Sadhan Kumar Gupta, J.@mdashAll the mandamus appeals were heard analogously as the facts and law involved in those appeals are the same and almost identical. Those three mandamus appeals arose out of the writ applications bearing No. C. O. 4959(W) of 1989, CO. 4960(W) of 1989 and C.O. 4961 (W) of 1989. By a single judgment dated August 8, 2002 (see
2. The writ applications were instituted by the appellant challenging the notice issued u/s 148 of the Income Tax Act, 1961, for the purpose of reopening the assessment of the company for the years 1981-82, 1980-81 and for the assessment year 1973-74. By issuing the said notice, the Income Tax Officer proposed to reopen the assessment of the appellant-company for those three years. The Income Tax Officer issued those notices u/s 148 of the Income Tax Act on grounds which are identical in nature. The said notice u/s 148 of the Act was issued on the ground as follows :
"1. On the basis of information available in
(a) the auditors'' observations in the annual reports of Peerless for 1986 (assessment year 1987-88) and 1987-88 (15 months ending on March 31, 1988, relevant to the assessment year 1988-89) ;
(b) the Supreme Court''s observations in the case of RBI v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; and
(c) the report of the Reserve Bank of India on inspection of the books of Peerless conducted in 1979,
the following facts of accounting of income and liabilities of the assessee-company came to light.
(1) The Social Welfare Scheme Fund is in excess of the total liability of the company towards the certificate holders.
(2) The company has been retaining in the fund amounts forfeited on surrender of certificates and liabilities already provided thereon on accrual basis. Amounts in respect of unclaimed matured certificates continue to remain in the fund even after maturity. Amounts in respect of lapsed certificates also continue to remain in the fund.
(3) The generous distribution of commission among the agents out of the first year''s subscription and the class of investors tapped by such agents have resulted in large scale dropouts by the investors after the first year.
(4) There was large scale lapsation of certificates varying between 34.26 per cent, and 59.71 per cent., during the first three years, the forfeiture range.
2. While checking the income accounting for the previous year relevant to the assessment year 1985-86, it was found that the assessee has been furnishing incorrect computation of income on the basis of wrong assumption and inflated generalisation as under :
(i) The provision for refund of subscription at a fixed percentage of the first year''s subscription was in respect of pure contingent liability. The quantification of such liability was on the basis of flawed actuarial certificate.
(ii) The provision of interest and bonus accrued at a fixed percentage of the balance in the Social Welfare Scheme Fund on accrual basis was incorrect even on actuarial basis, which the assessee was supposed to be following.
3. On a check of the abovementioned facts of the accounting of income and expenditure, it emerged that income exceeding Rs. 50,000 has escaped assessment in the following respects as a result of inadequate and incorrect statements, misleading actuarial certificate, wrong basis of calculation and suppression of relevant facts :
(a) Income from forfeiture of lapsed certificates.
(b) Profit u/s 41(1) of the Income Tax Act as a result of cessation of liability already claimed as ''interest and bonus accrued.''
(c) Excess deduction claimed under the head, ''Interest and bonus accrued'', at a fixed percentage of the Social Welfare Scheme Fund on the ground that the fund was in excess of the requirement.
(d) Excess deduction claimed under the head, ''Interest and bonus accrued'', at a fixed percentage of the balance in the said fund on the ground that such percentage was in excess of the amount allowable on accrual basis.
(e) Deduction claimed under the head, ''Provision for refund of subscription'' on the strength of wrong actuarial advice.
4. In the circumstances stated above, I have reason to believe that, by reason of the omission and failure on the part of the assessee, the Peerless General Finance and Investment Co. Ltd., to disclose fully and truly all material facts necessary for its assessment for the assessment year 1981-82, income exceeding Rs. 50,000 has escaped assessment for that year."
3. So it appears from the said notice that the Income Tax Officer preferred to issue the same on the basis of the information available to him and those are :
(a) Auditor''s observation in the annual reports of Peerless for the assessment years 1987-88 and 1988-89 ;
(b) The Supreme Court''s observation in the case reported in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; and
(c) The report of the Reserve Bank of India on inspection of the books of Peerless conducted in 1979.
4. Thus it is clear that the Assessing Officer''s reason to believe that there was suppression of income by the appellant-company was on the basis of those three items mentioned above.
5. In this respect, it is relevant to look into the provisions of Section 147 regarding income escaping assessment. Section 147 of the Income Tax Act, provides :
"If, -
(a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return u/s 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year)."
6. This provision clearly shows that if the Assessing Officer has any information in his possession which led him reasonably to believe that income chargeable has escaped assessment in respect of an assessee for a particular assessment year, then he can take steps as per the provisions of the Income Tax Act. In this respect Section 149 of the Act provides that the Assessing Officer can issue notice u/s 148 of the Act even in case of an assessment year prior to the date of issuance of notice but in no circumstance can the notice be issued beyond the prescribed time limit as provided in the said section. So far as the present case is concerned it appears that all the notices were issued in respect of assessment years which did not cross the limit of the prescribed years as provided u/s 149 of the Income Tax Act. But there is a bar to the Assessing Officer in this respect where four years have passed from the end of the relevant assessment year. In such a case sanction of the appropriate authority is required as provided in Section 151 of the Act. The said Section 151 of the Income Tax Act runs as follows :
"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 u/s 148 except by an Assessing Officer of the rank of Assistant Commissioner or Deputy Commissioner :
Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice."
7. So the proviso to Section 151 provides that in our case, the sanction of the Chief Commissioner or Commissioner is required.
8. Keeping all these things in mind let us now see whether the Assessing Officer was justified in issuing notice to the appellant-company for the purpose of reopening the assessment of the said company for the years 1981-82, 1980-81 and 1973-74. Law in this respect has been clearly laid down in the case reported in
"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 u/s 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."
9. In the said decision it has also been observed that it is the preliminary duty of every assessee to disclose fully and truly all material facts necessary for his assessment. The duty of disclosing all the primary facts relevant to the decision to be arrived at by the Assessing Officer lies on the assessee. If such disclosure is made by the assessee then his duty is over and then the duty shifts upon the Assessing Officer to look into the return and to see whether all the facts necessary have been truly and fully disclosed or not. The hon''ble apex court in the abovementioned decision at page 201 clearly observed : "Does the duty, however, extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else- far less the assessee-to tell the assessing authority what inferences, whether of facts or law, should be drawn". So, as soon as the assessee files his return by disclosing all the relevant facts fully and truly, his duty is over and it is for the Assessing Officer to either accept it or to reject it. Once the assessment is accepted it is not permissible for the Assessing Officer to reopen it again on any flimsy ground. Law in this respect is very much clear as provided in Section 147 of the Income Tax Act. It has been clearly laid down in the said section that the Assessing Officer can reopen the assessment of a particular year if he has reason to believe that there was omission or failure on the part of an assessee to make a proper return u/s 139 of the Act for any particular assessment year. So the main thing is that, the Assessing Officer must have reason to believe that there was omission or failure on the part of the assessee to disclose fully its income. In the decision reported in
10. The principles as decided in those two cases were also followed in the cases reported in
11. We have already pointed out that the Assessing Officer has got enough power for reopening the assessment of a particular company for a particular year, provided he has reason to believe that the income of the assessee for a particular year escaped assessment due to suppression of the said income by the assessee concerned. It is the admitted position that three reasons were cited by the Assessing Officer in issuing notice u/s 148 of the Income Tax Act in the name of the appellant-company. Let us now look into those reasons and see how far the Assessing Officer was justified in issuing the said notice. One of such reasons was the Supreme Court''s observation in the case of Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663. We have perused the said judgment of the hon''ble Supreme Court wherein it has been observed (page 677) : ". . . we have no information about the findings in the course of the inspection. Evidently, nothing objectionable was found. This is apparent from the affidavit filed on behalf of the Reserve Bank of India in the Calcutta High Court. This position was considered satisfactory by the Reserve Bank of India." Again the hon''ble court observed (page 678): "It was finally stated ''having regard to the satisfactory financial position of the Peerless and the fact that it was a well established one and having regard to the certificate furnished by the actuarial consultant of Peerless supported by data, it was granted exemption from the provisions of paragraph 4 of the 1973 directions. . .''." Again, if we look at page 685 of the said decision of the hon''ble apex court then it will appear that the hon''ble apex court referred to an inspection made by the Reserve Bank of India in the year 1979. In considering the said report, the Supreme Court observed that the team in its report pointed out various unhealthy features of the schemes managed by the Peerless company. In fact the principal unhealthy features as pointed out were also noted by the hon''ble Supreme Court at page 685. But nowhere in the judgment of the hon''ble Supreme Court, as relied on by the Assessing Officer in issuing the notice, or in the inspection report, was it pointed out that the appellant-company omitted or failed to disclose fully and truly all material facts relevant for the assessment year 1973-74. There was nothing to suggest from this decision that the income of the appellant-company for the said assessment year escaped assessment on account of any omission or failure on the part of the company to disclose fully or truly all the material facts. Undoubtedly the Supreme Court took notice of some unhealthy practices allegedly conducted by the company in running its business but the said practice has got no nexus or live link with the escapement of income as claimed by the Assessing Officer. The Supreme Court never observed in the said decision that there was escapement of income on account of such unhealthy practice. In this respect the learned advocate for the appellant cited the decision reported in
12. The Assessing Officer further preferred to issue the notice on the basis of the information available in the report of the Reserve Bank of India on inspection of the books of Peerless conducted in the year 1979. But the said report was not placed before the court and it was not even disclosed either in the recorded reasons or in the affidavit in opposition. The learned advocate for the appellant in this respect relied upon the decision reported in
13. On the basis of the Supreme Court''s decision and the report of the Reserve Bank of India it cannot be said that the Assessing Officer had reason to believe that there was suppression of income by the assessee for the relevant assessment years. So, on those grounds, the Revenue has failed to prove that the Assessing Officer had reason to believe that there was suppression of material facts by the assessee for a particular year.
14. The Assessing Officer also preferred to issue the notice for reopening the assessments on the basis of the auditor''s observation in the annual reports of Peerless for the year 1986 (1987-88). It appears that on the basis of the said observation of the auditor, the Assessing Officer proposed to reopen the assessment for the years 1980-81, 1981-82 and for the assessment year 1973-74. The copy of the said auditor''s report has been filed in connection with this hearing. It appears that nowhere in the auditor''s report it was stated that there was suppression of material information in respect of the account of those three years. The observation of the auditor for the assessment year 1987-88 cannot have reasonable nexus or live link for the account statement as filed by the assessee in respect of the years 1973-74, 1980-81 and 1981-82. Nowhere in the auditor''s report does it appear that it has been mentioned therein that there was misstatement or suppression of facts in respect of the return filed by the company in respect of those three years. If we look into the auditor''s report then it will appear that simply some discrepancies have been pointed out in the said report. But that does not mean that there was suppression of material facts or income by the assessee-company. The learned advocate for the Revenue cited a judgment passed by the learned Division Bench of this court in F. M A. No. 372 of 1978 in order to substantiate his argument that the Assessing Officer is competent to reopen an assessment for a particular year on the basis of the new facts available to him. We have gone through the said judgment. In the said case it was subsequently detected by the Assessing Officer that there was a subsequent statement which unmistakably pointed out the suppression of material facts. So the facts of this case are not similar with those of our case. Similar is the case reported in
15. The learned advocate for the Revenue further argued that in respect of the impugned notice the appellant-company has got an alternative forum for redressing its grievance and according to him the writ application is not maintainable for challenging the said notice. But law in this respect has been clearly settled in the decision reported in
16. As such from the said decision, it is very much clear that it is always open for the appellant-company to approach this court under its writ jurisdiction. The contention of the learned advocate for the Revenue is thus rejected.
17. So from our above discussion we are of the opinion that the Revenue has failed to prove that the Assessing Officer had valid reasons for reopening the assessment of the appellant-company for the years 1973-74, 1980-81 and 1981-82. So the notice, as issued by the Assessing Officer in the name of the appellant-company must be held to be illegal and invalid and should be struck down. We have perused the judgment passed by the learned single judge. It appears that in his judgment the learned single judge was of the opinion that from the Supreme Court judgment or from the reports of the Reserve Bank of India which were not produced by the Revenue at the time of hearing, it could not be held that there was suppression of income during the relevant years under consideration. He simply preferred to rely upon the auditor''s report, which according to him is sufficient for holding that there was prima facie reason for the Assessing Officer to hold that the appellant-company did not fully and truly disclose its income in respect of the assessment years in question. But we have pointed out in our discussion above, that there was nothing in the auditor''s report to come to such a conclusion. The learned judge was of the opinion that from the discrepancy/as appeared in the auditor''s report, it would be "anybody''s guess" as to since when such discrepancies continued. But we have already held that there is no material which have a rational connection or a live link or a direct nexus with the formation of the requisite belief u/s 147(a) of the Income Tax Act as laid down in the decision reported in
18. Although, the learned judge in his judgment practically was of the opinion that the Revenue failed to substantiate its claim that on the basis of the information the Assessing Officer had reason to believe that there was suppression of income by the assessee-company, still he preferred to rely on the statement made by the company in its writ petition. On the basis of such statement, the learned judge was of the opinion that there cannot be any doubt that the Assessing Officer had sufficient reasons to issue the notice for the purpose of reopening the assessment for those three years. But we are unable to agree with this approach of the learned judge in coming to the conclusion that the Assessing Officer was justified in issuing the notice. The material on which the learned judge preferred to rely was not taken into consideration by the Assessing Officer while issuing the notice. This, in our opinion, is not permissible. If the notice is held to be valid on this ground, then that will certainly create a peculiar situation. Because in that event, the Assessing Officer will be compelled to reopen the assessment on the basis of the statement made in the writ petition, as suggested by the learned judge. At the same time it may be pointed out that the law does not allow the Assessing Officer to reopen the assessment on any other new ground which is not the basis of the issuance of the notice u/s 148 of the Act. The finding of the learned judge, in this respect, appears to us to be not proper and as such it should be set aside.
19. Therefore, from our above discussion, we are of the opinion that the Assessing Officer was not justified in issuing the notice for the purpose of re-opening the assessment of the appellant for the years 1981-82, 1980-81 and 1973-74. As such the said notice is liable to be struck down and set aside.
20. In the result, all the three appeals are allowed on contest. The notices u/s 148 of the Income Tax Act, as issued by the Assessing Officer against the appellant, are struck down and set aside.
21. CAN No. 9028 of 2002, CAN No. 9032 of 2002 and CAN No. 9033 of 2002 stand disposed of.
22. Xerox certified copy, if applied for, may be handed over to the party on an urgent basis.
Aloke Chakrabarti, J.
23. I agree.
