Usha Martin Ventures Ltd. and Another vs Deputy Commissioner of Income Tax

Indira Banerjee, J.—In this writ petition, the petitioners have challenged a notice dated 25th March, 2011, issued by the Respondent Assessing Officer u/s 148 read with section 147 of the Income Tax Act, 1961, hereinafter referred to as I.T. Act, proposing to reopen assessment of income of the petitioner company in the Financial Year 2003-04 corresponding to the Assessment Year, 2004-05. It is not in dispute that assessment of the petitioner company for the aforesaid financial year had been completed by the Income Tax Officer, Ward No. 6(IV), Kolkata and an order of assessment u/s 143(3) of the I.T. Act, passed on 29th December, 2006.

Mr. N.K. Poddar, appearing on behalf of the petitioners, argued that the petitioner company had filed its Income Tax Return for the Assessment Year 2004-2005 on 30th September, 2004, claiming aggregate depreciation of Rs. 35,37,377/- on its various assets. The aforesaid claim of depreciation of the aggregate value of Rs.35,37,377/- included depreciation of Rs. 19,14,186/- on property rented out to Usha Martin Ltd.

Mr. Poddar submitted that the petitioner company had prepared its income tax return for the Assessment Year 2004-2005 strictly on the basis of the Tax Audit Report of M/s. S. Swarup & Co., Chartered Accountants prepared u/s 44AB of the I.T. Act. The claim of the petitioner company for depreciation, including depreciation on property rented out to Usha Martin Ltd. was, according to Mr. Poddar, based on the Tax Audit Report u/s 44AB of the I.T. Act.

The petitioners have annexed to the writ petition, the computation of total income filed by the assesses company along with its income tax returns. The last item under the heading "Business Income" is deduction in respect of "Depreciation as per Income Tax Rule - as per Tax Audit Report (TAR)". The amount claimed towards depreciation is exactly the same amount that had been calculated by the Tax Auditor in the Tax Audit Report.

In course of original assessment proceedings statutory notices u/s 142(1) of the I.T. Act were issued by the Assessing Officer requiring the petitioners to furnish to the Assessing Officer inter alias details of depreciation as per I.T. Rules and details of tenants.

The petitioners appear to have replied to the aforesaid letter by a letter dated 22nd November, 2006, a copy of which has been annexed to the writ petition, giving details of the properties and assets of the petitioner company, along with the names and addresses of the tenants thereof as also the details of depreciation claimed.

There can be no dispute that in course of assessment proceedings, the Assessing Officer had also issued statutory notice u/s 133(6) of the I.T. Act to the tenant, Usha Martin Ltd. for making enquiries. Usha Martin Ltd. replied to the said notice confirming that Usha Martin Ltd. had paid an aggregate rent of Rs. 12,00,000/- to the petitioner company.

Mr. Poddar, further submitted that the audited Profit and Loss Account of the petitioner company for the Financial Year ending 31st March, 2004 corresponding to the Assessment Year 2004-2005 was also filed with the Assessing Officer. The Profit and Loss Account reflected rent income of Rs. 12,43,000/- in the said Assessment Year, which included Rs. 12,00,000/- received by the petitioner company by way of rent from Usha Martin Ltd.

The Assessing Officer after making necessary enquiries, completed the assessment u/s 143(3) of the I.T. Act on 29th December, 2006. A copy of the regular assessment order for the Assessment Year 2004-2005 has been annexed to the writ petition.

Mr. Poddar argued that a perusal of the assessment order dated 29th December, 2006, clearly shows that the Assessing Officer proceeded to complete the assessment for the Assessment Year, 2004-2005 upon reference to the total income as returned by the petitioner company. The total income of Rs. 22,89,680/-returned by the petitioner company is reflected in the order of assessment u/s 154/143(1) of the I.T. Act passed by the Assessing Officer on 29th December, 2004. The said sum of Rs. 22,89,680/- could only be computed taking into consideration depreciation of Rs. 35,37,376/- as would be evident from the depreciation chart prepared by the tax auditor and annexed to its Tax Audit Report dated 1st September, 2004.

The assessment order dated 29th December, 2006 also records that the same was passed by the Assessing Officer after examining the books of accounts, explanations, supporting evidences and computations of total income including the return of income filed by the assesses company.

Before issuing the impugned notice dated 25th March, 2011, u/s 148/147 of the I.T. Act, the Assessing Officer recorded reasons. The reasons were set out in a letter dated 29th March, 2011 addressed to the assesses, a copy of which has been annexed to the writ petition. The perusal of the reasons recorded by the Assessing Officer clearly shows that the impugned reassessment proceedings had been initiated for the Assessment Year 2004-2005 on the sole ground that depreciation on the buildings at Kolkata had wrongly been claimed by the petitioner company, since the petitioner company had returned rental income from the said house property.

The original assessment proceedings for the Assessment Year 2004-2005 had admittedly been completed on December, 2006 when the regular assessment order was passed. It is a matter of record that the impugned reassessment proceedings have been initiated on 25th March, 2011, long after expiry of 4 years from the end of the relevant Assessment Year 2004-2005. The impugned reassessment proceedings have, in fact, been initiated after almost six years from 31st March, 2006.

The proviso to section 147 of the I.T. Act 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 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 assesses to make a return u/s 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:

Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

In view of the proviso to section 147, where an assessment has already been made u/s 143(3) of the I.T. Act, for the relevant Assessment Year, no action is to be taken u/s 147, after the expiry of 4 years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assesses to make a return u/s 139 or in response to a notice issued u/s 142(1) or section 148 or to disclose wholly and truly all material facts necessary for his assessment for that assessment year.

Since the petitioner company admittedly filed its income tax return, the first pre-condition for reassessment after expiry of 4 years from the end of the relevant assessment year is not satisfied. There could also be no dispute that the assesses company had filed the Tax Audit Report dated 1st September, 2004 as well as its Annual Report and audited accounts along with its income tax return for the Assessment Year 2004-2005.

The depreciation claimed by the assesses company was based on the Tax Audit Report prepared by the firm of Chartered Accountants. Moreover, in course of original assessment proceedings, the Assessing Officer had examined the claim of depreciation vide his notice dated 15th November, 2006. The petitioner company had disclosed the fact that the petitioner company had claimed total depreciation of Rs. 35,37,376/- of which depreciation of Rs. 19,64,186/- in respect of Kolkata properties was part. According to Mr. Poddar, the Kolkata properties were let out and even the names of tenants and the rent received from each of them had been disclosed.

Mr. Poddar emphatically argued that there had been no failure whatsoever on the part of the petitioner company to disclose fully and truly all material facts necessary for assessment for the Assessment Year 2004-2005, which is one of the conditions mentioned in the proviso to section 147 of the I.T. Act. Even the reasons recorded by the Assessing Officer do not show any finding of failure on the part of the assesses to furnish its income tax return for the Assessment Year 2004-2005.

Mr. Poddar very rightly submitted that, where assessment has been completed and there is no failure to disclose the material facts fully and truly the Assessing Officer would lack jurisdiction to issue a notice for reassessment after expiry of 4 years from the end of the relevant assessment year. A notice initiating reassessment, after four years, is liable to be set aside on that ground alone.

Once an order of assessment has been passed, the Assessing Officer has no jurisdiction to open reassessment after expiry of 4 years from the end of the relevant assessment year, unless there has been failure to disclose truly and fully material facts necessary for assessment. The condition precedent for exercise of jurisdiction to reopen assessment is failure on the part of the assesses to fully and truly disclose the material facts. This proposition finds support from the judgments in Amiya Sales and Industries and Another Vs. Assistant Commissioner of Income Tax and Others, , Sanghvi Swiss Refills (P) Ltd. Vs. Smt. Arti Handa, Assistant Commissioner of Income Tax and Another, , Sadbhav Engineering Ltd. v. DCIT reported in (2011) 239 CTR258 (Guj.), Dhampur Sugar Mills Ltd. v. ACIT reported in (2011) 239 CTR 303 (All.) and in Commissioner of Income Tax-I Vs. Pradeshiya Industrial and Investment Corpn. of U.P. Ltd., , cited by Mr. Poddar.

In Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, a Constitution Bench of the Supreme Court held that the Assessing Authority had to draw inferences regarding other facts from the primary facts in his possession, whether on disclosure by the assesses, or discovered by him on the basis of facts disclosed, or otherwise. The Assessing Authority ultimately has to draw proper, legal inferences from the primary facts and further facts and ascertain the proper tax livable, on a correct interpretation of the taxing enactment. It is not for anybody else, far less the assesses, to tell the Assessing Authority what inferences, whether of facts or of law should be drawn. The Supreme Court observed that it was the duty of the assesses to disclose all primary relevant facts. The Supreme Court observed that the duty of the assesses did not extend beyond disclosure of primary relevant facts. If from primary facts more inferences could be drawn, it would not be possible to say that the assesses should have drawn any particular inference and communicated it to the Assessing Authority. An assesses could not be charged with failure to communicate an inference. The aforesaid view was reiterated by the Supreme Court in Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das,

Where the assesses discloses all primary facts, but still income escapes assessment because of the failure on the part of the Assessing Officer to draw the correct inference in law, initiation of reassessment proceedings after expiry of 4 years from the end of the relevant assessment year cannot be justified, in view of the clear language appearing in proviso to section 147. This view finds support from the judgment of the Supreme Court in Gemini Leather Stores Vs. The Income Tax Officer, ''B'' Ward, Agra and Others,

In Parashuram Pottery Works Co. Ltd. Vs. Income Tax Officer, Circle I, Ward A, Rajkot, the Supreme Court held that failure on the part of the Assessing Officer to allow correct depreciation to the assesses was not a valid ground for initiation of reassessment proceedings. The Supreme Court held that when on the basis of facts on record the Income Tax Officer determines the amount of depreciation allowable to the assesses erroneously, the responsibility for that mistake cannot be ascribed to be an omission or failure on the part of the assesses. The Supreme Court quashed the initiation of reassessment after expiry of 4 years from the end of the relevant assessment year.

In Commissioner of Income Tax Vs. Cholomandalam Investemnt and Finance Co. Ltd., , the Madras High Court held that after expiry of 4 years from the relevant assessment year, where the assesses had disclosed fully and truly all primary facts in relation to his claim for depreciation, the initiation of reassessment proceedings on the ground of the claim for depreciation had not been explained would be without jurisdiction, illegal, invalid and void ab initio.

In Berger Paints (India) Ltd. v. Assistant Commissioner of Income Tax reported in 2010 (1) CLT 334 (Cal.) this Bench held that mere change of opinion was no ground for reassessment. When assessment were sought to be reopened on the basis of the same materials, the notice u/s 148 of the I.T. Act was liable to be set aside. In this case too, there are no new materials, which were not there at the time of initial assessment.

The proposition, that change of opinion is no ground for reopening of assessment, which is well-established and well-settled, finds support from the following judgments:

Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited,

Binnani Industries Ltd. v. ACIT reported in (2007) 6 VST 783 (SC).

M.J. Pharmaceuticals Ltd. Vs. Deputy Commissioner of Income Tax and Another,

Niba India and Another Vs. Smt. Arti Handa, Assistant Commissioner of Income Tax and Others,

Cartini India Ltd. Vs. Addl. Commissioner of Income Tax,

Manjusha Estate Pvt. Ltd. Vs. The Income Tax Officer,

Commissioner of Income Tax Vs. Jagson International Ltd.,

Berger Paints (India) Ltd. v. Assistant Commissioner of Income Tax reported in 2010 (1) CLT 334 (Cal.)

In all the aforesaid cases, the Courts held that there could be no justification in law in initiation of reassessment proceedings on the basis of facts and materials already disclosed in course of the original proceedings.

Mr. Nizamuddin, appearing on behalf of the Revenue, raised a preliminary objection to the maintainability of the writ petition and argued that the Assessing Officer had issued the notice dated 25th March, 2011 u/s 148 of the I.T. Act after observing the formalities required to be observed under the I.T. Act.

By a letter dated 25th March, 2011, the petitioner company requested the Assessing Officer to furnish the petitioner company with the copy of the recorded reasons for reopening of assessment. The recorded reasons were furnished.

Mr. Nizamuddin submitted that after getting the recorded reasons, the petitioners duly filed a detailed objection to the impugned notice relying on several judgments and also raising factual issues.

Mr. Nizamuddin referred to the reply of the petitioner company and in particular paragraph 33 where it is stated "We say and submit that the issue of whether the rental income derived from a house property is assessable to tax as a business income or as income derived from house property or where it appears that in respect of a property from which assesses derived income is allowable or not are question of inferences to be drawn on the facts on record."

Mr. Nizamuddin submitted that on the face of the averments made by the petitioner company itself, the Assessing Officer would have to consider all facts and peruse records for adjudicating the issue of illegality or validity of the impugned notice.

Mr. Nizamuddin argued that the question involved in this writ petition is not a pure question of law which can be decided at the motion/Court application stage, without giving opportunity to the respondent to meet those factual allegations by way of affidavit and disclosing material facts in the affidavit on the basis of which the impugned proceeding has been initiated.

This Court does not deem it necessary to call for affidavits since the issues raised in the writ petition can be adjudicated on the basis of the materials on record and in particular the reasons recorded by the Assessing Officer for reopening assessment.

Reasons for reopening assessment can neither be changed not improved upon by way of affidavit. This Court is only to examine whether the reasons disclosed, constitute grounds for reopening assessment, and/or in other words, whether the reasons disclosed, make a prima facie case of failure on the part of the assesses to disclose material facts necessary for assessment fully and truly.

In proceedings under Article 226 of the Constitution of India, challenging a show-cause notice, this Court does ordinarily not decide any disputed questions of fact. In this case, this Court is not required to decide any disputed facts. Directions for affidavits would thus be an exercise in futility and would serve no purpose, except to add to the pending arrears of cases in this Court. This Court, therefore, deems it appropriate to finally dispose of the writ application by treating the factual allegations, except those which are borne out by records, as disputed.

Mr. Nizamuddin submitted that the respondent No. 1 requested the Assessing Officer to drop the impugned reassessment proceedings and pass a speaking order on the objection dated 7th April, 2011 in the light of the decision of the Supreme Court in GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Others, .

In GKN Driveshafts (India) Ltd. (supra), the Supreme Court held as follows:

We see no justifiable reason to interfere with the order under challenge. However, we clarify that when notice u/s 148 of the income tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reason for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objection to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years.

Mr. Nizamuddin argued that having submitted to the jurisdiction of the Assessing Officer, by submitting a reply, the petitioner company ought not to have filed this writ petition before the Assessing Officer, could get sufficient time to deal with its objection. The writ petition, according to Mr. Nizamuddin, is premature.

On the merits of the contention of the petitioners that the impugned notice was prompted by change of opinion, Mr. Nizamuddin submitted that the aforesaid question was not a pure question of law or jurisdiction but was a mixed question of facts and law. Mr. Nizamuddin argued that unless the facts which led to formation of the earlier opinion were looked into and compared with the information and material on the basis of which the Assessing Officer now formed his opinion that assessment should be reopened, it could not be said that the materials and facts forming the basis of the earlier opinion were the same as those forming the basis of the present opinion.

Mr. Nizamuddin submitted that the Assessing Officer did not inherently lack jurisdiction. In this case, the jurisdictional issue involved mixed questions of fact and law. Factual determination would necessarily have to be done by the Assessing Officer, more so, when the petitioner had submitted to the jurisdiction of the Assessing Officer.

Mr. Nizamuddin argued that the defense of the petitioner company that it had produced all the documents and that there had been no omission or failure on its part to disclose fully and truly, is not tenable.

In Shri Bawa Abhai Singh Vs. Dy. Commissioner of Income Tax, , cited by Mr. Nizamuddin a Division Bench of Delhi High Court dismissed a writ petition challenging a notice dated 30th March, 1999 issued u/s 148 of the Income Tax Act, 1961 proposing to reopen assessment for the Assessment Year 1995-96. The impugned notice was issued within four years. No issue of limitation was involved. The Division Bench inter alia held as follows:

The crucial expression is "reason to believe". The expression predicates that the Assessing Officer must hold a belief...by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons inducing the belief. Such a belief may not be based merely on reasons but it must be founded on information. As was observed in Ganga Saran and Sons P. Ltd. Vs. Income Tax Officer and Others, the expression "reason to believe" is stronger than the expression "is satisfied". The belief entertained by the Assessing Officer should not be irrational and arbitrary. the belief must be held in good faith; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a national nexus or a relevant bearing to the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To that limited extent, the action of the Assessing Officer in initiating proceedings u/s 147 can be challenged in a Court of law.

Up to March 31,1989, two conditions were required to be fulfilled to confer jurisdiction on the Assessing Officer to act u/s 147(b). They are (1) he must have information which comes into his possession subsequent to the making of the original assessment order, and (2) that information must lead to his belief that income chargeable to tax has escaped assessment, or that it has been under assessed or assessed at too low a rate or has been made the subject of excessive relief.

After April 1, 1989, the position is somewhat different. Section 147 with effect from April 1, 1989, provides that where the Assessing Officer has reason to believe that any income chargeable to tax escaped assessment for any assessment year, he may apply the provisions of sections 148 to 153 The conditions precedent for initiation of action u/s 147(a) or 147(b) of the pre amended situation, is highlighted above. The amended provisions are contextual different and the cumulative conditions spelt out in clause (a) or (b) of section 147 prior to its amendment, are not present in the amended provision. The only condition for action is that the Assessing Officer should have reason to believe that income has escaped assessment, which belief can be reached in any manner and is not qualified by a pre-condition of faith and true disclosure of material fact by an assesses as contemplated in the pre amended section 147(a) of the Act.

In the aforesaid case, the Assessing Officer had recorded the following reason for initiation of proceedings:

The property has been valued at Rs. 39.92 lakhs as on 1st April, 1981, as against the value taken by the assesses at Rs. 1,42,53,000/-. From this it appears that the assesses has understated the capital gains for the Assessment Year 1995-96.

The Division Bench found that the Assessing Officer had referred to the valuation report and after considering the valuation report come to the conclusion that the assesses had understated the capital gains. The Division, Bench held that in examining a notice reopening assessment, the jurisdiction of the Court to interfere was limited, as the Court did not act as an Appellate Authority. The Court, would only see whether there was some cogent material for reopening assessment. The reason to believe had to be tenable in law. Only if the information or the reason had no nexus with the belief or there was no material or tangible information for forming of requisite belief, could the Court interfere and not otherwise.

In Consolidated Photo and Finvest Ltd. Vs. Asst. Commissioner of Income Tax, , the Division Bench of the Delhi High Court found that the assessing officer had recorded that he had reason to believe that expenses of 16,55,50,292/- required disallowance and the same had escaped assessment in terms of Clause C of Explanation (2) of section 147 of the Income Tax Act. The assesses had failed to disclose fully and truly all material facts necessary for assessment. The judgment is thus distinguishable on facts. In the peculiar facts of the aforesaid case, the Court was not inclined to interfere with reopening of assessment.

In Gruh Finance Ltd. Vs. Joint Commissioner of Income Tax, a Division Bench of Gujarat High Court in the peculiar facts and circumstances emerging from record was unable to uphold the contention raised on behalf of the petitioner that the respondent authority had no jurisdiction to issue the impugned notice u/s 148 of the I.T. Act, as it involved only a mere change of opinion. The Division Bench held that in cases where an error or mistake is detected, it can never be said that there was only a mere change of opinion. Only when at the first assessment, all relevant aspects were considered and there was proper application of mind for ascertainment of the amount of taxable income and of the tax payable thereon, then, in the absence of any error or mistake being discovered or found, the assessing officer could not have later on for the sake of giving a different opinion changed the earlier opinion. However, the judgment is distinguishable in that the proviso to Section 147 was not attracted. There was no question of limitation involved.

In Raymond Woollen Mills Ltd. Vs. Income Tax Officer and Others, , the challenge was to the reopening of assessment. On examination of the recorded reasons, the Supreme Court found that it was the case of the Revenue that the assesses was charging to its Profit & Loss Account fiscal duties paid during the year as well as labor charges, power, fuel, wages, chemicals etc. but while valuing its closing stock, the elements of fiscal duty and other direct manufacturing costs were not included. This resulted in under valuation of inventories and understatement of profits. The information was obtained by the Revenue in the course of assessment proceedings during a subsequent year. The Supreme Court observed that Supreme Court was not required to give a final decision as to whether there was suppression of material facts by the assesses or not. The Supreme Court was only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material was not a thing to be considered at that stage. In the particular facts of the case, the Court was of the view that the Court could not strike down the reopening of the case. Questions of fact and law were left to be investigated and decided by the assessing authority.

A judgment is a precedent for an issue of law that is raised and decided. A judgment and order rendered in the peculiar facts of a particular case, does not operate as a binding precedent. In Raymond Woolen Mills Ltd. (supra) the question of jurisdiction was not an issue and not decided, nor was there any question of limitation involved.

The judgment of the Division Bench of this Court in Indo Asahi Glass Company and Another Vs. Income Tax Officer and Others, is clearly distinguishable on facts. Aggrieved by a show cause notice, the appellants filed a writ petition under Article 226 of the Constitution of India challenging the legality and validity of the show-cause notice, by contending inter alia that the respondent No. l should not have issued the show-cause notice to the appellants because the appellants were not liable to pay any income tax. The Division Bench was of the view that whether or not the appellant was liable, had to be decided by the Assessing Officer. The judgment of the Division Bench in Indo Asahi Glass Co. Ltd. was affirmed by the Supreme Court. The judgment of the Supreme Court is reported in Indo Asahi Glass Co. Ltd. and Another Vs. Income Tax Officer and Others, . The Supreme Court found that the High Court was right in coming to the conclusion that it was not appropriate for the appellants to file a reply to the show-cause notice and take whatever difference is open to them. Jurisdiction to issue the show-cause notice was not in question.

In Rakesh Aggarwal Vs. Assistant Commissioner of Income Tax, the Division Bench found that the reasons recorded for initiating reassessment proceedings, disclosed relevant and sufficient material to provide a foundation to the Assessing Officer to form the belief that income chargeable to tax had escaped assessment for the relevant year. There was no question of limitation or jurisdiction involved.

In Income Tax Officer and Others Vs. Shree Bajrang Commercial Co. (Pvt.) Ltd., , a Division Bench of this Court found on facts that the Assessing Officer prima facie had reason to believe that income had escaped assessment by reason of failure to the assesses to disclose truly and fully, material facts necessary for assessment. The Division Bench held that there being some prima facie reasons, the Court could not consider the sufficiency of the reasons.

In Commissioner of Income Tax Vs. Ess Ess Kay Engineering Co. Pvt. Ltd., there was no question of jurisdiction or limitation involved. The reassessment proceedings were initiated within 4 years. The Court found that though the assesses might have disclosed fully the facts at the time of original assessment, those were found to be untrue on the basis of materials discovered later on by the Assessing Authority. The assessment would thus be liable to be reopened, because in such a case it could be said that the assesses had failed to disclose truly all material facts necessary for the assessment and it would not merely be a case of change of opinion. The aforesaid judgment is also distinguishable on facts. In this case, there is no finding of any facts being incorrect.

Ess Ess Kay Engineering Co. filed an application for Special Leave to Appeal in the Supreme Court from the judgment of the Division Bench of Punjab High Court. The Supreme Court held This is a case of reopening. We have perused the documents. We find there was material on the basis of which the Income Tax Officer could proceed to reopen the case. It is not a case of mere change of opinion. We are not inclined to interfere with the decision of the High Court merely because the case of the assesses was accepted as correct in the original assessment for this assessment year. It does not preclude the Income Tax Officer to reopen the assessment of an earlier year on the basis of his finding of fact made on the basis of fresh materials in the course of assessment of the next assessment year. The appeal is dismissed."

In INCOME TAX OFFICER Vs. SELECTED DALURBAND COAL CO. (P) LTD., the Supreme Court found on facts that prima facie there was some materials for reopening assessment. It was alleged that on joint inspection, the officers of the mining department were of the opinion that raising figures had been under reported. The report was made by a Government department and that too after conducting a joint inspection.

In Nawabganj Sugar Mills Co. Ltd. and others Vs. Commissioner of Income Tax, Delhi, the Division Bench of Delhi High Court found on facts that there had been failure to disclose fully and truly the material facts. The judgment has no application.

In Pala Marketing Co-operative Society Ltd. Vs. State of Kerala and Another, , a Single Bench of the Kerala High Court Court found that it was the case of the Revenue that the petitioner had made an inaccurate disclosure of particulars by claiming excessive depreciation in respect of certain items of plant and machinery. According to the department, the assesses ought to have made a complete and true disclosure which had not been done. The Kerala High Court, however, held that the claim on the rate of depreciation could not be held to be failure to disclose full and true material facts necessary for assessing. It could not be said that it was the duty of the assesses to point out that he had made a wrong claim in the rate of depreciation. The claim was based on what the assesses understood as livable, according to law. The material facts having been placed before the Assessing Officer, it was the duty of the officer to draw inference from those material facts disclosed. On his failure the burden could not be shifted to the assesses to hold that there was failure to disclose the material facts. The impugned notice was thus held to be illegal and the same was quashed.

Where assessment proceedings for any assessment year have been concluded, and an order of assessment passed, the Assessing Officer has no jurisdiction to initiate reassessment proceedings after expiry of four years from the relevant assessment year, except where the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment for such assessment year, by reason of failure on the part of the assesses to disclose fully and truly all material facts necessary for assessment for that assessment year.

Therefore, in a case like this, where an order of assessment for the assessment year in question has been passed, the condition precedent for exercise of jurisdiction to initiate proceedings u/s 147 of the I.T. Act. after expiry of four years, is belief of the Assessing Officer, based on cogent reasons, that income in that year, chargeable to tax has escaped assessment by reason of failure of the assesses to disclose fully and truly, all relevant facts necessary for assessment.

Exercise of jurisdiction u/s 147, is also subject to the provisions of sections 148 to 153of the I.T. Act. Thus, in a case where an assessment u/s 143{3) has been made, no notice u/s 148 of the I.T. Act is to be issued, after expiry of four years from the end of the relevant assessment year, unless the Chief Commissioner or Commissioner, is on the reasons recorded by the Assessing Officer, satisfied that it is a fit case for issuance of such notice.

In this writ petition this Court is only required to adjudicate the question of whether the Assessing Officer could have exercised jurisdiction to initiate reassessment proceeding u/s 147 by issuance of notice u/s 148, after lapse of nearly six years from the end of the relevant assessment year, even though an order of assessment had been passed. This Court finds that in this case, the reasons recorded by the Assessing Officer do not justify the reopening of proceedings.

The reasons for reopening of assessment as disclosed are set out herein below for convenience:

Your company filed its return for A.Y. 2004-05 on 30/09/2004 disclosing a total income of Rs. 8,98,470/-. Subsequently, in response to notice under sections 154/155 dated 15.12.2004 you have furnished a fresh computation showing total income of Rs. 22,89,680/-. In the original return of income as well as in the revised computation a depreciation of Rs. 19,64,186/- had been claimed on account of a Building at Kolkata in respect of which income under House Property had been disclosed in the immediately three preceding assessment years. It has also been revealed that no depreciation had been claimed on the said property in the A.Y. 2005-06 but rental income had been shown. Thus it is unlikely that the said property had been used for the purpose of business during the relevant assessment year.

Therefore, there is reason to believe that depreciation on the same property at Kolkata had been wrongly claimed during the relevant assessment year. Hence, there is reason to believe that income has escaped assessment in this year.

On the face of the reasons, the Assessing Officer has proceeded on the basis, that income had escaped assessment by reason of an erroneous claim for depreciation. It is not the case of the Assessing Officer that there has been any failure on the part of the petitioner company to disclose any material facts relevant for assessment truly or fully.

In Calcutta Discount Company Ltd. v. Income Tax Officer, Companies District I, Calcutta & Anr. (supra) the Constitution Bench of the Supreme Court held:

The scheme of the law clearly is that where the Income Tax Officer has reason to believe that an underassessment has resulted from nondisclosure he shall have jurisdiction to start proceedings for re assessment within a period of 8 years;......The argument that the Court ought not to investigate the existence of one of these conditions viz. that the Income Tax Officer has reason to believe that underassessment has resulted from non-disclosure of material facts cannot therefore be accepted.

It is well settled however that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled, will issue appropriate orders or directions to prevent such consequences.

The expression "reason to believe" postulates belief and the existence of reasons for that belief. The belief must be held in good faith: it cannot be merely a pretence. If it be asserted that the Income Tax Officer had reason to believe that income had been under-assessed by reason of failure to disclose fully and truly the facts material for assessment, the existence of the belief and the reasons for the belief, but not the sufficiency of the reasons, will be justifiable. The expression therefore predicates that the Income Tax Officer holds the belief induced by the existence of reasons for holding such belief. It contemplates existence of reasons on which the belief is founded, and not merely a belief in the existence of reasons inducing the belief; in other words, the Income Tax Officer must on information at his disposal believe that income has been under-assessed by reason of failure fully and truly to disclose all material facts necessary for assessment. Such a belief, be it said, may not be based on mere suspicion: it must be founded upon information.

In Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, the Supreme Court reiterated the view taken in Calcutta Discount Company (supra) and held that reasons for the formation of belief contemplated by section 147(a) should have a rational connection or relevant bearing on the formation of belief. Rational connection postulates that there must be a live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that, there had been escapement of the income of the assesses from assessment, in the particular year, because of his failure to disclose fully and truly all material facts.

In Union Carbide (India) Ltd. Vs. Income Tax Officer and Others, , this Court reiterated the conditions and limitations for issuance of notice u/s 148 of the Income Tax Act, 1961. This Court held that in order to be entitled to issue a notice u/s 147(a) of the Income Tax Act, 1961. The Income Tax Officer issuing the notice must hold the belief that due to omission or failure on the part of the assesses to disclose fully or truly all material facts necessary for the assessment or to make the return, the income had escaped assessment. There would have to be materials or reasons for formation of the aforesaid belief and existence of the belief and existence of the materials for forming the belief could both be challenged in proper proceedings and in case of a challenge it was for the Income Tax authorities to satisfy the Court that the Income Tax Officer had held the belief and that there were reasons to hold such belief.

In B. K. GOOYEE Vs. COMMISSIONER OF Income Tax, WEST BENGAL., , a Division Bench of this Court held that a notice u/s 34 of the Income Tax Act, 1922, which is invalid vitiates the entire proceedings, and the illegality of the notice cannot be waived by filing a return in pursuance thereof. Section 34 of the Income Tax Act, 1922 corresponds to section 148 of the Income Tax Act, 1961.

In Commissioner of Income Tax, Kerala Vs. Thayaballi Mulla Jeevaji Kapasi (Decd.) (by his Legal representatives), , the Supreme Court held that service of notice u/s 34(1) (a) of the Income Tax Act, 1922 within the period of limitation being a condition precedent for exercise of jurisdiction, if the Income Tax Officer was unable to prove service of the notice within the prescribed period, the filing of any return in pursuance of the notice would not invest the Income tax Officer with power to reassess income of the assesses pursuant to such return.

In the State of Madhya Pradesh & Ors. v. U.K. Yadav reported in AIR 1968 SC 1186, the Supreme Court inter alia held that it was well-established that where the jurisdiction of an authority depended upon a preliminary finding of fact, this Court in exercise of its writ jurisdiction would be entitled to examine whether the findings on jurisdictional facts were correct or not.

In Raza Textiles Ltd. Vs. Income Tax Officer, Rampur, the Supreme Court held that no authority, much less a quasi-judicial authority, could confer jurisdiction on itself by deciding any jurisdictional fact wrongly. The question of whether the jurisdictional fact had rightly been decided or not was a question open to examination by the High Court in an application under Article 226 of the Constitution of India.

In M/s. Raza Textiles Ltd. (supra), the Supreme Court held that, if in an application under Article 226 of the Constitution of India, the Income Tax Officer had assumed jurisdiction by deciding a jurisdictional fact erroneously, the assesses would be entitled to a writ of certiorari as prayed for, since it was incomprehensible to think that a quasi-judicial authority could erroneously decide a jurisdictional fact and impose a levy.

In this case, of course, this Court is not really required to decide any jurisdictional fact since, on the face of the reasons disclosed, the Assessing Officer has not even addressed the issue of whether there has been any failure on the part of the petitioner company to disclose truly or fully any material facts necessary for assessment for the relevant year. The Assessing Officer, ex facie, lacked jurisdiction to issue the impugned notice, in the absence of any formation of belief that there was failure of the petitioner company to truly and fully disclose material facts necessary for assessment.

For the reasons discussed above, the impugned notice is set aside quashed. The writ application is disposed of accordingly. Mr. Nizamuddin, learned Advocate appearing on behalf of the Revenue, prayed for stay of operation of the judgment and order. The prayer for stay is considered and rejected.

Indira Banerjee, J.