$~R-15 & 17
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on : 02.01.2014
+ W.P.(C) 137/1998
+ W.P.(C) 143/1998
M/S. RALSON (INDIA) LTD. ..... Petitioner
Through: Sh. Anoop Sharma, Advocate.
versus
DY. COMMISSIONER OF INCOME TAX AND ORS.
..... Respondents
Through: Sh. Sanjeev Sabharwal, Sr.
Standing Counsel and Sh. Rohit Madan, Sr.
Standing Counsel with Sh. Ruchir Bhatia, Jr.
Standing Counsel.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT)
%
1. These writ petitions challenge the legality of a notice issued
under Section 147/148 of the Income Tax Act, 1961 ("the Act"), and
pursuant thereto a notice under Section 143(2) of the Act, seeking to
reopen assessments of M/s Ralson (India) Ltd., the assessee/petitioner,
for the assessment year 1990-91.
2. For the assessment year 1990-91, the assessee filed a return of
income on 31.12.1990, disclosing NIL income under Section 115J of
W.P.(C)137/1998 & W.P.(C) 143/1998 Page 1
the Act. This return was accompanied with the statement of accounts
and the Auditor's Report as required by Section 44AB of the Act. The
Revenue, after scrutinizing the return and issuing notice under Section
143(2), passed an assessment order under Section 143(3) of the Act
dated 23.03.1993. That order assessed the income at `44,77,640/-. The
assessee appealed against this order to the Commissioner of Income
Tax (Appeals), who by an order dated 20.07.1994 (in Appeal No.
43/93-4) partly allowed the appeal. The assessee further appealed
against this order before the Income Tax Appellate Tribunal, Delhi,
which was pending at the time of the filing of this writ petition.
3. Meanwhile, there was a search and seizure under Section 132 of
the Act on the business as well as residential premises of the assessee
and its Managing Director on 13.10.1992, whereby some books of
account, vouchers and other documents, along with cash, were seized.
Based on the material recovered, the Assessing Officer, who was still
considering the returns for the year 1990-91 at the time, framed the
assessment for the year on 23.03.1993 and 20.09.1993. Subsequently,
on 26.04.1995, the Revenue issued a notice under Section 147/148 of
the Act proposing to reopen this assessment on the ground that income
chargeable to tax had escaped assessment within the meaning of
Section 147 of the Act. In response, on 25.05.1995, the assessee
replied to this notice contesting that no reasons exist for reopening the
assessment of that year, and "unless you intimate to us the reasons
recorded and indicate the alleged escaped income we find yourself
unable to comply with the terms of your above Notice." Further,
W.P.(C)137/1998 & W.P.(C) 143/1998 Page 2
another letter was sent on 28.04.1997 to the Revenue indicating that
"in this case the assessment stands already finalized and closed", and
that "till date reason for re-opening the assessment have not been
given to us." Finally, the plea was taken that in view of the proviso to
Section 143(2), the time period of 12 months within which a notice
has to be served had expired, and thus, the impugned notice under
Section 148 was time-barred. The re-assessment proceedings,
however, were not discontinued, leading to the present writ petition.
4. The writ petitioners urge that the impugned notice under
Section 148 is bad in law for a host of reasons. First, it is submitted
that the impugned action under Section 147 could not be taken after 4
years from the end of the assessment in respect of which action has
been taken. Secondly, it is submitted that there are no reasons to
believe that income has escaped assessment. Thirdly, it is argued that
a notice under Section 143(2) cannot be served on an assessee after 12
months from the end of the month in which the return is furnished
pursuant to a notice under Section 148 of the Act. During the course of
the proceedings, learned counsel for the assessee drew the attention of
the Court to the reasons recorded by the Assessing Officer for
reopening the assessment. As the assessment of the years 1989-90,
1990-91 and 1992-93 were all reopened together, this document
dated 26.04.1995 pertains to all three years. The reasons provided by
the Assessing Officer will be discussed below.
5. Section 147 permits the reopening of an assessment, and the
issuance of notices etc., if the "Assessing Officer has reason to believe
W.P.(C)137/1998 & W.P.(C) 143/1998 Page 3
that any income chargeable to tax has escaped assessment for any
assessment year ..." The scope of the phrase "reasons to believe" has
been considered by the Supreme Court in various decisions. In M/s.
Phool Chand Bajrang Lal and Anr. v. Income Tax Officer and Anr.,
[1993] 203 ITR 456 (SC), the Court held as follows:
"27.......................Since the belief is that of the Income-
tax Officer, the sufficiency of reasons for forming the
belief, is not for the Court of judge but it is open to an
assessee to establish that there in fact existed no belief or
that the belief was not at all a bona fide one or was based
on vague, irrelevant and non- specific information. To
that limited extent, the court may look into the conclusion
arrived at by the Income-tax Officer and examine
whether there was any material available on the record
from which the requisite belief could be formed by the
Income-tax Officer and further whether that material had
any rational connection or a live link for the formation of
the requisite belief......................."
6. Thus, while the Court will not judge the adequacy of the
reasons provided by the Assessing Officer, the Court must assess
whether the belief is based on relevant and specific information that
could lead to such a belief. This well-accepted principle has found
acceptance in ITO, Calcutta and Ors. v. Lakhmani Mewal Das 1976
(103) ITR 437 (SC); Central Provinces Manganese Ore. Co. Ltd.
v. Income Tax Officer, Nagpur, [1991] 191 ITR 662 (SC), Sri Krishna
Pvt. Ltd. Etc. v. Income Tax Officer, Calcutta and Ors., (1996) 9 SCC
534. Equally, as held in CIT v. Kelvinator of India Ltd., 2010 (320)
ITR 561(SC) Section 148 does not clothe the Assessing Officer with
power to review his previous order; nor is it such as to enable him to
W.P.(C)137/1998 & W.P.(C) 143/1998 Page 4
correct a previous view, akin to revisional power under Section 263.
The power to reopen an assessment cannot be also based on a change
of opinion; it is narrowly premised on the unearthing of some
"tangible material" which was hitherto unavailable. Then and then
alone, would the AO be legitimately entitled to issue notice for re-
assessment.
7. In this case, the reasons provided by the Assessing Officer for
reopening the assessment pertain to three years, 1989-90, 1990-91 and
1992-93. Two reasons are provided: first, that on the basis of new
information obtained from the bank, the assessee opened a previously
undetected bank account and by using four fictitious companies
availed of an overdraft facility. Thus, an undisclosed income of `89.50
lakhs had, in the opinion of the Assessing Officer, escaped
assessment; and secondly, specifically in relation to A.Y. 1991-92,
that the assessee had claimed depreciation on revalued assets not in
accordance with the Companies Act, 1956, thus reducing the book
provided for the purposes of Section 115J of the Act. This second
reason, provided only for the year 1991-92 does not provide reasons
for the assessment year under consideration. Equally, the first reason
provided by the Assessing Officer, which led him to believe that
income had escaped assessment, also does not relate to the year 1990-
91. The reasons recorded by the Assessing Officer state:
"It has been informed by the ... vide letter dated ... that
after the death of Sh. Ramesh D. Aggarwal on 30.9.91 the
found fictitious companies submitted to the Bank four
copies of the fictitious resolution passed by each of them
W.P.(C)137/1998 & W.P.(C) 143/1998 Page 5
in which names of bogus and non-existent persons were
mentioned as new directors of the company and in terms
of these resolutions"(emphasis supplied)
The bank account was operated to funnel income which would
otherwise be undetected. Furthermore, and crucially, this Court
notices that the assessee was asked through a questionnaire
queries and details about the same "fictitious entities" in respect of
which amounts were reflected in the returns and documents disclosed
at the time of the assessment. Thus, there was no "tangible" material
apart from what existed at the finalization of the original assessment,
undermining the exercise of reassessment notice in this case.
8. This information received from the bank as to these 4 fictitious
companies which forms the information on which the Assessing
Officer forms his belief under Section 147 does not and cannot relate
to the year 1990-91. As the reasons recorded above indicate
themselves, the accounts were allegedly created, and thus, money
transacted through them by the assessee, only after the death of one
Ramesh D. Aggarwal on 30th August 1991, after previous year
relevant to the assessment year 1990-91 had ended. At no point in this
document are any reasons recorded, or any information alluded to,
which relates to income that escaped assessment in the previous year
relevant to the assessment year 1990-91, the relevant year in the
present writ petitioners. In accordance with the rulings of the Supreme
Court in Phool Chand Bajrang Lal (supra), and other decisions, the
Court notes that there is no material or information on record that
W.P.(C)137/1998 & W.P.(C) 143/1998 Page 6
relates to income in 1990-91 that may justify the reopening of
assessment for the year 1990-91. Further, no reason to believe that
income has escaped assessment for the year 1990-91 (as opposed to
the other years under consideration by the Assessing Officer) has been
provided. Thus, the reassessment notice served to the assessee in
respect of the year 1990-91 by the Revenue is liable to be quashed.
9. As far as the question of the assessee's claim for depreciation of
re-valued assets goes, in Apollo Tyres Ltd. v. CIT, [2002] 255 ITR 273
(SC), the Supreme Court held that the Assessing Officer cannot open
the accounts which have been drawn in accordance with the
Companies Act, 1956, certified by the chartered accountant, accepted
by the general body of the company, and placed before the Registrar
to which he has not taken any objection. Such being the position in
law, the second ground for reopening the assessment is unsustainable.
10. For the above reasons, the writ petitions have to succeed. The
impugned notice under Section 147/148 and all further proceedings
are hereby quashed. The writ petitions are allowed in these terms.
S. RAVINDRA BHAT
(JUDGE)
R.V. EASWAR
(JUDGE)
JANUARY 02, 2014
W.P.(C)137/1998 & W.P.(C) 143/1998 Page 7
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