Karnataka High Court
Khoday India Limited vs The Principal Commissioner Of Income … on 3 February, 2026
Author: S.R.Krishna Kumar
Bench: S.R.Krishna Kumar
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 3RD DAY OF FEBRUARY, 2026
BEFORE
THE HON'BLE MR. JUSTICE S.R.KRISHNA KUMAR
WRIT PETITION NO. 53763 OF 2018 (T-IT)
BETWEEN:
KHODAY INDIA LIMITED
A COMPANY REGISTERED UNDER THE
COMPANIES ACT,
HAVING ITS REGISTERED OFFICE AT
"BREWERY HOUSE",
7TH MILE, KANAKPURA ROAD,
BENGALURU-560 062
REP BY ITS DIRECTOR
SRI.K.L.SWAMY
...PETITIONER
(BY SRI. A. SHANKAR SENIOR COUNSEL APPEARING FOR;
SRI. H.S. KUMAR, ADVOCATE)
AND:
1. THE PRINCIPAL COMMISSIONER OF INCOME TAX
BENGALURU-4,
BMTC BUILDING, 80 FEET ROAD,
Digitally signed
by CHANDANA 6TH BLOCK, KORAMANGALA,
BM BENGALURU-560 095.
Location: High
Court of 2. THE ADDL. COMMISSIONER OF INCOME TAX
Karnataka
RANGE-4(1)
BMTC BUILDING, 80 FEET ROAD,
6TH BLOCK, KORAMANGALA,
BENGALURU-560 095.
3. THE INCOME TAX OFFICER
WARD-4 (1)(2)
BMTC BUILDING, 80 FEET ROAD,
6TH BLOCK, KORAMANGALA,
BENGALURU-560 095.
...RESPONDENTS
(BY SRI. Y.V. RAVI RAJU AND SRI.E.I. SANMATHI, ADVOCATE)
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THIS WRIT PETITION FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
NOTICE ISSUED UNDER SECTION 148 PAN:AAACK6734C DATED
30.03.2018 BY R-3 MARKED AS ANNEXURE-K FOR THE A.Y.2011-12
AS BAD IN LAW.
THIS PETITION, COMING ON FOR FURTHER HEARING, THIS
DAY, ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE S.R.KRISHNA KUMAR
ORAL ORDER
In this petition, petitioner seeks the following reliefs:
(a) Issue a writ of Certiorari or direction in the nature of a
writ of certiorari or order quashing the notice issued under
section 148 in PAN:AAACK6734C dated: 30.3.2018 by
Respondent No.3 marked as Annexure-K for the A.Y.2011-
12 as bad in law.
(b) Issue a writ of Certiorari or direction in the nature of a
writ of certiorari or order quashing the letter in F.No.ITO-W-
4(1)(2)/AAACK6734C/2018-19 dated:26.10.2018 issued by
Respondent No.3 disposing of the legal objections raised by
the petitioner for reopening of the assessment under section
147 marked as Annexure-V for the A.Y.2011-12, as one
without jurisdiction.
(c) Declare that Respondent No.3 erred in law in
invoking the provisions of section 147 of the Act on mere
surmises, conjectures and suspicions without having any
reasons to believe as contemplated under the provisions of
section 147 of the Act.
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(d) Issue a writ of Certiorari or direction in the nature of a
writ of certiorari or order to forebear the Respondent No. 3
from giving effect and / or taking any step whatsoever
pursuant to and/or in furtherance of the notice u/s 148 of the
Act in No.AAACK6734C dated: 30.03.2018 and/or in any
proceedings initiated thereunder for the assessment year
2011-12. Annexure-K
(e) Such other order or orders as this Hon’ble Court may
deem fit and proper in the facts and circumstances of the
case, in the interest of justice and equity.”
2. Heard learned Senior Counsel for the petitioner and
learned counsel for the respondent and perused the material on
record.
3. In addition to reiterating the various contentions urged
in the memorandum of petition and referring to the material on
record, learned Senior Counsel for the petitioner invited my
attention to the assessment proceedings initiated by the
respondents against the petitioner for the assessment year 2011-
12 in order to point out that as can be seen from the assessment
order dated 26.03.2014, the issue of taxability of the Stock in Trade
and pursuant to the Joint Development Agreement was examined
by the respondents, who issued a notice under Section 142 of the
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Income Tax Act dated 10.02.2014 pursuant to which, the petitioner
submitted a detailed reply. It is submitted that despite having
accepted the explanation and passing the assessment order dated
26.03.2014, the respondents have purported to re-open by issue of
notice on 30.03.2018, without there being any tangible material to
come to the conclusion that there was escapement of income from
assessment and the reasons do not have a live link to the
formation of such belief and as such, the impugned notice and all
further proceedings pursuant thereto deserve to be quashed.
4. It is submitted that though the petitioner has submitted
a detailed reply, the respondents have proceeded to pass the
impugned reassessment order at Annexure-V dated 26.10.2018
rejecting the objections of the petitioner, who is before this Court by
way of the present petition.
5. In support of his submissions, learned Senior Counsel
places reliance upon the following judgments:
i) Commissioner Of Income Tax, Delhi Vs.
M/S. Kelvinator Of India Ltd – (2010) 187 Taxman 312
(SC)
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ii) Azim Premji Trustee Co. P. Ltd. v. DCIT, [2023] 146
taxmann.com 58 (Karnataka)
6. Per contra, learned counsel for the respondent-
revenue would invite my attention to the impugned communication
dated 02.05.2018, whereby the reasons for reopening of
assessment for the assessment year 2011-12 were communicated
to the petitioner by intimating him that necessary details in relation
to the assessment year 2011-12 were not available with the
respondent at the time of passing the original assessment order,
and the respondents were justified in reopening the assessment. It
is submitted that the conditions for invocation of reopening the
assessment are present in the impugned communication dated
02.05.2018 and as such, the impugned communication and the
subsequent impugned order do not warrant interference by this
Court in the present petition especially when the reopening does
not amount to change of opinion by the respondents since material
which was not available earlier were subsequently made available
to the respondents.
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7. The legal position as to whether reopening of
assessment is permissible merely on the basis of a changed
opinion without there being tangible material to come to a
conclusion that there is escapement of income from assessment
and the reasons should necessarily have a live link with formation
of a belief is no longer res integra in the light of several judgments
of the Hon’ble Apex Court including the judgment of the Hon’ble
Apex Court in the case of Kelvinator (supra), wherein it is held as
under:
“Heard learned counsel on both sides.
2. A short question which arises for determination in
this batch of civil appeals is, whether the concept of
“change of opinion” stands obliterated with effect from 1-4-
1989, i.e., after substitution of section 147 of the Income-
tax Act, 1961 by Direct Tax Laws (Amendment) Act,
1987 ?
3. To answer the above question, we need to note the
changes undergone by section 147 of the Income-tax Act,
1961 [ for short, “the Act”] . Prior to Direct Tax Laws
(Amendment) Act, 1987 , section 147 reads as under :
“147. Income escaping assessment.–
If–
(a) the Income-tax Officer has reason to
believe that, by reason of the omission or failure on
the part of an assessee to make a return under
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section 139 for any assessment year to the
Income-tax Officer or to disclose fully and truly all
material facts necessary for his assessment for
that year, income chargeable to tax has escaped
assessment for that year, or
(b) notwithstanding that there has been no
omission or failure as mentioned in clause (a) on
the part of the assessee, the Income-tax Officer
has in consequence of information in his
possession reason to believe that income
chargeable to tax has escaped assessment for any
assessment year,
he may, subject to the provisions of sections 148 to
153 , assess or reassess such income or recompute the
loss or the depreciation allowance, as the case may be, for
the assessment year concerned (hereafter in sections 148
to 153 referred to as the relevant assessment year).”
[Emphasis supplied]
3.1 After enactment of Direct Tax Laws (Amendment)
Act, 1987 , i.e., prior to 1-4-1989, section 147 of the Act,
reads as under :
“147. Income escaping assessment.–If the Assessing
Officer, for reasons to be recorded by him in writing, is of
the opinion that any income chargeable to tax has escaped
assessment for any assessment year, he may, subject to
the 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 his
notice subsequently in the course of the proceedings under
this section, or recompute the loss or the depreciation
allowance or any other allowance, as the case may be, for
the assessment year concerned (hereafter in this section
and in sections 148 to 153 referred to as the relevant
assessment year).” [Emphasis supplied]3.2 After the Amending Act, 1989 , section 147 reads as
under :
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“147. Income escaping assessment.–If the
Assessing Officer has reason to believe that any
income chargeable to tax has escaped
assessment for any assessment year, he may,
subject to the provisions of sections 148 to 153 ,
assess or reassess such income and also any
other income chargeable to tax which has
escaped assessment and which comes to his
notice subsequently in the course of the
proceedings under this section, or recompute the
loss or the depreciation allowance or any other
allowance, as the case may be, for the
assessment year concerned (hereafter in this
section and in sections 148 to 153 referred to as
the relevant assessment year).” [Emphasis
supplied]
4. On going through the changes, quoted above, made
to section 147 of the Act, we find that, prior to Direct Tax
Laws (Amendment) Act, 1987 , re- opening could be done
under above two conditions and fulfilment of the said
conditions alone conferred jurisdiction on the Assessing
Officer to make a back assessment, but in section 147 of
the Act [with effect from 1-4-1989], they are given a go-by
and only one condition has remained, viz., that where the
Assessing Officer has reason to believe that income has
escaped assessment, confers jurisdiction to re-open the
assessment. Therefore, post 1-4-1989 , power to reopen is
much wider. However, one needs to give a schematic
interpretation to the words “reason to believe” failing which,
we are afraid, section 147 would give arbitrary powers to
the Assessing Officer to re-open assessments on the basis
of “mere change of opinion”, which cannot be per se
reason to reopen. We must also keep in mind the
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conceptual difference between power to review and power
to re-assess. The Assessing Officer has no power to
review; he has the power to reassess. But reassessment
has to be based on fulfilment of certain pre-condition and if
the concept of “change of opinion” is removed, as
contended on behalf of the Department, then, in the garb of
re-opening the assessment, review would take place. One
must treat the concept of “change of opinion” as an in-built
test to check abuse of power by the Assessing Officer.
Hence, after 1-4-1989 , Assessing Officer has power to
reopen, provided there is “tangible material” to come to the
conclusion that there is escapement of income from
assessment. Reasons must have a live link with the
formation of the belief. Our view gets support from the
changes made to section 147 of the Act, as quoted
hereinabove. Under the Direct Tax Laws (Amendment) Act,
1987 , Parliament not only deleted the words “reason to
believe” but also inserted the word “opinion” in section 147
of the Act. However, on receipt of representations from the
Companies against omission of the words “reason to
believe”, Parliament re-introduced the said expression and
deleted the word “opinion” on the ground that it would vest
arbitrary powers in the Assessing Officer. We quote
hereinbelow the relevant portion of Circular No. 549 , dated
31-10-1989, which reads as follows :
“7.2 Amendment made by the Amending Act, 1989, to
reintroduce the expression ‘reason to believe’ in
section 147. –A number of representations were
received against the omission of the words ‘reason to
believe’ from section 147 and their substitution by the
‘opinion’ of the Assessing Officer. It was pointed out
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that the meaning of the expression, ‘reason to believe’
had been explained in a number of court rulings in the
past and was well settled and its omission from
section 147 would give arbitrary powers to the
Assessing Officer to reopen past assessments on
mere change of opinion. To allay these fears, the
Amending Act, 1989 , has again amended section 147
to reintroduce the expression ‘has reason to believe’
in place of the words ‘for reasons to be recorded by
him in writing, is of the opinion’. Other provisions of
the new section 147, however, remain the same.”
[Emphasis supplied]
5. For the aforestated reasons, we see no merit in
these civil appeals filed by the Department, hence,
dismissed with no order as to costs.
8. So also, this Court in the case of Azim Premji’s
(supra) held as under:
In this petition, petitioner has sought for the
following reliefs:
” (i) Quashing the impugned order dated:
28.07.2022 bearing ITBA/COM/F/17/2022-
23/1044214522(1) passed by Respondent No.1
under Section 148A(d) of the Income Tax Act,
1961, for the Assessment Year 20184-15
(Annexure-‘A’).
(ii) Quashing the impugned notice
dated: 28.07.2022 bearing ITBA/AST/M/148-
_1/2022-23/1044223868(1) issued by
Respondent No.1 under Section 148 of the
Income -tax Act, 1961, for the Assessment Year
2014-15(Annexure-‘B’);
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(iii) Declaring that Section 56(2) (vii) (c)
of the Income-tax Act, 1961, has no application to
the listed shares of Wipro Ltd., that were gifted to
Pioneer Independent Trust in the previous year
relevant to Assessment Year 2014-15;
(iv) Quashing the Circular bearing
No.6/2012 [F.NO.133/44/2012-SO (TPL) issued
by Respondent No.4 03.08.2012 (Annexure-‘C’) ;
and
(v) Pass such other or further orders
as this Hon’ble Court may deem fit in the facts
and circumstances of the case, and in the interest
of justice and equity.”
2. Heard Sri. S.Ganesh, learned Senior
counsel appearing for the petitioner and Sri.K.V.Aravind,
learned counsel for the respondents – revenue.
3. Briefly stated the contentions urged by the
petitioner are as under:-
The Petitioner is a Private Limited Company and
the trustee of a private discretionary Trust called ‘Pioneer
Independent Trust’ (for short ‘the Trust’), of which the
only two beneficiaries are private limited guarantee
companies without share capital, which are exclusively
engaged in charitable and philanthropic activities. On
03.06.2013, the Trust received a gift of 6.1 crore shares
of Wipro Ltd., from a charitable entity belonging to the
Azim Premji Group, to be held as a part of the corpus of
Trust. This gift was contemporaneously disclosed to the
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stock exchanges and this information was also
disseminated to the public at large. This gift was also
specifically disclosed in the audited accounts of the
petitioner for the year ending 31.03.2014. The face value
of these shares (Rs.2/- per share) was also disclosed by
the petitioner.
3.1 During the financial year 2013-14 ending on
31.03.2014, the petitioner sold a portion of the said Wipro
shares and disclosed the resulting capital gain in its
audited accounts. The petitioner filed its Return of Income
for the Assessment Year 2014-15 disclosing the capital
gain from the said sale of Wipro shares.
3.2 The petitioner was subjected to a full scrutiny
assessment under Section 143(3) of the I.T.Act. As the
Assessing Officer (for short ‘the A.O’) also had to assess
the capital gain arising from the sale of Wipro shares, the
A.O. was made fully aware of the sale price of Wipro
shares. In any event, the market price of Wipro shares
was completely in the public realm as it is a very well
known and widely traded shares. Further, during the
course of the scrutiny assessment, the A.O specifically
asked for and was given a copy of the petitioner’s demat
account, which gave the A.O full information about the gift
of Wipro shares received by the petitioner are also the
sale thereof and the market value of the said shares.
There was no other information which the A.O could
possibly ask for in respect of the Wipro shares received
and sold (partly) by the petitioner.
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3.3 The A.O passed the assessment order for the
Assessment Year 2014-15 under Section 143(3) of the
Income Tax Act (for short ‘ the I.T.Act’) without treating
the gift of Wipro shares received by the petitioner as its
taxable income under Section 56(2)(vii)(c) of the I.T.Act,
even though the A.O had all the information that was
required for deciding, whether to apply or not to apply
Section 56(2)(vii)(c) of the I.T.Act. Thus, there was no
failure or omission on the part of the petitioner to disclose
any material facts or information in respect of the said gift
of Wipro shares received by the petitioner.
3.4 On 01.04.2021, Sections 147 to 151 of the
I.T.Act were amended vide Finance Act, 2021 by bringing
into force a new regime. Subsequently, the 1st
respondent issued a Notice dated 21.06.2021 to the Trust
under Section 133(6) of the I.T.Act, to which a reply was
submitted on 24.06.2021, pursuant to which, one more
notice dated 25.06.2021 was issued by the 1st
respondent, to which also, the petitioner submitted replies
dated 28.06.2021 and 29.06.2021. Thereafter,
respondents issued a Notice dated 30.06.2021 under
Section 148 of the I.T.Act (after amendment). The
petitioner challenged the said notice and sought for other
reliefs also by preferring W.P.No.12668/2021, which was
allowed by the Division Bench of this Court vide final
order dated 18.04.2022.
3.5 Petitioner contends that several matters
across various High Courts came up for consideration
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before the Apex Court in the context of the aforesaid
amendment which came into force from 01.04.2021 in the
case of Union of India & Others vs. Ashish Agarwal –
(2022) SCC Online SC 543. Pursuant to the said order,
the 1st respondent issued a show cause notice dated
31.05.2022 to the Trust by invoking Section 148A(b)
calling upon the petitioner to show cause as to why a
Notice under Section 148 should not be issued in respect
of Assessment Year 2014-15 for the income in relation to
Wipro shares which had allegedly escaped assessment.
3.6 Petitioner filed a reply on 04.06.2022 and
requested the A.O. to furnish information and material so
as to enable the petitioner to submit a detailed reply.
Thereafter, on 13.06.2022, though the respondents did
not accede to the aforesaid request made by the
petitioner, the petitioner submitted a detailed reply along
with all relevant documents and requested the
respondents to drop the proceedings. It is the grievance
of the petitioner that despite the aforesaid facts and
circumstances, respondents proceeded to pass the
impugned order, aggrieved by which, the petitioner is
before this Court by way of the present petition.
4. The respondents – revenue have filed their
statement of objections inter alia disputing the various
contentions urged by the petitioner. It is contended that
apart from the fact that the petition is premature, the
impugned order is correct, legal and proper and in
accordance with the judgment of the Apex Court in
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Ashish Agarwal‘s case (supra) and the other judgments
relied upon by the respondents. It is contended that the
respondents have correctly invoked Section 56(2)(vii)(c)
of the I.T.Act and the proceedings initiated by the
respondents are well within limitation, both under the pre-
amended provisions as well as after amendment and the
income of the petitioner having escaped assessment, the
respondents were fully justified in initiating the subject
proceedings and passing the impugned order, which
does not warrant interference by this Court in the present
petition. It is therefore contended that there is no merit in
the petition and the same is liable to be dismissed.
5. I have given my anxious consideration to the
rival submissions and perused the material on record.
6. Before adverting to the rival contentions, it is
necessary to state that it is an undisputed fact that the
impugned proceedings were initiated subsequent to
01.04.2021 when Sections 147 to 151 were amended
under the Finance Act, 2021. In Ashish Agarwal‘s case
(supra), the Apex Court laid down the detailed guidelines
and issued directions with regard to proceedings and
notices under the pre-amendment regime and post-
amendment regime and held as under:-
3. While appreciating the controversy, a few
facts and the relevant statutory provisions
applicable pre 01.04.2021 and post 01.04.2021 are
required to be referred to.
The procedure governing initiation of reassessment
proceedings prior to coming into force of the
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Finance Act, 2021 was governed by the following
provisions:–
“Income escaping assessment-
147. If the Assessing Officer has reason to
believe that any income chargeable to tax has
escaped assessment for any assessment year, he
may, subject to the provisions of sections 148 to
153, assess or reassess such income and also any
other income chargeable to tax which has escaped
assessment and which comes to his notice
subsequently in the course of the proceedings
under this section, or recomputed the loss or the
depreciation allowance or any other allowance, as
the case may be, for the assessment year
concerned (hereafter in this section and in sections
148 to 153 referred to as the relevant assessment
year):
Provided that where an assessment under sub-
section (3) of section 143 or this section has been
made for the relevant assessment year, no action
shall be taken under this section after the expiry of
four years from the end of the relevant assessment
year, unless any income chargeable to tax has
escaped assessment for such assessment year by
reason of the failure on the part of the assessee to
make a return under section 139 or in response to a
notice issued under sub-section (1) of section 142
or section 148 or to disclose fully and truly all
material facts necessary for his assessment, for
that assessment year:
Provided further that nothing contained in the
first proviso shall apply in a case where any income
in relation to any asset (including financial interest
in any entity) located outside India, chargeable to
tax, has escaped assessment for any assessment
year:
Provided also 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.
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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.
Explanation 2.–For the purposes of this
section, the following shall also be deemed to be
cases where income chargeable to tax has escaped
assessment, namely:–
(a) where no return of income has been
furnished by the assessee although his total income
or the total income of any other person in respect of
which he is assessable under this Act during the
previous year exceeded the maximum amount
which is not chargeable to income-tax;
(b) where a return of income has been furnished
by the assessee but no assessment has been
made and it is noticed by the Assessing Officer that
the assessee has understated the income or has
claimed excessive loss, deduction, allowance or
relief in the return;
(ba) where the assessee has failed to furnish a
report in respect of any international transaction
which he was so required under section 92E;
(c) where an assessment has been made, but–
(i) income chargeable to tax has been
underassessed; or
(ii) such income has been assessed at too low a
rate; or
(iii) such income has been made the subject of
excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or
any other allowance under this Act has been
computed;
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(ca) where a return of income has not been
furnished by the assessee or a return of income has
been furnished by him and on the basis of
information or document received from the
prescribed income-tax authority, under sub-section
(2) of section 133C, it is noticed by the Assessing
Officer that the income of the assessee exceeds the
maximum amount not chargeable to tax, or as the
case may be, the assessee has understated the
income or has claimed excessive loss, deduction,
allowance or relief in the return;
(d) where a person is found to have any asset
(including financial interest in any entity) located
outside India.
Explanation 3.–For the purpose of assessment
or reassessment under this section, the Assessing
Officer may assess or reassess the income in
respect of any issue, which has escaped
assessment, and such issue comes to his notice
subsequently in the course of the proceedings
under this section, notwithstanding that the reasons
for such issue have not been included in the
reasons recorded under subsection (2) of section
148.
Explanation 4.–For the removal of doubts, it is
hereby clarified that the provisions of this section,
as amended by the Finance Act, 2012, shall also be
applicable for any assessment year beginning on or
before the 1st day of April, 2012.
Issue of notice where income has escaped
assessment-
148.(1) Before making the assessment,
reassessment or recomputation under section 147,
the Assessing Officer shall serve on the assessee a
notice requiring him to furnish within such period, as
may be specified in the notice, a return of his
income or the income of any other person in
respect of which he is assessable under this Act
during the previous year corresponding to the
relevant assessment year, in the prescribed form
and verified in the prescribed manner and setting
forth such other particulars as may be prescribed;
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and the provisions of this Act shall, so far as may
be, apply accordingly as if such return were a return
required to be furnished under section 139:
Provided that in a case–
(a) where a return has been furnished during
the period commencing on the 1st day of October,
1991 and ending on the 30th day of September,
2005 in response to a notice served under this
section, and
(b) subsequently a notice has been served
under sub-section (2) of section 143 after the expiry
of twelve months specified in the proviso to
subsection (2) of section 143, as it stood
immediately before the amendment of said sub-
section by the Finance Act, 2002 (20 of 2002) but
before the expiry of the time limit for making the
assessment, re-assessment or recomputation as
specified in sub-section (2) of section 153, every
such notice referred to in this clause shall be
deemed to be a valid notice:
Provided further that in a case–
(a) where a return has been furnished during
the period commencing on the 1st day of October,
1991 and ending on the 30th day of September,
2005, in response to a notice served under this
section, and
(b) subsequently a notice has been served
under clause (ii) of sub-section (2) of section 143
after the expiry of twelve months specified in the
proviso to clause (ii) of sub-section (2) of section
143, but before the expiry of the time limit for
making the assessment, reassessment or
recomputation as specified in sub-section (2) of
section 153, every such notice referred to in this
clause shall be deemed to be a valid notice.
Explanation.–For the removal of doubts, it is
hereby declared that nothing contained in the first
proviso or the second proviso shall apply to any
return which has been furnished on or after the 1st
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day of October, 2005 in response to a notice served
under this section.
(2) The Assessing Officer shall, before issuing
any notice under this section, record his reasons for
doing so.
Time limit for notice-
149.(1) No notice under section 148 shall be
issued for the relevant assessment year,–
(a) if four years have elapsed from the end of
the relevant assessment year, unless the case falls
under clause (b) or clause (c);
(b) if four years, but not more than six years,
have elapsed from the end of the relevant
assessment year unless the income chargeable to
tax which has escaped assessment amounts to or
is likely to amount to one lakh rupees or more for
that year;
(c) if four years, but not more than sixteen
years, have elapsed from the end of the relevant
assessment year unless the income in relation to
any asset (including financial interest in any entity)
located outside India, chargeable to tax, has
escaped assessment.
Explanation.–In determining income
chargeable to tax which has escaped assessment
for the purposes of this subsection, the provisions
of Explanation 2 of section 147 shall apply as they
apply for the purposes of that section.
(2) The provisions of sub-section (1) as to the
issue of notice shall be subject to the provisions of
section 151.
(3) If the person on whom a notice under
section 148 is to be served is a person treated as
the agent of a nonresident under section 163 and
the assessment, reassessment or recomputation to
be made in pursuance of the notice is to be made
on him as the agent of such non-resident, the notice
shall not be issued after the expiry of a period of six
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years from the end of the relevant assessment
year.
Explanation.–For the removal of doubts, it is
hereby clarified that the provisions of sub-sections
(1) and (3), as amended by the Finance Act, 2012,
shall also be applicable for any assessment year
beginning on or before the 1st day of April, 2012.
Sanction for issue of notice-
151.(1) No notice shall be issued under section
148 by an Assessing Officer, after the expiry of a
period of four years from the end of the relevant
assessment year, unless the Principal Chief
Commissioner or Chief Commissioner or Principal
Commissioner or Commissioner is satisfied, on the
reasons recorded by the Assessing Officer, that it is
a fit case for the issue of such notice.
(2) In a case other than a case falling under
sub-section (1), no notice shall be issued under
section 148 by an Assessing Officer, who is below
the rank of Joint Commissioner, unless the Joint
Commissioner is satisfied, on the reasons recorded
by such Assessing Officer, that it is a fit case for the
issue of such notice.
(3) For the purposes of sub-section (1) and sub-
section (2), the Principal Chief Commissioner or the
Chief Commissioner or the Principal Commissioner
or the Commissioner or the Joint Commissioner, as
the case may be, being satisfied on the reasons
recorded by the Assessing Officer about fitness of a
case for the issue of notice under section 148, need
not issue such notice himself.”
3.1. In pursuance to the power vested under
section 3 of the Relaxation Act, 2020, the Central
Government issued following Notifications inter-alia
extending the time lines prescribed under section
149 for issuance of reassessment notices under
section 148 of the Income Tax Act, 1961:
Date of Original limitation for Extended
Notification issuance of notice under Limitation
Section 148 of the Act
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31.03.2020 20.03.2020 to 29.06.2020 30.06.2020
24.06.2020 20.03.2020 to 31.12.2020 31.03.2021
31.03.2021 31.03.2021 30.04.2021
27.04.2021 30.04.2021 30.06.2021The Explanations to the Notifications dated
31st March, 2021 and 27th April, 2021 issued under
section 3 of the Relaxation Act, 2020 also stipulated
that the provisions, as they existed prior to the
amendment by the Finance Act, 2021, shall apply to
the reassessment proceedings initiated thereunder.
3.2. The Parliament introduced reformative
changes to Sections 147 to 151 of the Income Tax
Act, 1961 governing reassessment proceedings by
way of the Finance Act, 2021, which was passed on
28th March, 2021. The substituted sections 147 to
149 and section 151 applicable w.e.f. 01.04.2021,
passed in the Finance Act, 2021, are as under:–
Income escaping assessment-
“147. If any income chargeable to tax, in the
case of an assessee, has escaped assessment for
any assessment year, the Assessing Officer may,
subject to the provisions of sections 148 to 153,
assess or reassess such income or recompute the
loss or the depreciation allowance or any other
allowance or deduction for such assessment year
(hereafter in this section and in sections 148 to 153
referred to as the relevant assessment year).
Explanation.–For the purposes of assessment
or reassessment or recomputation under this
section, the Assessing Officer may assess or
reassess the income in respect of any issue, which
has escaped assessment, and such issue comes to
his notice subsequently in the course of the
proceedings under this section, irrespective of the
fact that the provisions of section 148A have not
been complied with.”.
Issue of notice where income has escaped
assessment-
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148. Before making the assessment,
reassessment or recomputation under section 147,
and subject to the provisions of section 148A, the
Assessing Officer shall serve on the assessee a
notice, along with a copy of the order passed, if
required, under clause (d) of section 148A,
requiring him to furnish within such period, as may
be specified in such notice, a return of his income
or the income of any other person in respect of
which he is assessable under this Act during the
previous year corresponding to the relevant
assessment year, in the prescribed form and
verified in the prescribed manner and setting forth
such other particulars as may be prescribed; and
the provisions of this Act shall, so far as may be,
apply accordingly as if such return were a return
required to be furnished under section 139:
Provided that no notice under this section shall
be issued unless there is information with the
Assessing Officer which suggests that the income
chargeable to tax has escaped assessment in the
case of the assessee for the relevant assessment
year and the Assessing Officer has obtained prior
approval of the specified authority to issue such
notice.
Explanation 1.–For the purposes of this section
and section 148A, the information with the
Assessing Officer which suggests that the income
chargeable to tax has escaped assessment
means,–
(i) any information flagged in the case of the
assessee for the relevant assessment year in
accordance with the risk management strategy
formulated by the Board from time to time;
(ii) any final objection raised by the Comptroller
and Auditor-General of India to the effect that the
assessment in the case of the assessee for the
relevant assessment year has not been made in
accordance with the provisions of this Act.
Explanation 2.–For the purposes of this
section, where,–
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(i) a search is initiated under section 132 or
books of account, other documents or any assets
are requisitioned under section 132A, on or after
the 1st day of April, 2021, in the case of the
assessee; or
(ii) a survey is conducted under section 133A,
other than under sub-section (2A) or sub-section (5)
of that section, on or after the 1st day of April, 2021,
in the case of the assessee; or
(iii) the Assessing Officer is satisfied, with the
prior approval of the Principal Commissioner or
Commissioner, that any money, bullion, jewellery or
other valuable article or thing, seized or
requisitioned under section 132 or under section
132A in case of any other person on or after the 1st
day of April, 2021, belongs to the assessee; or
(iv) the Assessing Officer is satisfied, with the
prior approval of Principal Commissioner or
Commissioner, that any books of account or
documents, seized or requisitioned under section
132 or section 132A in case of any other person on
or after the 1st day of April, 2021, pertains or
pertain to, or any information contained therein,
relate to, the assessee,
the Assessing Officer shall be deemed to have
information which suggests that the income
chargeable to tax has escaped assessment in the
case of the assessee for the three assessment
years immediately preceding the assessment year
relevant to the previous year in which the search is
initiated or books of account, other documents or
any assets are requisitioned or survey is conducted
in the case of the assessee or money, bullion,
jewellery or other valuable article or thing or books
of account or documents are seized or requisitioned
in case of any other person.
Explanation 3.–For the purposes of this
section, specified authority means the specified
authority referred to in section 151.”
Conducting inquiry, providing opportunity
before issue of notice under section 148 –
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“148A. The Assessing Officer shall, before
issuing any notice under section 148,–
(a) conduct any enquiry, if required, with the
prior approval of specified authority, with respect to
the information which suggests that the income
chargeable to tax has escaped assessment;
(b) provide an opportunity of being heard to the
assessee, with the prior approval of specified
authority, by serving upon him a notice to show
cause within such time, as may be specified in the
notice, being not less than seven days and but not
exceeding thirty days from the date on which such
notice is issued, or such time, as may be extended
by him on the basis of an application in this behalf,
as to why a notice under section 148 should not be
issued on the basis of information which suggests
that income chargeable to tax has escaped
assessment in his case for the relevant assessment
year and results of enquiry conducted, if any, as per
clause (a);
(c) consider the reply of assessee furnished, if
any, in response to the show-cause notice referred
to in clause (b);
(d) decide, on the basis of material available on
record including reply of the assessee, whether or
not it is a fit case to issue a notice under section
148, by passing an order, with the prior approval of
specified authority, within one month from the end
of the month in which the reply referred to in clause
(c) is received by him, or where no such reply is
furnished, within one month from the end of the
month in which time or extended time allowed to
furnish a reply as per clause (b) expires:
Provided that the provisions of this section shall
not apply in a case where,–
(a) a search is initiated under section 132 or
books of account, other documents or any assets
are requisitioned under section 132A in the case of
the assessee on or after the 1st day of April, 2021;
or
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(b) the Assessing Officer is satisfied, with the
prior approval of the Principal Commissioner or
Commissioner that any money, bullion, jewellery or
other valuable article or thing, seized in a search
under section 132 or requisitioned under section
132A, in the case of any other person on or after
the 1st day of April, 2021, belongs to the assessee;
or
(c) the Assessing Officer is satisfied, with the
prior approval of the Principal Commissioner or
Commissioner that any books of account or
documents, seized in a search under section 132 or
requisitioned under section 132A, in case of any
other person on or after the 1st day of April, 2021,
pertains or pertain to, or any information contained
therein, relate to, the assessee.
Explanation.–For the purposes of this section,
specified authority means the specified authority
referred to in section 151.”
Time limit for notice-
“149.(1) No notice under section 148 shall be
issued for the relevant assessment year,–
(a) if three years have elapsed from the end of
the relevant assessment year, unless the case falls
under clause (b);
(b) if three years, but not more than ten years,
have elapsed from the end of the relevant
assessment year unless the Assessing Officer has
in his possession books of account or other
documents or evidence which reveal that the
income chargeable to tax, represented in the form
of asset, which has escaped assessment amounts
to or is likely to amount to fifty lakh rupees or more
for that year:
Provided that no notice under section 148 shall
be issued at any time in a case for the relevant
assessment year beginning on or before 1st day of
April, 2021, if such notice could not have been
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issued at that time on account of being beyond the
time limit specified under the provisions of clause
(b) of sub-section (1) of this section, as they stood
immediately before the commencement of the
Finance Act, 2021:
Provided further that the provisions of this sub-
section shall not apply in a case, where a notice
under section 153A, or section 153C read with
section 153A, is required to be issued in relation to
a search initiated under section 132 or books of
account, other documents or any assets
requisitioned under section 132A, on or before the
31st day of March, 2021:
Provided also that for the purposes of
computing the period of limitation as per this
section, the time or extended time allowed to the
assessee, as per show-cause notice issued under
clause (b) of section 148A or the period during
which the proceeding under section 148A is stayed
by an order or injunction of any court, shall be
excluded:
Provided also that where immediately after the
exclusion of the period referred to in the
immediately preceding proviso, the period of
limitation available to the Assessing Officer for
passing an order under clause (d) of section 148A
is less than seven days, such remaining period
shall be extended to seven days and the period of
limitation under this sub-section shall be deemed to
be extended accordingly.
Explanation.–For the purposes of clause (b) of
this subsection, “asset” shall include immovable
property, being land or building or both, shares and
securities, loans and advances, deposits in bank
account.
(2) The provisions of sub-section (1) as to the
issue of notice shall be subject to the provisions of
section 151.’Sanction for issue of notice-
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“151. Specified authority for the purposes of
section 148 and section 148A shall be–
(i) Principal Commissioner or Principal Director
or Commissioner or Director, if three years or less
than three years have elapsed from the end of the
relevant assessment year;
(ii) Principal Chief Commissioner or Principal
Director General or where there is no Principal
Chief Commissioner or Principal Director General,
Chief Commissioner or Director General, if more
than three years have elapsed from the end of the
relevant assessment year.”
3.3. In sub-section (1) of section 151A of the
Income Tax Act, in the opening portion, after the
words and figures “issuance of notice under section
148“, the words, figures and letter “or conducting of
enquiries or issuance of show-cause notice or
passing of order under section 148A” are inserted.
4. Despite the substituted sections 147 to 151
of the Income Tax Act, 1961 by the Finance Act,
2021 coming into force on 1st April, 2021,
according to learned ASG, the Revenue issued
approximately 90,000 reassessment notices to the
respective assessees under the erstwhile sections
148 to 151 thereof by relying on explanations in the
Notifications dated 31st March, 2021 and 27th April,
2021. The said reassessment notices were the
subject matter of writ petitions before the various
High Courts. The respective High Courts have held
that all the respective reassessment notices issued
under the erstwhile sections 148 to 151 of the
Income Tax Act, 1961, are bad in law as the
reassessment notices issued after 01.04.2021 are
governed by the substituted sections 147 to 151 of
the Income Tax Act, 1961, substituted by the
Finance Act, 2021. Consequently, the respective
High Courts have set aside all the reassessment
notices issued under section 148 of the Income Tax
Act, 1961 wherever assailed. The common
judgment and order passed by the High Court of
Allahabad is the subject matter of the present
appeals. However, the High Court of Delhi in its
common judgment and order dated 15.12.2021
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while quashing the respective reassessment
notices has also observed that if the law permits the
revenue to take further steps in the matter they
shall be at liberty to do so.
5. We have heard Shri N. Venkataraman,
learned ASG appearing on behalf of the Revenue
and Shri C.A. Sundaram and Shri S. Ganesh,
learned Senior Advocates and other learned
counsel appearing on behalf of the respective
assessee.
6. It cannot be disputed that by substitution of
sections 147 to 151 of the Income Tax Act (IT Act)
by the Finance Act, 2021, radical and reformative
changes are made governing the procedure for
reassessment proceedings. Amended sections 147
to 149 and section 151 of the IT Act prescribe the
procedure governing initiation of reassessment
proceedings. However, for several reasons, the
same gave rise to numerous litigations and the
reopening were challenged inter alia, on the
grounds such as (1) no valid “reason to believe” (2)
no tangible/reliable material/information in
possession of the assessing officer leading to
formation of belief that income has escaped
assessment, (3) no enquiry being conducted by the
assessing officer prior to the issuance of notice; and
reopening is based on change of opinion of the
assessing officer and (4) lastly the mandatory
procedure laid down by this Court in the case of
GKN Driveshafts (India) Ltd. v. Income Tax Officer;
(2003) 1 SCC 72, has not been followed.
6.1 Further pre-Finance Act, 2021, the
reopening was permissible for a maximum period
up to six years and in some cases beyond even six
years leading to uncertainty for a considerable time.
Therefore, Parliament thought it fit to amend the
Income Tax Act to simplify the tax administration,
ease compliances and reduce litigation. Therefore,
with a view to achieve the said object, by the
Finance Act, 2021, sections 147 to 149 and section
151 have been substituted.
6.2. Under the substituted provisions of the IT
Act vide Finance Act, 2021, no notice under section
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148 of the IT Act can be issued without following
the procedure prescribed under section 148A of the
IT Act. Along with the notice under section 148 of
the IT Act, the assessing officer (AO) is required to
serve the order passed under section 148A of the
IT Act. section 148A of the IT Act is a new provision
which is in the nature of a condition precedent.
Introduction of section 148A of the IT Act can thus
be said to be a game changer with an aim to
achieve the ultimate object of simplifying the tax
administration, ease compliance and reduce
litigation.
6.3 But prior to pre-Finance Act, 2021, while
reopening an assessment, the procedure of giving
the reasons for reopening and an opportunity to the
assessee and the decision of the objectives were
required to be followed as per the judgment of this
Court in the case of GKN Driveshafts (India) Ltd.
(supra).
6.4 However, by way of section 148A, the
procedure has now been streamlined and
simplified. It provides that before issuing any notice
under section 148, the assessing officer shall (i)
conduct any enquiry, if required, with the approval
of specified authority, with respect to the
information which suggests that the income
chargeable to tax has escaped assessment; (ii)
provide an opportunity of being heard to the
assessee, with the prior approval of specified
authority; (iii) consider the reply of the assessee
furnished, if any, in response to the show-cause
notice referred to in clause (b); and (iv) decide, on
the basis of material available on record including
reply of the assessee, as to whether or not it is a fit
case to issue a notice under section 148 of the IT
Act and (v) the AO is required to pass a specific
order within the time stipulated.
6.5. Therefore, all safeguards are provided
before notice under section 148 of the IT Act is
issued. At every stage, the prior approval of the
specified authority is required, even for conducting
the enquiry as per section 148A(a). Only in a case
where, the assessing officer is of the opinion that
before any notice is issued under section 148A(b)
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and an opportunity is to be given to the assessee,
there is a requirement of conducting any enquiry,
the assessing officer may do so and conduct any
enquiry. Thus if the assessing officer is of the
opinion that any enquiry is required, the assessing
officer can do so, however, with the prior approval
of the specified authority, with respect to the
information which suggests that the income
chargeable to tax has escaped assessment.
6.6. Substituted section 149 is the provision
governing the time limit for issuance of notice under
section 148 of the IT Act. The substituted section
149 of the IT Act has reduced the permissible time
limit for issuance of such a notice to three years
and only in exceptional cases ten years. It also
provides further additional safeguards which were
absent under the earlier regime pre-Finance Act,
2021.
7. Thus, the new provisions substituted by the
Finance Act, 2021 being remedial and benevolent
in nature and substituted with a specific aim and
object to protect the rights and interest of the
assessee as well as and the same being in public
interest, the respective High Courts have rightly
held that the benefit of new provisions shall be
made available even in respect of the proceedings
relating to past assessment years, provided section
148 notice has been issued on or after 1st April,
2021. We are in complete agreement with the view
taken by the various High Courts in holding so.
8. However, at the same time, the judgments
of the several High Courts would result in no
reassessment proceedings at all, even if the same
are permissible under the Finance Act, 2021 and as
per substituted sections 147 to 151 of the IT Act.
The Revenue cannot be made remediless and the
object and purpose of reassessment proceedings
cannot be frustrated. It is true that due to a bonafide
mistake and in view of subsequent extension of
time vide various notifications, the Revenue issued
the impugned notices under section 148 after the
amendment was enforced w.e.f. 01.04.2021, under
the unamended section 148. In our view the same
ought not to have been issued under the
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unamended Act and ought to have been issued
under the substituted provisions of sections 147 to
151 of the IT Act as per the Finance Act, 2021.
There appears to be genuine non-application of the
amendments as the officers of the Revenue may
have been under a bonafide belief that the
amendments may not yet have been enforced.
Therefore, we are of the opinion that some leeway
must be shown in that regard which the High Courts
could have done so. Therefore, instead of quashing
and setting aside the reassessment notices issued
under the unamended provision of IT Act, the High
Courts ought to have passed an order construing
the notices issued under unamended
Act/unamended provision of the IT Act as those
deemed to have been issued under section 148A of
the IT Act as per the new provision section 148A
and the Revenue ought to have been permitted to
proceed further with the reassessment proceedings
as per the substituted provisions of sections 147 to
151 of the IT Act as per the Finance Act, 2021,
subject to compliance of all the procedural
requirements and the defences, which may be
available to the assessee under the substituted
provisions of sections 147 to 151 of the IT Act and
which may be available under the Finance Act,
2021 and in law. Therefore, we propose to modify
the judgments and orders passed by the respective
High Courts as under:–
(i) The respective impugned section 148
notices issued to the respective assessees shall
be deemed to have been issued under section
148A of the IT Act as substituted by the
Finance Act, 2021 and treated to be show-
cause notices in terms of section 148A(b). The
respective assessing officers shall within thirty
days from today provide to the assessees the
information and material relied upon by the
Revenue so that the assessees can reply to the
notices within two weeks thereafter;
(ii) The requirement of conducting any enquiry
with the prior approval of the specified authority
under section 148A(a) be dispensed with as a one-
time measure vis-à-vis those notices which have
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been issued under Section 148 of the unamended
Act from 01.04.2021 till date, including those which
have been quashed by the High Courts;
(iii) The assessing officers shall thereafter pass
an order in terms of section 148A(d) after following
the due procedure as required under section
148A(b) in respect of each of the concerned
assessees;
(iv) All the defences which may be available to
the assessee under section 149 and/or which may
be available under the Finance Act, 2021 and in law
and whatever rights are available to the Assessing
Officer under the Finance Act, 2021 are kept open
and/or shall continue to be available and;
(v) The present order shall substitute/modify
respective judgments and orders passed by the
respective High Courts quashing the similar notices
issued under unamended section 148 of the IT Act
irrespective of whether they have been assailed
before this Court or not.
9. There is a broad consensus on the
aforesaid aspects amongst the learned ASG
appearing on behalf of the Revenue and the
learned Senior Advocates/learned counsel
appearing on behalf of the respective assessees.
We are also of the opinion that if the aforesaid order
is passed, it will strike a balance between the rights
of the Revenue as well as the respective assesses
as because of a bonafide belief of the officers of the
Revenue in issuing approximately 90000 such
notices, the Revenue may not suffer as ultimately it
is the public exchequer which would suffer.
Therefore, we have proposed to pass the
present order with a view avoiding filing of further
appeals before this Court and burden this Court
with approximately 9000 appeals against the similar
judgments and orders passed by the various High
Courts, the particulars of some of which are
referred to hereinabove. We have also proposed to
pass the aforesaid order in exercise of our powers
under Article 142 of the Constitution of India by
holding that the present order shall govern, not only
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the impugned judgments and orders passed by the
High Court of Judicature at Allahabad, but shall also
be made applicable in respect of the similar
judgments and orders passed by various High
Courts across the country and therefore the present
order shall be applicable to PAN INDIA.
10. In view of the above and for the reasons
stated above, the present Appeals are ALLOWED
IN PART. The impugned common judgments and
orders passed by the High Court of Judicature at
Allahabad in W.T. No. 524/2021 and other allied tax
appeals/petitions, is/are hereby modified and
substituted as under:–
(i) The impugned section 148 notices issued to
the respective assessees which were issued under
unamended section 148 of the IT Act, which were
the subject matter of writ petitions before the
various respective High Courts shall be deemed to
have been issued under section 148A of the IT Act
as substituted by the Finance Act, 2021 and
construed or treated to be show-cause notices in
terms of section 148A(b). The assessing officer
shall, within thirty days from today provide to the
respective assessees information and material
relied upon by the Revenue, so that the assesees
can reply to the show-cause notices within two
weeks thereafter;
(ii) The requirement of conducting any enquiry,
if required, with the prior approval of specified
authority under section 148A(a) is hereby
dispensed with as a one-time measure vis-à-vis
those notices which have been issued under
section 148 of the unamended Act from 01.04.2021
till date, including those which have been quashed
by the High Courts.
Even otherwise as observed hereinabove
holding any enquiry with the prior approval of
specified authority is not mandatory but it is for the
concerned Assessing Officers to hold any enquiry, if
required;
(iii) The assessing officers shall thereafter pass
orders in terms of section 148A(d) in respect of
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each of the concerned assessees; Thereafter after
following the procedure as required under section
148A may issue notice under section 148 (as
substituted);
(iv) All defences which may be available to the
assesses including those available under section
149 of the IT Act and all rights and contentions
which may be available to the concerned
assessees and Revenue under the Finance Act,
2021 and in law shall continue to be available.
11. The present order shall be applicable PAN
INDIA and all judgments and orders passed by
different High Courts on the issue and under which
similar notices which were issued after 01.04.2021
issued under section 148 of the Act are set aside
and shall be governed by the present order and
shall stand modified to the aforesaid extent. The
present order is passed in exercise of powers under
Article 142 of the Constitution of India so as to
avoid any further appeals by the Revenue on the
very issue by challenging similar judgments and
orders, with a view not to burden this Court with
approximately 9000 appeals. We also observe that
present order shall also govern the pending writ
petitions, pending before various High Courts in
which similar notices under Section 148 of the Act
issued after 01.04.2021 are under challenge.
12. The impugned common judgments and
orders passed by the High Court of Allahabad and
the similar judgments and orders passed by various
High Courts, more particularly, the respective
judgments and orders passed by the various High
Courts particulars of which are mentioned
hereinabove, shall stand modified/substituted to the
aforesaid extent only.
All these appeals are accordingly partly
allowed to the aforesaid extent.
In the facts of the case, there shall be no
order as to costs.”
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7. It is also not in dispute that the order passed
by the Hon’ble Division Bench in W.P.No.12668/2021
was on 18.04.2022 prior to the judgment of the Apex
Court in Ashish Agarwal‘s case (supra), which was
rendered on 04.05.2022. In fact, in the said judgment,
the Apex Court took note of the fact that even subsequent
to 01.04.2021, the respondents – revenue had been
issuing notices to the assessees’ by invoking the pre-
amended Section 148 and accordingly, directed the said
notices to be treated and construed to be show cause
notices in terms of Section 148A(b) of the post-amended
provisions. Accordingly, the respondents issued the
aforesaid show cause notice dated 31.05.2022 with
reference to Section 148A(b), which led to the
respondents passing the impugned order. It is therefore
clear that the legality, validity and correctness of the
impugned order has to be examined in the light of the
judgment of the Apex Court in Ashish Agarwal‘s case
as well as the provisions of Sections 147 to 151 of the
I.T.Act, before and after amendment vide Finance Act,
2021 w.e.f. 01.04.2021.
8. In this context, it is relevant to extract
Section 149 of the I.T.Act (after amendment), which
reads as under:-
Time limit for notice-
149.(1) No notice under section 148 shall be
issued for the relevant assessment year,–
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(a) if four years have elapsed from the end of the
relevant assessment year, unless the case falls
under clause (b) or clause (c);
(b) if four years, but not more than six years, have
elapsed from the end of the relevant assessment
year unless the income chargeable to tax which
has escaped assessment amounts to or is likely
to amount to one lakh rupees or more for that
year;
(c) if four years, but not more than sixteen years,
have elapsed from the end of the relevant
assessment year unless the income in relation to
any asset (including financial interest in any
entity) located outside India, chargeable to tax,
has escaped assessment.
Explanation.–In determining income
chargeable to tax which has escaped assessment
for the purposes of this subsection, the provisions
of Explanation 2 of section 147 shall apply as they
apply for the purposes of that section.
(2) The provisions of sub-section (1) as to the
issue of notice shall be subject to the provisions
of section 151.
(3) If the person on whom a notice under
section 148 is to be served is a person treated as
the agent of a nonresident under section 163 and
the assessment, reassessment or recomputation
to be made in pursuance of the notice is to be
made on him as the agent of such non-resident,
the notice shall not be issued after the expiry of a
period of six years from the end of the relevant
assessment year.
Explanation.–For the removal of doubts, it is
hereby clarified that the provisions of sub-sections
(1) and (3), as amended by the Finance Act,
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2012, shall also be applicable for any assessment
year beginning on or before the 1st day of April,
2012.
9. A reading of the aforesaid provision will indicate
that Section 149(1)(a) contemplates that if Section
149(1)(b) does not apply, then the period of limitation is 3
years from the end of the relevant assessment year; in
the instant case, the subject assessment year came to an
end on 31.03.2015 and the applicable period of limitation
is 3 years which expired on 31.03.2018 and
consequently, the impugned proceedings initiated
pursuant to the Notice dated 30.06.2021 issued under
Section 148 of the I.T.Act is clearly barred by limitation.
10. A perusal of Section 149(1)(b) will indicate
that the period of limitation is extendable from 3 years up
to 10 years from the end of the relevant assessment year,
if the Assessing Officer has in his possession books of
account or other documents or evidence which reveal
that the income chargeable to tax, represented in the
form of asset, which has escaped assessment amounts
to or is likely to amount to Rs.50 lakhs more for that year.
11. In the instant case, a perusal of the notices,
show cause notice and the impugned order clearly
establish that Section 149(1)(b) does not apply, because
the allegation of escapement of income is not based on
books of account or other documents or evidence in the
possession of the A.O; on the contrary, the allegation of
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escapement of income is based only on the disclosure
expressly made by the petitioner – assessee itself of the
gift of Wipro shares received by it and the very same
information was readily available with the A.O. when the
original assessment order dated 28.06.2016 was passed
by him. It is significant to note that at the time of passing
the said order dated 28.06.2016, the A.O. came to the
definite conclusion that Section 56(2)(vii)(c) did not apply
insofar as the petitioner was concerned despite having all
details, information and material in this regard that was
required at that time and based on the very same
material, it was impermissible for the A.O. to simply /
merely change his mind and initiate reassessment
proceedings by issuing a notice dated 30.06.2021; it is
therefore clear that in the facts of the instant case,
Section 149(1)(b) was not applicable and it was only
Section 149(1)(a) of the I.T.Act that was applicable and
consequently, the impugned proceedings pursuant to the
Notice dated 30.06.2021 issued beyond he period of
limitation, which expired on 31.03.2018 are hopelessly
barred by limitation and the impugned proceedings and
order deserve to be quashed.
12. A perusal of the proviso to Section 149(1)(b)
also creates a bar for issuance of a Notice by invoking
Section 148(1)(b) for the relevant assessment year
beginning on or before 01.04.2021, if such notice could
not have been issued at that time on account of being
beyond the time limit specified under the provisions of
Section 149(1)(b) as they stood prior to 01.04.2021; in
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other words, the proviso mandates that if a notice could
not have been issued under Section 148 as being barred
by limitation under Section 149(1)(b) as it stood prior to
amendment, then such notices cannot be issued by
relying upon Section 149(1)(b) after amendment which
provides a longer / larger period of limitation.
13. In this context, it is relevant to state that while
Section 149(1)(a) prior to amendment prescribed period
of 4 years, Section 149(1)(b) prior to amendment
prescribed a further period of 4 years subject to the
conditions stipulated in Section 147 prior to amendment.
However, after amendment, while Section 149(1)(a)
prescribes a period of three years, Section 149 (1)(b)
prescribes a further period beyond 3 years up to 10
years. The proviso to Section 149(1)(b) is a safeguard in
favour of the assessee which prevents / prohibits the
respondents – revenue from invoking the larger / longer
period of 10 years in cases of time barred notices which
had lapsed on account of the expiry of the period of
limitation under Section 149 (1)(b) prior to amendment.
14. It is therefore clear that if the further period of 4
years contemplated in Section 149(1)(b) had expired prior
to 01.04.2021, the larger / longer period of 7 years
contemplated in Section 149(1)(b) after amendment will
not enure to the benefit of the revenue which is barred /
prohibited from issuing such notices which are barred by
limitation.
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15. As stated above, in the facts of the instant
case, it is Section 149(1)(a) that is applicable and not
Section 149(1)(b) insofar as the petitioner is concerned
and on this ground alone, the impugned order and
proceedings deserve to be quashed; alternatively and
assuming that Section 149(1)(b) is invocable by the
respondents, even then the right of the revenue to issue a
notice and initiate proceedings is circumscribed by the
provisions of Sections 147 to 151 of the I.T.Act prior to
amendment.
16. As stated earlier, the mandatory requirements
/ conditions / ingredients contained in Section 147 have to
be complied with by the respondents – revenue to issue a
notice by placing reliance upon the pre-amended
provisions. In this regard, in relation to assessment year
2013-14 pertaining to the financial year 2012-13, identical
notices were issued by the respondents – revenue, which
were challenged before this Court by the petitioner in
W.P.No.8059/2021, wherein after referring to various
judgments of the Apex Court and this Court, the
impugned notice and reasons for reopening were
quashed. The relevant portions of the said order passed
in W.P.No.8059/2021 are extracted hereunder:
“10. The first question that arises for
consideration is, whether on 31.03.2021, the
respondents were entitled to reopen the
assessment proceedings of the petitioner for the
assessment year 2012-13 after the expiry of four
years as contemplated in Section 147 of the
I.T.Act; in this context, reliance is placed upon the
proviso to Section 147 of the I.T.Act by the
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respondents in order to contend that the
respondents had a valid reason to believe that the
undisclosed income had escaped assessment on
account of the petitioner – assessee not
disclosing fully and truly all material facts during
the course of the original assessment.
11. The power / jurisdiction of the
respondents – revenue to reopen assessments
under Section 147 of the I.T.Act 1961, beyond the
prescribed period of limitation on the ground that
there were “income had escaped assessment
due to failure on the part of the assessee to
disclose fully and truly all material facts
necessary for assessment” came up for
consideration before the Apex Court
XXXXXXXXXXXXXX
16. As held in the aforesaid decisions, the
respondents – Revenue are entitled to invoke the
proviso to Section 147 of the I.T.Act and reopen
the proceedings even after the prescribed period
of four years only if the petitioner – assessee had
failed to fully and truly disclose all material facts
for the purpose of assessment; failure on the part
of the assessee to fully and truly disclose all facts
which are material, relevant and germane for the
purpose of assessment is a sine qua non for the
purpose of reopening the assessment; in other
words, in the absence of any material to show
that the facts which were not fully and truly
disclosed by the assessee were material, relevant
and germane for the purpose of assessment
which had been concluded by the revenue, the
revenue did not have jurisdiction or authority of
law to reopen the assessment beyond the
prescribed period of four years; so also, even
assuming that all facts had not been disclosed by
the assessee at the time of assessment, so long
as the said facts are not material, relevant or
germane nor have an impact or bearing on the
assessment, it cannot be said that the petitioner –
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assessee had not fully and truly disclosed
material facts so as to enable the respondents –
revenue to reopen a concluded assessment.
17. In the instant case, it is the specific
contention of the petitioner that all relevant and
material facts had been stated and disclosed by
the petitioner in its income tax returns as well as
the reply to the queries put forth by the
respondents and the same having been accepted
without any demur by the respondents who had
concluded the assessment proceedings and
passed an assessment order on 31.03.2016, the
impugned Demand notice dated 31.03.2021
which was issued beyond the period of limitation
of four years was illegal, arbitrary and without
jurisdiction or authority of law. It is also contended
that a perusal of income tax returns as well as the
reply submitted by the petitioner on 22.06.2015 to
the notice dated 09.06.2015 issued by the
respondents will indicate that the face value /
book value of the shares as well as the total
market value of all the quoted investments
including the shares had been mentioned / stated
in the returns in addition to other material
particulars and details and consequently, there
has not been any failure of full and true disclosure
of material facts for the purpose of assessment.
18. Per contra, it is contended by the
respondents that the petitioner had not disclosed
and full and true facts in as much as the book
value and the market value of the shares gifted in
favour of the petitioner was not disclosed either in
the returns or in the reply submitted by the
petitioner and as such, the respondents were
entitled to invoke the proviso to Section 147 of the
I.T.Act and reopen the assessment.
19. As rightly contended by the petitioner,
a perusal of the income tax returns submitted by
the petitioner for the financial year 2012-13 will
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indicate that the same contains the following
details:-
(i) In the Annexures to the returns
showing the schedules forming part of the
Balance sheet, schedule – 3 contains the
details of the investments, among which,
long term investments are shown as A, B, C
and D while short term investments are
shown as A and B.
(ii) At page No.1 of the schedules,
among long term investments, quoted
shares are shown at Sl.No.A, in which,
shares of Wipro Ltd., having a face value of
Rs.2/- each are shown as 49, 07,14,120 in
number.
(iii) At Page No.2 of the aforesaid
schedules annexed to the returns, the details
of the Wipro shares received by the
petitioner as gift have been explained
including how the aforesaid number of
49,07,14,120 had been arrived at by the
petitioner.
(iv) At Page No.1 referred to supra, the
total number of shares for the previous year
i.e., 19,51,87,120 has also been stated. So
also, at page No.2, the market value of all
the quoted investments including the shares
gifted in favour of the petitioner has been
stated for assessment year 2012-13 and
2013-14.
20. The aforesaid details contained in the
income tax returns submitted by the petitioner
clearly falsifies the allegation of the respondents
that the book value of the shares had not been
mentioned / stated by the petitioner; so also,
undisputedly, in order to attract Section 56 (2) (vii)
(c) of the I.T.Act, the aggregate fair market value
should exceed Rs.50,000/-; the aforesaid details
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mentioned in the income tax returns are sufficient
to indicate that even if the market value of
49,07,14,120 shares is taken at 1 paise per
share, it would exceed the aforesaid fair market
value of Rs.50,000/- for the purpose of income
tax; in other words, in the light of all the details
furnished by the petitioner in the returns including
the total number of shares, the methodology
adopted to compute / quantify the number of
shares, the total number of shares for the
previous assessment year, the face value / book
value of the shares being shown as Rs.2/- each
and the total market value of the quoted
investments including the gifted shares coupled
with the fact that the market value of the shares of
Wipro Ltd., which is the public limited company
whose share value is available readily in the
public domain, it cannot be said that the petitioner
had failed to fully and truly disclose all material
facts necessary for its assessment.
21. As stated supra, in the light of all the
aforesaid material and relevant facts being fully
disclosed by the petitioner in its returns, which
were more than sufficient to complete the
assessment, mere non-disclosure of the market
value of the shares separately by the petitioner in
its returns cannot lead to an inference that the
petitioner has not fully and truly disclosed all
material facts necessary for assessment; to put it
differently, so long as all other material and
relevant facts had been furnished and disclosed
and it can be clearly discerned from the returns
and the documents that the market value of the
shares was in excess of Rs.50,000/-, simply
because the market value of 49,07,14,120 shares
had not been separately stated / mentioned, it
cannot be said that the respondents were entitled
to take shelter under the proviso to Section 147 of
the I.T. Act and seek to reopen the concluded
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proceedings of 2016 beyond the period of
limitation on 31.03.2021.
22. The material on record also discloses
that at the time of assessment proceedings, it was
not the case of the respondents that the market
value of the shares was a material fact that was
not disclosed by the petitioner; on the other hand,
in its notice dated 09.06.2015 issued under
Section 142(1) of the I.T.Act, the only details
sought for by the respondents was with regard to
the complete list of donors with address, PAN and
the amount donated. In the said notice, though
there is a separate column which enables the
respondents to seek details with regard to
computation of income, audit report along with
financial statements / schedules, additional
information in this regard with regard to non-
furnishing of the market value of the shares was
not sought for by the respondents in the aforesaid
notice dated 09.06.2015 (Annexure-G). This
circumstance is also a pointer to the fact that the
details furnished by the petitioner in its returns
were sufficient and that the petitioner had fully
and truly disclosed all material facts.
23. In response to the aforesaid notice
dated 09.06.2015, petitioner submitted a reply
dated 22.06.2015 and provided complete details
of the corpus donors including mail, address and
PAN and enclosed documentary evidence of the
same. Despite receiving the said reply and
documents submitted by the petitioner,
respondents did not seek further information /
clarification from the petitioner either with regard
to the details and documents submitted in the
reply or with regard to the market value of the
shares or the other details mentioned in the
returns submitted earlier, thereby indicating that in
view of the information already submitted by the
petitioner including the market value of the total
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quoted investments including the market value of
the shares apart from the fact that the market
value of Wipro shares were readily available in
the public domain and exceeding Rs.50,000/-, the
respondents did not deem it necessary or
warranted to call upon the petitioner to provide a
separate market value of the shares. Accordingly,
the respondents proceeded to complete /
conclude the assessment proceedings and
passed an assessment order on 31.03.2016
accepting the returns submitted by the petitioner.
Under these circumstances, I am of the
considered view that the impugned notice at
Annexure-A and the reasons for reopening the
same vide Annexure-A which proceed on the sole
premise that the petitioner had not disclosed the
boom value and the market value of the shares
which tantamount to not fully and truly disclosing
material facts are clearly illegal, arbitrary,
factually incorrect and perverse and contrary to
the material on record warranting interference by
this Court in the present petition.
24. As held by the Apex Court and
other High Courts including this Court, in the
aforesaid decisions, in order to invoke the proviso
to Section 147 of the I.T.Act, it is incumbent upon
the respondents to establish that the relevant
material facts essential for the purpose of
assessment had not been disclosed by the
petitioner; it cannot be gainsaid that all facts /
particulars which have not been stated /
mentioned in the returns are not material facts
and it is only those facts which would have an
impact / bearing upon the assessment that can be
construed or treated as essential. In the instant
case, all relevant material facts viz., details of
shares for the assessment years 2011-12 and
2012-13 have been stated including the breakup,
face value of the shares at Rs.2/- per share, the
details of the shares for the previous year, market
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value of all the quoted investments including the
shares etc., have been furnished by the petitioner
and accepted at the time of assessment without
any demur; under these circumstances, the
respondents are not entitled to invoke the proviso
to Section 147 of the I.T.Act in order to contend
that the income from the shares has escaped
assessment on account of failure on the part of
the petitioner to fully and truly disclose all material
facts. Viewed from this angle also, the impugned
notice and the reasons assigned by the
respondents deserve to be quashed.
25. As can be seen from the aforesaid
decisions, it is the settled legal position that an
assessee is under a duty or obligation to disclose
only the basic and primary facts relating to his
assessment and thereafter, it is for the Assessing
officer to make further enquires and draw
inferences and if he does not do so for any
reason , then the Revenue cannot contend that
there was any failure or omission on the part of
the assessee. In the instant case, after being in
possession of all the relevant facts relating to the
gifts of shares received by the petitioner, the
Assessing officer consciously chose not to apply
Section 56(2)(vii)(c) of the I.T.Act. However, after
the expiry of the period of four years mentioned in
the proviso to Section 147, the A.O has attempted
to take a new view, which is not permissible in
law.
26. It is well settled that in a case of
reopening covered by the proviso to Section 147
of the I.T.Act, the reasons recorded must set out
the exact particulars of the failure to disclose on
the part of the assessee, on account of which the
escapement of income has taken place and a
ritual repetition of the proviso to Section 147 of
the I.T.Act would not be sufficient. In the present
case, the reasons recorded only state that though
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the number of WIPRO shares received as a gift
were disclosed, but neither the book value nor the
market value of the shares was disclosed in the
Balance Sheet. This is factually incorrect because
the returns submitted by the petitioner indicate
that the face value of the WIPRO shares (Rs.2/-
per share) and also their market value as on
31.03.2013 which is included in the total market
value of the quoted investments are clearly
disclosed. In any event, the share of WIPRO is
widely quoted and frequently traded and its
market value from minute to minute is readily
available and it cannot be said that the petitioner
has failed to disclose the information which is in
the public domain and is continuously available to
everybody. Further, the reasons recorded do not
even attempt to claim that the non-application of
Section 56(2) (vii)(c) of the I.T.Act and the
consequent alleged escapement of income was
because the Assessing officer was allegedly
unaware of the market price of WIPRO shares.
For application of Section 56(2)(vii)(c) of the
I.T.Act, even if a price as nominal as one paise is
assigned to be the market value of each Wipro
share received as a gift with the number of shares
received as a gift being Rs.29.55 crores, the
aggregate value will far exceed the limit of
Rs.50,000/- specified in Section 56(2)(vii)(c) of
the I.T.Act. Thus, in the facts of the case, it is
axiomatic that the Assessing officer considered
Section 56(2)(vii)(c) of the I.T.Act not to be
attracted at all rather than being unaware of the
market price of WIPRO shares as alleged. The
market price of these shares is irrelevant because
in the reasons recorded, nowhere it is specifically
alleged and established that the alleged
escapement of income was by reason of the so-
called non-disclosure of the share price. In any
event, such an allegation even if made, would be
false because the Balance Sheet states the
market value and consequently, on this ground
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also, the impugned notice and reasons assigned
by the respondents deserve to be quashed. It is
therefore clear that the jurisdictional condition
precedent laid down by the proviso to Section 147
i.e failure to disclose a material fact, which failure
allegedly is the proximate cause of the
escapement of income has not been fulfilled at all
in the present case and the impugned notice
deserves to be quashed.
27. Insofar as the decisions relied upon by
the learned counsel for the respondents are
concerned, the same are clearly distinguishable
on facts and are not adverted to for the purpose
of the present case; suffice it to state that the
impugned notice and order which proceed on the
premise that the face value / book value of the
shares has not been stated is clearly factually
incorrect; so also, in the peculiar facts of the
instant case and the details / particulars of the
shares and their value already available with the
respondents as stated supra, mere non-
mentioning of the market value of the shares also
is neither relevant nor germane for the purpose of
invoking the proviso to Section 147 of the I.T. Act
and consequently, the impugned notice and
reasons deserve to be quashed on this ground
also.”
17. Coming to the facts of the case on hand,
which is in relation to the assessment year 2014-15, the
material on record discloses that the aforesaid judgment
in W.P.No.8059/2021 was also rendered in relation to the
same petitioner – company under identical and similar
circumstances, albeit for the previous assessment year
2013-14 and the same is directly and squarely applicable
to the facts of the present case also and consequently, no
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reliance can be placed upon the proviso to Section
149(1)(b) [after amendment] by the respondents in order
to contend that the notice dated 30.06.2021 was within
the prescribed period of limitation.
18. A perusal of the material on record also
indicates that apart from the various facts and
circumstances that were taken into account by this Court
in W.P.No.8059/2021 in relation to the previous
assessment year 2013-14, in the present case, there was
a sale of Wipro shares during the assessment year 2014-
15 itself and the same was assessed to capital gains tax
by the Assessing Officer which clearly indicated that he
was fully aware of the market price of the Wipro shares
much prior to issuance of the notice dated 30.06.2021
and consequently, it cannot be said that the income of the
petitioner had escaped assessment due to failure on the
part of the assessee to disclose fully and truly all material
facts necessary for assessment. So also, in the original
regular assessment proceedings for the subject
assessment year 2014-15, the Assessing Officer had
sought for and examined the petitioner’ share demat
account which was provided by the petitioner to the
Assessing Officer furnishing all particulars regarding the
Wipro shares; this circumstance is also a pointer to the
fact that the Assessing Officer had complete and full
knowledge of the subject shares and their value at the
time of original assessment proceedings and on this
score also, it cannot be said that the income of the
petitioner had escaped assessment due to failure on the
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part of the assessee to disclose fully and truly all material
facts necessary for assessment and consequently, the
impugned order deserves to be quashed on this ground
also.
19. Insofar as the other contentions of both sides
and the other reliefs sought for by the petitioner, in view
of the findings recorded above, I do not deem it
necessary to go into the same for the purpose of disposal
of the present petition.
20. In the result, I pass the following:-
ORDER
i) The petition is partly allowed.
ii) The impugned order at Annexure-A dated
28.07.2022 and the impugned Notice at Annexure-B both
dated 28.07.2022 are hereby quashed.”
9. In the instant case, a perusal of the communication
dated 02.05.2018 issued by the respondent purporting to reopen
the assessment will clearly indicate that the same do not constitute
reasons to believe or existence of tangible material that there was
escapement of income from assessment. It is also pertinent to note
that in the notice under Section 142(1) dated 11.02.2014, the
respondent had specifically asked the petitioner to give a break up
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of the stock value and the basis of the stock value arrived at
pursuant to the Joint Development Agreement in relation to the
land property entered into during the financial years 2004-05 to
2009-10 and the same was furnished by the petitioner along with
the reply dated 19.02.2014 specifically answering the queries in
this regard put forth by the respondents.
10. In pursuance of the said replies/ document/ material
submitted by the petitioner, the respondents having proceeded to
pass the aforesaid assessment order dated 26.03.2014 were not
entitled to seek reopening of assessment proceedings on the basis
of change of opinion and in the absence of tangible material to
come to the conclusion that there was escapement of income from
assessment especially when the reasons contained in the
communication dated 02.05.2018 do not indicate a live link with the
formation of such belief. It is also pertinent to note that merely
because the full value of consideration of transfer of stock in trade
considering the lowest prevailing fair market value is said to be
calculated by the respondents in the said communication, the same
cannot constitute existence of tangible material for the purpose of
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WP No. 53763 of 2018
HC-KAR
reopening of assessment which is impermissible in law in view of
the principles laid down in the aforesaid judgments.
11. Under these circumstances, I am of the view that the
impugned communication at Annexures- K and V are illegal
arbitrary without jurisdiction or authority of law and the same
deserves to be quashed. In the result, I pass the following:
ORDER
i) The petition is hereby allowed.
ii) The impugned orders at Annexures – K and
V dated 30.03.2018 and 26.10.2018 respectively are
hereby quashed.
iii) In view of quashment of the impugned
notice and order for the reasons mentioned hereinabove,
all other contentions urged by the petitioner in the
present petition are not dealt with for the purpose of the
present order and the same are kept open to be decided
in appropriate proceedings and if the occasion so arises.
Sd/-
(S.R.KRISHNA KUMAR)
JUDGE
MDS
List No.: 2 Sl No.: 1
