Per Mahavir Singh, Judicial Member. - This appeal by the revenue and the cross-objection by the assessee are emanating out of the order of the CIT (Appeals)-III, Chennai dated 4-10-2002. The assessment was framed by the Assessing Officer under section 143(3) read with section 147 of the Income-tax Act, 1961 for the assessment year 1997-98.

2. At the outset, the ld. counsel of the assessee made a mention during the course of hearing that the cross-objection of the assessee be taken first for hearing as the jurisdictional issues are raised by the assessee by way of cross-objections. The ld. DR agreed to this.

CO 1/2003

3. The first issue in the cross-objection is regarding reopening of the assessment under section 147 read with section 148 of the Act. The briefly stated facts are that the assessee-company filed its return of income for the relevant assessment year on 26-11-1997, which was revised on 18-3-1998. The revised return was taken up for scrutiny by the Assessing Officer by issuing notice under section 143(2) and completed the assessment under section 143(3) of the Act vide order dated 31-3-1998. It is seen from the said assessment order that, inter alia, the following issues were discussed:—

(1) On the issue regarding non-competition fees, the Assessing Officer has dealt with as under:—

"During the year the assessee has entered into an agreement with Bayer AG Associate Companies on 14-10-1996. Under clause 3 of the agreement, the Company is to transfer its land, factory building, Plant and Machinery to Bayer Indian Syntane Ltd. Accordingly the assessee has transferred the assets, apart from this the assessee received non-competition fees one time Rs. 14,77,53,000. This amount is not taxable as per the decision of the Madras High Court in CIT v. G D Naidu reported in 165 ITR 63 (Mad.)."

(2) The second issue is regarding receipt towards sale of technical know-how and the Assessing Officer in his order has dealt with the issue as under:—

"Further I have noticed that the assessee has claimed sale of technical know-how on closure of business consideration of Rs. 9,22,60,000 as exemption. I am not agreeing with this claim. The technical know how is an expenditure but here the assessee received for surrendering technology and know-how on closure of business. Hence it is sold along with Plant & Machinery and land. Hence it is a capital receipt and Long Term Capital gains attracts. Therefore, the entire amount of Rs. 9,22,60,000 is added as Capital Gains. Even after adding this the assessee gets tax benefit under section 54EA of the Act."

4. Subsequently this assessment was reopened by issuance of notice under section 148 dated 29-11-1999. The assessee vide letter dated 7-2-2000 requested the Assessing Officer to treat the originally filed return on 18-3-1998 as return filed in response to this notice. The Assessing Officer to complete the reassessment proceedings issued a notice under section 143(2) of the Act dated 1-11-2001 posting the case for 16-11-2001. Since there was no response to this notice, the Assessing Officer issued a letter dated 14-12-2001 where non-compliance of notice under section 143(2) dated 1-11-2001 was brought to the notice of the assessee and request was made for appearance on 20-12-2001. In response to these notices, the Assessing Officer proceeded to frame the assessment and the assessee participated in the reassessment proceedings without prejudice to the right available under law as regards non-receipt of notice under section 143(2). The assessee contended that after the issuance of notice under section 148, no notice whatsoever was served on the assessee under section 143(2) of the Act. The Assessing Officer proceeded to frame the assessment by making various additions. Aggrieved on this issue, the assessee preferred appeal before the CIT (Appeals). The CIT (Appeals) has confirmed the reopening.

5. Aggrieved, now the assessee is in cross-objections before us. The ld. counsel of the assessee, Shri T. Banusekar, argued on behalf of the assessee and on the other hand, the ld. DR, Shri Shaji P. Jacob argued.

6. We have heard the rival contentions and perused the case records. We have also gone through the written submissions filed by the assessee as well as the paperbook containing pages 1-94. The ld. DR filed copies from assessment records of order sheet entry as well as reasons for reopening and notice under section 143(2) dated 1-11-2001 and letter dated 14-12-2001. The assessee also filed the relevant pages of the report of Comptroller and Auditor General of India for the year ended March, 2000 and March, 2001 issued by the Union Government (Direct Taxes) No. 12/2001 and No. 12 of 2002.

7. After hearing the rival contentions and perusing the case records including documents filed by both the sides, we narrate the facts as under. The relevant assessment year involved is 1997-98 and the assessment was completed under section 143(3) of the Act vide order dated 31-3-1998. Subsequently, a notice under section 148 was issued dated 29-11-1999 for reopening of the assessment. The Assessing Officer has recorded the following reasons for reopening the assessment:—

"Reasons for reopening the assessment :

(1) For claiming the deduction under section 80HHC the assessee has not excluded from Interest receipt of Rs. 1,15,95,243, Misc. income of Rs. 16,43,874 and Rent of Rs. 63,000 from Business income. 90 per cent of above receipts have not been reduced from Business income for working out 80HHC deduction so claimed higher deduction under section 80HHC.

(2) The assessee has received lump-sum sale consideration of tangible and intangible assets of Rs. 19,74,76,000 and treated the same as capital receipt. This amount should be treated as Income chargeable to tax as per Explanation ( 2) to clause (vii) of sub-section (1) of section 9.

(3) The lump-sum consideration of Rs. 9,22,60,000 for transferring, assigning and surrendering technical know-how as Income chargeable to tax as per Explanation (2) to clause (vii ) of sub-section (1) of section 9. This is treated as capital receipt by the assessee.

(4) The assessee’s claim of Rs. 16,50,000 as Management fees on transaction with REPL Mumbai which has been accepted by the assessee as illegal and bogus in the revised return. The claim is not admissible.

(5) The amount received on profit on sale of fixed assets of Rs. 34,23,075 and Rs. 24,00,13,000 on surrender of technical know-how and other tangible/intangible assets have been taken to Reserve & Surplus in the Balance sheet without crediting P&L a/c even though the regular method of accounting is Mercantile system and the amount should have been credited to P & L a/c as per their method of accounting. The above sums have not been into a/c for working out tax liability under section 115JA.

In view of above facts, I have reason to believe that income chargeable to tax has escaped assessment. So the assessment order passed on 31-3-1998 for assessment year 1997-98 is reopened under section 147 of the Income-tax Act.

Issue notice under section 148 of the Income-tax Act."

8. In view of these reasons, the assessment was reopened. The ld. counsel of the assessee has vehemently argued that the notice under section 148 dated 29-11-1999 was issued to the assessee on the ground that incorrect exemption was granted in the original assessment which had resulted in escapement of income chargeable to tax. The assessee raised objection regarding validity of reopening of the assessment by letter dated 2-6-2000 on the ground that a validly concluded assessment after proper enquiry cannot be reopened merely on a change of opinion. The Assessing Officer as well as the CIT (Appeals) rejected the objection. The ld. counsel further argued that the assessment was reopened as can be seen from the recording of reasons contained in the order sheet. In view of the order sheet and assessment order dated 31-3-1998, it is now settled law that the validity of the reopening has to be decided with reference to recording of reasons to judge as to whether there is a nexus between the material before the Assessing Officer at the time of recording of reasons and reason to believe that income chargeable to tax has escaped assessment. The stand of the assessee is that original assessment was completed under section 143(3) after the examination of the case in detail and assessment once concluded cannot be disturbed on a mere change of opinion. He further argued that the Assessing Officer as well as the CIT (Appeals) have held that the law had since been amended with effect from 1-4-1989 and in view of the amended law, the Assessing Officer was entitled to have a relook at the same set of facts although the assessee may not be guilty of non-disclosure of material facts. It was also argued before us that the reopening at the instance of the audit has to be seen from the CAG’s report which clearly indicates that they had expressed an opinion of question of law, which was beyond their jurisdiction and so this ground of reopening was open to doubts.

9. On the other hand, the ld. DR argued that the reopening is within four years and relevant assessment year in the case of the assessee is not hit by the proviso to section 147 of the Act. He further argued that as per the provisions of the section 147 Explanation (2)(c ), where an assessment has been made, but income chargeable to tax has been under-assessed; or such income has been assessed at too low a rate; or such income has been made the subject of excessive relief under this Act; or excessive loss or depreciation allowance or any other allowance under this Act has been computed, then the Assessing Officer can reopen the assessment. He argued that the relevant assessment year involved is 1997-98 and the assessment year ended on 31-3-1998 and the reopening was done on 29-11-1999. In view of this, he argued that the reopening is as per the provisions of the Act and accordingly he urged the Bench to confirm the order of the CIT (Appeals) on this issue.

10. It is seen from the reasons recorded reproduced in the above paragraph 7, the reasons are regarding (i) excessive claim of deduction under section 80HHC on account of interest receipt, miscellaneous income and rent treated as business income, (ii) incorrect allowance of exemption under section 54 for the lump sum transfer of technology, (iii) incorrect computation of working of the capital gains, (iv) incorrect computation of working of taxability under section 115JA and (v) computation of receipt as non-compete fee. Further, in the report of the Comptroller & Auditor General of India for the year ended March, 2001 and March, 2000, Union Government (Direct Taxes) No. 12 of 2002 and No. 12 of 2001, the assessee’s case is mentioned as under:—

For the year ended March, 2001

Table 3.17 INCOME ESCAPING ASSESSMENT

For the year ended March, 2000

11. After going through the reports of the CAG and reasons recorded by the Assessing Officer for reopening the assessment, we have gone through the order of the Assessing Officer. The Assessing Officer in her reassessment order at page 3 has dealt with the issue regarding reopening on change of opinion as under:—

"In this regard, I wish to point out that the reopening was not based on mere change of opinion. In fact the provisions for reopening in the Income-tax Act provides by way of Explanation under the section 147 that, the failure on the part of Assessing Officer to investigate the accounts produced with due diligence will not be considered as full and true disclosure by the assessee. That is, it is to be understood that even if the assessee had produced the books of account and the Assessing Officer failed to detect the mistake, it will not necessarily debar the assessment from being reopened in order to bring to tax the escaped income.

In any case, what needs to be emphasized, is that the obligation is on the assessee to disclose the material facts or the primary facts fully and truly. That is, the assessee is not just expected to disclose but to make a full and true disclosure. A false assertion, or statement, of material fact, therefore, attraction the jurisdiction of the Assessing Officer under section 147. This view is supported in the case of Sri Krishna Pvt. Ltd. v. ITO [1996] 221 ITR 538 SC and in the case of Pool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC).

In the instant case, it has already been brought out once, in the earlier para, as to how, the assessee had almost got away, with the furnishing of inaccurate particulars of income, in respect of claiming wrong depreciation, on an asset which did not exist at all. But for the investigation, assessee would have joyfully got away with his tax evasion, to the extent of a whopping of Rs. 300 lakhs, for two assessment years. It will also be pointed out in the subsequent paras, as to how, there is still a case for wrong furnishing of facts by the assessee-company, clearly justifying the reopening proceedings."

12. Further, the CIT (Appeals) has confirmed the reopening vide para 2.2 as under:—

"2.2 Appellant’s submissions as contained in the above grounds have been carefully considered. I am unable to agree with the submission made by the appellant in view of the decision in the case of Rakesh Agarwal… v. The Assistant Commissioner Of Income-Tax…. (225 ITR 497/6 - Delhi) and P.C. Patel v. ACIT (236 ITR 833 - Guj.). Reliance can also be made on the following case laws :"

13. It can be seen from the reassessment order passed by the Assessing Officer that she has discussed that Income-tax Act provides in section 147 Explanation that the failure on the part of the Assessing Officer to investigate the accounts produced with due diligence will not be considered as full and true disclosure by the assessee and it is to be understood even if the assessee had produced the books of account and the Assessing Officer failed to detect the mistake, it will not necessarily debar the assessment from being reopened in order to bring to tax the escaped income.

14. We have gone through the relevant Explanation (1) to section 147, which reads as under:—

"Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso."

15. It is seen that the Assessing Officer has invoked Explanation (1) to section 147. In this Explanation (1) to section 147, the expression "material facts" and "not necessarily" for which the meaning of these expressions in Taxmann’s Direct Taxes Manual, Vol. III is provided as under:—

"The expression ‘Material facts’ in clause (a) of section 147 for reopening and ‘concealed the particulars of his income or furnished inaccurate particulars of such income’ in section 271(1)(c) are different."

"The words ‘not necessarily’ as appearing in Explanation 2 only indicate that whether there is a disclosure or not within the meaning of section 147(a) would depend on the facts and circumstances of each case. To put it differently, it would be the nature of documents and the circumstances in which these are produced before the Assessing Officer that will determine the question."

It is a fact that only when the case falls under the proviso to section 147, the question of non-disclosure of material facts would become relevant and if the assessee has made full disclosure of the material facts, then even if such income has escaped assessment, no action can be initiated by the Assessing Officer under section 147. Where however the said period of four years has not expired, then the disclosure of material facts need not be the basis for initiating reassessment proceedings and those can be commenced if the Assessing Officer has reason to believe that income has escaped assessment, notwithstanding that there was full disclosure of material facts on record. However, the assessee in such cases can defend the initiation of action on the ground that facts were already placed on record and the Assessing Officer must have or ought to have considered the same. Explanation (1) to section 147 has a bearing on disclosure aspect and it applies to the assessment under section 147 to the extent it allows initiation of proceedings under section 147 on account of non-disclosure of material facts by the assessee. This view has been supported by the decision of the Hon’ble Gujarat High Court in the case of (1) Praful Chunilal Patel v. (2) Vasant Chunilal Patel [1999] 236 ITR 832.

16. The basic requirement for initiating reassessment proceedings under section 147 is that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment for that assessment year. Further what is necessary for assuming jurisdiction under section 147 is that the Assessing Officer shall record his reasons for issuing notice mandated by section 148(2) and the same postulates that before the Assessing Officer is satisfied to act under section 147, he must put in writing as to why in his opinion or why he holds the belief that income has escaped assessment. Where the Assessing Officer holds the opinion that because of excessive loss or depreciation allowance the income has escaped assessment, the reasons recorded by the Assessing Officer must disclose by what process of reasoning he holds such belief that excessive loss or depreciation allowance or any other deduction has been wrongly computed in the original assessment. Merely recording the reason that excessive loss or depreciation allowance or other deduction have been computed without disclosing the reasons by which the Assessing Officer holds such belief does not confer jurisdiction to take action under section 147 of the Act. No doubt there is wide scope for taking action under section 147, but it does not confer jurisdiction on interpretation of a particular provision earlier adopted by the Assessing Officer. The scope of section 147 is not for reversing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier. This view has been supported by the Hon’ble Gujarat High Court in the case of VXL India Ltd. v. Asstt. CIT [1995] 215 ITR 295¹ and Birla Vxl Ltd. v. Assistant Commissioner Of Income-Tax [1996] 217 ITR 1 (Guj.).

17. The Hon’ble Delhi High Court in the case of Jindal Photo Films Ltd v. The Deputy Commissioner Of Income-Tax. [1998] 234 ITR 170² has held that the fact which could have been discovered by the Assessing Officer but were not so discovered at the time of original assessment may not constitute a new information. In that view of the matter where the Assessing Officer has formed the opinion that income has escaped assessment because he has allowed deduction under section 80-I wrongly and even though in recording the reasons the Assessing Officer has used the phrase ‘reason to believe’, then in between the date of the original assessment and forming of opinion by the Assessing Officer to reopen the assessment, nothing new has happened and then there is no change in law, no new material has come to the fore, no new information has been received and in such circumstances it can be said that there is a fresh application of mind by the Assessing Officer to the same set of facts. Then it is a case of mere change of opinion which does not provide jurisdiction to initiate proceedings under section 147 as operative from 1-4-1989.

18. In the present case also, after going through the reasons and original assessment order, it is seen that the Assessing Officer has recorded reasons that the assessee has not excluded interest receipt, miscellaneous income, rent from business income and 90 per cent of the above should have been reduced from business income for working out the deduction under section 80HHC. Further the disallowance of management fee in the absence of evidence, receipt of non-competing fee treated as capital in nature based on the case law of the Hon’ble jurisdictional High Court in the case of CIT v. G.D. Naidu [1987] 165 ITR 63³ (Mad.) and receipt towards sale of technical know-how. The Assessing Officer about these reasons has given only one sentence which reads as under:—

"In view of above facts, I have reason to believe that income chargeable to tax to the tune of crores of rupees has escaped assessment. So the assessment order passed on 31-3-1998 for assessment year 1997-98 is reopened under section 147 of the Income-tax Act."

19. Further, the Hon’ble Madras High Court has clearly held in Fenner (India) Ltd. v. Dy. CIT [2000] 241 ITR 672¹ after discussing the reasons recorded by the Assessing Officer, as under:—

"The first reason set out in the counter-affidavits is that excessive deduction had been allowed under section 80HHC. The assessee has placed before the Assessing Officer all statements, a perusal of which clearly shows that all the materials required for calculating the extent of benefits under section 80HHC and the actual calculation has been placed before the officer. The mistake, if any, is solely due to the mistake made by the officer and is not a mistake that is attributable to any failure on the part of the assessee. This fact is not seriously disputed by the learned counsel for the revenue.

The second reason given is that there has been excessive allowance under section 32AB of the Act and, therefore some part of the income chargeable to tax has escaped assessment. Here again the detailed working given to the Assessing Officer, a copy of which has been placed before the court, shows that the mistake, if any, is a mistake committed by the Assessing Officer and is not a mistake that is attributable to the assessee’s failure to place fully and truly the material facts.

It is the third and last reason which was sought to be sustained by the learned counsel for the revenue as affording sufficient basis for the notice under section 147. This relates to Modvat adjustment of Rs. 157.83 lakhs towards the excise duty paid by the assessee on the products manufactured by it."

The court finally held as under:—

"It is not the case of the revenue that it is a requirement of any statute, rule or regulation of any known accounting practice that the excise duty paid and set out in the balance-sheet or profit and loss account should show the break-up of the Modvat adjustment or that the extent of the credit in the Modvat accrual account should be shown as part of the income or of the profit in the profit and loss account. If the Assessing Officer was of the view that the amount available in the Modvat accrual amount was required to be treated as part of assessee’s income for the year of account, the Assessing Officer should have proceeded to compute the income by taking the same into account.

The duty of an assessee is limited to fully and truly disclosing all the material facts. The assessee is not required thereafter to prepare a draft assessment order. If the details placed by the assessee before the Assessing Officer were in conformity with the requirements of all applicable laws and known accounting principles, and material details had been exhibited before the Assessing Officer, it is for the Assessing Officer to reach such conclusions as he considered was warranted from such data and any failure on his part to do so cannot be regarded as the assessee’s failure to furnish the material facts truly and fully. Any lack of comprehension on the part of the Assessing Officer in understanding the details placed before him cannot confer a jurisdiction for reopening the assessment, long after the period of four years had expired. On the facts of this case, it is clear that the escapement of income, if any, on this account is not on account of any failure on the assessee’s part to disclose the material facts fully and truly. The notice issued by the Assessing Officer in exercise of his power under section 147, therefore, cannot be sustained."

20. Further, the Hon’ble Delhi High Court (Full Bench) in the case of Commissioner Of Income-Tax v. Kelvinator Of India Ltd. [2002] 256 ITR 1 ¹ has held as under:—

"The Board in exercise of its jurisdiction under the aforementioned provisions had issued the circular on 31-10-1989. The said circular admittedly is binding on the revenue. The authority, therefore, could not have taken a view, which would run counter to the mandate of the said circular. Clause 7.2 as referred to hereinbefore is important.

From a perusal of clause 7.2 of the said circular it would appear that in no uncertain terms it was stated as to under what circumstances the amendments had been carried out, i.e., only with a view to allay fears that the omission of the expression "reason to believe" from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion.

It is, therefore, evident that even according to the Central Board of Direct Taxes a mere change of opinion cannot form the basis for reopening a completed assessment.

The submission of Mr. Jolly to the effect that the said circular cannot be construed in such a manner whereby the jurisdiction of the statutory authority would be taken away is not apposite for the purpose of this case. In Union of India’s case, AIR SC 849; [1996] 11 SCC 701, whereupon Mr. Jolly had placed strong reliance, the Apex Court was dealing with administrative instructions whereby no right was conferred upon the respondents to have the house rent amount included in their emoluments for the purpose of computing overtime allowance. The Apex Court held that otherwise also the Government’s instructions have to be read in conformity with the provisions of the Act. Therein the Apex Court was not concerned with the statutory powers of a statutory authority to issue binding circulars.

Another aspect of the matter also cannot be lost sight of. A statute conferring an arbitrary power may be held to be ultra vires article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favoured.

In the event it is held that by reason of section 147 if the Income-tax Officer exercises his jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held to be unconstitutional. We are, therefore, of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon his mere change of opinion.

We, however, may hasten to add that if "reason to believe" of the Assessing Officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act.

We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself.

We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submissions is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong."

21. The Hon’ble Supreme Court in the case of CIT v. Foramer France [2003] 264 ITR 566¹ has affirmed the decision of the Hon’ble Allahabad High Court in Foramer v. CIT [2001] 247 ITR 436 ². The Allahabad High Court has dealt with the law applicable on change of opinion and held that there is no difference between the law prior to substitution and after substitution of section 147 by Direct Tax Laws (Amendment) Act, 1987. The Hon’ble High Court laid down the principle as under:—

"In our opinion, we have to see the law prevailing on the date of issue of the notice under section 148, i.e., 20-11-1998. Admittedly, by that date, the new section 147 has come into force and, hence, in our opinion, it is the new section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.

Learned departmental counsel relied on section 153(3)(ii) of the Income-tax Act and submitted that there was no bar of limitation in view of the said provision. We do not agree. Section 153 relates to passing of an order of assessment and it does not relate to issuing of notice under section 147/148. Moreover, this is not a case where reassessment is sought to be made in consequence of or to give effect to any finding or direction contained in the order of the Tribunal in Boudier Christian’s case. As already stated above, Boudier Christian’s case related to the employees of the company, whereas the impugned notice has been issued to the company. Hence it cannot be said that the proposed reassessment in consequence of the impugned notice would be in consequence of or to give effect to any findings of the Tribunal in Boudier Christian’s case.

A direction or finding as contemplated by section 153(3)(ii) must be a finding necessary for the disposal of a particular case, that is to say, in respect of the particular assessee and in relevance to a particular assessment year. To be a necessary finding it must be directly involved in the disposal of the case. To be a direction as contemplated by section 153(3) it must be an express direction necessary for the disposal of the case before the authority or court vide Rajinder Nath v. CIT [1979] 120 ITR 14 (SC); Gupta Traders v. Commissioner Of Income-Tax, Kanpur. [1982] 135 ITR 504 (All); CIT v. Tarajan Tea Co. (P.) Ltd. [1999] 236 ITR 477 (SC) and Commissioner Of Income-Tax, Kanpur v. Goel Brothers. [1982] 135 ITR 511 (All), etc. The case of an expatriate employee was to be decided on the basis of the provisions of article XIV of the treaty, whereas corporate income was to be decided on the basis of either article III or article XVI of the treaty or section 44BB of the Act. Hence, the observations of the Tribunal in Boudier Christian’s case was not a direction necessary for the disposal of the appeal relating to the petitioner. The exigibility of income of the petitioner from manning and management contracts was never an issue directly or indirectly involved in the case of Boudier Christian.

Moreover, the Tribunal in the appeal relating to the assessment of the petitioner’s own case, vide Deputy CIT v. ONGC [1999] 70 ITD 468 (Delhi) has considered the decision of the Tribunal in Boudier Christian’s case. It is settled law that an appeal is a continuation of the original proceedings and hence when the Tribunal in the appeal relating to the petitioner has considered the decision of the Tribunal in Boudier Christian’s case, the impugned notice under section 147/148 would obviously be on the basis of a mere change of opinion by the income-tax authorities, which would not be valid as held by the Supreme Court in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996; Gemini Leather Stores v. ITO [1975] 100 ITR 1 (SC) and Jindal Photo Films Ltd v. The Deputy Commissioner Of Income-Tax. [1998] 234 ITR 170 (Delhi) etc.

In the decision of the Tribunal in the assessee’s own case, Deputy CIT v. ONGC [1999] 70 ITD 468 (Delhi) it has been held that the income from the contract between the parties was business income and not fee for technical services.

Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessee-company had considered the Tribunal’s earlier decision in Boudier Christian’s case, it will obviously amount to mere change of opinion, and hence the notice under section 147/148 would be illegal."

22. The Hon’ble Apex Court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 has laid down the principle that once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of fact can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else - far less the assessee - to tell the assessing authority what inferences, whether of fact or of law, should be drawn. Further, the Apex Court in this case has held that what is to be remembered is that people often differ as regards what inferences should be drawn from given facts, then it will be meaningless to demand that the assessee must disclose what inferences, rather the Assessing Officer would draw inferences from the primary facts. Even after the insertion of Explanation to section 147, the position remains that so far as primary facts are concerned, it is assessee’s duty to disclose all of them, including particular entries in account books, particular portions of documents as well as documents and other evidences which could have been discovered by the assessing authority from the documents and other evidence disclosed. Here in the present case, as is seen from the original assessment order, the assessee has disclosed all the primary facts which has been discussed in the original assessment order and even the assertion made by the Assessing Officer in the reassessment order that in respect of claiming depreciation of an asset which did not exist at all, but for the investigation, assessee would have joyfully got away with his tax evasion, to the extent of a whopping Rs. 300 lakhs, for two assessment years. It is seen from the original assessment order that the assessee has filed the revised return disallowing the depreciation claimed himself and paid the taxes fully before 31-3-1998. This cannot be the subject-matter for reopening. The Hon’ble Apex Court in the case of Gemini Leather Stores (supra) where the decision of the Calcutta Discount Co. Ltd. (supra) has been followed, has held as under :—

"It appears that the Income-tax Officer had written a detailed order in making his best judgment assessment. Having found out all about the drafts which were not mentioned in the assessee’s books of account, the Income-tax Officer gave the partners of the firm opportunity to explain the drafts. Referring to the statement of one of the partners, Shri Om Prakash, the Income-tax Officer observed in his order :

‘He has said that the drafts which were sent by him relating to Messrs. Gemini Leather Stores were entered in the books of the firm while other drafts which he has made would be of others whose name he does not remember. As he is unable to tell to whom other drafts sent by him relate in spite of specific opportunities given to him, the obvious inference is that moneys of the drafts are that of the firm with which he is connected.’

Referring to the circumstances in which these drafts had been sent or received, the Income-tax Officer further observed :

‘Since these drafts have been sent or received in such circumstances and by such persons connected with the firm the conclusion is obvious that these drafts relate to the firm.’

It is not disputed that the case falls under clause (a) of section 147. The question is whether the Income-tax Officer had reason to believe that income chargeable to tax had escaped assessment for the assessment year in question by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The law on the point has been settled by this Court in Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 ITR 191 (SC). The decision in Calcutta Discount Co.’s case is based on section 34 of the Income-tax Act, 1922, the provisions of which correspond to those of sections 147 and 148 of the Income-tax Act, 1961; the points of departure from the old law are not material for the purpose of this case. The position is stated in Calcutta Discount Co. Ltd.’s case as follows :

‘In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as regards certain other facts; and ultimately from the primary facts and the further facts inferred from the authority has to draw the proper legal inferences...... Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else - far less the assessee - to tell the asssessing authority what inferences, whether of facts or law, should be drawn.’

The law laid down in Calcutta Discount Co. Ltd.’s case has been restated in several subsequent decisions of this Court : Commissioner of Income-tax v. Hemchandra Kar [1970] 77 ITR 1 (SC), Commissioner of Income-tax v. Bhanji Lavji [1970] 79 ITR 582 (SC) and Commissioner Of Income Tax, Calcutta v. Burlop Dealers Ltd.† [1971] 79 ITR 609 (SC), to name only a few. In the case before us the assessee did not disclose the transactions evidenced by the drafts which the Income-tax Officer discovered. After this discovery the Income-tax Officer had in his possession all the primary facts, and it was for him to make necessary enquiries and draw proper inference as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. This the Income-tax Officer did not do. It was plainly a case of over-sight, and it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The Income-tax Officer had all the material facts before him when he made the original assessment. He cannot now take recourse to section 147(a) to remedy the error resulting from his own oversight."

23. Going by the reasons recorded in the present case, it is seen from the records that the Assessing Officer has not given any failure on the part of the assessee to disclose the material facts whereas in the original assessment order all the details are discussed and after discussion and following the case laws, allowed the claim of the assessee, whether this tantamounts to change of opinion for reopening. For this, we will go to the case law of the Hon’ble Apex Court in the case of ITO v. Nawab Mir Barkat Ali Khan Bahadur [1974] 97 ITR 239, where it was held as under :—

"The question is whether the existence of the two trust deeds executed by the respondent in 1957 was a material fact necessary for his assessment for the relevant assessment years. The fact that the three ladies and their children have been described in these two documents as wives and children of the respondent would have been material if the description were anything new that the Income-tax Officer happened to discover for the first time. The three trust deeds of 1950 also contained the same description of these ladies and their children and the Income-tax Officer accepted the statement made by the respondent’s financial adviser, Shri C.B. Taraporewala, seeking to explain why the ladies had been described as wives therein. It is true that the trust deeds of 1957 were not produced at the time of the original assessments, but we do not see what difference production of these two additional documents could have made which contain the same description of the ladies. Neither the letter addressed to the respondent’s authorised representatives, M/s. S.G. Dastgir and Company, by the Income-tax Officer on April 15, 1954, nor the counter-affidavit filed in the High Court explains this point. The documents of 1957 conform to those of 1950 in material particulars; the trust deeds of 1957 only repeat what the deeds of 1950 had disclosed. Non-production of the documents executed in 1957, at the time of original assessments cannot, therefore, be regarded as non-disclosure of any material fact necessary for the assessment of the respondent for the relevant assessment years. The High Court was right in holding that the Income-tax Officer had no valid reason to believe that the respondent had omitted or failed to disclose fully and truly all material facts and consequently had no jurisdiction to reopen the assessments for the four years in question. Having second thoughts on the same material does not warrant the initiation of a proceeding under section 147 of the Income-tax Act, 1961.

Mr. Manchanda, the learned counsel for the appellant, took us through several sections of Mulla’s Principles of Mohamedan Law including section 268 and submitted that in the circumstances of the case it must be presumed that the three ladies were the legally wedded wives of the respondent. The law has not changed since the original assessments were made and it was open to the Income-tax Officer to make that presumption at the time. If he should have but did not do so then, he cannot avail of section 147 to correct that mistake. In any event, we are not called upon in this proceeding to record a finding on the question whether in fact the ladies were the respondent’s legally wedded wives. We are concerned only with the question whether the condition precedent to the exercise of jurisdiction under section 147 exists in this case; we have found that it does not."

24. The Hon’ble Supreme Court in the case of CIT v. Bhanji Lavji [1971] 79 ITR 582 at pages 587-588 held as under:—

"In our judgment, the High Court was right in holding that the Tribunal misconceived the nature of the proceedings and the duty imposed upon the assessee by section 34(1)(a). It is not for the assessee to satisfy the Income-tax Officer that there was no concealment with regard to any question; it is for the Income-tax Officer, if that issue is raised, to establish that the assessee had failed to disclose fully and truly certain facts material to the assessment of income which had escaped assessment. Failure to disclose how the delivery of ghee was given at Porbandar was wholly irrelevant, and failure to furnish particulars in that behalf cannot assist the case of the department. Observation relating to the failure to disclose the price of ghee supplied is not strictly accurate, for it was disclosed by the assessee’s representative that the cheques were delivered for payment of the dues for ghee supplied at Porbandar and that "they were subsequently transferred to Porbandar". It was again no duty of the assessee to disclose to or instruct the Income-tax Officer that there were "profits embedded in the receipt" of the money at Bombay. Section 34(1)(a) does not cast any duty upon the assessee to instruct the Income-tax Officer on question of law. The assessee had disclosed that ghee was delivered at Porbandar by him and the price in respect of those supplied was received in Bombay which was subsequently transferred to Porbandar. We are unable to accept the view of the Tribunal that the "question of receipt of sale proceeds in British India was thus bypassed." The assessee’s representative had expressly stated that the assessee had maintained a bank account in British India in which "for recovering from merchants dues in respect of goods delivered at Porbandar" were credited. The assessee also produced the bank pass books. The finding that "the question of receipt of sale proceeds was bypassed" cannot be accepted as correct. The statement that the cheques were "subsequently transferred to Porbandar" only means that the amounts realized by encashment of the cheques were sent to Porbandar, and not that the cheques were sent to Porbandar. We do not think that any more detailed disclosure was necessary to comply with the requirements that the assessee had fully and truly disclosed all the material facts necessary for the purpose of assessment.

The Income-tax Officer may, if he is satisfied that on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment, income has escaped assessment, he may assess or reassess the income. But when the primary facts necessary for assessment are fully and truly disclosed, he is not entitled on change of opinion to commence proceedings for reassessment. The Income-tax Officer was apprised of all the primary facts necessary for assessment, and he proceeded to "drop the assessment proceedings". He may have raised a wrong legal inference from the facts disclosed but on that account he was not competent to commence reassessment proceedings under section 34(1)(a) for the two assessment years 1947-48 and 1948-49."

25. In view of the above discussion and respectfully following the case laws of the Hon’ble Apex Court, the Hon’ble jurisdictional High Court and other High Courts, we fairly feel that the reopening is not permissible on change of opinion as clearly evident from the reasons recorded by the Assessing Officer and the original assessment order passed by the Assessing Officer. In view of this, the reopening is held as bad in law. Accordingly, this issue of the cross-objection is decided in favour of the assessee and against the revenue.

26. to 50. These paras are not reproduced here, as they involved minor issues.

151/474