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REMFRY AND SAGAR Vs. COMMISSIONER OF INCOME TAX
February, 05th 2013
*           IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                      Reserved on: 6th December, 2012
%                                                Date of Decision: 17th January, 2013

+       W.P. (C) 8375/2010
+       W.P. (C) 8376/2010
+       W.P. (C) 8377/2010
+       W.P. (C) 8378/2010

        REMFRY AND SAGAR                                              ..... Petitioner
                      Through:                  Mr. S. Ganesh, Sr. Advocate with Ms.
                                                Shashi M. Kapila, Mr. Cyril Abrol, Mr.
                                                Samridh Bhardwaj and Mr. Pravesh
                                                Sharma, Advocates.
                        versus

     COMMISSIONER OF INCOME TAX                 ..... Respondent
                     Through: Ms. Suruchi Aggarwal, Sr. Standing
                              Counsel.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR

R.V. EASWAR, J.

        These are four writ petitions filed by the petitioner seeking quashing of the
notices issued under section 148 of the Income Tax Act, 1961 (,,Act, for short) and
all proceedings consequent thereto.

2.      The petitioner is a law firm specialising in intellectual property and corporate
laws. It was founded in 1827 by one Henry Oliver at Calcutta. In the year 1957
certain Englishmen took over the firm. By deed dated 04.04.1973 these gentlemen
by names Holloway and Silver Stone transferred the firm absolutely to Dr. V. Sagar,
a lawyer. The transfer took effect from April, 1973 and the entire practice of the
firm became that of Dr. Sagar. On 18.10.2000 a company, i.e. Remfry & Sagar
Consultant Pvt. Ltd. was incorporated and one of its objects was that the goodwill of
the firm Remfry & Sagar would vest in it in perpetuity.




3.      On 01.06.2001, Dr. Sagar executed a gift deed by which the goodwill of the
name "Remfry & Sagar" was transferred to the private limited company. For stamp

W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                   Page 1 of 17
duty purposes the gift was valued at `45 crores. Since a limited company cannot
practice the legal profession, on 05.06.2001 Dr. Sagar entered into partnership with
four other partners for carrying on legal practice. On the same day i.e. 05.06.2001
an agreement (hereinafter referred to as "licence agreement") was entered into
between the company and the firm constituted by Dr. Sagar and four others, which is
known as Remfry & Sagar and which is the petitioner in all the writ petitions, under
which a licence was granted to the petitioner for use of the goodwill and name of
Remfry & Sagar subject to payment of licence fee @ 25% of the amount of the bills
raised. The agreement would later appear to have been amended on 14.01.2002 but
that is inconsequential for our purpose.

4.      In the return of income filed by Remfry & Sagar, the petitioner herein, for
the year ended 31.03.2002, the relevant assessment year being 2002-03, it claimed
the payment made to the company under the licence agreement as revenue
expenditure in the return of income. The return was processed under Section 143(1)
and an intimation was issued to that effect. This effectively meant that the return
was not being disturbed and consequently the payment made under the licence
agreement was allowed as a deduction.

5.      In the assessment made for the assessment years 2003-04 to 2006-07 also the
amounts paid by the petitioner under the licence agreement were allowed as a
deduction; in the first three assessment years, the assessments were completed under
section 143(3) of the Act after scrutiny of the returns and in respect of the last year,
the return was processed under section 143(1) of the Act. In all these years, it is
common ground that the amounts paid by the petitioner under the licence agreement
were claimed and allowed as deduction.

6.      On 30.03.2010, the respondent issued notices under section 148 of the Act
reopening the four assessments completed as above. The reasons recorded by him
under section 148(2) of the Act are as under: -
                     "Reasons for reopening the case u/s. 147
        Name of assessee            :     M/s Remfry & Sugar,
                                          Remfry      House,  Millenium
                                          Plaza, Sector-27, Gurgaon-
                                          122002.

W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                   Page 2 of 17
        Assessment Year                 :       2003-04
        PAN                             :       AAEFR6753P
        Status                          :       Firm

                Return was filed on 2.12.2003 declaring income at
        `13,33,80,850/-. Assessment under section 143(3) was made at
        `13,38,04,030/-. In the case of the assessee, assessment of AY 2007-
        08 has been made where assessee's claim of expenditure of
        `22,51,33,484/- to M/s Remfry & Sagar Consultants Pvt. Ltd. being
        the Licence Fee payment to M/s Remfry & Sagar Consultants Pvt.
        Ltd. for the use of goodwill of "Remfry & Sagar" and to practice in
        this name was examined during the deep scrutiny in assessment. The
        License agreement which was entered into in June 2001 was
        examined and the case records of AY 2003-04 were also examined.
        The claim was disallowed, being wrong claim of deduction of licence
        fee payment to M/s R & S Consultants for the use of goodwill. The
        facts for the AY 2003-04 are the same as AY 2007-08. Though
        scrutiny assessment has been made in AY 2003-04, no question was
        asked during assessment on this issue in questionnaire, neither was
        the justification and allowability of the deduction of Licence Fee
        payment to M/s Remfry & Sagar Consultants Pvt. Ltd. for the use of
        goodwill of "Remfry & Sagar" and to practice in this name examined
        vide order sheet entry during assessment. Neither did the assessee
        suo motu furnish information nor did the assessee suo motu furnish
        reasons as to why the said claim is allowable. So the issue was not
        examined at all in AY 2003-04, reasons as to why the said claim is
        allowable were neither asked for nor supplied. On the other hand, in
        AY 2007-08, matter has been deeply scrutinized and claim found
        wrong. Assessee has not disclosed all material facts correctly and
        fully during assessment for the AY 2003-04. Merely making a claim
        does not amount to disclosure of all material facts correctly and fully
        during assessment. Had assessee disclosed all material facts
        correctly, claim would not have been allowed as discovered in
        assessment proceedings for AY 2007-08. The facts and the issues for
        the AY 2003-04 are the same as AY 2007-08 and the decision is
        applicable. Hence there is failure on the part of the assessee to
        disclose fully and truly all material facts necessary for his assessment
        on the part of the assessee and as per the proviso to section 147,
        income chargeable to tax has escaped assessment for the AY 2003-04
        by reason of failure on the part of the assessee to disclose fully and
        truly all material facts necessary for assessment for the said
        assessment year which were not put up by the assessee. Accordingly,
        I am satisfied that income `9,86,06,944/- has escaped assessment for
        said assessment year being assessee's claim of expenditure to M/s
        Remfry & Sagar Consultants Pvt. Ltd. being the License Fee payment
        to M/s Remfry & Sagar Consultants Pvt. Ltd. for the use of goodwill
        of "Remfry & Sagar" and to practice in this name. In view of these




W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                   Page 3 of 17
          facts, I have reason to believe that income chargeable to tax has
          escaped assessment for the AY 2003-04.
                  Notice u/s 148 is being issued.
                                                                     (A.K.Dhir)
                                          Assistant Commissioner of Income Tax
                                                       Circle 37(1), New Delhi."

7.        The reasons recorded are identical for all the four assessment years except
for the amount of income noted therein as having escaped assessment.                The
following chart will show the relevant details: -

W.P.(C)     A.Y.       ORIGINAL     COMPLETED    NOTICE       BEYOND    INCOME
                       ASSESSMENT   ON
No.                    (U/S.)                    U/S. 148     4 YEARS   ESCAPING
                                                                        ASSESSMENT

8375/10     2003-04    143 (3)      02.02.2006   30.03.2010     Yes         9,86,06,944

8377/10     2004-05    143 (3)      31.07.2006   30.03.2010     Yes        15,80,69,137

8376/10     2005-06    143 (3)      26.12.2007   30.03.2010     No         16,73,06,288

8378/10     2006-07    143 (1)      12.10.2006   30.03.2010     No         21,51,64,619




8.        The assessee submitted detailed objections to the notices issued under
Section 148 contending that the full and true particulars relating to the claim were
filed along with the return of income and in the course of the original assessment
proceedings, that no new information or material was brought on record after the
completion of the original assessments, that no reopening of the assessment was
permissible on account of a mere change of opinion and in the circumstances the
notices issued were bad in law and without jurisdiction. These objections were
rejected by the respondent by orders dated 10.11.2010. In those orders he observed
that the assessee did not provide the basic particulars necessary for allowing the
claim and that it was while completing the assessment for the assessment year 2007-
08 that he came to know that the payment was totally unwarranted and the assessee
did not derive any benefit out of the same and that therefore the notices issued under
Section 148 of the Act were valid. He accordingly directed the petitioner to respond
to the hearing notices so that he could proceed with the reassessments. It is at that
stage that the petitioner approached this Court by way of the present writ petitions.

W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                   Page 4 of 17
9.      The main contentions raised on behalf of the petitioner before us for the
assessment years 2003-04 and 2004-05 can be summarised as under: -

        (a)     There was full and true disclosure of all the primary facts at the time
        of the original assessment. The profit and loss account in which the licence
        fees were debited, the tax audit report along with Annexure-III thereto which
        showed the particulars relating to payments made to connected persons as
        specified under section 40A (2)(b), the monthwise summary of several items
        of expenses and income including licence fees for use of goodwill, the
        confirmation from the company for receipt of the secretarial support fees,
        infrastructure usage fees, interest on loan and licence fees for use of
        goodwill, the supporting vouchers for the licence fee and the deed of
        partnership dated 05.06.2001 were all furnished to the assessing officer at the
        time of original assessment proceedings.

        (b)     The preamble to the partnership deed traced the history of payment of
        the licence fee, which included reference to the agreement for payment of the
        licence fee to the company. Thus the basic and primary facts relating to
        payment of licence fees could be found in the partnership deed. There was
        no failure to furnish primary facts.

        (c)     The reasons recorded by the respondent for reopening the
        assessments merely referred to the opinion of the Assessing Officer while
        completing the assessment for the assessment year 2007-08, that licence fees
        were not allowable as business expenditure which amounted to a change of
        opinion based on the same facts, that were furnished by the petitioner at the
        time of the original assessment.

        (d)     The respondent did not aver in the reasons recorded that the
        petitioner failed to furnish the licence agreement dated 05.06.2001 at the
        time of the original assessment proceedings. It is, therefore, not open to him
        to now supplement the reasons recorded and try to improve his case.




W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                   Page 5 of 17
10.     The contention of the petitioner in respect of the assessment year 2005-06 is
that the licence agreement was submitted at the time of the original assessments
which was also scrutinised and the assessment was completed under section 143(3)
and, therefore, the reopening of the assessment is permitted by a mere change of
opinion on the same set of facts. In support of this claim, our attention was drawn to
the letter issued u/s 133(6) by the respondent to the company to which payment of
licence fees was made, on 01.11.2007 (Page 178 of the writ petition). In the
written submission, it is stated that in the course of the original assessment
proceedings for the assessment year 2005-06, the petitioner filed a copy of the
licence agreement on 10.10.2007 and it was considered by the respondent
before passing the scrutiny assessment order. It needs to be stated that neither
in the affidavit of the petitioner nor in the objections filed by it on 8th
November, 2010 was this fact asserted. We have also gone through the entire
record before us in WP(C) No.8376/2010 which, inter alia, contains the
details filed by the petitioner in the course of the original assessment
proceedings but have not been able to locate any evidence to show that the
licence agreement was filed. Initially while addressing arguments before us
in support of the writ petition, the only document on which reliance was
placed on behalf of the petitioner in support of the above claim was the letter
dated 1st November, 2007 ( page 178 of WP(C)No.8376/10), which is a letter
written by the respondent under Section 133(6) of the Act to M/s Remfry &
Sagar Consultants Pvt. Ltd. calling for information in relation to the
petitioners claim for deduction of the amounts paid to that company under
the licence agreement. It is necessary to reproduce the entire letter:

        "F No.ACIT Cir.37(1)/2007-08/
                                                                  Office of the
                                        Assistant Commissioner of Income Tax,
                                                      Circle 37(1), New Delhi

                                                             Dated : 1.11.2007
        To,
        M/s Remfry & Sagar Consultants,

W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                  Page 6 of 17
        Remfry House at the Millenium Plaza,
        Sector-27, Gurgaon ­ 122002.

        Sir,

        Subject :-      Calling for information u/s 133(6) of the Income Tax
                        Act, 1961 in the case of M/s Remfry & Sagar, PAN-
                        AAEER6753P ­ A.Y.2005-06-reg.

                During the course of assessment proceedings in the case of
        assessee M/s Remfry & Sagar, it has been found that as per the
        agreement between M/s Remfry & Sagar Consultants Pvt. Ltd. and
        various partners of M/s Remfry & Sagar, it is agreed that 25% of the
        amount of bills raised by M/s Remfry & Sagar will be given to your
        company and the payment is to be made on monthly basis within 15
        days of the end of each month in respect of bills raised during the
        previous month. Please produce the evidence regarding how much
        payment is made by M/s Remfry & Sagar to you during the FY 2004-
        05 and how you have accounted it in the profit and loss account of
        your company. You are also to produce with evidence whether the
        monthly payments have been made to you as per the agreement or
        not.
                The above mentioned information is being asked for u/s
        133(6) of the Income Tax Act, 1961. You are requested to sent the
        requisite information by 15.11.2007. If the above information is not
        sent within the stipulated time, penalty u/s 272(2)(c) will be imposed.
        According to Section 272A(2)(c) :

               "If any person fails to furnish in due time any of the returns,
        statements or particulars mentioned in Section 133, he shall pay, by
        way of penalty, a sum (of one hundred rupees) for every day during
        which the failure continues."

                                                               Yours faithfully

                                                      (JEETENDRA KUMAR)
                                         Assistant Commissioner of Income Tax
                                                     Circle 37(1), New Delhi."


What was relied upon was the words "during the course of the assessment
proceedings in the case of assessee M/s Remfry & Sagar, it has been found
that as per the agreement..........", appearing in the beginning of the letter.
Relying on these words it was contended that they unmistakably show that the
licence agreement was before the AO at the time of the original assessment
W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                  Page 7 of 17
proceedings for the assessment year 2005-06. We do not think that the quoted
words can be read and understood as containing any such admission of the
AO. At best it can only be understood as referring to the claim of the
petitioner that the payment was made as per the license agreement. In any
case this is a roundabout way of showing that the licence agreement was filed.
We are unable to appreciate why there cannot be any direct evidence of the
licence agreement having been filed before the respondent in the course of the
original assessment proceedings. We have also referred to the absence of
anything in the details furnished by the petitioner in the course of the original
assessment proceedings to show that the licence agreement was filed. It is
only in the written submissions that the petitioner has stated that it furnished a
copy of the licence agreement to the AO on 10.10.2007 and the said
agreement was considered by him before passing the original assessment
order. Since no such averment was made in the affidavit or in the objections
filed before the AO to the reasons recorded, and in the absence of any
evidence adduced before us to show that the copy of the licence agreement
was filed before the AO on 10.10.2007, we are unable to accept the claim as
proved. It remains a mere claim. We, therefore, proceed on the basis that
even for the assessment year 2005-06, there is no evidence to show that the
petitioner filed a copy of the licence agreement in the course of the original
assessment proceedings.

11.     The argument for the assessment year 2006-07 is somewhat different. It is
contended that in respect of this year the assessing officer was fully aware of the fact
that the assessee had claimed a larger amount as licence fee and that the only reason
why he did not issue a notice under section 143(2) was because in the preceding
three assessment years the assessments had been completed originally under section
143(3), including the assessment year 2005-06 in which year the assessment had
undisputedly filed a copy of the licence agreement. The contention is that the mere
fact that the original assessment for the assessment year 2006-07 was completed
under section 143(1) of the Act without any scrutiny cannot lead to the conclusion
W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                   Page 8 of 17
that the respondent did not form any opinion on the issue of allowability of the
licence fee; consequently the reassessment for this year is also vulnerable to the
charge of being prompted by a change of opinion. According to the petitioner, to
hold to the contrary would be to ignore the reality of the situation and the consistent
history wherein scrutiny assessments under section 143(3) of the Act were made by
the respondent, which were also being reopened on the very same ground. It is
contended that having regard to this extraordinary situation, no factual or legal
distinction can be made between the first three assessment years in which scrutiny
assessments were made and the assessment year 2006-07 in which the original
return was merely processed under section 143(1) of the Act.

12.     The arguments of the petitioner were summarised in the written submissions
which have also been taken into consideration.

13.     Per contra the learned standing counsel for the income tax department
submitted that the primary or material facts relating to the claim of licence fees were
not disclosed by the petitioner at the time of the original assessment proceedings.
She submitted in particular that the licence agreement between the assessee and
Remfry & Sagar Consultant Pvt. Ltd. was not filed in any of the assessment years;
according to her, the licence agreement constituted a primary fact on the basis of
which the claim was made and if that is not filed, it would amount to non-disclosure
of primary facts. She referred to Explanation 1 to section 147 of the Act and
contended that once it is established that the primary facts were not furnished, the
fact that the petitioner had filed the partnership deed in which there is a narration of
the history of the firm or that the letter dated 28.03.2005 filed by the assessee in the
course of the assessment proceedings for the assessment year 2003-04 setting out the
the history of the firm and its other business activities would not come to the rescue
of the petitioner. She also took us through the assessment order for the assessment
year 2007-08 in which the licence fee was disallowed. Reliance was also placed on
paragraph 39 of the majority judgment in the case of CIT Vs. Usha International
Ltd.(2012) 348 ITR 485. It was submitted that in the order sheet dated 18.10.2005
relating to the assessment proceedings for the assessment year 2003-04 the assessee
was asked to furnish details relating to "licence fee and official fees-unvouched" and

W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                   Page 9 of 17
despite the specific request the petitioner did not file the licence agreement. Again
our attention was drawn to the letter written by the assessing officer on 9th March,
2005 (page 177 of the writ petition) by which the petitioner was, inter alia, directed
to furnish the nature of the licence fee expenses of `98.60 lakhs. The learned
standing counsel thus contended that despite being asked, the petitioner did not
furnish the primary fact i.e. the licence agreement and the failure to do so justified
the reassessment proceedings.

14.     So far as the assessment year 2005-06 is concerned, where the reassessment
proceedings were initiated within the period of four years from the end of the
assessment year, the argument of the standing counsel was that the information
supplied by the petitioner under cover of letter dated 27.09.2006 was confined to the
payments made to persons specified in section 40A(2)(b) of the Act and that did not
include the licence agreement. She also pointed out that paragraph 12 of the above
letter contained only a reference to the confirmation of the Remfry & Sagar
Consultant Pvt. Ltd., but no agreement was filed. Moreover, this paragraph only
contained a statement of fact that the payment of licence fee (along with certain
other payments) was made "as per relevant agreements/ deals"; the licence
agreement as such was not filed. It was thus contended that even in respect of this
year, the primary fact i.e. the licence agreement, was not furnished by the petitioner
in the course of the original assessment proceedings.

15.     The first issue to be tackled is the contention put forth on behalf of the
petitioner that the reasons recorded for reopening the assessment do not allege that
the petitioner failed to file the licence agreement dated 05.06.2001 nor is there
anything in the counter affidavit to that effect and, therefore, it is not open to the
revenue to take up that point for the first time before this Court as it is a well-settled
legal position that the reasons recorded cannot be improved upon or supplemented
by subsequent averments in the course of the proceedings and that the validity of the
notice under section 148 has to be judged only on the reasons recorded under section
148(2) of the Act. We accept that contention in principle, but at the same time it
needs to be pointed out that what has to be alleged in the reasons recorded is the
failure of the assessee to furnish the primary facts at the time of the original

W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                     Page 10 of 17
assessment and we do not think that it is also necessary for the assessing officer to
list the documents that were required to be furnished, but not actually furnished, by
the assessee in the course of the original assessment proceedings. The primary
condition for reopening an assessment is that there should be reason to believe that
income chargeable to tax had escaped assessment. In the case of an assessment
made under section 143(3) of the Act, the failure to furnish full and true particulars
is one of the grounds on which it can be reopened where the notice of reopening is
issued within a period of four years from the end of the relevant assessment year; it
is however the only reason on which the assessment can be reopened, if more than
four years have elapsed from the end of the relevant assessment year. This is the
combined effect of section 147 and the first proviso thereto. The first proviso refers
to the failure on the part of the assessee to make a return or "to disclose fully and
truly all material facts necessary for his assessment, for that assessment year".
Explanation 1 below the section is in the following terms: -

        Explanation 1.--Production before the Assessing Officer of account
        books or other evidence from which material evidence could with due
        diligence have been discovered by the Assessing Officer will not
        necessarily amount to disclosure within the meaning of the foregoing
        proviso.

16.     It is in the light of the statutory language that we have to examine the reasons
recorded under section 148(2) of the Act in the present case. A perusal of the
reasons recorded shows that the respondent has clearly stated therein that the
assessee has not disclosed all material facts correctly and fully and there was failure
on its part to disclose fully and truly all material facts necessary for his assessment
as per the proviso to section 147 of the Act, by reason of which there was
escapement of income chargeable to tax. The reasons also refer to the fact that in
the course of the assessment proceedings for the year 2007-08 the licence agreement
entered into in June, 2001 was examined but the claim for deduction of the licence
fee payment was found not allowable. It further refers to the fact that in the course
of the assessment proceedings for the assessment years 2003-04, 2004-05, 2005-06
and 2006-07 neither the assessee suo motu furnished information (regarding the
licence fee payment) nor did it furnish reasons as to why the said claim is allowable.

W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                   Page 11 of 17
It is true that the genesis of the present proceedings was the scrutiny assessment
made for the assessment year 2007-08 in the course of which the petitioner had
furnished the licence fee agreement; it is equally true that the respondent has clearly
stated in the reasons recorded that there was failure on the part of the petitioner to
furnish full and true particulars.     The reference to failure of the petitioner is
obviously to the failure to file the licence fee agreement, if regard is had to the
reasons read as a whole, and the specific reference therein to the petitioner having
filed the agreement in the assessment proceedings for the year 2007-08 as contrasted
with the petitioners failure to furnish full and true particulars or material facts at the
time of the original assessments for the four earlier assessment years. It seems to us
proper to understand and appreciate the reasons recorded in a fulsome manner and
not to treat them as statutes and so long as the failure of the assessee to furnish
primary or material facts has been brought out in sufficient relief, it is not necessary
to insist on the specific failure of the assessee being stated in the reasons. A parrot-
like repetition of the statutory language without any substance would certainly not
amount to satisfying the jurisdictional conditions but if the language used coupled
with the context is sufficiently capable of conveying the fact that there was failure
on the part of the assessee to furnish primary facts fully and truly at the time of
original assessment, that should be sufficient compliance with the requirements of
section 148(2) of the Act. In this view of the matter we are unable to accept the
contention of the petitioner that the failure to refer to the omission of the petitioner
specifically to file the licence agreement (in the reasons recorded) is fatal to the
validity of the reassessment proceedings.

17.     We now proceed to a consideration of the question whether the licence
agreement dated 05.06.2001 is a primary fact which ought to have been placed by
the petitioner before the assessing officer in the course of the original assessment
proceedings. In Calcutta Discount Co. Ltd. v. Income-tax Officer (1961) 41 ITR
191 a constitution Bench of the Supreme Court held that it was the duty of the
assessee to furnish all the primary and material facts fully and truly before the
assessing authority and failure to do so would invite action for reassessment. It was
further held that the duty ends there and it is for the assessing authority to draw the


W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                     Page 12 of 17
appropriate inferences from those primary facts and it is not the duty of the assessee
to advise him as to what inferences may be drawn, both of fact and law.                In
Kantamani Venkata Narayana and Sons Vs. First Additional Income-Tax Officer,
(1967) 63 ITR 638, the Supreme Court held as under: -

        ".......... It is clearly implicit in the terms of sections 23 and 34 of the
        Income-tax Act that the assessee is under a duty to disclose fully and
        truly material facts necessary for the assessment of the year, and that the
        duty is not discharged merely by the production of the books of account
        or other evidence. It is the duty of the assessee to bring to the notice of
        the Income-tax Officer particular items in the books of account or
        portions of documents which are relevant. Even if it be assumed that
        from the books produced, the Income-tax Officer, if he had been
        circumspect, could have found out the truth, the Income-tax Officer may
        not on that account be precluded from exercising the power to assess
        income which had escaped assessment."
18.     As to what would be a primary fact would largely depend on the facts and
circumstances of each case. In Associated Stone Industries (Kotah) Ltd. v. CIT
(1997) 224 ITR 560 the Supreme Court was concerned with the correctness of the
action under section 34(1)(a) of the Indian Income Tax Act, 1922 which authorised
the assessing officer to reopen an assessment on the ground of failure on the part of
the assessee to disclose material facts. The assessee therein was granted a lease by
the ruler of the State for quarrying stones. The assessee was to pay royalty inclusive
of income tax.     Subsequently, there was a merger of the princely State with
Rajasthan and a triangular litigation between the assessee, the State of Rajasthan and
the Union of India ensued. The assessing officer initiated action to reopen the
assessment to disallow a part of the royalty. The assessee took up the plea that the
lease agreement entered into with the Maharaja of Kota State dated 02.05.1945 had
been filed before the income tax officer at the time of original assessments and there
was thus no failure on its part to furnish the primary facts. The Supreme Court,
reversing the judgment of the Rajasthan High Court, held that the primary fact in the
case was the lease agreement and since the same had been placed before the income
tax officer at the time of original assessment, there was no failure to furnish primary
facts. It was further held that it was not the duty of the assessee to draw the
attention of the income tax officer to any particular clause or portion of the
agreement and invite him to draw a particular inference from the same. It would
W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                    Page 13 of 17
thus appear that whenever a claim is made for any deduction or allowance or relief
in the computation of the total income, and if the claim is based on the terms and
conditions of a document or documents, it is the duty of the assessee to place before
the assessing officer the document or documents; the document would constitute the
primary fact. The word "primary" means "that which is first in order, rank or
importance; anything from which something else arises or is derived" (P. Ramanatha
Aiyars The Major Lexicon, IVth Edition 2010). In the petitions before us, it is an
admitted position that the petitioner did not furnish the licence agreement dated
05.06.2001 before the assessing officer in the course of the original assessment
proceedings for any year. The claim for deduction of the licence fee payment
undeniably was based on the terms and conditions of the licence agreement. Only
an appraisal of the various clauses of the agreement would have enabled the
assessing officer to arrive at a conclusion regarding the allowability of the payment
as business expenditure. Since the primary document, that is, the primary fact was
not furnished, there was in our opinion such failure on the part of the petitioner as
would attract the provisions of section 147 of the Act; it is a case to which
Explanation 1 is attracted.

19.     It is now necessary to examine the argument of the petitioner that several
other facts and materials were before the assessing officer on the basis of which he
could have examined the allowability of the claim. It was in particular contended
that the partnership deed which was filed in the course of the original assessment
proceedings narrated the history of the petitioner firm in the preamble wherein there
was reference to the payment of the licence fee as also to the agreement, which
would amount to sufficient disclosure. Reference was also made to the petitioners
letter dated 28.03.2005 written to the assessing officer in the course of the
assessment proceedings for the assessment year 2003-04 in which the relevant
primary details were said to have been furnished.

20.     We have perused the partnership deed dated 05.06.2001 entered into between
Dr. Sagar, Sampath Kumar, Ashwin Julka, Ramit Nagpal and Prem Nath Sewak.
The preamble to the deed traces the history of the firm. Clause VIII of the preamble
records that pursuant to a request by the partners, the company agreed to permit the

W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                 Page 14 of 17
partners and the firm to use the name "Remfry & Sagar" in the carrying on of the
practice and in connection therewith on terms and conditions incorporated in an
agreement    being entered into between the partners             and   the   company
contemporaneously with the execution of the deed of partnership. Our attention was
not referred to any other clause in the partnership deed, which explains the terms
and conditions incorporated in the licence agreement. Clause VIII of the preamble
therefore cannot be considered as disclosure of a primary fact since all it does is to
refer, in passing, to the licence agreement and nothing more. From this clause, it
was not possible for the assessing officer to adjudicate upon the allowability or
otherwise of the licence fees. The letter dated 28.03.2005 merely contained a note
on the history of the firm and a note on its business activities. A copy of the
partnership deed was enclosed to the letter; beyond that there is no reference to the
licence agreement or to its terms and conditions. Thus, neither the partnership deed
nor the letter can be considered to be primary facts on the basis of which an
inference as to the allowability of the licence fee payment can be properly drawn by
the assessing officer.

20.     The profit and loss account, the tax audit report and the annexures thereto
and the replies to the questionnaire issued by the assessing officer in the course of
the original assessment proceedings do not contain anything with regard to the
licence fee agreement. The annexure to the tax audit report only explains item
No.18 of the report which requires particulars of payment made to the persons
specified under Section 40A(2)(b) to be given. In the annexure III to the tax audit
report what has been disclosed is that Remfry & Sagar Consultants Pvt. Ltd. was a
company in which partners of the petitioner or their relatives were substantially
interested and payments by way of licence fees, infrastructure usage fees, secretarial
accounting and other support services were paid. This disclosure is only for the
purpose of Section 40A(2)(b) which permits the assessing officer to disallow such
payments to the extent they are found to be unreasonable having regard to the
various factors spelt out in the Section. Furnishing of these particulars can in no
way be considered as furnishing the primary facts in relation to the allwability of the
payment of the licence fees which, as noted earlier, can be adjudicated upon only if


W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                  Page 15 of 17
the terms and conditions stipulated in the agreement are made known to the
assessing officer.

21.     The contention of the counsel for the petitioner that the reopening of the
assessments was prompted by the opinion which the respondent formed while
framing the assessment for assessment year 2007-08 that the licence fee payment
was not an allowable deduction, cannot be accepted because, as we have observed
earlier though the genesis of the issue can be traced to the assessment proceedings
for the assessment year 2007-08, the reasons recorded show that the assessing
officer took proceedings under Section 147 on the ground that the licence agreement
was not filed by the petitioner in the original assessment proceedings. When there is
a failure on the part of the petitioner to furnish the primary facts, it is futile to
examine the question whether the re-assessment was prompted by a change of
opinion based on the view which the assessing officer took in subsequent assessment
proceedings.

22.     In respect of the assessment year 2006-07 there was no earlier assessment
under Section 143(3). The return was merely processed by the assessing officer
under Section 143(1) and since he did not have any opportunity to form an opinion
regarding the allowability of the licence fee, the question of change of opinion does
not arise. However, he must have "reasons to believe" that income chargeable to tax
had escaped assessment and the reasons should be based on valid materials and
should not be a pretence. It must have a rational connection or nexus or live link
with the materials before the assessing officer. Even for this year, the petitioner had
not furnished the license agreement along with the original return. The argument of
the counsel for the petitioner is that the earlier three assessments were completed
under Section 143(3) in which the license fee payment was allowed as a deduction
and therefore the respondent did not feel the need to make any changes to the return
filed by the assessee for the assessment year 2006-07 and since he was conscious of
the fact that the license fee payments have been allowed by him as a deduction in the
three earlier years, he took a conscious decision, though under Section 143(1), to
allow the licence fee payment for the assessment year 2006-07 also, and in that
sense the subsequent reopening of the assessment must be held to be based on a

W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                  Page 16 of 17
mere change of opinion. We find it difficult to accept this strained and somewhat
convoluted argument, if we may say so, with respect. It is difficult to attribute any
knowledge to the assessing officer while he is dealing with a return for a particular
year under section 143(1), as to what he had done in the case of the same assessee in
the earlier assessment years. Therefore, we are not able to accept the argument that
the assessing officer consciously allowed the license fee payment as a deduction
when he accepted the return under Section 143(1). All we have to see is whether
there was "reason to believe" within the meaning of Section 147. The fact that the
petitioner did not place the primary facts relating to the claim of the license fee by
filing the license agreement dated 05.06.2001 along with the return of income filed
for the assessment year 2006-07 would itself constitute reason to believe that
primary facts have not been furnished by the petitioner. There is nothing in Section
147 prohibiting the reopening of an assessment completed under Section 143(1) on
the ground that the assessee failed to furnish the primary facts fully and truly. In our
opinion, failure to furnish the primary facts would constitute reason to believe
authorising the issue of notice under Section 148 of the Act also in a case where the
first assessment was made by a mere processing of the return under Section 143(1).

        For the above reasons we find no merit in the writ petitions which are
dismissed. All interim orders stand vacated. There shall be no order as to costs.



                                                                (R.V. EASWAR)
                                                                    JUDGE



                                                          (S. RAVINDRA BHAT)
                                                                    JUDGE
JANUARY 17, 2013
hs/vld/bisht




W.P. (C) No.8375/2010, 8376/2010, 8377/2010 & 8378/2010                   Page 17 of 17
 
 
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