Bimal Chimanlal Shah vs Deputy Commissioner of Income Tax

K.A. Puj, J.—The petitioner has filed this petition under Article 226 of the Constitution of India praying for quashing and setting aside the notice dated 23.05.2001 issued by the Deputy Commissioner of Income Tax, Valsad u/s 148 of the Income Tax Act, 1961 (hereinafter referred to as ''the Act'') for reopening of assessment for A.Y. 1994 - 95 on the ground that he had reason to believe that the petitioner''s income chargeable to tax for the said assessment year had escaped assessment within the meaning of Section 147 of the Act. The said notice was issued after obtaining necessary satisfaction of the Commissioner of Income Tax.

The Division Bench of this Court issued notice on 03.09.2001. When the petition was heard by the Division Bench (Coram :- Hon''ble Mr. Justice M.S. Shah and Hon''ble Mr. Justice D.A. Mehta), there was a difference of opinion. Hon''ble Mr. Justice M.S. Shah took the view that the petitioner had come out with a false statement in the original assessment proceedings that the assessee had tenancy rights in the building in question and on perusal of the surrender deed itself, it was found that the petitioner had no tenancy rights. The question whether the petitioner had any right in the property in question could, therefore, be the matter of legitimate notification u/s 148/147 of the Act. Hon''ble Mr. Justice Shah, therefore, took the view that the impugned notice u/s 148 of the Act could not be faulted with and the petition deserves to be dismissed and was accordingly dismissed.

Hon''ble Mr. Justice Shah, however, in his judgment clarified that the observations made in the said judgment are for the limited purpose of examining the legality or otherwise of the notice u/s 147/148 of the Act and would not be construed to mean as any opinion expressed by the Court on merits. The Income Tax Officer was free to consider all the materials and submissions on merits and to pass assessment order in accordance with law.

Hon''ble Mr. Justice D.A. Mehta in his dissenting judgment, however, took the view that the impugned notice issued u/s 148 of the Act could not have been issued after the period of 4 years from the end of the relevant assessment year since the condition for exercise of power beyond 4 years as contemplated by the proviso to Section 147 of the Act did not exist. Hon''ble Mr. Justice Mehta, therefore, allowed the petition and impugned notice dated 28.05.2001 was quashed and set aside. Rule was made absolute.

In view of the above difference of opinion, the said Division Bench passed an order on 08.03.2002, directing the matter to be placed before the Hon''ble Chief Justice for passing appropriate orders. The matter was thereafter assigned to Hon''ble Mr. Justice A.R. Dave, as he then was. However, on his elevation as a Chief Justice to Andhra Pradesh High Court, the matter was assigned to me.

The facts relevant to the controversy before me, briefly summarized, are as under:

The petitioner is an individual and assessed to income tax. For the assessment year 1994 - 95, the petitioner filed his return of income on 31.10.1994 declaring total income of Rs. 1,53,080/-. The case of the petitioner was selected for scrutiny and assessment was framed at an income of Rs. 1,54,170/- u/s 143(3) of the Act on 28.02.1997. The petitioner thereafter received the impugned notice of reopening of assessment dated 28.05.2001. On receipt of the said notice, the petitioner asked for the reasons for issuing the impugned notice. The respondent thereafter supplied the reasons for reopening of assessment vide his letter dated 19.06.2001. From the perusal of the reasons, the petitioner was of the view that the reason for issuing the notice was an issue which was discussed during the course of the original assessment proceedings and only after satisfying himself, the respondent did not make any addition on the income in the original assessment order. The main submissions made by the petitioner before the Division Bench while challenging the impugned notice were that the impugned notice is patently bad, illegal and contrary to law. The assessment for the Assessment Year 1994 - 95 was framed u/s 143(3) of the Act and the same was sought to be reopened beyond the period of 4 years and assessment framed u/s 143(3) of the Act could be reopened beyond the prescribed period of 4 years if and only if an income chargeable to tax escaped assessment by reason of failure on the part of the assessee to make a return u/s 139 or in response to notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. The case of the petitioner is that the above situation is not present in this case. Looking to the facts and circumstances of the case, it could not have been alleged that there was any failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment for the assessment year. The assessment was framed u/s 143(3) of the Act and the total income was determined after scrutinising the return of income. It was, therefore, contended that it was not open to the respondent to issue the impugned notice. It was further contended that the notice u/s 148 could have been issued if and only if an Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment. The words ''reason to believe'' suggest that the belief must be that of an honest and reasonable person based upon reasonable ground, but not a mere change of opinion, suspicion or rumor. The belief must lead to a conclusion that income has escaped assessment. From the reasons supplied, it appeared to the petitioner that the surrender value of the tenancy rights which was received by the petitioner and claimed and allowed as exempted from the levy of income tax in the original assessment order was sought to be treated as taxable income and, therefore, the impugned notice came to be issued. It was further contended that in the body of the assessment order itself, the entire issue of the tenancy rights was discussed and the respondent himself has stated that ''after going through the submissions and provisions of Section 48 & 55 of the Act, the claim of the assessee is found to be acceptable.'' It was only after analysing various submissions and factual details, the respondent formed the above opinion that the said surrender value of the tenancy rights is exempted from tax and, therefore, it was treated as such in the original assessment order. According to the petitioner, it is nothing but change of opinion on the part of the respondent without there being any new information or material coming to his knowledge and, therefore, the impugned notice is required to be quashed and set aside.

In support of the petitioner''s case, reliance was placed on the decisions of Krishna Metal Industries Vs. H.M. Algotar, Shree Tharad Jain Yuvak Mandal and Another Vs. Income Tax Officer, Parashuram Pottery Works Co. Ltd. Vs. Income Tax Officer, Circle I, Ward A, Rajkot, Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another,

On behalf of the respondent, an affidavit-in-reply was filed on 18.09.2001 and it was contended that the reopening of assessment for A.Y. 1994 by issuance of notice u/s 148 dated 28.05.2001, after recording reasons cannot be said to be patently bad and illegal, or contrary to law because the same has been done in accordance with the provisions of the Act relating to reopening of assessment. The proceedings of Section 147 of the Act have been initiated within the statutory time limit, after obtaining prior approval of the Commissioner of Income Tax, Surat. It was further contended that the petitioner failed to disclose full and true material facts for his assessment and hence, the action taken by the department u/s 147 could not have been said to be patently bad, illegal and without jurisdiction. It is further contended that during the accounting period relevant to the A.Y. 1994 - 95, the assessee had received an amount of Rs. 12 Lacs from M/s. S. S. Gujani & Company of Bombay as surrender value of the tenancy rights over the property situated at 419, Maroshi Road, Andheri (E), Mumbai owned by said party. This payment did not fall within the definition of the surrendering of tenancy rights, as the petitioner was never the tenant. From the perusal of the surrender deed, it appears to the department that both the parties joined together to develop the said property during the period relevant to A.Y. 1986 - 87. Since A.Y. 1986 - 87, the petitioner had not paid any rent of leasehold rights to M/s. Gujani & Company nor did he incur any expenses and debited the same in his books of accounts. The department, therefore, took the view that the entire receipt of Rs. 12 Lacs was purely a business deal to develop the above property. This receipt was casual receipt relating to the petitioner''s business of the construction liable to be taxed u/s 56 of the Act under the head ''income from other sources''. In this view of the matter, there was reason to believe that the income of the petitioner chargeable to tax to the extent of Rs. 12 Lacs has escaped assessment. The reopening of assessment was based on reasonable ground and not on mere change of opinion as alleged in the petition. The taxing of income as alleged by the petitioner did not fall under the provisions of Section 48 & 55 of the Act. In fact, it is liable to be taxed under the head income from other sources. It was due to failure on the part of the petitioner to disclose such income under the proper head of income, its income has escaped assessment. The action of the Assessing Officer in reopening the assessment is, therefore, required to be held as justified.

In support of the above submissions, reliance was placed on the decisions of the Indo-Aden Salt Mfg. and Trading Co. Pvt. Ltd. Vs. Commissioner of Income Tax, Bombay, Inspecting Assistant Commissioner of Income Tax Vs. V.I.P. Industries Ltd., M/s. Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another, Zohar Siraj Lokhandwala Vs. M.G. Kamat and others, Income Tax Officer and Others Vs. Biju Patnaik, Sri Krishna Private Ltd. Etc. Vs. I.T.O., Calcutta and Others, Praful Chunilal Patel Vs. M.J. Makwana, Assistant Commissioner of Income Tax,

Learned Senior Counsel Mr. S.N. Soparkar appeared for the petitioner along with Mrs. Swati Soparkar. Mr. B.B. Naik, learned Senior Counsel appeared with Mrs. Mauna M. Bhatt for the respondent. They have made their submissions at great length.

Mr. Soparkar has reiterated, more or less, the same submissions which were made by him before the Division Bench where the Hon''ble Judges have taken different view in the matter. He also invited the Court''s attention to the original assessment order framed u/s 143(3), reasons recorded by the Assessing Officer for reopening of the assessment order, order-sheet entries and documents produced which, inter alia, includes the deed of surrender and the written submissions filed with the Assessing Officer during the course of assessment proceedings. The order-sheet entry dated 16.12.1996 is very clear which says that Shri M.J. Shroff, Advocate attended and filed the following details in respect of the return. These details, inter alia, include copy of deed of surrender of tenancy rights. The order-sheet entry further refers to the fact that in respect of the surrender value of tenancy right of Rs. 12 Lacs, it was submitted that the same is not chargeable to tax in view of the provisions of the Act, applicable to the point of time. The petitioner was asked to explain as to why the capital gain on transfer of tenancy rights should not be taxed with supporting provisions of the Act. In response to this query, Mr. M.J. Shroff, Advocate attended before the Assessing Officer on 14.02.1997 and submitted that the receipt of surrender of tenancy rights are not liable to tax. He also filed case laws in support of the claim.

In the written submissions filed, it was contended that the judicial interpretation of these sections was, ''if an asset did not have any cost of acquisition, profits arising on sale thereof would not be subject to capital gains.'' In Commissioner of Income Tax, Bangalore Vs. B.C. Srinivasa Setty, the Hon''ble Supreme Court laid down that Section 45 of the Act deals with charging of capital gains. Sections 45 & 48 together constitute an integrated code. If Section 48 cannot apply to an asset at all, it is evident that such an asset was not intended to fall within the charging section. If an asset in the acquisition of which no cost at all can be conceived is transferred, the consideration received is the capital value of the asset and not any profit or gain. The submissions further refer to the decision of this Court in the case of Rajabali Nazarali and Sons Vs. Commissioner of Income Tax, wherein it is held that the transfer of leasehold rights is nothing but a transfer of capital asset and the amount received was a capital receipt not chargeable to tax. It was further contended in the said submissions that the amount received on the surrender of tenancy for which the tenant has not laid out any capital cost should be regarded as not liable to taxed as capital gains. The principle laid down by the Hon''ble Supreme Court in the case of CIT v. B.C. Srinivasa Shetty is clearly applicable to all these assets which do not involve cost. It also becomes applicable if there is no material evidence leading to the actual cost of asset to the assessee. It was further contended that for the assessee to claim non-taxability of consideration received by him on the surrender of the tenancy right (which has no cost of acquisition) at the Assessing Officer''s level, the relevant factors which are required to be taken into consideration are that the onus to prove that there was no ascertainable cost for getting the tenancy right is on the assessee. Thus, the assessee should be in a position to produce tenancy agreement or some other material evidence which stipulates that there is no cost of acquisition of tenancy. After considering the surrender deed, the relevant provision contained in Section 25 & 48 of the Act and the decision of CIT v. B.C. Srinivasa Shetty, the Assessing Officer has framed the assessment and taken the view that the amount of Rs. 12 Lacs received by the petitioner being the surrender value of the tenancy rights cannot be taxed as capital gain within the meaning of Section 45 of the Income Tax Act. He has, therefore, submitted that once having taken the view that it is a capital receipt, the Assessing Officer cannot take a different view on the same materials and the reasons recorded by stating that the same was business deal and the receipt of Rs. 12 Lacs was required to be taxed as an income from other sources, is nothing but the change of opinion which cannot be permitted after the expiry of the period of 4 years from the end of the relevant assessment year.

Mr. Soparkar relied on the Constitutional Bench decision of the Apex Court in the case of Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, wherein it is held that to confer jurisdiction u/s 34 to issue notice in respect of assessments beyond the period of four years, but within a period of 8 years, from the end of the relevant year, two conditions had to be satisfied. The first was that the Income Tax Officer must have reason to believe that income, profits or gains chargeable to income tax had been under assessed. The second was that he must have also reason to believe that such ''under assessment'' had 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 were conditions precedent to be satisfied before the Income Tax Officer could have jurisdiction to issue the notice for the assessment or re-assessment beyond the period of 4 years, but within the period of 8 years, from the end of the year in question. The Court further held that if the conditions precedent for issuance of notice u/s 34 do not exist, the jurisdiction of the High Court to issue high prerogative writs under Article 226 of the Constitution of India to prohibit action under the notice may be exercised. But if the existence of the conditions is asserted by the authority entrusted with the power and materials on the record prima facie support the existence of such conditions, an enquiry whether the authority could not have reasonably held the belief which he says he had reason to hold and he did hold is barred. In the present case, it is difficult to believe that the respondent authority can assert the existence of the condition that there was an omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for the A.Y. 1994 - 95.

Mr. Soparkar further relied on the decision of the Apex Court in the case of Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, wherein it is held that the reasons for the formation of the belief contemplated by Section 147(a) of the Act for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the I.T. Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. The Court further held that the production before the I.T.O. of the account books or other evidence from which material evidence could with due diligence have been discovered by the ITO, will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the I.T.O. to draw the correct inference from the primary facts. If an I.T.O. draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment.

Mr. Soparkar further relied on the decision of the Apex Court in the case of Parashuram Pottery Works Co. Ltd. Vs. Income Tax Officer, Circle I, Ward A, Rajkot, wherein it is held that when an Income Tax Officer relies upon his own records for determining the amount of depreciation allowable to the assessee and makes a mistake in doing so, responsibility for that mistake cannot be ascribed to an omission or failure on the part of the assessee. The Court further held that where, in working out the figures of depreciation for certain items of capital assets, the I.T.O. Lost sight of the fact that the aggregate of the depreciation, including the initial depreciation allowed under the different heads, could not exceed the original cost to the assessee of those items of capital assets, the assessee cannot be held responsible for the remissness on the part of the I.T.O. In not applying the law contained in proviso (c) to Section 10(2) (vi) of the Indian Income Tax Act, 1922, and it cannot be said that excess depreciation allowed because of the mistake in the calculation of the depreciation was allowed and income escaped assessment because of the assessee''s omission or failure to disclose fully and truly all material facts and no action can be taken for reopening the assessment u/s 147(a) of the Income Tax Act, 1961, on the basis of detection of that mistake alone after the expiry of four years from the end of the assessment year.

Mr. Soparkar further relied on the decision of this Court in the case of Naginbhai G. Patel Vs. Income Tax Officer, wherein it is held that in order to assume jurisdiction for initiating proceedings under Sections 147 and 148 of the Income Tax Act, 1961, beyond the period of four years from the end of the relevant assessment year, the condition precedent is that the Assessing Officer must have reason to believe that the escapement of income chargeable to tax has arisen on account of failure or omission on the part of the assessee to disclose truly and fully all material facts necessary for his assessment for that assessment year. The Court while allowing the petition held that there had been no failure on the part of the assessee to disclose any material fact relevant for the assessment year 1988 - 89, which had been made the basis of issuing notice. The fact that the assessee had received Rs. 42 Lacs under the agreement to sell, that possession of the land in question had been delivered to the buyer in 1983 and that the sale deed had not been executed, were all noticed by the Income Tax Officer in his assessment order for the year in question. The notice of re-assessment was not valid and was liable to be quashed.

Mr. Soparkar further relied on the decision of this Court in the case of Hynoup Food & Oil Industries Limited v. Assistant Commissioner of Income Tax (2008) 219 CTR 124 wherein it is held that from the reasons recorded, it appears that during the course of assessment proceedings for the A.Y. 1994 - 95, the Assessing Officer had come to know that the assessee is not entitled to the relief u/s 80I and 80HH and that the assessee has claimed depreciation at a higher rate and, therefore, the reasons were recorded on 26.03.1997 for A.Y. 1992 - 93 and on 21.01.1998 for A.Y. 1990 - 91 & 1991 - 92. Despite these facts, the claim of the assessee was allowed by the Assessing Officer while framing assessment for the A.Y. 1994 - 95 on 31.03.1997. It, therefore, becomes clear that there was no omission or failure on the part of the assessee to disclose all material facts fully and truly. At the most, it is merely a change of opinion which cannot empower the Assessing Officer to issue notice of reopening u/s 148 beyond the period of 4 years.

Mr. Soparkar further relied on the decision of this Court in the case of Gujarat Fluorochemicals Limited v. Deputy Commissioner of Income Tax in Special Civil Application No. 12065 of 2008, decided on 20.10.2008 wherein it is held that as the petitioner has disclosed the primary facts, it was for the Assessing Officer to draw the necessary inferences. In regard to the factual and legal aspects, in order to ascertain the tax to be levied. If the Assessing Officer had reason to believe that the assessee had not disclosed fully and truly all material facts, then it should have been stated clearly in the reasons recorded, which has not been done. It is the statutory duty of the Assessing Officer to record reasons for issuing notice u/s 148 of the Act and reasons recorded cannot further be supplemented or explained by subsequent order so as to give an entirely different complexion to the case.

In view of the above facts and the settled legal position, Mr. Soparkar has submitted that the impugned notice issued by the Assessing Officer beyond the period of four years for reopening of the assessment is absolutely bad in law and it cannot be sustained on any ground. The view taken by Hon''ble Mr. Justice D.A. Mehta is the correct view and this Court, therefore, should concur with the said view.

Mr. B. B. Naik, learned Senior Advocate appearing for the revenue, on the other hand, has submitted that the petitioner has not disclosed all primary facts truly and correctly. On the contrary, the petitioner has submitted false facts despite the fact that the petitioner is not the tenant of the premises in question. It has been canvassed before the Assessing Officer during the course of assessment proceedings that the petitioner has received the amount of Rs. 12 Lacs on surrender of tenancy rights. If the petitioner were not the tenant, there is no question of surrender of such tenancy rights. The petitioner has not paid any rent since 1986 nor produced any receipt. Since the relief was claimed by the assessee by not disclosing the correct facts and since the petitioner''s claim was entirely based on falsity of the explanation, the Assessing Officer was justified in initiation of the re-assessment proceedings and hence, this Court should not interfere in the issuance of the show-cause notice and the Assessing Officer is allowed to proceed with the re-assessment proceedings.

In support of his submissions, Mr. Naik relied on the decision of Indo-Aden Salt Mfg. and Trading Co. Pvt. Ltd. Vs. Commissioner of Income Tax, Bombay, wherein it is held that (i) since excess depreciation had been allowed on the entirety of the assets on the basis that they consisted of masonary work, the Income Tax Officer could reasonably be said to have material to form the belief that there was under assessment owing to the failure or omission on the part of the appellant to disclose fully and truly all material facts. (ii) that the fact that the Income Tax Officer could have in the original assessment proceedings found out the correct position by further probing did not exonerate the appellant from the duty to make a full and true disclosure of material facts. The Court further held that the obligation of the assessee is to disclose only primary facts and not inferential facts. If some material for the assessment lay embedded in the evidence which the revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the Assessing authority. The assessee knows all the material and relevant facts - the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted.

Mr. Naik further relied on the decision of the Apex Court in the case of M/s. Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another, wherein it is held that an Income Tax Officer acquires jurisdiction to reopen an assessment u/s 147(a) only if, on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons - which he must record - to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to Income Tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but one of acting on fresh information. The Court further held that one of the purposes of Section 147 is to ensure that a party cannot get away by willfully making a false or untrue statement at the time of the original assessment and when that falsity comes to notice, to turn around and say that once falsity is accepted, the hands of the Assessing Officer are tight and he cannot do anything in the matter. The Court, therefore, observed that it would be a travesty of justice to allow the assessee that latitude.

Mr. Naik further relied on the decision of the Apex Court in the case of Sri Krishna Private Ltd. Etc. Vs. I.T.O., Calcutta and Others, wherein while dismissing the appeal, it is held that having created and recorded bogus entries of loans, the assessee could not say that it had truly and fully disclosed all material facts necessary for his assessment for that year. The I.T.O. could have investigated the truth of the said assertion which he actually did in the subsequent assessment year but that did not relieve the assessee of the obligation, placed upon it by the Statute, to disclose fully and truly all material facts. Indubitably, whether a loan, alleged to have been taken by the assessee, is true or false, is a material fact and not an inference, factual or legal, to be drawn from given facts. Hence, there was a reasonable ground for the Income Tax Officer to believe that on account of the failure of the assessee to disclose material facts fully and truly, not a mere failure but a positive design to mislead, income had escaped assessment. The re-assessment proceedings had been validly initiated.

Over and above these submissions, Mr. Naik has canvassed one more argument before this Court which was not canvassed at the time of hearing of this petition before the Division Bench. He has submitted that as per the decision of the Apex Court in the case of GKN Driveshafts (India) Limited v. I.T.O. and Ors. (2003) 259 ITR 19, this petition should not be entertained by the Court as on receiving the notices u/s 148, the petitioner could raise his objections to the notice by filing reply to the notice before the Assessing Officer. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the petitioner is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. Since the reasons have been disclosed by the Assessing Officer, the petitioner could have raised the objections which could have been dealt with and if any adverse view were taken, then only, the petitioner is permitted to approach this Court. Since this course is not adopted by the petitioner, the petition being premature, requires to be dismissed on this short ground.

In support of this submission, he relied on the decision of this Court in the case of Garden Finance Ltd. Vs. Assistant Commissioner of Income Tax, wherein on difference of opinion amongst two Hon''ble Judges constituting the Division Bench, the matter was placed before the third Hon''ble Judge pursuant to an order passed by the Hon''ble Chief Justice and the third Hon''ble Judge took the view that earlier when the Court required the assessee to appear before the Assessing Officer, the Assessing Officer would not pass any separate order dealing with the preliminary objections, and much less any speaking order. The Assessing Officer would deal with all the objections at the time of re-assessment. Hence, if the assessee was not permitted to challenge the re-assessment notice u/s 148 at the initial stage, the assessee would thereafter have to challenge the re-assessment itself entailing the cumbersome liability of paying taxes during the pendency of the appeal before the Commissioner (Appeals), the second appeal before the Income Tax Appellate Tribunal and then reference / tax appeal before the High Court. It was in this context that the Constitution Bench of the Supreme Court had observed in Calcutta Discount case (supra) that where an action of an executive authority, acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassment, the High Courts would issue appropriate orders or directions to prevent such consequences and, therefore, the existence of such alternative remedies as appeals and reference to the High Court was not always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action and that is why in a fit case, it would become the duty of the Courts to give such relief and the courts would be failing to perform their duty if reliefs were refused without adequate reasons. What the Supreme Court has now done in GKN Driveshafts (India) Limited v. I.T.O. and Ors. (2003) 259 ITR 19, is not to whittle down the principle laid down by the Constitution Bench of the Apex Court in Calcutta Discount Company Limited''s case (supra) but to require the assessee first to lodge preliminary objections before the Assessing Officer who is bound to decide the preliminary objections to issuance of the re-assessment notice by passing a speaking order and, therefore, if such order on the preliminary objections is still against the assessee, the assessee will get an opportunity to challenge the same by filing a writ petition so that he does not have to wait till completion of the reassessment proceedings which would have entailed the liability to pay tax and interest on reassessment and also to go through the gamut of appeal, the second appeal before Income Tax Appellate Authority and then reference / tax appeal to the High Court. Therefore, GKN Driveshafts (India) Limited v. I.T.O. and Ors. (2003) 259 ITR 19 (SC) does not run counter to Calcutta Discount''s case. It merely provides for challenge to the reassessment notice in two stages, that is, (i) raising preliminary objections before the Assessing Officer and, in case of failure before the Assessing Officer, (ii) challenging the speaking order of the Assessing Officer u/s 148.

Based on the above judgments, Mr. Naik has submitted that this petition should not be entertained at this stage and the petitioner may be permitted to lodge his objections to the notice of reopening before the Assessing Officer who is duty bound to deal with such objections and to pass a speaking order. If such order is adverse to the petitioner, it is open at that stage for the petitioner to come before this Court and challenge the said order.

Since this objection was raised by Mr. Naik for the first time before this Court and that too orally while making his submissions, Mr. Soparkar, in rejoinder, objected to raise such objection at this stage. He has submitted that this issue was not raised before the Division Bench earlier. There was no controversy or difference of opinion amongst the Hon''ble Judges of this Court constituting the Division Bench. Even at the time when the Hon''ble Judges have delivered their separate judgments, the decision of the Hon''ble Supreme Court in the case of GKN Driveshafts (India) Limited (Supra) was not available as the Division Bench passed two separate orders on 8.3.2002 whereas the Apex Court has delivered the judgment in the case of GKN Driveshafts (India) Limited on 25.11.2002. He has further submitted that as per Rule 186 of the Gujarat High Court Rules, 1993, in case of difference of opinion between the Judges composing the Division Bench, the point of difference shall be decided in accordance with the procedure referred to in Section 98 of the Civil Procedure Code. Section 98 of the CPC says that where an appeal is heard by a Bench of two or more judges, the appeal shall be decided in accordance with the opinion of such Judges or of the majority (if any) of such Judges. Sub-section (2) says that where there is no such majority which concurs in a judgment varying or reversing the decree appealed from, such decree shall be confirmed. Proviso to this Section says that where the Bench hearing the appeal is composed of two or other even number of Judges belonging to a Court consisting of more Judges than those constituting the Bench, and the Judges composing the Bench differ in opinion on a point of law, they may state the point of law upon which they differ and the appeal shall then be heard upon the point only by one or more of the other Judges, the such point shall be decided according to the opinion of the majority (if any) of the Judges who have heard the appeal including those who first heard it. Based on this Rule and the provisions contained in Section 98 of the Code of Civil Procedure, Mr. Soparkar has submitted that since there is no reference on this point, the Court should not entertain this plea raised by Mr. Naik.

In response to the above objection, Mr. Soparkar has submitted that the course proposed to be adopted in the case of GKN Driveshafts (India) Limited, is not necessary to be adopted in the present case as on the face of the notice issued by the Assessing Officer beyond the period of 4 years, is void-ab-initio and the decision of the Constitution Bench of the Hon''ble Supreme Court in the case of Calcutta Discount Company (Supra), the Assessing Officer has no jurisdiction to initiate reassessment proceedings and the same deserves to be quashed and set aside. For this purpose, he relied on the decision of the Bombay High Court in the case of Ajanta Pharma v. Assistant Commissioner of Income Tax and Ors. wherein it is held that GKN Driveshafts (India) Limited''s case no where lays down that the parties totally debarred from approaching the High Court under Article 226 of the Constitution of India when the exercise of power by the Authority u/s 148 of the I.T. Act, 1961 ex-facie appears to be without jurisdiction. Undoubtedly, where such an exercise with or without jurisdiction will have to be revealed from the notice and reasons on the face thereof. At the same time, it is also well settled and Calcutta Discount''s case is very clear on the point, that mere availability of alternative relief can be no bar to exercise of writ jurisdiction when the authorities seek to assume jurisdiction which they do not possess or act in totally arbitrary manner. The decision in GKN Driveshafts (India) Limited case reminds the assessee that when a notice u/s 148 is issued, proper course of action is to file a reply with his objections including those in relation to the absence of jurisdiction. However, it does not lay down that when such an objection is in relation to the absence of jurisdiction and the same is revealed ex-facie or apparent on the face of a notice or reasons in support thereof, the assessee has compulsorily to invite an order from the Assessing Officer in relation to the absence of jurisdiction.

Mr. Soparkar has, therefore, submitted that there is no substance in the submission canvassed on behalf of the department that the present petition is required to be dismissed on the ground that the petitioner has to now raise preliminary objection to the notice of reopening before the Assessing Officer and then to approach this Court if any adverse order is passed.

Having heard the learned Senior Counsels appearing for the parties and having considered their rival submissions in light of the documents produced before the Court, relevant statutory provisions and decided case law on the subject, the Court is of the view that the respondent - Assessing Officer is not justified in issuing the notice u/s 148 of the Act after the expiry of the period of 4 years as there was no omission or failure on the part of the petitioner to disclose truly and fully all material facts relevant for making assessment for the year in question. The plain reading of the assessment order passed by the Assessing Officer u/s 143(3) of the Act and also considering the proceedings before him as well as the order-sheet entries make it very clear that the Assessing Officer has applied his mind at the time of making assessment. The Assessing Officer has recorded in the order-sheet dated 16.12.1996 the details called for and filed by the petitioner. Copy of Deed of surrender is on the record of the Assessing Officer. The taxability of the amount of Rs. 12 Lacs was considered by the Assessing Officer and he also asked for the petitioner''s explanation in support of the petitioner''s claim that there was no capital gain on transfer of tenancy rights. The petitioner, in fact, furnished his explanation in writing which was duly considered by the Assessing Officer and passed an assessment order on 28.02.1997 wherein, after referring to the petitioner''s contention as well as after considering the written submissions of the petitioner and judicial pronouncements cited in support of the petitioner''s claim, he observed that the claim of the petitioner that the tenancy rights being a self-created asset, the receipt of the amount of Rs. 12 Lacs would not attract any capital gains in view of the specific provisions of Section 55 of the I.T. Act, as applicable for A.Y. 1994 - 95, was found to be acceptable. Thus, after proper application of mind, the Assessing Officer has framed his opinion that the amount of Rs. 12 Lacs received by the petitioner was a capital receipt and it is to be considered for the purpose of levy of capital gain u/s 45 of the Act. However, in view of the decision of the Hon''ble Supreme Court in the case of CIT v. B.C. Srinivasa Shetty (Supra), since cost of acquisition of the asset being NIL, no capital gain is leviable and that is how he has not levied any capital gain on the said amount. By reopening the assessment, the Assessing Officer is now intending to tax this amount under the head income from other sources which is nothing but a change of opinion, which is not permissible after the expiry of the period of 4 years as there was no failure on the part of the petitioner to disclose all material facts, truly and fully relevant for the assessment.

The submission of Mr. Naik that the petitioner was not the tenant and hence, the petitioner has made a false disclosure to the effect that he received Rs. 12 Lacs on surrender of tenancy rights is also not well founded. Even if it is assumed that the petitioner is not the tenant, the fact that he was occupying the said premises is not in dispute and for such occupation of the premises, the petitioner has not paid any amount and hence, for surrender of such occupancy rights, if the amount of Rs. 12 Lacs were received by the petitioner, it is not liable to be taxed u/s 45 of the Act, by applying the ratio of the judgment of the Apex Court in the case of CIT v. B.C. Srinivasa Shetty (Supra).

The judgments relied on by Mr. Naik are of not much help to the department. In Indo-Aden Salt Manufacturing & Trading Company Private Limited (Supra), what is held by the Apex Court is that if some material for the assessment lay embedded in the evidence which the revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the Assessing authority. Here in the present case, the petitioner has discharged that duty. Not only the amount of Rs. 12 Lacs was disclosed in the return of income, but also produced all supporting evidence such as Deed of surrender, details of the amount received and also the submissions in writing as to why such amount is not taxable as capital gain. The Assessing Officer could have confronted the petitioner at the time of original assessment that this amount is not to be considered under the head capital gain, but it is to be considered under the head income from other sources. Once having considered the said amount under the head capital gain, it is not now open to the Assessing Officer to reopen the assessment for the purpose of treating the said amount under the head income from other sources. It is nothing but change of opinion which is not permissible after the expiry of the period of 4 years. The judgment in the case of IAC v. VIP Industries Limited is also of no benefit to the department as in that case, the Court observed that where subsequently facts came to the notice of the Income Tax department that the facts disclosed in the return are not true and correct declaration of facts, it is open to the department to reopen the assessment u/s 147(a) and 148148 of the Act even after expiry of four years. It is not the case here. No new facts came to the notice of the department after framing of the assessment order. The Deed of surrender was on record. The details of the receipt of the amount of Rs. 12 Lacs are also on record. The submissions made by the petitioner were duly supported by the legal pronouncement on the issue. Thus, it cannot be said that the petitioner has not disclosed in the return or at the time of assessment all facts, truly and correctly. The decision of Phool Chand Bajrang Lal (Supra) stands altogether on different footing. It is an admitted position in that case that subsequent to the completion of the original assessment proceedings on making inquiry, the Income Tax Officer came to know that the Calcutta Company from whom the appellant claimed to have borrowed the loan of Rs. 50,000/- in cash had not really lent any money but only its name to cover up a bogus transaction. This was not a case where the Income Tax Officer sought to draw any fresh inference which could have been raised at the time of original assessment on the basis of the materials placed before him by the appellant relating to the loan from the Calcutta Company and which he failed to draw at that time. The Court, therefore, observed that acquiring fresh information, specific in nature and reliable in character, relating to a concluded assessment which went to expose the falsity of the statement made by the assessee at the time of original assessment was different from drawing a fresh inference from the same facts and material available with the Income Tax Officer at the time of original assessment proceedings. Two situations were distinct and different. Here in the present case, there is no question of there being two different or distinct situations. Here in the present case, the attempt is sought to be made by the Assessing Officer to treat the amount of Rs. 12 Lacs as income from other sources whereas he has already treated the said amount as capital gain and looking to the statutory provisions and the judicial pronouncements on the subject, the said amount was not liable to be taxed. Hence, he has not rightly taxed the said amount as capital gain at the time of framing of the original assessment.

The decision of this Court in the case of Praful Chunilal Patel does not render any assistance to the department as admittedly, in that case, the assessment was sought to be reopened within the period of 4 years. Hence, the ratio of the said decision cannot be applied where the assessment is sought to be reopened after the expiry of the period of 4 years.

As far as the additional argument canvassed by Mr. Naik before this Court for the first time after placing reliance on the decision of GKN Driveshafts (India) Limited (Supra) and the decision of this Court in the case of Garden Finance Limited (Supra) is concerned, it is worthwhile to note that when the Division Bench heard this matter and the Hon''ble Judges constituting the said Bench took opposite view, the decision of the Apex Court in the case of GKN Driveshafts (India) Limited was not available. Even after the Apex Court''s decision in the case of GKN Driveshafts (India) Limited, the Apex Court in Commissioner of Income Tax and Another Vs. Foramer France (through constituted attorneys), dismissed the appeal against the decision of the Allahabad High Court in Foramer Vs. Commissioner of Income Tax and Another, wherein the High Court had quashed the notice u/s 148 on the ground that there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment and that as the notices were without jurisdiction, the assessee could not be relegated to the alternative remedy.

Likewise, the decision in Mahalaxmi Motors Ltd. Vs. Deputy Commissioner of Income Tax and Another, decided by the Andhra Pradesh High Court did not consider the decision in GKN Driveshafts (India) Limited (Supra).

It is true that the Hon''ble 3rd Judge of this Court in the case of Garden Finance Limited (Supra) did consider the question as to whether the Apex Court in the case of GKN Driveshafts (India) Limited (Supra) has laid down an inflexible rule that no writ petition is maintainable against the notice u/s 148 of the Act because the assessee is to file objections before the Assessing Officer who will deal with them and dispose them off by passing a speaking order. While considering this question, it is observed that in a given case, it may be that the exercise of the powers u/s 148 may be so arbitrary or malafide that the Court may entertain the petition without requiring the assessee to approach the Assessing Officer but cases would be few and far between. After elaborate discussion on this issue, the Court further observed that while GKN Driveshafts (India) Limited''s case does not purport to divest the Court of its constitutional power to issue a writ of prohibition or any other appropriate writ in a fit case to restrain the Assessing Authority from proceeding with the notice u/s 148, it does lay down that ordinarily the procedure to be followed would be as indicated in that case. It is in this context, the Hon''ble 3rd Judge, while concurring with the view of one of the Hon''ble Judges, held that the said petitioner has to raise objections against the reasons recorded which were required to be considered by the Assessing Officer. However in that case, the petition was ordered to be dismissed and in that context, the said observations were made. Here in the present case, the Court agrees with the view taken by Hon''ble Justice D.A. Mehta that the petition is required to be allowed and the impugned notice is required to be quashed and set aside. When the action itself is without jurisdiction, the ratio of the Apex Court in the case of Calcutta Discount Company Limited is squarely applicable and as held by the Bombay High Court in the case of Ajantha Pharma (Supra), mere availability of alternative relief can be no bar to exercise of writ jurisdiction when the authorities seek to assume jurisdiction which they do not possess or act in totally arbitrary manner. The decision of GKN Driveshafts (India) Limited (Supra) does not lay down that when such an objection is in relation to the absence of jurisdiction and the same is revealed ex-facie or apparent on the face of a notice or reasons in support thereof, the assessee has compulsorily to invite an order from the Assessing Officer in relation to the absence of jurisdiction. In Caprihans India Ltd. Vs. Tarun Seem, Deputy Commissioner of Income Tax, the Bombay High Court after referring to the GKN Driveshafts (India) Limited''s case, in the peculiar facts and circumstances of the case, undertook the inquiry whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Court also found that the reasons did not disclose a finding that the petitioner had failed to disclose fully and truly all material facts necessary in the matter and the Court found ex-facie that the Assessing Officer had sought to reopen the assessment on certain erroneous assumptions. The present case also proceeds, more or less, on the same footing and the Court arrives at the same conclusion. The Court, therefore, does not see any substance in the argument of Mr. Naik on this issue.

In view of the above discussion, the petition is allowed. Rule is made absolute with no order as to costs.

Registry is directed to place this matter before the Division Bench and the Division Bench will pass the order in conformity with the majority view.