stated. So also, at page No. 2, the market value of all the quoted investments including the shares gifted in favour of the petitioner has been stated for assessment year 2012-13 and 2013-14. 20. The aforesaid 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 49,07,14,1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of income, audit report along with financial statements/schedules, additional information in this regard with regard to non-furnishing of the market value of the shares was not sought for by the respondents in the aforesaid notice dated 09.06.2015 (Annexure-G). This circumstance is also a pointer to the fact that the details furnished by the petitioner in its returns were sufficient and that the petitioner had fully and truly disclosed all material facts. 23. In response to the aforesaid notice dated 09.06.2015, petitioner submitted a reply dated 22.06.2015 and provided complete details of the corpus donors including mail, address and PAN and enclosed documentary evidence of the same. Despite receiving the said reply and documents submitted by the petitioner, respondents did not seek further information/clarification from the petitioner either with regard to the details and documents submitted in the reply or with regard to the market value of the shares or the other details mentioned in the returns submitted earlier, thereby indicating that in view of the information already submitted by the petitioner including the market value of the total quoted investments including the ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e seen from the aforesaid decisions, 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 do so for any reason, then the Revenue cannot contend that there was any failure or omission on the part of the assessee. In the instant case, after being in possession of all the relevant facts relating to the gifts of shares received by the petitioner, the Assessing officer consciously chose not to apply Section 56(2)(vii)(c) of the I.T. Act. However, after the expiry of the period of four years mentioned in the proviso to Section 147, the A.O has attempted to take a new view, which is not permissible in law. 26. It is well settled that in a case of reopening covered by the proviso to Section 147 of the I.T. Act, 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 of the I.T. Act would not be sufficient. In th....