spb/ 01WP2518-19-Jd.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 2518 OF 2019 Gateway Leasing Pvt. Ltd., ] Petitioner. company incorporated under ] Companies Act, 1956, having its ] registered office at 6W, 6th Floor, ] Merchant Chamber -41, New Marine ] Lines, Mumbai -400 020. ] V/s. 1. Assistant Commissioner of ] Income Tax-1 (1)(2), Aayakar ] Bhavan, Maharshi Carve Marg, ] Mumbai -400020. ] ] 2. Deputy Commissioner of ] Income Tax 1(1) (2), Room No.533, ] Aayakar Bhavan, Maharshi Carve ] Marg, Mumbai 400 020. ] ] 3. Principal Commissioner of ] Income Tax -1 at Room No.387, ] rd 3 Floor, Aayakar Bhavan, Maharshi ] Carve Marg, Mumbai 400 020. ] ] 4. Union of India, ] through Secretary, Dept. of ] Revenue, Ministry of Finance, ] North Block, New Delhi-110001 ]...Respondents. --- Borey 1/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc Mr. Madhur Agarwal, Advocate a/w. Mr. Jas Sanghavi i/by PDS Legal for Petitioner. Mr. Suresh Kumar, Advocate for Respondents. --- CORAM : UJJAL BHUYAN AND MILIND N. JADHAV, JJ. DATE : MARCH 11, 2020. ORAL JUDGMENT : 1 Heard Mr. Madhur Agarwal, learned counsel for Petitioner and Mr. Suresh Kumar, learned standing counsel, Revenue, for Respondents. 2 By filing this petition under Article 226 of Constitution of India, Petitioner seeks quashing of notice dated 31.03.2019 issued under section 148 of Income Tax Act, 1961 by Assistant Commissioner of Income Tax, Circle 1(1)(2), Mumbai i.e. Respondent No.1 as well as order dated 26.08.2019 passed by Deputy Commissioner of Income Tax, Circle 1(1)(2), Mumbai i.e. Respondent No. 2, rejecting objections raised by Petitioner to re-opening of assessment Borey 2/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc under section 147 of Income Tax Act, 1961 (briefly Act , hereinafter). 3 Case of Petitioner is that it is company registered under Companies Act, 1956, engaged in business of financing and investing activities, as non-banking financial company registered with Reserve Bank of India. It is assessee under Act. 4 For assessment year 2012-13, Petitioner filed return of income on 20.09.2012 declaring total income of Rs. 90,630.00. Initially, return of income was processed under section 143(1) of Act. Petitioner s case was however selected for scrutiny pursuant to which notices under section 143 (2) as well as under section 142(1) were issued alongwith questionnaire. During course of assessment proceedings, details of income, expenditure, assets and liabilities were called for and examined. Following reply submitted by Petitioner pursuant to such notices and Borey 3/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc after examination of details filed, Assessing Officer computed total income of Petitioner at Rs. 90,630.00, vide assessment order dated 28.03.2015 passed under section 143(3) of Act. 5 On 31.03.2019 Respondent No. 1, who was in meanwhile conferred jurisdiction to assess Petitioner s income, issued notice to Petitioner under section 148 of Act stating that he had reasons to believe that Petitioner s income chargeable to tax for assessment year 2012-13 had escaped assessment within meaning of section 147 of Act. Proceeding to assess/re-assess income for said assessment year, Respondent No. 1 called upon Petitioner to submit return in prescribed form for said assessment year. It was further mentioned that said notice was issued after obtaining necessary satisfaction of Principal Commissioner of Income Tax-1, Mumbai. Borey 4/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 6 Petitioner sought for reasons for issuing notice under section 148 of Act vide letter dated 09.04.2019, referring to decision of Supreme Court in case GKN Driveshafts (India) Ltd., vs. I.T.O., 259 ITR 19. Petitioner also filed return of income under section 148 of Act, returning income at Rs. 90,630.00 as originally assessed by Assessing Officer under section 143(3) of Act. 7 By letter dated 31.05.2019, Respondent No. 2 furnished reasons for re-opening of assessment. It was stated that information was received from Investigation Wing of Income Tax Department that search and seizure action was carried out in premises of one Shri Naresh Jain which revealed that syndicate of persons were acting in collusion and managing transactions in stock exchange, thereby generating bogus long-term capital gains/ bogus short- term capital loss and bogus business loss entries for various beneficiaries. Borey 5/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 8 From materials gathered in course of said search and seizure action, it was alleged that Petitioner had traded in shares of M/s. Scan Steel Ltd. and was in receipt of Rs. 23,98,014.00 which Assessing Officer believed had escaped assessment within meaning of section 147 of Act. It was also alleged that Petitioner had failed to disclose fully and truly all material facts necessary for its assessment for assessment year 2012-13 for which notice under section 148 of Act was issued. 9 Petitioner submitted objections to reopening of assessment proceedings on 26.06.2019. Referring to reasons recorded and furnished, it was contended on behalf of Petitioner that original assessment was completed under section 143(3) of Act where all details of purchase and sale of shares of M/s. Scan Steels Ltd., also known as Clarus Infrastructure Realties Ltd. (earlier known as Mittal Securities Finance Ltd.), were disclosed. While denying that Petitioner Borey 6/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc had any dealing with parties whose names cropped up during search and seizure action, it was stated that purchase and sale of shares were done by petitioner through registered broker of Bombay Stock Exchange. Payment for purchase of shares were made by cheque through Bombay Stock Exchange, price being as per prevailing market price. Thus there was no apparent reason to classify receipt of Rs. 23,98,014.00 as having escaped assessment. Therefore, it was contended that decision to reopen assessment was nothing but change of opinion, which was not permissible in law. That apart, it was contended that impugned notice under section 148 of Act was issued on 31.03.2019 and was received by Petitioner on 04.04.2019 i.e. beyond 31.03.2019. notice was posted on 02.04.2019. On that basis it was contended that though notice was dated 31.03.2019 but same was posted after closure of financial year and thus was barred by Borey 7/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc limitation being beyond six years. Other grounds were also raised by Petitioner. 10 Respondent No. 2 by his letter dated 26.08.2019 informed Petitioner that its objections to issuance of notice under section 148 of Act was duly considered but on grounds and reasons mentioned therein, same was rejected. 11 Aggrieved, present writ petition has been filed, seeking reliefs as indicated above. 12 This Court by order dated 01.10.2019, prima facie, took view that impugned notice was dispatched after 31.03.2019 which made impugned notice beyond statutory period of six years and thus without jurisdiction. While granting time to Respondents to file reply affidavit, interim stay was granted to impugned notice dated 31.03.2019. Borey 8/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 13 Respondents have filed affidavit-in-reply controverting averments made in writ petition. It is stated that impugned notice was issued after recording reasons under section 148 (2) of Act and after obtaining sanction of Principal Commissioner of Income Tax-I, Mumbai, as required under section 151(1) of Act. It is stated that in response to notice under section 148 Petitioner had furnished return of income on 09.04.2019, declaring total income of Rs. 90,630.00 wherein Petitioner claimed TDS credit of Rs. 34,05,533.00 and sought refund of sum of Rs. 34,05,533.00. It is stated that on scrutiny of computation made by Assessing Officer, it was found that Petitioner had received refund of Rs. 26,13,268.00 with interest of Rs. 2,87,463.00 which was reduced while determining tax liability. In return of income tax filed, Petitioner did not reduce amount of refund received by him which prima facie resulted in excess claim of refund to tune of Rs. 26,13,268.00, which refund was already granted. It is Borey 9/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc stated that furnishing of details of purchase and sale of shares of Mittal Securities Ltd., (Scan Steels Ltd.) did not amount to full and true disclosure of material facts before Assessing Officer, who in his assessment order totally relied upon submissions of Petitioner and had accepted same without cross verification. It is further stated that challenge to impugned notice is untenable. Besides, Act provides for host of remedial measures in form of appeals and revisions. 13.1 Regarding issuance of impugned notice, as alleged by Petitioner to be beyond 31.03.2019, it is stated that notice was handed over to postal authorities on 31.03.2019. postal receipts to that effect have been annexed. 13.2 Finally, Respondents have justified issuance of impugned notice and re-opening of assessment and in this connection reference has Borey 10/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc been made to report of Investigation Wing as per which Petitioner had diluted its income by adopting manufactured and pre-arranged transactions which were never disclosed to Assessing Officer. Such action was nothing but failure on part of Petitioner to make full and true disclosure of all material facts. Petitioner s contention that all primary facts were disclosed by it have been disputed. That apart, it is contended that Principal Commissioner of Income Tax-1 had applied his mind and thereafter, granted approval to issuance of notice under section 148 of Act. 14 Petitioner has filed rejoinder affidavit. It is stated that in return of income filed pursuant to impugned notice dated 31.03.2019, petitioner could not reduce amount of refund already received as online ITBA system did not provide for any separate column for reduction of said amount already refunded. In any event, said amount of Borey 11/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc Rs. 26,13,268.00 and interest were not reasons for reopening assessment. All details about purchase and sale of shares of Mittal Securities Ltd., were furnished; Assessing Officer was not required to give findings on each issue raised during course of assessment proceedings. Assessing Officer had applied his mind and granted relief to petitioner in assessment order. Normally when submission of assessee is accepted, no finding is given in assessment order. 15 In course of hearing, Mr. Agarwal, learned counsel for Petitioner referred to postal receipts which indicate that impugned notice was delivered by Income Tax Department to Petitioner through post office on 31.03.2019 at 3.34 p.m.. Therefore, he submits that Petitioner would not press upon this ground as raised in writ petition. Borey 12/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 15.1. Primary contention of Mr. Agarwal is that reasons given for re-opening assessment do not make out case for invoking jurisdiction under section 147 of Act. so called information allegedly received by Respondents were in-fact furnished by Petitioner in course of original assessment. It is another matter that Assessing Officer did not refer to all primary facts placed before him by Petitioner in assessment order but that cannot be ground for re-opening assessment. He therefore submits that at most it can be construed to be re- appreciation of materials already on record and in circumstances, it would be case of change of opinion which is not permissible for re-opening of concluded assessment. His further submission is that grounds as furnished by Respondents for re- opening of assessment and averments made in affidavit by Respondents, justifying re- opening of assessment, are at variance. His contention is that reasons given for re-opening of Borey 13/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc assessment cannot be enlarged and improved upon by way of affidavit filed subsequently. That apart, it is contended that Principal Commissioner of Income Tax-1 had mechanically granted approval to Respondent No.1 to re-open assessment which has vitiated impugned notice. 16 On other hand Mr. Suresh Kumar, learned standing counsel, Revenue, for Respondents submits that not only impugned notice was handed over to Petitioner by Income Tax Department on 31.03.2019 at about 3.34 p.m. but copy of same was served upon Petitioner before end of day on 31.03.2019. He further submits that reasons furnished are good grounds to justify re-opening of assessment of Petitioner. Writ petition is premature inasmuch as it has assailed impugned notice; whereas Act provides for host of alternative remedies to Borey 14/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc Petitioner which are adequate and efficacious. Therefore, writ petition should be dismissed. 17 Submissions made by learned counsel for parties have been considered. We have also perused materials on record. 18 At outset, we may advert to reasons furnished by Respondent No.2 for re-opening of assessment. As already noticed above, reasons were furnished to Petitioner vide letter dated 31.05.2019. reasons furnished are extracted hereunder : return of income for year, declaring total income of Rs.90,630.00 was filed by assessee on 20.09.2012. assessment was completed on 28.03.2015 by accepting returned income. information has been received from Investigation Wing that search and seizure action was carried out on Shri Naresh Jain and his associates by DIT (Inv.)-2, Mumbai on 19.03.2019 which was concluded on Borey 15/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 21.03.2019. search action covered syndicate of persons who were acting in collusion and executing managed transactions in stock exchange thus generating bogus long-term capital gains/ bogus short-term capital loss/ bogus business loss entries for various beneficiaries. This search action unraveled workings of syndicate and brought on record make-believe nature of paper work that is manufactured in order to show arranged transactions as legitimate market transactions. Statement of Shri Shirish Shah, recorded during course of search action u/s 132 (4) of Act in which he had admitted under oath that with help of various people, manipulated share prices of various scrips in order to provide bogus entries of long term capital gain, short term capital loss and business loss. Evidence has also been gathered during search action establishing links between Naresh Jain operator, promoters of various scrips, share brokers, exit providers and intermediaries who acted in collusion in order to facilitate transactions on exchanges. During year, relevant to A.Y. 2012-13, Shri Jain used following scrips to provide bogus entries, which are as under : Sr.No. Scrip Code Name 1. 504378 NYSSA Corporation Ltd. 2. 505343 Monotype India Ltd. 3. 508860 Diamant Infrastructure Ltd. 4. 511672 Scan Steels Ltd. Borey 16/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 5. 523810 Divine Multimedia (I) Ltd. 6. 531866 Aagam Capital Ltd. 7. 533427 VMS Industries Ltd. Shri Jain had also admitted that he had helped Shri Bhavesh Pabri and Hemant Sheth for front running in scrip of M/s. Scan Steels Ltd.. brokers who helped him for this are M/s. Arcadia Shares and Stock Brokers P. Ltd., M/s. SSJ Finance & Securities P. Ltd., and M/s. S.P. Jain Securities P. Ltd. Perusal of information furnished shows that assessee had traded in this share and was in receipt of Rs. 23,98,014/-. Therefore, I have reason to believe that this income had escaped assessment within meaning of section 147 of Act. It is, therefore, inferred from above discussion that assessee has failed to disclose fully and truly all material facts necessary for its assessment for A.Y.2012-13. Therefore, issue could not be verified by A.O. during course of assessment proceedings. Even otherwise, it is pertinent to mention that Explanation-1 to section 147 provides that production before Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by Assessing Officer will not necessarily amount to disclosure within meaning of proviso to said section. In view of above discussion, I have reason to believe that income chargeable to tax Borey 17/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc amounting to Rs. 23,98,014/- has escaped assessment within meaning of section 147 of Act read with provisos thereto. Notice u/s. 148 of Income Tax Act, 1961, is therefore, issued to assess such income and also any other income chargeable to tax which has escaped assessment and which may come to notice subsequently in course of proceedings under this section. 19 From above, it is seen that according to Respondent No. 2 information was received from Investigation Wing about search and seizure action carried out in premises of Shri Naresh Jain on 19.03.2019 which concluded on 21.03.2019. search action revealed that syndicate of persons were acting in collusion and had managed transactions in stock exchange, thereby generating bogus long-term capital gains, bogus short term capital gains and bogus business loss entries for various beneficiaries. search action unraveled workings of syndicate and brought on record make believe nature of paper work that is manufactured in order to show Borey 18/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc arranged transactions as legitimate market transactions. Statements of various persons were recorded in course of search action. In his statement Shri Naresh Jain stated that during assessment year 2012-13, he had used scrips of seven entities to provide bogus entries which included scrip of M/s. Scan Steels Ltd.. Further, information revealed that Petitioner had traded in shares of M/s. Scan Steels Ltd., and was in receipt of Rs. 23,98,014/-. Therefore, Respondent No. 2 stated that he had reasons to believe that this income had escaped assessment within meaning of section 147 of Act. 20 Thus what is discernible is that main ground on which assessment is sought to be re-opened is that Petitioner had traded in shares of Scan Steels Ltd., and was in receipt of Rs. 23,98,014/-, which Petitioner failed to disclose fully and truly before Borey 19/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc Assessing Officer and which Respondent No.2 believed had escaped assessment. 21 Before adverting to initial assessment order passed under section 143(3) of Act dated 28.03.2015, it would be apposite to advert to averments made by Respondents in affidavit in reply, more particularly reasons given to justify re- opening of assessment. In para 3.3 of affidavit in reply, it is stated that Petitioner had disclosed TDS credit of Rs. 34,05,533.00 and claimed refund of said amount. On perusal of tax assessment form prepared and issued by Assessing Officer alongwith assessment order, it was noticed that Petitioner was issued refund of Rs. 26,13,268.00 alongwith interest of Rs. 2,87,463.00 which was reduced while determining tax liability which thereafter stood at NIL . But in return filed, Petitioner had not reduced amount of refund already received by him, which prima facie, resulted in Borey 20/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc excess claim of refund to tune of Rs. 26,13,268.00 being refund already granted. However, this was not ground for reopening assessment as per reasons furnished to Petitioner on 31.05.2019 viz., that petitioner had traded in shares of M/s. Scan Steels Ltd. and was in receipt of Rs. 23,98,014.00 which Respondent No. 2 stated that he had reasons to believe had escaped assessment. Thus, this contention of Respondents is beyond reasons furnished for re- opening of assessment. 22 In para 3.4 of affidavit in reply it is stated that though Petitioner had furnished details relating to purchase and sale of shares of Mittal Securities Ltd., (now Scan Steels Ltd.,), but that did not amount to full and true disclosure of all material facts unless true and real facts are disclosed before Assessing Officer. Assessing Officer had not discussed in assessment order about genuineness or Borey 21/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc camouflage nature of transactions of purchase and sale of shares of Mittal Securities Ltd. by Petitioner. 23 From above, it is seen that what Respondent No. 2 contends is that though Petitioner had disclosed details of transactions pertaining to purchase and sale of shares of Mittal Securities Ltd., (now Scan Steels Ltd.), Petitioner did not disclose real colour / true character of such transactions and therefore, he did not make full and true disclosure of all material facts which was also overlooked by Assessing Officer. 24 Reverting back to original assessment proceeding, we find from materials on record that after Petitioner had filed initial return of income on 20.09.2012, Assessing Officer had issued notice to Petitioner under section 142(1) of Act dated 07.08.2013, calling upon Petitioner to produce following documents :- Borey 22/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 1. Reasonably detailed note on nature of business including details of addresses, phone number of all premises Office, Branch, Godown, Workshop etc.. 2. Complete set of audited accounts, Tax Audit Report u/s. 44AB with all schedules, computation of income and income tax and hard copies of returns. 3. Any other details and /or documents for purpose of assessment. 24.1 By another notice of even date, Petitioner was informed by Assessing Officer that there were certain points in connection with return of income submitted by Petitioner about which he would like some further information. Accordingly, Petitioner was asked to appear before Assessing Officer and to produce any documents, accounts and any other evidence on which it relied upon in support of return filed. Borey 23/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 25 On 10.06.2014 Assessing Officer issued another notice under section 142(1) of Act, calling upon Petitioner to submit particulars mentioned therein including details regarding increased authorized share capital with list of shareholders and details of purchase of equity shares of Rs. 7,04,92,390.44 with details of payment. Petitioner has stated that in response to such notice, all relevant details were furnished to Assessing Officer. Finally, Assessing Officer issued another notice under section 142 (1) of Act on 19.03.2015, calling upon Petitioner to furnish in writing details party-wise with name, address and PAN with supporting evidence who had subscribed for security premium reserve or how it was created and details of statement / transactions mentioned at serial no. 2 which stated that in case of capital gain/ loss, it should provide comprehensive chart with regard to sale and purchase of securities/shares quoted/ unquoted as well as dividend received. It was further stated that in case of Borey 24/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc capital loss whether loss was adjusted after dividends in terms of section 94(7) of Act. In his response, Petitioner informed Assessing Officer on 19.03.2015 itself that there was no increase in security premium reserve during said assessment year. No capital gains were earned during said year by Petitioner. It had not received any dividend income during said year too. Hence, question of applicability of section 94(7) did not arise. Petitioner did not make any investment nor was there any inventory of shares; no dividend was earned during year. Alongwith said letter relevant documentary evidence in respect of concerned transactions were enclosed. 26 Thereafter, assessment order was passed on 28.03.2015, wherein Assessing Officer had noted that during course of scrutiny details of income, expenditure, assets and liabilities were called for, examined and placed on record. After perusing all Borey 25/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc details and after examination of those and upon discussion, total income was computed in terms of return filed by Petitioner. As already noted above, assessment order was passed under section 143(3) of Act. It was mentioned therein that representative of Petitioner had attended assessment proceedings from time to time and had filed details with explanations. 27 At this stage, we may briefly refer to relevant legal provisions. 28 Section 147 of Act deals with income escaping assessment . Section 147 says that if Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to Borey 26/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc his notice subsequently in course of proceedings under section 147 of Act. 28.1 first proviso to section 147 is important. As per this proviso, where assessment under sub- section (3) of section 143 or section 147 has been made for relevant assessment year, no action shall be taken under section 147 after expiry of four years from end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under section 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. 28.2 Section 149 deals with time limit for notice under section 148. As per clause (a) of sub-section (1), no notice under section 148 shall be issued for Borey 27/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc relevant assessment year, if four years have elapsed from end of relevant assessment year unless case falls under clause (b) or clause (c). Clause (b) says that no notice shall be issued if four years have elapsed but not more than six years have elapsed from end of relevant assessment year unless income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Clause (c) deals with situation where limitation is extended upto sixteen years but escaped income must relate to any asset located outside India. 29 Insofar present case is concerned, assessment year is 2012-13. assessment year ends on 31.03.2013. In this case impugned notice under section 148 of Act was issued on 31.03.2019. Therefore, it is case of re-opening of assessment under section 149 (1) (b) of Act after expiry of four years but before expiry of six years. Borey 28/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 29.1. Of course limitation point though pleaded in writ petition, has been given up by Petitioner following filing of affidavit by Respondents which clearly shows that re-opening notice was issued within limitation period of six years. 30 In such case, first condition for invoking section 147 is that Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment for relevant assessment year. second condition is that Assessing Officer must arrive at satisfaction that income chargeable to tax has escaped assessment for said assessment year by reason of failure on part of assessee to make return under section 139 or to respond to notice under section 142(1) or section 148 or due to failure on part of assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Borey 29/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 31 key or crucial expressions appearing in section 147 are reason to believe and failure to disclose fully and truly all material facts necessary for assessment . 31.1 Before dilating on these two expressions, it would be apposite to refer to section 148 of Act, which deals with issue of notice where income has escaped assessment. As per sub-section (1), before making assessment, re-assessment or re- computation under section 147, notice in prescribed form is required to be served upon assessee by Assessing Officer, calling upon him to file return of income in terms of such notice within period specified and in such event return so filed would be construed to be return filed under section 139. As per sub-section (2) of said section, Assessing Officer shall before issuing any notice under section 148, record his reasons for doing so. Borey 30/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 31.2 In GKN Driveshafts (India) Ltd. (supra), Supreme Court held that when notice under section 148 of Act is issued, proper course of action for assessee is to file return and if he so desires, to seek reasons for issuing notice. If sought for, Assessing Officer is bound to furnish reasons within reasonable time. On receipt of reasons, noticee is entitled to file objections to notice in which event Assessing Officer would be under obligation to dispose off same by passing speaking order. 32 Reverting back to two expressions as noticed above, we may mention that these two expressions were examined and interpreted in great detail by Supreme Court in Income Tax Officer vs. Lakhmani Mewal Das, reported in 103 ITR 437. That was also case where notice under section 148 of Act was put to challenge. Though provisions of section 147 of Act as it existed then have since Borey 31/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc been reconstructed and have undergone change, two key expressions continue to retain their relevance in so far section 147 of Act is concerned. It may further be noticed that in Lakhmani Mewal Das (supra), Supreme Court was considering validity of notice under Section 148 in respect of assessment beyond period of four years but within period of eight years from end of relevant year. Supreme Court observed that in such case, two conditions would have to be satisfied before Income Tax Officer acquires jurisdiction to issue notice. These two conditions are - 1. He must have reason to believe that income chargeable to tax has escaped assessment; and 2. He must have reason to believe that such income has escaped assessment by reason of omission or failure on part of assessee to make return under section 139 for asessment year under consideration or to disclose fully and truly all material facts necessary for his assessment for that year. Borey 32/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 32.1 Both two conditions must co-exist in order to confer jurisdiction on Income Tax Officer. Supreme Court observed that duty is cast upon assessee to make true and full disclosure of primary facts at time of original assessment. Production before Income Tax Officer books of accounts or other evidence from which material evidence with due diligence could have been discovered by Income Tax Officer will not necessarily amount to disclosure contemplated by law but duty of assessee in any case does not extend beyond making true and full disclosure of primary facts. Once he has done that, his duty ends. It is for Income Tax Officer to draw correct inference from primary facts. If Income Tax Officer draws inference, which appears subsequently to be erroneous, it would amount to change of opinion and mere change of opinion with regard to that inference would not justify initiation of action for re-opening assessment. Borey 33/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc 32.2 grounds or reasons which led to formation of belief that income chargeable to tax has escaped assessment must have material bearing on question of escapement of income of assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exists reasonable grounds for Income Tax Officer to form above belief that would be sufficient to clothe him with jurisdiction to issue notice. However, sufficiency of grounds is not justiceable. expression reason to believe does not mean purely subjective satisfaction on part of Income Tax Officer. reason must be held in good faith. It cannot be merely pretence. It is open to court to examine whether reasons for formation of belief have rational connection with or relevant bearing on formation of belief and are not extraneous or irrelevant. To this limited extent, initiation of proceedings in respect of Borey 34/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc income escaping assessment is open to challenge in court of law. 32.3 Dilating further, Supreme Court held that reasons for formation of belief must have rational connection with or relevant bearing on formation of belief. Rational connection postulates that there must be direct nexus or live link between material coming to notice of Income Tax Officer and formation of his belief that there has been escapement of income of assessee from assessment in particular year because of his failure to disclose fully and truly all material facts. But it has to be borne in mind that it is not any and every material howsoever vague and indefinite or distant, remote and far-fetched which would warrant formation of belief relating to escapement of income. Moreover, powers of Income Tax Officer to reopen assessment, though wide are not plenary. words of statute are reason to believe and not reason Borey 35/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc to suspect . Reopening of assessment after lapse of many years is serious matter. 33 It may be mentioned here that proposition of law enunciated in Lakhmani Mewal Das (supra) has withstood test of time and is being consistently applied while examining challenge to notice issued under section 148 of Act. 34 In Prashant S. Joshi -vs- ITO, 324 ITR 154, this Court observed that basic postulate which underlines section 147 is formation of belief by Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year. In other words, Assessing Officer must have reason to believe that income chargeable to tax for particular assessment year has escaped assessment for relevant assessment year before he proceeds to issue notice under section 148. reasons which are recorded by Assessing Officer for re-opening Borey 36/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc assessment are only reasons which can be considered when formation of belief is impugned. Recording of reasons distinguishes objective from subjective exercise of power and is check against arbitrary exercise of power. reasons which are recorded cannot be supplemented subsequently by affidavits. question as to whether there was reason to believe within meaning of section 147 that income has escaped assessment must be determined with reference to reasons recorded by Assessing Officer. Even in case where only intimation is issued under section 143(1), touchstone to be applied is as to whether there was reason to believe that income had escaped assessment. 35 Having discussed above, we may once again revert back to reasons furnished by Respondent No. 2 for re-opening of assessment under section 147 of Act. After referring to information received following search and seizure action carried out Borey 37/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc in premises of Shri Naresh Jain, it was stated that information showed that Petitioner had traded in shares of M/s. Scan Steels Ltd., and was in receipt of Rs. 23,98,014.00 and therefore, Respondent No. 2 concluded that he had reasons to believe that this amount had escaped assessment within meaning of section 147 of Act. 36 First of all it would be evident from materials on record that Petitioner had disclosed above information to Assessing Officer in course of assessment proceedings. All related details and information sought for by Assessing Officer were furnished by petitioner. Several hearings took place in this regard where-after Assessing Officer had concluded assessment proceedings by passing assessment order under section 143 (3) of Act. Thus it would appear that Petitioner had disclosed primary facts at its disposal to Assessing Officer for purpose of assessment. He Borey 38/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc had also explained whatever queries were put by Assessing Officer with regard to primary facts during hearings. 37 In such circumstances, it cannot be said that Petitioner did not disclose fully and truly all material facts necessary for assessment. Consequently, Respondent No. 2 could not have arrived at satisfaction that he had reasons to believe that income chargeable to tax had escaped assessment. In absence of same, Respondent No. 2 could not have assumed jurisdiction and issued impugned notice under section 148 of Act. 38 That apart, Respondents have tried to traverse beyond disclosed reasons in their affidavit which is not permissible. same cannot be taken into consideration, while examining validity of notice under section 148. As has been held in Prashant S. Joshi (supra), reasons which are Borey 39/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: spb/ 01WP2518-19-Jd.doc recorded by Assessing Officer for re-opening assessment are only reasons which can be considered when formation of belief is impugned; such reasons cannot be supplemented subsequently by affidavit (s). 39 Therefore, in light of discussions made above, we are of view that attempt made by Respondent No.2 to reopen concluded assessment is not at all justified and consequently impugned notice cannot be sustained. 40 Accordingly, we allow Writ Petition by setting aside impugned notice dated 31.03.2019 issued under section 148 of Act and also impugned order dated 26.08.2019. However, there shall be no order as to costs. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) .. Borey 40/40 ::: Uploaded on - 26/06/2020 ::: Downloaded on - 11/07/2020 12:22:33 ::: Gateway Leasing Pvt. Ltd. v. Assistant Commissioner of Income-tax-1(1)(2), Mumbai / Deputy Commissioner of Income-tax 1(1)(2), Mumbai / Principal Commissioner of Income-tax-1, Mumbai / Union of India