Bharti Infratel Limited v. Deputy Commissioner Of Income Tax And Another

* + IN THE HIGH COURT OF DELHI AT NEW DELHIWRIT PETITION (CIVIL) No. 2036/2016 Date of decision: 15[th] January, 2019 BHARTI INFRATEL LIMITED ..... Petitioner Through Mr. Ajay Vohra, Sr. Advocate with Mr.Gaurav Jain, Mr. Aniket D. Agrawal and Ms. Deepika Agarwal, Advocates. versus DEPUTY COMMISSIONER OF INCOME TAX AND ANOTHER ..... Respondents Through Mr. Zoheb Hossain, Sr. Standing Counsel, Mr. Deepak Anand & Mr. Piyush Goyal, Advocates. CORAM:HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE CHANDER SHEKHAR SANJIV KHANNA, J.: Bharti Infratel Limited (‗Petitioner/BIL‘, for short) by this writ petition impugns legality and validity of notice for re-assessment dated 31[st]March, 2015 issued under Section 148 read with Section 147 of the Income Tax Act, 1961 ('Act', for short) for the Assessment Year 2008-09. BIL has also challenged the order dated 23[rd] February, 2016 passed by the Assessing Officer, Deputy Commissioner of Income Tax, Circle-4(2), the first respondent to the writ petition, rejecting its objections to reopening of the assessment. W.P. (C) No. 2036/2016 Page 1 of 47 2. For convenience, it is observed and recorded that the Principal Commissioner of Income Tax is the second respondent to the present writ petition and that BIL is a company and a subsidiary of Bharti Airtel Limited (BAL, for short). 3. BIL in its return of income for the Assessment Year 2008-09 filed on 15[th] October, 2008 had declared a loss of Rs.157,27,09,173/- under the normal provisions and book profits of Rs.63,54,91,170/- under Section 115 JB of the Act. Revised return filed on 31[st] March, 2010 had enhanced the book profits to Rs. 63,89,40,500/- 4. Return for Assessment Year 2008-09 was taken up for scrutiny assessment vide issue of notices under Section 143(2) and 142 of the Act. Questionnaires were issued to which BIL had responded by furnishing details and documents which would be referred subsequently, culminating in the order of assessment dated 20[th] December, 2010 under Section 143(3) of the Act. 5. Thereafter, reassessment proceedings were initiated by the first respondent by issue of impugned notice under Section 148 read with Section 147 of the Act, which was served on BIL on 1[st] April, 2015. BIL by letter dated 8[th] April, 2015 had informed the assessing officer that the revised return filed by them on 31[st] March, 2010 may be treated as return filed in response to notice under Section 148 of the Act. By the same letter BIL had requested the first respondent to furnish copy of the 'reasons to believe' recorded for initiation of re-assessment proceedings. 'Reasons to believe' were furnished vide letter dated 13[th] April, 2015. W.P. (C) No. 2036/2016 Page 2 of 47 6. BIL had filed objections to reopening both on facts and law vide reply/objections dated 5[th] May, 2015 which, inter alia, had challenged assumption of jurisdiction under Section 147/148 of the Act. 7. The objections have been rejected by the first respondent by the impugned order dated 23[rd] February, 2016, resulting in filing of the present writ petition impugning the said order as well as notice dated 31[st] March, 2015 initiating re-assessment proceedings under Section 147/148 of the Act. 8. The relevant portion of the 'reasons to believe' recorded by the Assessing Officer for re-opening of assessment read as under :- W.P. (C) No. 2036/2016 Page 2 of 47 6. BIL had filed objections to reopening both on facts and law vide reply/objections dated 5[th] May, 2015 which, inter alia, had challenged assumption of jurisdiction under Section 147/148 of the Act. 7. The objections have been rejected by the first respondent by the impugned order dated 23[rd] February, 2016, resulting in filing of the present writ petition impugning the said order as well as notice dated 31[st] March, 2015 initiating re-assessment proceedings under Section 147/148 of the Act. 8. The relevant portion of the 'reasons to believe' recorded by the Assessing Officer for re-opening of assessment read as under :- ―During proceedings u/s 143(3) read with Section 263 of Income-tax Act, 1961 in case of M/s Bharti Airtel Ltd. for A.Y. 2008-09, it has been observed that M/s Bharti Airtel Ltd. (hereinafter referred to as ‗transferor‘) had transferred its telecom infrastructure assets worth Rs.5739.60 crores to its subsidiary company M/s Bharti Infratel Ltd. (hereinafter referred to as ‗transferee‘) on 31.01.2008 for Nil value under the Scheme of Arrangement approved by Hon‘ble Delhi High court. Further, as per scheme, the transferee company had revalued the said assets to Rs.8218.12 crores in the asset side of its Balance Sheet for the year ending on 31.03.2008 and the corresponding amount is added under General Reserves on the liability side of its Balance Sheet as per Part-III of the scheme of arrangement which clarified the accounting treatment in the books of transferee company. The relevant part of the scheme is reproduced as under: Part III ISSUE OF SHARES AND ACCOUNTING TREATMENT IN THE BOOKS OF THE TRANSFEROR COMPANY AND THE TRANSFREE COMPANY 3.1 *** 3.2 ACCOUNTING TREATMENT IN THE BOOKS OF THE TRANSFEREE COMPANY 3.2.1 Upon the Scheme becoming effective, the Transferee Company shall record the Telecom infrastructure at their respect fair values as on the Appointed Date. 3.2.2 The transferee company will credit an amount equal to the fair values of Telecom Infrastructure as general reserve, which shall constitute Free Reserves available for all purposes as the Transferee Company at its own discretion considers proper including in particular for off-setting any additional depreciation that may be charged by the Transferee company. Explanation: Additional depreciation means depreciation provided, charged or suffered by the Transferee Company on the assets transferred by the Transferor Company under the Scheme in excess of what would be chargeable on the original book value of these assets as if there had been no revaluation on transfer of these assets and basing the cost of these assets on the historical cost as appears in the books of the Transferor Company. The reserve as above shall be treated as arising from this Scheme and shall not be treated as a reserve created by the Transferee Company. 3.3 ****** During the assessment proceedings for the A.Y. 2008-09 in the case of M/s Bharti Airtel Ltd. (BAL), the entire scheme of transfer of assets from BAL to Bharti Infratel Limited (BIL) was examined in the light of Scheme of Arrangement (SOA) approved by the Hon‘ble High Court of Delhi. During the examination of the scheme, it is seen from the relevant portion of the Share Holders Agreement dated 8.12.2007, Annual Report of Bharti Infratel Limited (BIL) for F.Y. 2007- W.P. (C) No. 2036/2016 Page 4 of 47 3.3 ****** During the assessment proceedings for the A.Y. 2008-09 in the case of M/s Bharti Airtel Ltd. (BAL), the entire scheme of transfer of assets from BAL to Bharti Infratel Limited (BIL) was examined in the light of Scheme of Arrangement (SOA) approved by the Hon‘ble High Court of Delhi. During the examination of the scheme, it is seen from the relevant portion of the Share Holders Agreement dated 8.12.2007, Annual Report of Bharti Infratel Limited (BIL) for F.Y. 2007- W.P. (C) No. 2036/2016 Page 4 of 47 08 & F.Y. 2008-09, Annual Report of Bharti Airtel Limited and Agreement made in the entire process, that neither the BAL nor the BIL disclosed the full and true intention in the SOA approved by the Hon‘ble High Court. In the SOA, it was mentioned that the passive infrastructure of BAL is being transferred to wholly owned subsidiary and as there is no movement of assets to any company outside the group, neither any shares are to be issued, nor any consideration is to be paid to the shareholders for transfer of the assets. However, within less than 15 days of approval of SOA by the Hon‘ble High Court, and even before the transfer of assets by BAL to BIL, a shareholder agreement dated 08.12.2007 is entered into. In fact, as per the Shareholder‘s Agreement, the passive infrastructure transferred by transferor company, before the effective date and after the effective date (Effective date as mentioned in Indefeasible Right to Use Agreement IRU) is to be managed and operated by Indus Tower Limited only and not even for single day to be handled by Bharti Infratel Limited as submitted before the Hon‘ble High Court through the SOA filed. From the entire scheme, it is seen that the assets which can be directly transferred from BAL to ITL were routed through BIL and BIVL for the purpose of evasion of tax because the assets, WDV of which in the books of BAL on the date of transfer was Rs.5739.60 crores were transferred at NIL value to BIL and, immediately after transfer, were revalueed at Rs.8218.12 crores. The difference of the amount of –Rs.2478.51 crores (Rs.8218.12 crores Rs.5739.60 crores) between the value of assets and revaluation of investment has already been taxed in the hands of BAL under the provision of Income-tax Act, 1961. But the assets whose value on the date of transfer from BAL to BIL was Rs.5739.60 crores were received by BIL at Nil value, thereby resulting in gain of Rs.5739.60 crores in W.P. (C) No. 2036/2016 Page 5 of 47 the hands of BIL, which is income within the provisions of Section 2(24) of the Income-tax Act, 1961. Therefore I have reason to believe that the WDV of the assets, received by BIL at Nil, i.e., Rs.5739.60 crores is the income of the BIL which has escaped assessment due to failure on the part of the assessee to disclose truly and fully all material facts necessary for its assessment. Since period of four years has expired from the end of the relevant assessment year, sanction for issue of notice u/s 148 of the Income-tax Act, 1961 as prescribed under proviso to Section 151(1) of the Income-tax Act, 1961, may kindly be accorded. Submitted for kind perusal and approval.‖ the hands of BIL, which is income within the provisions of Section 2(24) of the Income-tax Act, 1961. Therefore I have reason to believe that the WDV of the assets, received by BIL at Nil, i.e., Rs.5739.60 crores is the income of the BIL which has escaped assessment due to failure on the part of the assessee to disclose truly and fully all material facts necessary for its assessment. Since period of four years has expired from the end of the relevant assessment year, sanction for issue of notice u/s 148 of the Income-tax Act, 1961 as prescribed under proviso to Section 151(1) of the Income-tax Act, 1961, may kindly be accorded. Submitted for kind perusal and approval.‖ 9. The 'reasons to believe' state that BAL had transferred telecom infrastructure assets worth Rs.5739.60 crores to its subsidiary and the present petitioner-BIL on 31[st] January, 2008 for nil consideration under a Scheme of Arrangement ('SOA', for short) approved by the Delhi High Court. As per SOA, BIL had re-valued the said assets to Rs.8218.12 crores on the assets side of their balance sheet for the year ending 31[st] March, 2008. Contemptuously Rs.8218.12 crores were added to the general reserve on the liability side of BIL‘s balance sheet as per Part III of the SOA. Thereafter, Part III of SOA has been quoted to state that the amount credited to the reserves on account of transfer of telecom infrastructure assets constituted free reserves that would be available to BIL as a company in its discretion with liberty to set-off against the reserve created against additional depreciation that may be charged/claimed by the BIL. The reserve was to be treated as arising from the SOA and not created by BIL. Paragraph 3.3 of the reasons states that the entire scheme of transfer of W.P. (C) No. 2036/2016 Page 6 of 47 assets was examined in the assessment proceedings for AY 2008-09 of BAL by the Assessing Officer in the light of SOA approved by the Delhi High Court and that- ―during examination of the scheme it was seen from the relevant portion of Share Holders Agreement dated 8.12.2007, annual report for the petitioner company for Financial Year 2007-08 and 2008-09, annual report of Bharti Airtel Limited and agreement made in the entire process that neither BIL nor BAL disclosed full and true intention in the SOA approved by the Hon‘ble High Court‖. SOA had mentioned transfer of passive infrastructure of BAL to BIL, a wholly owned subsidiary, and that there was no transfer of assets to a company outside the ―group‖. It was stipulated that shares were not to be issued and no consideration was to be paid to the shareholders for transfer of assets. Contrary to the SOA approved by the High Court, within fifteen days of the approval of SOA, a shareholder‘sagreement on 8[th] December, 2007 was entered into by BIL whereby the passive infrastructure was transferred by it to a third party, namely, M/s Indus Tower Limited. This transfer was made before the effective date, which was the date by which BIL would have acquired indefeasible right to use the passive infrastructure. On/or before the effective date, M/s Indus Tower Limited had acquired indefeasible right to use the passive infrastructure transferred to BIL by BAL. BIL had not for even a single day used the passive infrastructure, contrary to what was stated in the SOA filed before the Delhi High Court. Thus, the entire scheme had actually envisaged transfer of passive infrastructure assets from BAL to M/s Indus Tower Limited, which were routed through subsidiary of BAL, i.e., the petitioner/BIL‘s subsidiary Bharti Infratel Ventures Limited. The entire purpose behind the scheme was evasion of taxes, as passive infrastructure W.P. (C) No. 2036/2016 Page 7 of 47 W.P. (C) No. 2036/2016 Page 7 of 47 assets of BAL having written down value of Rs.5739.60 crores were transferred at nil value to BIL and were immediately re-valued at Rs.8218.12 crores. The difference between the two figures of Rs.8218.12 crores and Rs.5739.60 crores, i.e., the written down value of the assets transferred by BAL to BIL and the re-valuation of investment had been taxed in the hands of BAL. Re-assessment in the case of BIL was necessary and required as gain of Rs.5739.60 crores in the form of transfer of assets from BAL to BIL had escaped assessment. This was taxable income under Section 2(24) of the Act as the declared written down value of the assets received from BAL was nil, thereby resulting in gain of Rs.5739.60 crores being the written down value. Thus, there was failure on the part of the petitioner to disclose truly and fully all material facts. 10. The petitioner has challenged reopening primarily on four grounds:- (i)Absence of rational and intelligible nexus between material relied upon in the reasons to believe and escapement of income. relied upon in the reasons to believe and escapement of income. (ii)Change of opinion. (iii)Non-satisfaction of pre-conditions specified in the proviso read with Explanation 1 to Section 147 of the Act. with Explanation 1 to Section 147 of the Act. (iv)Lack/ absence of valid sanction under Section 151 of the Act. 11. Fourth objection was not pressed. First objection we would observe would relate to merits and is not being examined as we find that BIL should succeed in view of the second and third objections, which are interconnected. For the sake of convenience, we would like to examine and consider them together to avoid prolixity and repetition. W.P. (C) No. 2036/2016 Page 8 of 47 12. In order to decide the second and third contentions, we begin by reproducing relevant portion of Section 147 of the Act, which reads as under:- ―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 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) : 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: XXXXX —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.‖ XXXXX —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.‖ 13. For the purpose of examining two contentions, we are primarily concerned with the main section, the proviso and Explanation 1. Proviso comes into operation when there is already an earlier assessment under Section 143(3), i.e., the Assessing Officer has earlier scrutinized and applied his mind on the return of income filed, the material facts stated therein, documents produced and the relevant facts ascertained and examined to pass the assessment order. Proviso stipulates that if re-assessment is initiated after expiry of four assessment years from the date of the relevant assessment year, an additional requirement in the form of satisfaction of one of the three preconditions; failure to file return under Section 139; failure to respond to notice under Section 142(1) or 148; or failure to disclose fully and truly material facts necessary for assessment, must be satisfied. First Explanation states that mere production of account books or other evidence before the Assessing Officer from which material evidence could have been discovered with due diligence by the Assessing Officer would not necessarily amount to disclosure within the meaning of the proviso. We would elaborate and discuss the effect of the Explanation 1 with the proviso. 14. Explanation 1 and proviso to Section 147 have to be interpreted harmoniously and are not to be treated as ante-thesis, to ensure that both the proviso and the Explanation 1 are applied and given effect to without negating or nullifying one of them and making one override the other. Proviso clearly states that no action under Section 147 will be taken by the Assessing Officer unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee (i) to file a return under Section 139, (ii) to respond to notice under Section 142(1) or 148 and W.P. (C) No. 2036/2016 Page 10 of 47 14. Explanation 1 and proviso to Section 147 have to be interpreted harmoniously and are not to be treated as ante-thesis, to ensure that both the proviso and the Explanation 1 are applied and given effect to without negating or nullifying one of them and making one override the other. Proviso clearly states that no action under Section 147 will be taken by the Assessing Officer unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee (i) to file a return under Section 139, (ii) to respond to notice under Section 142(1) or 148 and W.P. (C) No. 2036/2016 Page 10 of 47 (iii) failure to disclose fully and truly material facts necessary for assessment for that year. Emphasis on the third part of proviso is on the assessee‘s failure to fully and truly disclose all material facts necessary for assessment. Therefore, when the proviso applies, the Assessing Officer must satisfy himself and state that there has been failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment or another jurisdictional preconditions. In absence of failure or lapse to disclose fully and truly all material facts or one of the other pre-conditions, re-opening is impermissible and barred under the statute. In such cases, it does not matter whether the Assessing Officer has applied his mind to the material facts stated, but had failed to draw legal or other factual inferences. Pertinently, the words used in the first Explanation are material evidence and not legal and factual inferences and conclusion predicated on the evidence/material on record. Explanation 1 has limited operation and would apply to cases where the assessee has produced account books or other evidence before the Assessing Officer, but the Assessing Officer had failed to discover 'material evidence' that was available or was inferable but was not examined or considered. In such cases, mere production of account books and other evidence would not necessarily amount to disclosure under the proviso. Such situations would arise in cases where the disclosure of material fact is not direct and apparent, albeit the Assessing Officer on exercise of due diligence could have deduced or found out relevant material evidence. The expression 'material facts' refers to primary facts and it is in this context that Explanation 1 has been enacted to protect the interest of the Revenue for earlier judicial pronouncements had held that the assessee‘s duty to fully and truly disclose material facts would only relate to disclosing primary facts, W.P. (C) No. 2036/2016 Page 11 of 47 which would mean and imply full and true disclosure and not duty to indicate or draw attention to factual, legal or other inferences which can be drawn from the primary facts disclosed. It is in this legal background we would have to examine whether or not the petitioner-assessee had disclosed the primary facts, reference to which has been made in the ‗reasons to believe‘. Secondly, we have to examine, whether this is a case of ‗change of opinion‘, which as recorded above, is a different aspect and jurisdictional requirement for the law relating to reopening under Section 147 of the Act ‗‘does not permit re-opening on change of opinion. W.P. (C) No. 2036/2016 Page 11 of 47 which would mean and imply full and true disclosure and not duty to indicate or draw attention to factual, legal or other inferences which can be drawn from the primary facts disclosed. It is in this legal background we would have to examine whether or not the petitioner-assessee had disclosed the primary facts, reference to which has been made in the ‗reasons to believe‘. Secondly, we have to examine, whether this is a case of ‗change of opinion‘, which as recorded above, is a different aspect and jurisdictional requirement for the law relating to reopening under Section 147 of the Act ‗‘does not permit re-opening on change of opinion. 15. Full Bench of this Court in majority judgment authored by one of us (Sanjiv Khanna, J.) in Commissioner of Income Tax-VI, New Delhi versus Usha International Limited, (2012) 348 ITR 485 (Delhi)(FB) had drawn distinction between cases where re-opening is done within four years of the end of the assessment year and cases where re-opening is post four years of the end of the assessment year. This distinction was drawn, as earlier Full Bench of this High Court in Commissioner of Income Tax, Delhi versus Kelvinator of India Limited, (2002) 256 ITR 1 Delhi (FB) and in appeal the Supreme Court of India in Commissioner of Income Tax, Delhi versus Kelvinator of India Limited, (2010) 2 SCC 723 had held that re-opening is impermissible on 'change of opinion' and in that context had drawn distinction between disclosure/declaration of 'material fact' by an assessee and legal effect thereof when the first proviso and Explanation 1 to Section 147 applies; and the principle of 'change of opinion'; in the following words:- W.P. (C) No. 2036/2016 Page 12 of 47 ―23. The said observations do not mean that even if the Assessing Officer did not examine a particular subject matter, entry or claim/deduction and therefore had not formed any opinion, it must be presumed that he must have formed an opinion. This is not what was argued by the assessee or held and decided. There cannot be deemed formation of opinion even when the particular subject matter, entry or claim/deduction is not examined. 24. Distinction between disclosure/declaration of material facts made by the assessee and the effect thereof and the principle of change of opinion is apparent and recognized. Failure to make full and true disclosure of material facts is a precondition which should be satisfied if the reopening is after four years of the end of the assessment year. The explanation stipulates that mere production of books of accounts and other documents, from which the Assessing Officer could have with due diligence inferred facts does not amount to full and true disclosure. Thus in cases of reopening after 4 years as per the proviso, conduct of the assessee and disclosures made by him are relevant. However, when the proviso is not applicable, the said precondition is not applicable. This additional requirement is not to be satisfied when re-assessment proceedings are initiated within four years of the end of the assessment year. The sequitor is that when the proviso does not apply, the re-assessment proceedings cannot be declared invalid on the ground that the full and true disclosure of material facts was made. In such cases, re-assessment proceedings can be declared invalid when there is a change of opinion. As a matter of abundant caution we clarify that failure to state true and correct facts can vitiate and make the principle of change of opinion inapplicable. This does not require reference to and the proviso is not invoked. The difference is this; when proviso applies the condition stated therein must be satisfied and in other cases it is not a prerequisite or condition precedent but the defence/plea of change of opinion shall not be available and will be rejected. W.P. (C) No. 2036/2016 Page 13 of 47 25. Thus if a subject matter, entry or claim/deduction is not examined by an Assessing Officer, it cannot be presumed that he must have examined the claim/deduction or the entry, and therefore, it is the case of ―change of opinion‖. When at the first instance, in the original assessment proceedings, no opinion is formed, principle of ―change of opinion‖ cannot and does not apply. There is a difference between change of opinion and failure or omission of the Assessing Officer to form an opinion on a subject matter, entry, claim, deduction. When the Assessing Officer fails to examine a subject matter, entry, claim or deduction, he forms no opinion. It is a case of no opinion. 26. In 3i Infotech Ltd. v. Assistant Commissioner of Income Tax (2010) 329 ITR 257 (Bom.) it was observed that producing voluminous record before the Assessing Officer does not absolve the assessee and the assessee cannot be heard to say that if the Assessing Officer were to conduct a further inquiry, he would have come into possession of material evidence with the exercise of due diligence. Assessments can be complex and require examination of several subject matter, claims, entries or deductions. The Assessing Officer inspite of best efforts or intention can miss out and not examine and go into a subject matter, claim, entry or deduction. An assessee cannot contend or state that in the reams and plethora of papers, notes and entries, entry, a statement was made, or claim or entry was explained and the principle of better be-ware applies. When a subject matter, entry, claim or deduction remains hidden or unexamined by the Assessing Officer, be it for any reason, it is not a case of change of opinion.‖ 16. Supreme Court in State of Uttar Pradesh and Others versus Aryaverth Chawal Udyog and Others, (2015) 17 SCC 324 had referred to the principle of ‗change of opinion‘ and legal requirement for valid re-opening of tax assessment under U.P. Trade Tax Act, 1948. Reference was made to Supreme Court decisions in Kelvinator of India Limited (supra), W.P. (C) No. 2036/2016 Page 14 of 47 Aslam Mohammad Merchant versus Competent Authority, (2008) 14 SCC 186, Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers (P) Limited, (2008) 14 SCC 208, S. Narayanappa versus CIT, (1967) 1 SCR 590 and other cases, to hold:- ―28. This Court has consistently held that such material on which the assessing authority bases its opinion must not be arbitrary, irrational, vague, distant or irrelevant. It must bring home the appropriate rationale of action taken by the assessing authority in pursuance of such belief. In case of absence of such material, this Court in clear terms has held the action taken by the assessing authority on such ―reason to believe‖ as arbitrary and bad in law. In case of the same material being present before the assessing authority during both, the assessment proceedings and the issuance of notice for reassessment proceedings, it cannot be said by the assessing authority that ―reason to believe‖ for initiating reassessment is an error discovered in the earlier view taken by it during original assessment proceedings. (See Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan [Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan, (1980) 4 SCC 71 : 1980 SCC (Tax) 348] .) 29. The standard of reason exercised by the assessing authority is laid down as that of an honest and prudent person who would act on reasonable grounds and come to a cogent conclusion. The necessary sequitur is that a mere change of opinion while perusing the same material cannot be a ―reason to believe‖ that a case of escaped assessment exists requiring assessment proceedings to be reopened. (See Binani Industries Ltd. v. CCT [Binani Industries Ltd. v. CCT, (2007) 15 SCC 435]; A.L.A. Firm v. CIT [A.L.A. Firm v. CIT, (1991) 2 SCC 558] .) If a conscious application of mind is made to the relevant facts and material available or existing at the relevant point of time while making the assessment and again a different or divergent view is reached, it would tantamount to ―change of opinion‖. If an assessing authority forms an opinion during the original assessment proceedings on the basis of material facts and subsequently finds it to be erroneous; it is not a valid reason under the law for reassessment. Thus, reason to believe cannot be said to be the subjective satisfaction of the assessing authority but means an objective view on the disclosed information in the particular case and must be based on firm and concrete facts that some income has escaped assessment. 30. In case of there being a change of opinion, there must necessarily be a nexus that requires to be established between the ―change of opinion‖ and the material present before the assessing authority. Discovery of an inadvertent mistake or non-application of mind during assessment would not be a justified ground to reinitiate proceedings under Section 21(1) of the Act on the basis of change in subjective opinion (CIT v. Dinesh Chandra H. Shah [CIT v. Dinesh Chandra H. Shah, (1972) 3 SCC 231] ; CIT v. Nawab Mir Barkat Ali Khan Bahadur[CIT v. Nawab Mir Barkat Ali Khan Bahadur, (1975) 4 SCC 360 : 1975 SCC (Tax) 316] ).‖ 17. Majority decision of the Full Bench of this Court in Usha International Limited (supra) had also drawn distinction between erroneous application/interpretation/understanding of law and cases where a fresh or new factual information comes to the knowledge of the Assessing Officer, after passing of the assessment order, in the following words:- ―16. Here we must draw a distinction between erroneous application/interpretation/understanding of law and cases W.P. (C) No. 2036/2016 Page 16 of 47 where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of ―change of opinion‖ will not apply. The reason is that ―opinion‖ is formed on facts. ―Opinion‖ formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of ―change of opinion‖. Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression ‗material facts‘ means those facts which if taken into account would have an adverse affect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment.” 18. The ratio in Kelvinator of India Limited (supra) has been reiterated by the Supreme Court in Income Tax Officer, Ward No. 16(2) versus Techspan India Private Limited and Another, (2018) 6 SCC 685 to observe:- 18. The ratio in Kelvinator of India Limited (supra) has been reiterated by the Supreme Court in Income Tax Officer, Ward No. 16(2) versus Techspan India Private Limited and Another, (2018) 6 SCC 685 to observe:- ―14. The language of Section 147 makes it clear that the assessing officer certainly has the power to reassess any income which escaped assessment for any assessment year subject to the provisions of Sections 148 to 153. However, the use of this power is conditional upon the fact that the assessing officer has some reason to believe that the income has escaped assessment. The use of the words ―reason to believe‖ in Section 147 has to be W.P. (C) No. 2036/2016 Page 17 of 47 interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such reassessment proceedings merely on his change of opinion on the basis of same facts and circumstances which has already been considered by him during the original assessment proceedings. Such could not be the intention of the legislature. The said provision was incorporated in the scheme of the IT Act so as to empower the assessing authorities to reassess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge; and the said fact would have material bearing on the outcome of the relevant assessment order. 5. Section 147 of the IT Act does not allow the reassessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147 confers the power to reassess and not the power to review. 16. To check whether it is a case of change of opinion or not one has to see its meaning in literal as well as legal terms. The words ―change of opinion‖ imply formulation of opinion and then a change thereof. In terms of assessment proceedings, it means formulation of belief by an assessing officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. 19. Having examined the legal position, we would turn to the factual matrix in question and would reproduce the averments made in the writ W.P. (C) No. 2036/2016 Page 18 of 47 petition with reference to the queries raised and issues examined in the original assessment as well as primary or 'material facts' disclosed in the return, documents and papers filed during the original assessment. The former would be relevant when we examine whether it is a case of ‗change of opinion‘ and the latter aspect would be relevant when we examine the question of applicability of the proviso and the first Explanation. The relevant paragraphs of the writ petition being paragraphs 38 to 56 are reproduced for convenience in entirety:- ―Re: (b) Reassessment proceedings barred by limitation in terms of proviso to Section 147 of the Act. 38. Section 147 of the Act authorizes an assessing officer to assess or reassess income chargeable to tax if he has ―reason to believe‖ that income for any assessment year has escaped assessment. Proviso to the said section places fetters on the powers of the assessing officer to initiate reassessment proceedings beyond the period of four years from the end of the relevant assessment year, where assessment has been previously completed under Section 143(3) of the Act unless the income has escaped assessment by reason of ―failure of the assessee to disclose fully and truly all material facts necessary for assessment‖. ―Re: (b) Reassessment proceedings barred by limitation in terms of proviso to Section 147 of the Act. 38. Section 147 of the Act authorizes an assessing officer to assess or reassess income chargeable to tax if he has ―reason to believe‖ that income for any assessment year has escaped assessment. Proviso to the said section places fetters on the powers of the assessing officer to initiate reassessment proceedings beyond the period of four years from the end of the relevant assessment year, where assessment has been previously completed under Section 143(3) of the Act unless the income has escaped assessment by reason of ―failure of the assessee to disclose fully and truly all material facts necessary for assessment‖. 39. The Courts have in this context consistently held reassessment proceedings initiated beyond four years from the end of the relevant assessment year to be invalid, in terms of the proviso to Section 147 of the Act, where there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Courts, including this Hon‘ble Court have consistently held that where there was no case of any failure on the part of the assessee to truly disclose all material facts and it was only a W.P. (C) No. 2036/2016 Page 19 of 47 question of drawing an inference from these facts, reopening of assessment beyond the period of four years from the end of the relevant assessment year was invalid. 40. Reliance in this regard is placed on the following judicial pronouncements: -CIT vs. Foramer France:264 ITR 566 (SC) -CIT vs. Purolator India Ltd: 343 ITR 155 (Del.) -CIT vs. Motor and General Finance: 184 Taxman 465 (Del.) -CIT vs. Fenner India Ltd.: 241 ITR 672 (Del) -Avtec Ltd. vs. DCIT: 370 ITR 611 (Del) -D.T. and T.D.C. Ltd. vs. ACIT: 232 CTR 260 (Del.) -Atma Ram Properties P. Ltd. vs. DCIT: 343 ITR 141 (Del) -Titanor Components Ltd. vs. ACIT: 343 ITR 183 (Bom.) -Haryana Acrylic Manufacturing Company vs. CIT: 308 ITR 38 (Del.) -German Remedies Ltd. vs. DCIT : 287 ITR 494 (Bom.) -Hindustan Lever Ltd. vs. ACIT : 268 ITR 339 (Bom.) -Grindwell Norton vs. ACIT : 267 ITR 673 (Bom.) -Orient Beverages Ltd. vs. ITO : 208 ITR 509 (Cal.) -Peico Electronics and Electricals Ltd. vs. DCIT : 210 ITR 991 (Cal.) W.P. (C) No. 2036/2016 Page 20 of 47 -Kaira District Cooperative Milk Producers Union Ltd. vs. ACIT : 216 ITR 371 (Guj.) -Garden Silk Mills Ltd. vs. DCIT: 222 ITR 27 (Guj.) -CIT vs. Veer Overseas Ltd. ITA No. 510 of 2009 (P and H). 41. In the case of Calcutta Discount Co. Ltd vs. ITO: (1961) 41 ITR 191, the Hon‘ble apex Court, held that - (1) it is the assessee‘s duty to disclose primary facts, including particular entries in account books, particular portions of documents and other evidence disclosed; (ii) once all primary facts are before the assessing authority, the assessing officer requires no further assistance by way of disclosure, (iii) it is for the assessing officer to decide what inferences of fact can be reasonably drawn and what legal inferences have ultimately to be drawn and (iv) it is not for the assessee to tell the assessing authority what inferences, whether of fact or law, should be drawn. 42. To the same effect are the following precedents: -CIT vs. Bhanji Lavji: 79 ITR 582 (SC) -CIT vs. Burlop Dealers Ltd.: 79 ITR 609 (SC) -ITO vs. Lakhmani Mewal Das : 103 ITR 437 (SC) - Parashmam Pottery Works Ltd. vs. CIT: 106 ITR 1 (SC) 43. The Hon‘ble Rajasthan High Court in the case of CIT vs. A.R. Enterprises: 255 ITR 121, explained the meaning of expression ―material facts‖ in the following words: ―The expression ―material facts‖ referes only to primary facts. There is no duty cast on the appellant to indicate or draw the attention of the AO to what 42. To the same effect are the following precedents: -CIT vs. Bhanji Lavji: 79 ITR 582 (SC) -CIT vs. Burlop Dealers Ltd.: 79 ITR 609 (SC) -ITO vs. Lakhmani Mewal Das : 103 ITR 437 (SC) - Parashmam Pottery Works Ltd. vs. CIT: 106 ITR 1 (SC) 43. The Hon‘ble Rajasthan High Court in the case of CIT vs. A.R. Enterprises: 255 ITR 121, explained the meaning of expression ―material facts‖ in the following words: ―The expression ―material facts‖ referes only to primary facts. There is no duty cast on the appellant to indicate or draw the attention of the AO to what W.P. (C) No. 2036/2016 Page 21 of 47 factual or legal or other inferences can be drawn from primary facts. Relying on the decision of the apex Court in Calcutta Discount Co Ltd v ITO and Anr: (1961) 41 ITR 191 (SC) the apex Court in a letter decision, viz. Associated Stone Industries (Kotah) Ltd. v. CIT (1997) 138 CTR (SC) 260 : (1997) 224 ITR 560 (SC), held that the duty of the assessee is only to fully and truly disclose all material facts. Explaining the expression ―material facts‖ as contained in s 34 (1) (a), the Court observed that it refers only to the primary facts and the duty of the assessee is to disclose such primary facts. The court further observed that there is no duty cast on the assessee to indicate or draw the attention of the ITO to what factual or legal or other inferences can be drawn from the primary facts disclosed. There is not a word in the order of assessment if the respondent-assessee omitted to disclose any material fact.‖ (emphasis supplied) 44. Reliance in this regard is also placed on the following judicial pronouncements: -Oriental Carpet Manufactures (India) Ltd vs. ITO: 168 ITR 296 (P and H) -CIT vs. Fenner India Ltd.: 241 ITR 672 (Mad.) -Tata Business Support Services vs. DCIT: W.P. No 2959/2015 (Bom) 45 In the present case, as pointed above, original assessment was completed under Section 143(3) of the Act vide order dated 20.12.2010. The impugned notice u