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Judgment
B.P. Colabawalla, J.—Rule. By consent of the parties, the Writ Petition is heard finally and disposed of by this judgment.
The Petitioner seeks an order quashing a notice dt. 17-1-2012 (impugned notice) issued by Respondent No. 1 under section 148 of the Income Tax Act, 1961 (the Act) as well as an order dt. 22-1-2013 (impugned order) passed by Respondent No. 2 rejecting all the objections of the Petitioner challenging the validity of the initiation of the re-assessment proceedings in relation assessment year 2005-2006.
Exception is taken to the impugned notice and the impugned order on the ground that the impugned notice dt. 17-1-2012 was admittedly issued after the expiry of 4 years from the end of the assessment year 2005-2006 and therefore bad in law for want of satisfaction of the following prerequisite conditions:-
(a) there must be a reason to believe that the income chargeable to tax has escaped assessment;
(b) there must be a failure on the part of the assessee to disclose fully and truly all material facts as a result of which income has escaped assessment;
(c) the allegation of failure of the assessee to disclose fully and truly all material facts should be in the reasons as recorded for reopening the assessment; and
(d) the belief that income has escaped assessment must not be on account of a change of opinion.
According to the Petitioner, none of the aforesaid prerequisite conditions have been fulfilled and therefore no reassessment proceedings could be initiated for the assessment year 2005-2006.
Before referring to the facts giving rise to the present controversy it is necessary to note certain aspects about the petitioner.
The Petitioner, a company registered under the Companies Act, 1956, is fully owned by the Government of Maharashtra. The Petitioner has been appointed as the New Town Development Authority under section 113(3A) of the Maharashtra Regional and Town Planning Act, 1966 (the MRTP Act) for the development of the new town of Navi Mumbai. It is the case of the Petitioner that it was appointed as the New Town Development Authority as an agent of the Government of Maharashtra. The Petitioner is also appointed as a Special Planning Authority under section 40(1)(b) of the MRTP Act, for development of new towns of New Aurangabad, New Nasik etc.
The Government of Maharashtra notified the region for development of the new town of Navi Mumbai in exercise of the powers under section 113(1) of the MRTP Act. The purpose of the notification was to de-congest Greater Mumbai and to upgrade the civil infrastructure and amenities in the region and to divert the flow of new settlers from Mumbai to the region of Navi Mumbai. To undertake the aforesaid task, and to ensure that development takes place in a planned and speedy manner, the Government felt it necessary to entrust this statutory duty to a corporation or a company owned or controlled by the state government or a subsidiary company thereof, set up with the objective of developing the new town.
Accordingly, the Government of Maharashtra in exercise of the powers under section 113(3A) of the MRTP Act, appointed the Petitioner as the New Town Development Authority for the Navi Mumbai region by a Government Resolution (GR) dt. 18-3-1970 read with a Notification dt. 20-3-1971. Subsequently, the Government issued further GRs dt. 24-1-1972, 11-1-1974, 2-1-1985 etc giving directions for the functioning of the Petitioner as the New Town Development Authority for the Navi Mumbai Project. The GRs categorically stated that the work was to be done on behalf of the Government of Maharashtra and that the Petitioner would be entitled to receive agency remuneration for carrying on the work for the Navi Mumbai project.
Section 113 of the MRTP Act deals with the designation of sites for new towns which inter alia provides that if the State Government is satisfied that any area ought to be developed as a site for a new town, it may, by Notification in the Official Gazette, designate that area as the site for the proposed new town. Section 113(3A), which is relevant for our purposes, is reproduced hereinbelow :--
"3A. Having regard to the complexity and magnitude of the work involved in developing any area as a site for the new town, the time required for setting up new machinery for undertaking and completing such work of development, and the comparative speed with which such work can be undertaken and completed in the public interest, if the work is done through the agency of a corporation including a company owned, or controlled by the State or a subsidiary company thereof, set up with the object of developing an area as a new town, the State Government may, notwithstanding anything contained in sub-section (2), require the work of developing and disposing of land in the area of a new town to be done by any such corporation, company or subsidiary company aforesaid, as an agent of the State Government; and thereupon, such corporation or company shall, in relation to such area, be declared by the State Government, by notification in the Official Gazette, to be the New Town Development Authority for that area;"
It is the case of the Petitioner that it maintains separate project accounts for each of the projects for which it is acting as a New Town Development Authority/Special Planning Authority. Insofar as the Navi Mumbai Project, Waluj Project and the Vasai-Virar projects are concerned, the Petitioner is maintaining the Receipt and Expenditure Account, where the balance at the end of the year is shown as an amount payable to or receivable from the Government of Maharashtra. For the projects other than the ones mentioned above, the Petitioner is maintaining a separate Profit and Loss Account for each project.
Section 10(20A) was omitted by the Finance Act, 2002, with effect from 01-04-2003. Prior to its omission, sub-section (20A) as inserted by the Finance Act, 1970, with retrospective effect from 1-4-1962 read as under:--
"(20A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;".
Till the assessment year 2002-2003 the Petitioner had not filed any return of income as its income was exempted from taxation under section 10(20A) of the Act. After the deletion of section 10(20A), exemption for the Navi Mumbai Project, Waluj Project and Vasai-Virar Project were claimed for the assessment years 2003-2004, 2004-2005 and 2005-2006 on the basis that the Petitioner was the agent of the Government of Maharashtra and therefore not liable to tax for the said projects.
For the assessment year in question 2005-2006 the Petitioner filed its return of income on 29-8-2006 along with its annual report for the said year. Note 1 on page 47 of the annual report read as under:
"Navi Mumbai Project is being developed by for and on behalf of the Govt. of Maharashtra vide its Resolution No. CID-2072-U dt. 11-1-1974 and No. CID-2084-1320-161-84/UD-4 of General Administration Department and Urban Development Department respectively of the Govt. of Maharashtra."
(Emphasis supplied)
On this basis, for the Navi Mumbai Project, Vasai-Virar Project & Waluj Project the Petitioner had not offered any income in the return of income filed for the assessment year 2005-2006. Along with the return of income for assessment year 2005-2006 the Petitioner also filed the tax audit report under section 44AB of the Act which inter alia stated that the Navi Mumbai Project is being developed by the Petitioner for and on behalf of the Government of Maharashtra and that the Corporation is acting as an agent of the Government of Maharashtra.
For the assessment year 2005-2006 the case of the Petitioner was selected for scrutiny assessment. Respondent No. 1 by a notice dt. 10-10-2007 sought various details including details regarding the Navi Mumbai Project. In turn, the Petitioner by its detailed reply dt. 14-12-2007 gave a background of its appointment by the Government of Maharashtra as the New Town Development Authority for the development of Navi Mumbai and stated that it was a statutory agent of the Government of Maharashtra as per the provisions of section 113(3A) of the MRTP Act. It was therefore stated that although in the return of income the Petitioner had offered some income to tax for the projects other than the Navi Mumbai Project, Vasai-Virar Project & Waluj Project, the Petitioner was not chargeable to tax for any of the projects carried on by the Petitioner as the New Town Development Authority. The Petitioner filed a further reply dt. 17-12-2007 wherein it was reiterated that the Petitioner, being an agent of the Government of Maharashtra, was not chargeable to tax.
After receiving the said replies, on 26-12-2007 Respondent No. 1 passed an assessment order under section 143(3) of the Act inter alia holding that the Petitioner was the agent of the Government of Maharashtra for the Navi Mumbai Project. Respondent No. 1, while discussing the issue of another project namely the Oros Project stated that the status of the Petitioner for the Oros project was that of an agent of the Government of Maharashtra which was similar to the status for the Navi Mumbai Project.
Thereafter, for the subsequent assessment year 2006-2007 (which is not the subject matter of the present writ Petition) the assessing officer took the stand that the Petitioner was not an agent of the Government of Maharashtra even for the Navi Mumbai Project. The order of the assessing officer was confirmed by the Commissioner of Income Tax (Appeals). However, on appeal by the Petitioner, the Income Tax Appellate Tribunal, by its order dt. 8-8-2012, reversed the said finding and concluded that the Petitioner was an agent of the Government of Maharashtra. A copy of the said order of the ITAT for assessment year 2006-2007 was filed with Respondent No. 2 on 29-10-2012. This fact is important as will be seen later in the judgment.
In the meanwhile, Respondent No. 1, on the basis of the order passed by him for assessment year 2006-2007 issued the impugned notice dt. 17-1-2012 under section 148 of the Act for the purpose of initiating re-assessment proceedings for the assessment year 2005-2006. In response to the said notice, the Petitioner filed its return of income showing a loss of Rs. 64,23,000. The Petitioner had computed the income offering only the agency remuneration paid to it by the Government of Maharashtra and deducted the allowable deductions therefrom. The Petitioner had taken a stand that the Petitioner was an agent of the Government of Maharashtra while carrying out its duties as the New Town Development Authority/Special Planning Authority.
By its letter dt. 20-2-2012 Respondent No. 1 provided the Petitioner with the copy of the reasons as recorded by him for issuing the notice under section 148 of the Act. The reason given by Respondent No. 1 was that during the course of the assessment proceedings for assessment year 2006-2007 (the subsequent year) it was held that the assessees claim of being an agent of the Government of Maharashtra was devoid of merit and not acceptable to Respondent No. 1. In view of the aforesaid finding, Respondent No. 1 stated that since the surplus of Rs. 41,571.15 lakhs of receipts over expenditure on account of the Navi Mumbai Project for the assessment year 2005-2006, had not been offered to tax on the very same ground namely that the Petitioner was an agent of the Government of Maharashtra, he had reason to believe that the income of Rs. 41,571.15 lakhs had escaped assessment within the meaning of section 147 of the Act.
By a letter dt. 12-3-2012 the Petitioner filed its objections to the issuance of the notice under section 148 of the Act. The Petitioners stand was that since the re-assessment proceedings had been initiated beyond the period of 4 years:--
(i) the re-assessment proceedings could be initiated only if there was a failure disclose material facts by the Petitioner and in the present case there was not even an allegation in the reasons for reopening the assessment that there was any failure to disclose any material fact in the original assessment proceedings;
(ii) that in fact there was no failure on the part of the Petitioner to disclose any material fact necessary for the assessment;
(iii) Respondent No. 1 could not have had any reason to believe that any income chargeable to tax had escaped assessment on the ground that the Petitioner was not the agent of the Government of Maharashtra in view of the fact that the Petitioner had been appointed as a New Town Development Authority by the State Government under section 113(3A) of the MRTP Act read with the relevant GRs and Notifications which clearly stated that the Petitioner was the agent of the Government of Maharashtra for the Navi Mumbai Project. This was further fortified by a decision of this court in the case of Percival Joseph Pareira v. Special Land Acquisition Officer (Writ Petition No. 1211 of 2009, dt. 7-11-2009) in which it was held that the Petitioner was acting as an agent of the Government of Maharashtra whilst undertaking the development of the Navi Mumbai Project;
(iv) that in any event, Respondent No. 1 had already considered the issue of agency in the original assessment proceedings and given a finding in the original assessment order under section 143(3) of the Act that the Petitioner was the agent of the Government of Maharashtra for the Navi Mumbai Project and therefore the reassessment was proposed only on the basis of a change of opinion which was impermissible in law.
For all the aforesaid reasons the Petitioner objected to the issuance of the impugned notice under section 148 of the Act.
After almost eleven months, Respondent No. 2, by his order dt. 22-1-2013 rejected all the objections of the Petitioner challenging the validity of the initiation of the re-assessment proceedings under section 148 of the Act. One of the grounds mentioned in the order was that the facts for assessment year 2005-2006 were the same as that for assessment year 2006-2007 for which the assessing officer had already taken a view that the Petitioner was not an agent of the Government of Maharashtra. Respondent No. 2 therefore held that the assessing officer had reason to believe that income chargeable to tax had escaped assessment.
Section 147 of the Act deals with income escaping assessment. The said section inter alia provides that if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153 of the Act assess or re-assess the said income chargeable to tax. However, this is subject to certain limitations. The first proviso to the section inter alia provides as follows :--
"Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a 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:"
Admittedly, in the present case, an assessment had been made under section 143(3) for assessment year 2005-06. It is also admitted that the re-assessment proceedings initiated for assessment year 2005-06 was after the expiry of four years from the end of the assessment year 2005-06. In such a scenario, no action for initiation of re-assessment proceedings for assessment year 2005-06 could be initiated unless the income chargeable to tax had escaped assessment by a reason of failure on the part of the petitioner to disclose fully and truly all material facts. As rightly submitted by Mr. Dastur, the learned Senior Counsel appearing on behalf of the Petitioner, there is not even an allegation in the said reasons that there was a failure on the part of the Petitioner to disclose any material fact, let alone the details thereof.
It is now well settled that the reasons which are recorded by the assessing officer for re-opening an assessment are the only reasons which can be considered. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. Mr. Dasturs reliance upon the judgment of a Division Bench of this Court in the case of Hindustan Lever Ltd. Vs. R.B. Wadkar, Assistant Commissioner of Income Tax and Others (No. 1), is well founded. At page 338 of the report, this Court held as under:--
"It is needless to mention that the reasons are required to be read as they were recorded by the assessing officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the assessing officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the assessing officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the assessing officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the assessing officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The assessing officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the assessing officer cannot be supplemented by filing an affidavit or making an oral submission, otherwise the reasons which were lacking in the material particular would get supplemented, by the time the matter reaches the Court on the strength of the affidavit or oral submissions advanced."
After relying upon the judgment of Hindustan Lever (supra) another Division Bench of this Court in the case of Prashant S. Joshi Vs. The Income Tax Officer and Union of India (UOI), held as follows :--
"9. Section 147 provides that if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 163, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The first proviso to section 147 has no application in the facts of this case. The basic postulate which underlies section 147 is the formation of the belief by the assessing officer that any income chargeable to tax has escaped assessment for any assessment year. The assessing officer must have reason to believe that such is the case before he proceeds to issue a notice under section 147. The reasons which are recorded by the assessing officer for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well settled that the question as to whether there was reason to believe, within the meaning of section 147 that income has escaped assessment, must be determined with reference to the reasons recorded by the assessing officer. The reasons which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures against an arbitrary exercise of powers under section 148."
In view of these judgments and there admittedly being no allegation in the reasons that there was any failure on the part of the Petitioner to disclose any material fact, the impugned notice and the impugned order are liable to be set aside.
Even otherwise, from the record we find that the Petitioner disclosed fully and truly all material facts and that the assessing officer considered the same before making the assessment order. This is clear from the return of the income filed by the Petitioner on 29-8-2006, for the assessment year 2005-06, the queries raised and material sought by the assessing officer and the Petitioners response thereto and the assessment order.
In the return of income filed by the Petitioner :--
(A) In the Directors Report (which is part of the annual report), it is specifically stated as under :-
"The Corporations income exempted from payment of Income Tax pursuant to the provisions of section 10(20A) of the Income Tax Act, 1961. This section has been withdrawn by the Finance Act, 2002, thereby subjecting the income of the Corporation to be taxed under the provisions of the Income Tax Act.
In view of this, a provision of Rs. 65.34 lakh has been made towards Income Tax for the year, on the income earned on New Towns, whereas no provision has been made on the Income of Navi Mumbai Project as the Corporation is acting as an Agent of the Government of Maharashtra. The entire receipts have been credited to the Project Accounts as recovery of cost and are not treated as revenue in the Books of Accounts of the Corporation."
(B) In the Annual Report under the note after Schedule 9 (which related to the Navi Mumbai Project) specifically stated as follows :--
"1. Navi Mumbai Project is being developed by for and on behalf of the Government of Maharashtra vide its Resolution No. CID-2072-U dt. 11-1-1974 and No. CID-2084-1320-161-84/UD-4 of General Administration Department and Urban Development Department respectively of the Government of Maharashtra.
Accounts in the prescribed form were submitted to the government of Maharashtra upto the year ended 31-3-1988. No confirmation has been received to date.
Land admeasuring 20312.18 (20309.57) Hectares has been handed over by the Government of Maharashtra to the Corporation for the purpose of development of Navi Mumbai Project including 5289.40 (5289.40) Hectares of Government land. The payment amounting to Rs. 246.00 Crore (Previous Year Rs. 228.29 Crore) made by the Government of Maharashtra for land admeasuring 14461.00 (14461.00) Hectares has not been reflected in the accounts of the Corporation as the Corporation is developing Navi Mumbai Project on behalf of Government of Maharashtra."
(C) In Schedule 27 (which is the notes forming part of the accounts) it is stated as under :--
"2.6 No provision for Income Tax has been made on the profits, if any of New Mumbai Project since the Corporation is acting as an agent of Government of Maharashtra towards the said project. Receipts and expenditures of the said projects have been transferred in the Navi Mumbai Project Account and therefore no Profit and Loss Account has been prepared. Consequently, it is not possible to ascertain the profit/loss of the above said project.
8.1 Disclosure of quantitative information regarding sale of constructions, opening and closing balance of completed constructions and opening, closing and consumption of materials during the year in respect of Navi Mumbai Project has not been made as the Corporation is acting as an agent of the Government of Maharashtra."
(Emphasis supplied)
(D) Alongwith the return of income, a Tax Audit Report under section 44AB was also filed. Annexure 1 of the Tax Audit Report stated as follows :--
"1. Navi Mumbai Project is being developed by for and on behalf of the Government of Maharashtra vide its resolution No. CID-2072-U dt. 11-1-1974 and No. CID-2084-1320-161-84/UD-4 of Administration Department and Urban Development Department respectively of the Government of Maharashtra. The Corporation is acting as an Agent of the Government of Maharashtra. In view of this no profit and loss is prepared in respect of Navi Mumbai Project and hence no tax audit for the Navi Mumbai is carried out."
It is not in dispute that all these documents had been filed along with the return of income on 29-8-2006. This clearly establishes that all material facts were disclosed by the Petitioner in relation to its acting as an agent of the Government of Maharashtra for the Navi Mumbai Project.
We will presume that the above disclosure by itself is not sufficient to challenge successfully the proposed reassessment proceedings. It would make no difference. As we will now demonstrate, the assessing officer called for particulars and sought explanations from the Petitioner specifically on this issue viz. the Petitioners claim that it acted as the agent of the Government of Maharashtra in respect of the Navi Mumbai Project. The Petitioner furnished the information and complied with all the requisitions. This establishes that the assessing officers attention was focussed on the issue and that he applied his mind to the same before he made the Assessment Order. The facts in this regard are as follows :--
(A) By a notice dt. 10-10-2007, the Petitioner was informed that the assessment year 2005-06 was selected for scrutiny assessment proceedings. By the said notice, the petitioner was inter alia asked to furnish details in support of various claims of expenditure made in respect of the Navi Mumbai Project.
(B) In reply thereto, the Petitioner vide its detailed replies dt. 14-12-2007 and 17-12-2007 gave the entire history as to how it was appointed as a New Town Development Authority by the Government of Maharashtra for the New Town of Navi Mumbai under section 113(3A) of the MRTP Act. Specific attention of the assessing officer was drawn to various provisions of the MRTP Act including section 113(3A) and it was submitted that the Petitioner was a statutory agent of the Government of Maharashtra. Attention was also invited to several Government Resolutions/Letters of the Government of Maharashtra under which the Petitioner was appointed as an agent for the Navi Mumbai Project including the fact that its agency remuneration was fixed at Rs. 5,00,000 by the Government of Maharashtra.
For instance, in the letter dt. 14-12-2007, the Petitioner stated that the Government of Maharashtra had appointed it as the New Town Development Authority for Navi Mumbai in exercise of powers under section 113(3A) of the Maharashtra Regional Town planning Act; that the appointment was with an intent to carry out objects of creation of new towns "as a Statutory Agent of the Government of Maharashtra"; that the Petitioner is a statutory agent of the Government of Maharashtra as per the provisions of sections 113(3A) and 40(1)(b) of the MRTP Act; that the Petitioner incurred expenses on behalf of the Government of Maharashtra; that in discharging its statutory obligations including the allotment of land to Societies, the Petitioner does not undertake commercial activities for earning profit and that it was "merely acting as an Agent of the Government of Maharashtra to carry out the development activities for and on behalf of the Government of Maharashtra".
In the letter dt. 17-12-2007, the Petitioner inter alia stated that it was acting as the agent of the Government of Maharashtra and undertakes all the development work "on behalf of the Government of Maharashtra". It further stated that for all these activities the agency remuneration was fixed at Rs. 5,00,000 by a Government Resolution.
After taking these letters/submissions into account, the assessing officer passed his assessment order dt. 26-12-2007 under section 143(3) of the Act. Paragraph 9 of the said order reads as under :--
"9. NAVI MUMBAI PROJECT :--
As mentioned in the opening paragraph, the assessee has been entrusted with the task of development of Navi Mumbai in the Thane, Panvel and Uran Tehsils of the Thane and Raigadh Districts, by the Government of Maharashtra. The GR of the Urban Development Department provides for the details of development work relating to infrastructure work etc. the financial relationship between the Government and the assessee, and other issues. In this respect the Government of Maharashtra issued various GRs, the latest being the GR No. CID 2084/1320/CR 161/74 UD-4 dt. 2-1-1985, issued by the Urban land Development Department. In view of the said G.R. (dt. 2-1-1985), it is observed that the Government of Maharashtra gives/stipulates Terms Regulating Relationship of the assessee with the Government, so far as Navi Mumbai is concerned. The said G.R. Specifically stipulates that the activities of the assessee for Navi Mumbai project shall be carried out on behalf of the Government of Maharashtra. The assessee shall be agent of the state Government, as far as Navi Mumbai Project is concerned. It is also observed that no separate Profit and Loss Account is prepared by the assessee in respect of project development account and the balance surplus is adjusted against deficit brought forward from earlier years and the final balance is taken to the asset side of the balance sheet as deficit. This is the accounting treatment given by assessee in its books of accounts, stated to be the existing position for all earlier years."
The Government Resolutions/Letters referred to by the Petitioner in its letter dt. 17-12-2007 were also reproduced in the assessment order. It is therefore clear that after calling for the submissions under the scrutiny proceedings, the assessing officer came to a categorical finding that the Petitioner was an agent of the Government of Maharashtra. This finding also becomes relevant when we deal with the argument regarding change of opinion later in this judgment.
Looking at all these facts, there can be no doubt that there was no failure on the part of the Petitioner to disclose fully and truly all material facts in relation to it being appointed as an agent of the Government of Maharashtra for the Navi Mumbai Project. Even the assessing officer in his order dt. 26-12-2007 came to a finding that the Petitioner was the agent of the Government of Maharashtra for the said project. He did so after considering the material disclosed and produced by the Petitioner. We therefore hold that no income chargeable to tax had escaped from assessment for the assessment year 2005-06 by reason of any failure on the part of the Petitioner to disclose fully and truly all material facts necessary for its assessment. On this ground also, the impugned notice and the impugned order are unsustainable and are liable to be set aside. The argument of Mr. Pinto, learned counsel appearing for the Respondents that there was no free and full disclosure is contrary to the record and is therefore rejected.
Mr. Pinto submitted that the Petitioner had disclosed at several places only that it was "acting as an agent of the Government of Maharashtra" and not that it was in fact the agent of the Government of Maharashtra.
Apart from being factually incorrect, we find that this submission has no substance. In our opinion, there is no difference between the two. It is true that the Petitioner in several documents stated that it was "acting as an agent of the Government of Maharashtra" with respect to the Navi Mumbai Project. The statements were made to justify the Petitioner not having made any provision for the income of the Navi Mumbai project. This itself shows that the Petitioners assertion was that it acted as an agent and therefore made no provision for the income of the project. In any event, the Petitioner acted as an agent pursuant to its appointment as an agent. If it had not been appointed as an agent, it could not have acted as an agent. This argument is therefore rejected.
We also find force in the argument of Mr. Dastur that the initiation of reassessment proceedings under section 147 of the Act was only based on a "change of opinion" which is impermissible under the Act. As set out in detail above, all disclosures were made by the Petitioner regarding its appointment as an agent of the Government of Maharashtra for developing the new town of Navi Mumbai. The Petitioner was appointed as a New Town Development Authority under section 113(3A) of the MRTP Act. Even in the scrutiny proceedings for the assessment year 2005-06, all disclosures were made by the Petitioner regarding its appointment as the agent of the Government of Maharashtra for developing the new town of Navi Mumbai. In fact, several Government Resolutions and letters of the Government of Maharashtra were also brought to the notice of the assessing officer. After considering all the material produced before him, the assessing officer by his order dt. 26-12-2007 came to a finding/opinion that the Petitioner was appointed as an agent of the Government of Maharashtra for the development of the new town of Navi Mumbai. In view of this categorical finding, and the fact that we have already held that there was no failure on the part of the Petitioner to disclose all material facts as required under the first proviso to section 147 of the Act, we have no hesitation in holding that the reassessment proceedings were initiated on the basis of a "change of opinion" and hence the assessing officer had no jurisdiction to re-open the assessment proceedings.
It was submitted by Mr. Pinto that paragraph 9 of the Assessment Order dt. 26-12-2007 is not a finding of the assessing officer but a mere repetition of what the Petitioner had stated in their two letters dt. 14-12-2007 and 17-12-2007.
On a reading of the Assessment Order, we have no hesitation in holding that what is stated in paragraph 9 quoted above is the finding of the assessing officer to the effect that as far as Navi Mumbai Project is concerned, the Petitioner acted as the agent of the Government of Maharashtra. This is clear inter alia from the words "it is observed".
This being the case, the re-opening of the assessment was clearly based only on a change of opinion which was impermissible in law.
Mr. Pinto submitted that no separate profit and loss account was prepared or submitted for the Navi Mumbai Project during the original scrutiny proceedings for assessment year 2005-06 and only the Project Development Account was prepared and submitted where the balance surplus was adjusted against the deficit brought forward from the earlier years and the final balance was taken to the asset side of the balance-sheet as deficit.
This argument would survive only if we hold that there was no full and true disclosure by the Petitioner regarding its being appointed as an agent of the Government of Maharashtra. If the Petitioner was acting as an agent of the Government of Maharashtra and indeed it is their case that they were, then there is no question of maintaining a profit and loss account for the Navi Mumbai Project.
As far as the judgments cited by Mr. Pinto are concerned, we fail to see how they support his case. Mr. Agarwal who addressed us in rejoinder rightly submitted that the judgments do not support Mr. Pintos submission.
Mr. Pinto relied upon a judgment of this Court in the case of Piaggio Vehicles Pvt. Ltd. Vs. Deputy Commissioner of Income Tax and The Union of India (UOI), Mr. Agarwal, rightly submitted that in the facts of that case, the assessing officer had proceeded on a totally wrong premise because of the failure to disclose as well as on the basis of a misrepresentation and therefore, the challenge to the notice issued under section 148 of the Act was negated. The Court in the facts of that case came to a categorical finding that it was difficult to accept that the assessee had made a full and true disclosure of all material facts. In that case, the Court found that though goodwill was acquired under the agreement dt. 30-3-1998, in the return, the assessee claimed that it was effectively acquired on 1-4-1998. In response to the assessing officers queries, the assessee stated that the stamp duty on transfer of the goodwill was paid on 1-4-1998 and that the goodwill was effectively transferred on 25-6-1998. Accordingly, depreciation on goodwill was allowed on the basis that it was acquired on or after 1-4-1998. Under the agreement, however, the assessee had agreed to purchase the unit on an "as is where is" basis for Rs. 23 crores plus goodwill amounting to Rs. 4.30 crores with effect from 31-3-1998. The agreement provided that if any condition precedent was not fulfilled, the transfer date would be shifted to 30-4-1998. It was held that it was not known whether the transfer date was in fact shifted for non-fulfillment of any condition precedent. The Court also found that the Tax Audit Report indicated that the goodwill was acquired prior to 1-4-1998 and that there were contradictions between the Tax Audit Report and the Return of Income. The Court also refused to accept the contention on behalf of the assessee that the assessing officer has taken a conscious decision in the matter in view of the fact that in the letter there was no reference to the inconsistencies. Mr. Agarwal rightly submitted that the facts in the present case were quite different and therefore the reliance placed by Mr. Pinto on the said judgment was wholly misplaced. In the matter before us, it is not even suggested that there are any inconsistencies in the Petitioners case. It is not even suggested that there are any inconsistencies between any of the documents.
Mr. Pinto also placed reliance on a judgment of the Delhi High Court in the case of Commissioner of Income Tax - VI, New Delhi Vs. Usha International Limited, . As far as the Delhi High Court judgment is concerned, Mr. Agarwal submitted, and in our view rightly, that all that the said judgment has done is to refer the matter to a Larger Bench. This is clear from paragraph 22 of the judgment.
Mr. Pinto next submitted that the explanations given/submissions made by the Petitioner in the scrutiny proceedings were received by the assessing officer only on 20-12-2007 and the assessing officer passed his order only six days thereafter viz. on 26-12-2007. He therefore submitted that the assessing officer had no time to apply his mind to the facts and come to the opinion that the Petitioner was acting as the agent of the Government of Maharashtra.
We find this argument wholly without substance. The submission cannot be accepted for more than one reason. This contention has not been raised either (i) in the impugned notice dt. 17-1-2012; (ii) the letter dt. 20-2-2012 providing the petitioner with the reasons for issuing the notice under section 148; (iii) the impugned order dt. 22-1-2013; or (iv) in the affidavit in reply filed to the present writ petition. Whether the assessing officer had sufficient time and opportunity to examine the issue is a question of fact. Merely because he had about six days, it cannot be presumed that he had not applied his mind to the issue. It would be unfair to the assessing officer who made the Assessment Order, to speculate that he was either incapable of applying, or did not apply his mind to the very aspects in respect of which he sought details within six days. It would also be unfair to the Petitioner to permit such a contention to be raised in the absence even of any pleading. Had this case been pleaded, the Petitioner would have had an opportunity of meeting it. There may, for instance, be cases where during the few days extensive discussions were held between the assessing officer and the assessee in the course of the assessment proceedings. There may be cases where during the few days the assessing officer was otherwise informed of all the facts and he considered the same in some manner or the other.
Mr. Pinto then submitted that the Petitioner had failed to disclose the relevant Government Resolutions and the judgment of the learned Single Judge of this Court in the case of Percival Joseph Pareira (supra).
The Government Resolutions were disclosed. The relevant Government Resolutions were even referred to in the Assessment Order. It is difficult to see how the failure to disclose the judgment in Percival Joseph Pareiras case (supra) can possibly justify reopening the assessment. That judgment squarely supports the Petitioners contention and militates against the Respondents contention. The failure to disclose contemplated under section 147 is of documents or particulars which are or even may be adverse to the assessee. It cannot possibly include within its ambit documents or material which support the assessee and militate against the Departments case. The non-disclosure of such material would adversely affect the assessee and not the Revenue. The provisions of section 147 can operate only where the failure to disclose any material that is or even may be adverse to the assessee and not where it is only advantageous to the assessee. We therefore cannot take countenance of such an argument.
The impugned order dt. 22-1-2013 is unsustainable on another ground. As mentioned earlier, the view taken by the assessing officer for the assessment year 2006-2007 to the effect that the Petitioner was not the agent of the Government of Maharashtra was overturned by the IT AT vide its order dt. 8-8-2012. A copy of the said order was filed by the Petitioner with Respondent No. 2 on 29-10-2012. This was long before Respondent No. 2 passed the impugned order on 22-1-2013. We therefore fail to understand as to how Respondent No. 2 could have relied upon the view of the assessing officer for the assessment year 2006-2007 (regarding the Petitioner not being an agent of the Govt. of Maharashtra) when the same was set aside by the ITAT vide its order dt. 8-8-2012. The order of the ITAT was binding on Respondent No. 2 and therefore no reliance could be placed by Respondent No. 2 on the view of the assessing officer that for the Navi Mumbai Project, the Petitioner was not an agent of the Government of Maharashtra.
Considering the view that we have taken we do not find it necessary to consider Mr. Dasturs submission that Respondent No. 1 could not have had reason to believe that any income had escaped assessment as that is contrary to (i) the provisions of sections 113(3A), 154 and 160 of the MRTP Act; and (ii) the decision of a learned Single Judge of this Court in the case of Percival Joseph Pareira (supra). The learned single Judge held that the appointment of the Petitioner was under section 113(3A) of the MRTP Act and therefore the Petitioner was required to do the work of developing and disposing of land in Navi Mumbai as an agent of the State Government.
We must in fairness to Mr. Agarwal point out that except for dealing with the judgments relied upon by Mr. Pinto, we did not think it necessary to permit him in rejoinder to address us on any other aspect of the matter.
Rule is therefore made absolute and the petition is granted in terms of prayer clauses (a) & (b). There shall be no order as to costs.