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February, 17th 2014
                                           Date of Decision: 03.01.2014
+                            W.P.(C) 142/1998
      M/S. RALSON INDIA LTD.                               ..... Petitioner
                         Through:    Mr. Anoop Sharma and Mr.Manu
                                     Kr. Giri, Advocates.


                                           ..... Respondents
                   Through: Mr. Rohit Madan, Adv. and
                             Mr.Ruchir Bhatia, Adv. for CIT



1.    The petitioner seeks a direction for quashing of a notice under

Section 148 of the Income Tax Act issued by Revenue on 26.04.1995 in

respect of the Assessment Year 1991-92.

2.    It is urged that in respect of the above Assessment year, the

petitioner/assessee had filed its return on 31.12.1991.      During the

pendency of the assessment proceedings, the assessees premises w ere

subjected to search on 13.10.1992. In the light of the materials found by

the Income Tax Authorities, a questionnaire was addressed to the assessee

on 21.05.1993.     Reliance is placed by the assessee/petitioner upon

WP(C) 142/1998                                       Page 1 of 12
various proceedings of the Income Tax Authorities in respect of

Assessment Year (AY) 1991-1992, specially the order sheets made after

21.05.1993. It is argued that the nature of queries sought in response to

its reply do illustrate and clearly brings out that the Revenue wishes

information with respect to a host of matters including deposits made by

four concerns i.e. M/s. Maha Shveta Traders Ltd., M/s. Remico Testiles

(P) Ltd., M/s. Marvex Enterprises (P) Ltd. and M/s. Prabhat Enterprises

(P) Ltd. The Revenue had also put to the Managing Director of the

assessee/petitioner during the course of assessment proceedings for the

AY 1991-92, an affidavit of one Sanjay Dadhich. After considering the

explanation, the assessees returns were accepted and the Assessment

Order framed under Section 143(3) on 20.09.1993. Upon receipt of the

notice under Section 148 and the reply, the respondent authorities

proceeded with the matter. Thereupon, claiming that the notice issued

under Section 143(2) on 17.04. 1997 in the re-assessment proceedings

was time-barred, this Court was approached under Article 226. In this

proceeding the petitioner has also questioned the merits of the opinion.

3.    The Revenue in its reply relied upon the reasons recorded for re-

opening assessment, made in the file on 26.04.1995. The relevant reasons

are as follows:

WP(C) 142/1998                                         Page 2 of 12
            "The assessing officer while making the assessment
         u/s 143(3) of I.T. Act in the case of Ralson (India)
         Ltd., had not made additions on account of investment
         in four fictitious companies namely M/s. Mahashaveta
         (P) Ltd., M/s. Remico Textiles Ltd., M/s. Prabhat
         Enterprises Ltd. and M/s. Marvex Enterprises (P) Ltd.
         No discussion in this regard has been made in the
         assessment order.       We have now got certain new
         information from the bank that the assessee company
         opened a new account No. 772A with PNB, Dhandari
         Kalan and utilised the FDRs of four fictitious firms
         for availing of overdraft facility.    For the reasons
         mentioned here under an amount of Rs.89.50 lacs
         being undisclosed investment in the aforesaid four
         companies during the previous year has escaped
            (1) Late Sh. R.D. Aggarwal, the then C.A. had
         made this scheme of converting black money of M/s.
         Ralson (India) Ltd. into white by making four
         fictitious companies.
            It has been informed by the ACIT (Inv.) Circle -
         2(1) vide letter dated 6.3.95 that after the death of Sh.
         Ramesh D. Aggarwal on 30.09.91 the four fictitious
         companies submitted to the bank four copies of the
         fictitious resolution passed by each of them in which
         names of bogus and non-existent persons were
         mentioned as new directors of the company and in

WP(C) 142/1998                                         Page 3 of 12
         terms of these resolutions Sh. Sanjay Dadhich was
         deprived by the authorities from operating the bank
         account in the names of these companies. At the time
         of submitting these resolutions to the bank Sh. O.P.
         Pahwa the previous Chairman/Managing Director of
         M/s. Ralson (India) Ltd. had already expired. In case
         these companies under reference were not bogus and
         were genuinely held by Sh. Sanjay Dadhich or Sh.
         R.D. Aggarwal there was no authority vested with any
         other person who could legally stop the operation of
         bank account of the company by Sh. Sanjay Dadhich.
         As I have already informed the banks of M/s. Ralson
         (India) Ltd. i.e. P.N. B., Dhandari Kalan, Ludhiana
         has not responded to the notices given by Sh. Sanjay
         Dadhich through his advocate to the Manager,
         Punjab National Bank and appears to have given no
         reply in a circumlocutory manner. In fact it was M/s.
         Ralson (India) Ltd. Account who ultimately benefitted
         from these F.D.Rs. as it had availed of overdraft
         facility in account No. 722A and the payments were
         also received by its persons in fictitious names.
            It has been also informed by Inv. Circle 2(1) that
         one of the recipient of the payment encashed against
         bearer cheques is Mr. Murli and this fact is
         established for the documents seized from the
         residence of     its Managing Director, Sh.Sanjeev

WP(C) 142/1998                                         Page 4 of 12
             It has been further informed that the various facts
          gathered in the course of investigation clearly
          established the direct involvement of M/s. Ralson
          (India) Ltd. in the purchases of M/s. Panacea Drugs
          and Pharmaceuticals, a sick industrial unit, when Sh.
          Pahwa, the Managing Director of Ralson (India) Ltd.
          found cornered on account of the operation of bank
          overdraft account No. 772A he started foisting the
          entire blame on Sh. R.P. Majahan who was the
          financial controller of the company at the relevant
          time.   Since this overdraft account was operated
          during the period when Sh. R.P. Mahajan was the
          Financial Controller of the company all the acts of
          omission and commission on his part are binding on
          this company.
          In view of the foregoing, I am of the opinion that an
          amount of Rs.89.50 lacs which was the amount of
          black money converted into deposits of four fictitious
          firms belongs to M/s. Ralson (India) Ltd. and the said
          income has escaped assessment in AY 91-92."

4.    It is argued that having regard to the nature of the Assessment

Order originally made by the Department on 20.09.1993 which is silent

with respect to the explanation afforded by the writ petitioner, the reasons

recorded are based mostly under Section 148. Counsel for the Revenue

WP(C) 142/1998                                          Page 5 of 12
sought to support the reasons for reopening the assessment and placed

particular reliance upon the Full Bench decision of this Court in

Commissioner of Income Tax Vs. Usha International Ltd., [2012] 348

ITR 485. It was argued that even though a questionnaire was addressed to

the assessee in the previous assessment proceedings on 21.05.1993, a

look at the reply furnished clearly shows that the explanation was highly

unsatisfactory. The counsel sought to urge in these circumstances that the

omission and failure of the Assessing Officer to record satisfaction with

regard to the explanation in this regard constituted sufficient grounds and

a valid "reason to believe" and so a re-assessment was necessary. It was

urged that in fact, the previous Assessment Order was a case of "no


5.    Counsel for the writ petitioner relied upon various orders made

during the course of the assessment proceedings; in fact the entire order

sheets for the period from 27.06.1992 to 16.09.1993 have been produced

as Annexure R-5. Learned counsel relied particularly upon the various

orders made after 21.05.1993. On that date, Income Tax Authorities

issued under cover of a letter a questionnaire containing various details in

respect of which particulars and information had been sought. These

included inter-alia, materials which were found by the Department in the

WP(C) 142/1998                                          Page 6 of 12
course of the search and seizure operations conducted on 13.10.1992.

The Income Tax Authorities sought details of the accounts which the

assessee had with 8 named individuals besides several concerns including

the four i.e. M/s. Maha Shveta Traders Ltd., M/s. Remico Testiles (P)

Ltd., M/s. Marvex Enterprises (P) Ltd. and M/s. Prabhat Enterprises (P)

Ltd. Likewise the list of the FDRs seized from the residence of one R.P.

Mahajan, apparently belonging to the company and other materials as

well as the details of cash, stock etc. the total of which worked out to be

Rs.7,95,97,739.10 were also sought. Counsel for the petitioner urged that,

after taking into account these explanations given in writing and after

affording opportunity of hearing, the original Assessment Order was

framed on 29.09.1993. Counsel emphasises that no new material was

found and that the re-assessment was sought to be conducted only on the

basis of an apparent impermissible ground.       Learned counsel for the

petitioner relied upon the decision of the Supreme Court reported in

Commissioner of Income Tax Vs. Kelvinator of India Limited [2010]

320 ITR 561. It is argued that once certain material is considered by the

Assessing Officer in respect of which an enquiry has been made, mere

failure to record that the explanation was satisfactory would not constitute

"reason to believe" justifying re-assessment proceedings.

WP(C) 142/1998                                          Page 7 of 12
 6.    This Court has carefully considered the submissions. There is no

 dispute that in this case the original assessment proceedings had not been

 finalized; at that stage on 13.09.1993, the petitioner s premises were

 subjected to raid, search and seizure operations. Based upon the materials

 which the Revenue came by in that operation, enquiries were raised in the

 assessment proceedings. A formal notice was issued on 21.05.1992; even

 the Managing Director of the assessee/petitioner was issued notice under

 Section 131. The order sheet would disclose that the affidavit of Sanjay

 Dadhich which has been cited in the re-assessment notice was confronted

 to the Managing Director of the assessee/petitioner.        The Assessing

 Officer apparently took note of the reply and the submissions made and

 finalized the original assessment proceedings on 21.09.1993.           The

 question which arises then is whether omission and failure to record the

 satisfaction as to the reply by the assessee by the Assessing Officer would

 constitute justifying ,,reason to believe under Section 147, to issue notice

 of re-assessment.

7.     In a previous Full Bench decision of this Court in Commissioner

of Income Tax Vs. Kelvinator of India Ltd., reported as [2002] 256 ITR

1, this Court expressed disagreement with the Gujarat High Courts

observations in Praful Chunilal Patel v. Makwana (M.J.), CIT (Asst.)

 WP(C) 142/1998                                          Page 8 of 12
[1999] 236 ITR 832 (Guj). The Gujarat High Court held that, if looking

back, it appears to the Assessing Officer that a particular item even though

reflected on the record, was not subject to and was left out while making

the Assessment Order, that amounted to justifiable "reasons to believe",

warranting re-assessment.    The Full Bench expressed its disagreement in

the following terms:

              "We are, with respect, unable to subscribe to the
           aforementioned view. If the contention of the Revenue
           is accepted the same, in our opinion, would confer an
           arbitrary power upon the Assessing Officer. The
           Assessing Officer who had passed the order of
           assessment or even his successor officer only on the
           slightest pretext or otherwise would be entitled to
           reopen the proceeding. Assessment proceedings may
           be furthermore reopened more than once."

 8.    Thereafter, it was again emphasised that:

            "in the event it is held by reason of Section 147, if the
           Income Tax Officer exercises its jurisdiction for
           initiating proceedings for re-assessment only upon a
           mere change of opinion, the same may be held
 9.    The Revenues appeal to the Supreme Court was unsuccessful.

 The Full Benchs opinion was confirmed and reiterated in Kelvinator's

 WP(C) 142/1998                                           Page 9 of 12
case (supra). The Court held that:

          "therefore,      post 01.04.1989 power to reopen is
          much wider. However, one needs to give a schematic
          interpretation to the words "reasons to believe"
          failing which, we are afraid, Section 147 would give
          arbitrary powers to the Assessing Officer to reopen
          assessments on the basis of mere ,,change of opinion
          which cannot be per se reason to reopen. We must
          also keep in mind the difference between power to
          review and power to re-assess. The Assessing Officer
          has no power to review, he has the power to re-
          assess.    But reassessment has to be based on
          fulfilment of certain pre-conditions and if the concept
          of change of opinion is removed, as contended on
          behalf of the Department, the, in the garb of
          reopening the assessment renew would take place.
          One must treat the concept of ,,change of opinion as
          an inbuilt test to check the abuse of power by the
          Assessing Officer.      Hence, after 01.04.1989, the
          Assessing Officer has power to reopen, provided there
          is "tangible material" to come to the conclusion that
          there is escapement of income from assessment."
10.   The Full Bench decision in Usha International (supra) relied upon

by the Revenue reiterates this aspect.

11.   The court also notices that in Usha (Supra) there was no blanket

proposition that omission to discuss or deal with material furnished in the

WP(C) 142/1998                                         Page 10 of 12
course of original assessment proceedings, can result in formation of

"reasons to believe" under Section 147.        This is evident from the

following observations:

          "there may be cases where the Assessing Officer
          does not and may not raise any written enquiry but
          still the Assessing Officer in the first round/ original
          proceedings may have examined the subject matter,
          claim etc. because the aspect or question may be too
          apparent and obvious. To hold that Assessing Officer
          in the first round did not examine the question or
          subject matter and form an opinion, would be
          contrary and opposed to normal human conduct.
          Such cases have to be examined individually. Some
          matters may require examination of the assessment
          order or queries raised by the Assessing Officer and
          answers given by the assessee but in other cases, a
          deeper scrutiny or examination may be necessary."
12.   The decision of the Supreme Court in Kelvinator is categorical in

that "change of opinion" cannot per se be reason to reopen assessment.

In the original proceedings, once the Assessing Officer has called for

certain material and, after taking that into account or consideration, has

framed the assessment, and if the concept of "change of opinion" is to be

removed, as was urged by the Revenue, the Assessing Officer would be

left with unbridled and arbitrary powers. In the present case, the record

WP(C) 142/1998                                          Page 11 of 12
clearly reveals that each of the materials in respect of the four firms and

the other documents were put to the assessee in the course of original

assessment proceedings which culminated in the order of 29.09.1993.

The "tangible material" that can lead to "reasons to believe" must be

material that is attributable to the assessee and not material that is

attributable to a change in the opinion of the Assessing Officer, on the

material already available prior to original assessment.       "Reasons to

believe" contained in the order of 26.4.95 therefore do not constitute valid

,,reasons to believe in the form of tangible material which the Revenue

came across after completion of original assessment.

13.   Consequently, the said notice dated 26.4.95 and consequential

proceedings cannot be sustained. They are hereby quashed. The petition

is allowed without any orders as to costs.

                                               S. RAVINDRA BHAT, J

                                                         R.V.EASWAR, J

JANUARY 03, 2014

WP(C) 142/1998                                          Page 12 of 12
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