* IN THE HIGH COURT OF DELHI AT NEW DELHI
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.
versus
DY. COMMISSIONER OF INCOME TAX AND ANR.
..... Respondents
Through: Mr. Rohit Madan, Adv. and
Mr.Ruchir Bhatia, Adv. for CIT
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V.EASWAR
S. RAVINDRA BHAT J. (OPEN COURT)
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
assessment.
(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
Pahwa.
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
opinion".
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
unconstitutional."
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
acm
WP(C) 142/1998 Page 12 of 12
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