Hemjay Construction Co. Pvt. Ltd Throu Deenaben Yogeshbhai Shah v. Income Tax Officer, Ward -2(2) ========================================================== Appearance

C/SCA/19392/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 19392 of 2018With R/SPECIAL CIVIL APPLICATION NO. 19393 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA andHONOURABLE MR.JUSTICE A.C. RAO Sd/-Sd/- ==========================================================1 Whether Reporters of Local Papers may be allowed to Nosee the judgment ?2 To be referred to the Reporter or not ?Yes3 Whether their Lordships wish to see the fair copy of the Nojudgment ?4 Whether this case involves a substantial question of law Noas to the interpretation of the Constitution of India or any order made thereunder ? ==========================================================HEMJAY CONSTRUCTION CO. PVT. LTD THROU DEENABEN YOGESHBHAI SHAH VersusINCOME TAX OFFICER, WARD -2(2) ==========================================================Appearance: MR DARSHAN B GANDHI(9771) for the Petitioner(s) No. 1MR SP MAJMUDAR(3456) for the Petitioner(s) No. 1MRS MAUNA M BHATT(174) for the Respondent(s) No. 1========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAand HONOURABLE MR.JUSTICE A.C. RAO Date : 20/08/2019 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.Since the issues raised in both the captioned writ applications are the same and the parties are also the same, those were heard analogously and are being disposed of by this common judgment and order. 2.For the sake of convenience, the Special Civil Application No.19392 of 2018 is treated as the main matter. 3.By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs; “(i)This Hon'ble Court be pleased to issue a writ of Mandamus or Prohibition or any other appropriate writ, order or direction quashing the impugned 148 notice dated 29.03.2018 at Annexure-K and impugned order rejecting objection dated 22.11.2018 at Annexure-O. (ii)Pending the hearing and final disposal of this application, this Hon'ble Court be pleased to stay the reassessment proceedings pursuant to notice under section 148 dated 29.03.2018 at Annexure-K. (iii)This Hon'ble Court be pleased to grant any further or other relief as this Hon'ble Court deems just and proper in the interest of justice, and (iv)This Hon'ble Court be pleased to allow this application with costs against the respondent.” 4.The facts giving rise to this writ application may be summarized as under: 4.1The writ applicant is an assessee. The assessee filed its return of income for the A.Y.2011-12, declaring the total income of Rs.14,00,432/- on 30[th] March, 2013. The same was processed under Section 143(1) of the Income Tax Act, 1961 ( for short “ the Act, 1961”) without any modification. 4.2The case was selected for scrutiny assessment and a notice under Section 143(2) dated 12[th] August, 2013 was issued and served upon the assessee. The case was, thereafter, transferred to the office of the Income Tax Officer, Ward-2(1), Jamnagar from the office of the Deputy Commissioner of Income Tax, Central Circle-II, Rajkot on 3[rd ]August, 2013. 4.3A notice under Section 142(1) dated 16[th] September, 2013 was issued along with the questionnaire calling for certain specific details/information. In para-6 of the said notice dated 16[th] September, 2013, the Assessing Officer raised a specific query with regard to the unsecured loan transactions. The query reads thus: 4.2The case was selected for scrutiny assessment and a notice under Section 143(2) dated 12[th] August, 2013 was issued and served upon the assessee. The case was, thereafter, transferred to the office of the Income Tax Officer, Ward-2(1), Jamnagar from the office of the Deputy Commissioner of Income Tax, Central Circle-II, Rajkot on 3[rd ]August, 2013. 4.3A notice under Section 142(1) dated 16[th] September, 2013 was issued along with the questionnaire calling for certain specific details/information. In para-6 of the said notice dated 16[th] September, 2013, the Assessing Officer raised a specific query with regard to the unsecured loan transactions. The query reads thus: “6.Furnishcompletedetails(confirmations, creditworthiness proof) of new unsecured loans/deposits taken and squared up accounts during the year along with details regarding interest payment, if any, made to them and also copies of balance sheet, return of income filed and copy of bank statement for the year under consideration in support of your claim. Provide confirmation of all such loans including old loans etc.” 4.4It is the case of the writ applicant that the specific query raised by the Assessing Officer with regard to the unsecured loan transactions was answered with supporting documentary evidence. It also appears that in the course of the proceedings of the original assessment under Section 143(3) of the Act, the notices dated 19[th] March, 2014 were issued under Section 133(6) of the Act,1961 to those parties who claimed to have given the unsecured loan to the writ applicant. 4.5A notice under Section 148 of the Act, 1961 dated 29[th ]March, 2018 came to be issued to the writ applicant. 4.6The reasons assigned by the Income-tax Officer for reopening of the assessment under Section 147 of the Act, 1961 are as follows: “1.The assessee is a company and has filed its return of income for the A.Y. 2011-12 on 30.03.2013 declaring total income at Rs.14,00,430/-. The assessment u/s. 143(3) of the Act was finalized accepting the returned income of Rs.14,00,430/-. 2.As per information received from the DDIT (Inv), Jamnagar, it is revealed that the assessee has taken unsecured loan aggregating to Rs.2,28,00,000/- during the year under consideration from five shell companies situated in Kolkatta details of which are as under: C/SCA/19392/2018 JUDGMENT 3.During the investigation, it was also found that all the above companies have No credentials to carry out transaction of huge amounts as per their income profile. These Kolkatta based companies are indulged in providing accommodation entries in the form of unsecured loans. 4.On analysis of above fact, it can be construed that the assessee has taken accommodation entries from the above shell companies in the form of bogus loan as these companies have no such credit wothiness. In view of the above facts, I have reason to believe that income chargeable to tax of Rs.2,28,00,000/- has escaped assessment for A.Y.2011-12 by reason of failure on part of the assessee. 5.Therefore, I have reason to believe that income chargeable to tax to the tune of Rs.2,28,00,000/- has escaped assessment. 6.In this case, more than four years have lapsed from the end of assessment year under consideration. Hence, necessary sanction to issue notice u/s. 148 has been obtained separately from Principal Commissioner of Income-tax, Jamnagar as per the provisions of section 151 of the Act.” 4.7The writ applicant filed his objections dated 17[th ]November, 2018, stating as under: “The case is re-opened and you have sent reasons for re-opening also. The assessment for A.Y. 2011-12 was completed u/s. 143(3) by the ITO, Ward 2(1) and order u/s. 143(3) was passed on 28/03/2014. 5.Therefore, I have reason to believe that income chargeable to tax to the tune of Rs.2,28,00,000/- has escaped assessment. 6.In this case, more than four years have lapsed from the end of assessment year under consideration. Hence, necessary sanction to issue notice u/s. 148 has been obtained separately from Principal Commissioner of Income-tax, Jamnagar as per the provisions of section 151 of the Act.” 4.7The writ applicant filed his objections dated 17[th ]November, 2018, stating as under: “The case is re-opened and you have sent reasons for re-opening also. The assessment for A.Y. 2011-12 was completed u/s. 143(3) by the ITO, Ward 2(1) and order u/s. 143(3) was passed on 28/03/2014. At the time of assessment u/s. 143(3), then ITO has already touched upon the Cash Credit and Unsecured Loan which you have considered for re-opening. It is merely a change of opinion and that cannot be the base for re-opening of the completed assessment. We strongly oppose the proceedings u/s. 148 of the LT Act. In support of our belief we would like to draw your kind attention to the following notices and our reply during the assessment u/s. 143(3) of the I.T. Act. In addition to the questionnaire we draw your kind attention to notice issued by the ITO on 17/2/2014, 20/3/2014, 21/3/2014 and our reply dated 21/3/2014, 24/3/2014. All above notices were in respect of application money which you have considered the base for re-opening. We have already proved the identity, capacity and genuineness of transactions in respect of unsecured loan by filing confirmations with PA Number, Address of Five Companies. All transactions are through property banking channel and we have already filed our bank statement as well as bank statements of the lenders/depositors. Moreover, the depositor has directly filed their copy of IT Return. It proves that we have established the identity, capacity and genuineness of transactions took place between the assessee and the -depositors. The basis for reopening as stated in-your recorded reasons is para3 and 4 we wouldlike to submit that we cannot be expected toprove the source of source and there are numberof judgments of various Court that the assessee isnot expected to prove the source of source andhence no addition can be made u/s.68 of the I.T.Act. With reference to your notice dated 13.11.2018 we submit as under. A.The assessee is a construction contractor. B.We have already filed audit report and acknowledgment of ITR vide our letter dated 13.09.2013. C.We enclose herewith all bank statements. D.As already replied. E.Working of Capital Gain and Copy of Computation of Income is enclosed herewith.” 4.8Ultimately, an order came to be passed dated 22[nd ]November, 2018, overruling the objections raised by the assessee against the issue of notice under Section 148 of the Act, 1961. The order reads thus: “The assessee filed its Return of income for A.Y. 2011-12 declaring total income of Rs.14,00,432/- on 30.03.2013. The assessment u/s. 143(3) of the I.T. Act was finalized on 28.03.2014 accepting total income at Rs.14,00,432/-. This office got in possession of information that the assessee has taken unsecured loan of Rs.2,25,00,000/- from five shell companies situated in Kolkata during the year under consideration It was also found that the above five companies has given accommodation entries to the assessee in the form of unsecured loan which fact is further substantiated by the income profile of these companies. The assessee has taken accommodation entries from the above five shell companies in the form of bogus loan as these companies have no such creditworthiness and by doing so the assessee has evaded tax. This information was received in this office on 26.03.2018 and the same was not on records earlier. 2. In view of the above, notice u/s. 148 of the I.T. Act, 1961 was issued to the assessee on 29.03.2018 after getting prior approval of the appropriate authority requesting to file its return of income within 30 days of receipt of the notice. In response, the A.R. of the assessee, Shri V P Sutaria, CA submitted a letter on 16.04.2018 stating that the original return filed for A.Y. 2012-13 be treated as return filed u/s. 148 of the Act and requested to give copy of reasons recorded for reopening and enclosed copy of Acknowledgement for the year under consideration. Subsequently, vide letter dated 12.09.2018, the assessee was again requested to e-file his Return of Income and after verifying the same submit the copy of ROI along with Computation of Income. Thereafter, vide notice u/s. 142(1) of the Act dated 13.11.2018, the assessee was requested to submit the details called for and copy of reason for reopening of the assessment was enclosed. 3.The A.R. of the assessee vide his letter dated 17.11.2018 received in this office on 19.11.2018 submitted objection letter for the notice u/s.148 of the Act in this case. The operative part of the submission is reproduced as under: “At the time of assessment u/s. 143(3), then ITO has already touched upon the Cash Credit and Unsecured Loan which you have considered for re-opening. It is merely a change of opinion and that cannot be the base for re-opening of the completed assessment. We strongly oppose the proceedings u/s. 148 of the LT Act. In support of our belief we would like to draw your kind attention to the following notices and our reply during the assessment u/s. 143(3) of the I.T. Act. We have already proved the identity, capacity and genuineness of transactions in respect of unsecured loan by filing confirmations with PA Number, Address of Five Companies. All transactions are through property banking channel and we have already filed our bank statement as well as bank statements of the lenders/depositors. Moreover, the depositor has directly filed their copy of IT Return. It proves that we have established the identity, capacity and genuineness of transactions took place between the assessee and the -depositors. The basis for reopening as stated in-your recorded reasons is para3 and 4 we wouldlike to submit that we cannot be expected toprove the source of source and there are numberof judgments of various Court that the assessee isnot expected to prove the source of source andhence no addition can be made u/s.68 of the I.T.Act. 4. The objection raised-by the assessee has been duly considered, however, objections raised by the assessee are not found acceptable on the following reasons: (I) As additional facts and information has come on the records upon investigation and enquiries made which clearly establish that the lendor companies are shell companies and has no such creditworthiness to advance such amount of loan. These companies have given accommodation entries in the form of unsecured loans amounting to Rs.2,25,00,000/-. Moreover, these companies have no financial credentials to carry out transactions of huge amounts which are also evident from the Income profiles of these companies. In view of the above facts and Information, it clearly establish that due to failure of the assessee to disclose the above facts during the time of assessment u/s143(3) of the Act has made the aesessee to escape tax evasion. (I) As additional facts and information has come on the records upon investigation and enquiries made which clearly establish that the lendor companies are shell companies and has no such creditworthiness to advance such amount of loan. These companies have given accommodation entries in the form of unsecured loans amounting to Rs.2,25,00,000/-. Moreover, these companies have no financial credentials to carry out transactions of huge amounts which are also evident from the Income profiles of these companies. In view of the above facts and Information, it clearly establish that due to failure of the assessee to disclose the above facts during the time of assessment u/s143(3) of the Act has made the aesessee to escape tax evasion. (ii) With regard to the objections raised by the assessee that the issue of Unsecured Loan was touched upon and verified by the then A0 during the course of assessment proceedings u/s. 143(3) of the Act, it is observed that the case of the assessee for the A.Y. 2011-12 was selected for scrutiny under CASS for reason “Unsecured Loan". Though, the contention of the assessee that issue of unsecured loan was verified by the then A0 is not maintainable as the then A0 was not aware of the additional facts and information regarding the above transactions which came to light recently. Moreover, the issue of creditworthiness of such loans was not the subject matter in the earlier proceedings and as such this is not a case of change of opinion as alleged in the objection raised. 5. The explanation/objection raised by the assessee vide his letter dated 17.11.2018, is not accepted as discussed above. Notice issued u/s.148 of the Act dated 29.03.2018 served upon the assessee is held as “good” and “valid” within the meaning of provisions of Section 148 and follow up action for finalization of assessment proceedings will be exercised. The objection/explanations raised by the assessee vide letter dated 17.11.2018 against the proceedings for re-opening and issuance of notice u/s. 148 of the Act is, hereby, rejected. “ assessment, the writ applicant has come up with the present writ application. -5.Submissions on behalf of the writ applicant: 5.1 Mr. Darshan Gandhi, the learned counsel appearing for the writ applicant invited our attention to the reasons recorded for reopening the assessment. He submitted that the Assessing Officer seeks to reopen the assessment on the ground that the information received from the DDIT (Inv), Jamnagar reveals that the petitioner has taken unsecured loan aggregating to Rs.2,28,00,000/- during the year under consideration from five shell companies, details whereof are set out in the reasons. He submitted that according to the Assessing Officer, during the investigation it was found that the said companies have no credentials to carry out transactions of huge amounts as per their income profile and, therefore, the Assessing Officer seeks to reopen the assessment on the ground that the above income has escaped assessment. 5.2The learned counsel invited our attention to the notice dated 16.9.2013 issued by the Assessing Officer during the course of the scrutiny proceedings, to point out that the Assessing officer had called for complete details of the new unsecured loans/deposits taken and accounts squared up, in response to which, the writ applicant had furnished all the necessary details with regard to the loan taken from the five companies referred to in the reasons recorded. 5.3It was pointed out that the confirmations from the said companies were furnished during the course of the scrutiny proceedings together with the copies of their bank statements. 5.2The learned counsel invited our attention to the notice dated 16.9.2013 issued by the Assessing Officer during the course of the scrutiny proceedings, to point out that the Assessing officer had called for complete details of the new unsecured loans/deposits taken and accounts squared up, in response to which, the writ applicant had furnished all the necessary details with regard to the loan taken from the five companies referred to in the reasons recorded. 5.3It was pointed out that the confirmations from the said companies were furnished during the course of the scrutiny proceedings together with the copies of their bank statements. 5.4It was submitted that the Assessing Officer after being satisfied with regard to the creditworthiness and genuineness of the said parties did not make any addition. It was pointed out that subsequent to the assessment order being passed, the Assessing Officer had also received confirmations from each of the said companies, copies whereof are annexed at Annexure-J to the petition. 5.5It was submitted that every transaction referred to in the reasons recorded had been gone into at the time of scrutiny assessment and hence, it is clear that the Assessing Officer now seeks to reopen the assessment on a mere change of opinion. It was submitted that, therefore, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Income Tax Act, 1961 is invalid. 5.6It was further submitted that the impugned notice is dated 29.3.2018 whereby the Assessing Officer seeks to reopen the assessment for assessment year 2011-12, which is clearly beyond a period of four years from the end of the relevant assessment year, and hence, the first proviso to section 147 of the Act would be attracted. 5.7It was submitted that all the material necessary for the assessment had been duly furnished before the Assessing Officer during the course of the scrutiny assessment, and hence, there is no failure on the part of the writ applicant to disclose fully and truly all the material facts necessary for the assessment and, in such circumstances, the reopening of assessment is bad in law. 5.8Mr. Gandhi, in support of his submissions, has placed reliance on one order passed by the Bombay High Court in the case of NuPower Renewables Pvt. Ltd. vs. Asst. Commissioner of Income Tax, Writ Petition No.3618 of 2018, decided on 7[th] March, 2019. This decision of the Bombay High Court is sought to be relied upon to fortify the submission that the information supplied to the A.O. by the Investigation Wing, by itself, would not be sufficient to reopen the assessment. In other words, the investigation into the loan transactions would fall within the realm of fishing or roving inquiry which is wholly impermissible in law in the context of the reopening of the assessment. 5.9Mr. Gandhi also placed reliance on the decision of the Supreme Court in the case of Income-tax Officer vs. Lakhmani Mewal Das, reported in (1976) 103 ITR 437 (SC) to make good his submission that the grounds or reasons which lead to the confirmation of the belief contemplated by Section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all the materials facts. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. 5.10 Mr. Gandhi also placed reliance on a decision of this Court in the case of Inductotherm (India) (P.) Ltd. vs. M. Gopalan, Deputy Commissioner of Income Tax, reported in (2013) 356 ITR 481. This decision has been relied upon by 5.10 Mr. Gandhi also placed reliance on a decision of this Court in the case of Inductotherm (India) (P.) Ltd. vs. M. Gopalan, Deputy Commissioner of Income Tax, reported in (2013) 356 ITR 481. This decision has been relied upon by Mr. Gandhi to fortify his submission that even in case of reopening of an assessment which was previously accepted under Section 143(1) of the Act without scrutiny, the Assessing Officer would have the power to reopen the assessment provided he had some tangible material, on the basis of which, he could form a reason to believe that the income chargeable to tax had escaped assessment. According to Mr. Gandhi, the information furnished by the Investigation Wing would not constitute tangible material, on the basis of which, the Assessing Officer could form a reason to believe that the income chargeable to tax had escaped assessment. In such circumstances, referred to above, Mr. Gandhi prays that there being merit in both the writ applications, they be allowed and the notice for reassessment be quashed. -6.Submissions on behalf of the Revenue: 6.1Mr. Bhatt, the learned senior counsel appearing for the department has vehemently opposed both the writ applications. Mr. Bhatt submitted that it would be immaterial whether the Assessing Officer, at the time of making the original assessment, could or could not have found by further inquiry or investigation whether the transactions were genuine or not. If on the basis of the subsequent information, the Assessing Officer arrives at a conclusion after satisfying the twin conditions prescribed in Section 147(a) of the Act that the assessee had not made a full and true disclosure of the material facts at the time of the original assessment, the income chargeable to tax could be said to have escaped assessment. Mr. Bhatt submitted that the argument of Mr. Gandhi that the question regarding the truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto, is without any merit. According to Mr. Bhatt, if such argument is accepted, the same would amount to doing violence to the plain language of Sections 147(a) and 148 of the Act respectively. 6.2Mr. Bhatt submitted that the Court should look to the purpose and intent of the provisions. Mr. Bhatt would submit that one of the purposes of Section 147 is to ensure that an assessee does not get away by willfully making a false or untrue statement at the time of the original assessment. Mr. Bhatt submitted that the information provided by the Deputy Director of Income-Tax (Investigation), Jamnagar to the Assessing Officer speaks for itself. It is on the basis of such information that the Assessing Officer has formed a reasonable belief that the transactions were all sham and bogus. According to Mr. Bhatt, on the basis of such tangible material if the Assessing Officer proposes to reopen the assessment, it cannot be termed as a roving or a fishing inquiry. According to Mr. Bhatt, the Assessing Officer could not be said to have merely and mechanically acted on the report of the Investigation Wing. The reasons recorded by the Assessing Officer speak for itself. Mr. Bhatt, in support of his submissions, has placed reliance on the following decisions: “(i)Calcutta Discount Company Limited vs. Income Tax Officer, Companies District, I & Ors., 41 ITR 191 (SC); (ii)Phool Chand Bajrang Lal & Ors. vs. Income Tax Officer & Ors., 203 ITR 456 (SC); (iii)Yogendrakumar Gupta vs. Income-Tax Officer, 366 ITR 186; (iv)Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income Tax, 350 ITR 266; “(i)Calcutta Discount Company Limited vs. Income Tax Officer, Companies District, I & Ors., 41 ITR 191 (SC); (ii)Phool Chand Bajrang Lal & Ors. vs. Income Tax Officer & Ors., 203 ITR 456 (SC); (iii)Yogendrakumar Gupta vs. Income-Tax Officer, 366 ITR 186; (iv)Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income Tax, 350 ITR 266; 6.3Mr. Bhatt also made available for our perusal the information in writing furnished by the Investigation Wing to the Assessing Officer. It appears that during the course of the investigation, it was found that all those companies said to have given unsecured loan to the writ applicant and which is shown to have been repaid by the writ applicant to the respective company, are all shell companies found to have been indulging in providing accommodation entries in the form of secured loans. The report further indicates that thousands of companies have been registered at one address situated at Calcutta. The Directors are all common in the multiple companies. The companies have no financial credential to carry out the transactions of huge amounts which was found evident from the income profiling of all those companies. This is just a gist of the investigation report. 6.4In such circumstances, referred to above, Mr. Bhatt, the learned senior counsel appearing for the department prays that there being no merit in the writ applications, those may be rejected. 7.At this stage, Mr. Gandhi, the learned counsel appearing for the writ applicant insisted that he should be supplied with the copy of the report of the Investigation Wing. We declined to accede to such request of Mr. Gandhi. We did give a fair idea about the contents of the report of the Investigation Wing. The proceedings initiated under Section 147 of the Act would not be rendered void on non-supply of such document, for which, confidentiality is claimed at this stage. In this regard, we place reliance on the decision of the Delhi High Court in the case of Acorus Unitech Wireless (P) Ltd. vs. Asst. CIT, (2014) 362 ITR 417. ANALYSIS 8.Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the reopening of the assessment is permissible in law having regard to the facts on record. 9.Section 147of the Income-tax Act, 1961 provides that 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 148to153,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". The proviso deals with the reopening of an assessment upon the expiry of a period of four years from the end of the relevant assessment year. Explanation 3 to section 147was inserted by the Finance (No. 2) Act of 2009, with effect from 1-4-1989. Explanation 3 provides as follows : "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 sub-section (2) of section 148." 10.Prior to its amendment with effect from 1-4-1989, section147provided as follows :-- "147. Income escaping assessment. - If -- "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 sub-section (2) of section 148." 10.Prior to its amendment with effect from 1-4-1989, section147provided as follows :-- "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 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 148to 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 148to 153referred to as the relevant assessment year)." 11.The condition precedent to the exercise of the jurisdiction under section 147is the formation of a reason to believe by the Assessing Officer that any income chargeable to tax has escaped assessment. Upon the formation or a reason to believe, the Assessing Officer, before making the assessment, reassessment or recomputation under section 147has to serve on the assessee a notice requiring him to furnish a return of his income. Upon the formation of the reason to believe that income chargeable to tax has escaped assessment, the Assessing Officer is empowered to 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 section 147. 12.The effect of Explanation 3 which was inserted by the Finance (No. 2) Act of 2009 is that even though the notice that has been issued under section 148containing the reasons for reopening the assessment does not contain a reference to a particular issue with reference to which income has escaped assessment, the Assessing Officer may assess or reassess the income in respect of any issue which has escaped assessment, when such issue comes to his notice subsequently in the course of the proceedings. The reasons for the insertion of Explanation 3 are to be found in the Memorandum explaining the provisions of the Finance (No. 2) Bill of 2009. The Memorandum treats the amendment to be clarificatory and contains the following Explanation: "Some courts have held that the Assessing Officer has to restrict the reassessment proceedings only to issues in respect of which the reasons have been recorded for reopening the assessment. He is not empowered to touch upon any other issue for which no reasons have been recorded. The above interpretation is contrary to the legislative intent. With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148." 13.In order to appreciate the reasons for the amendment inserting Explanation 3, it would be necessary to advert to With a view to further clarifying the legislative intent, it is proposed to insert an Explanation in section 147to provide that the Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in the course of proceedings under this section, notwithstanding that the reason for such issue has not been included in the reasons recorded under sub-section (2) of section 148." 13.In order to appreciate the reasons for the amendment inserting Explanation 3, it would be necessary to advert to some of the judgments of the High Courts, prior to the amendment. 14.The Punjab and Haryana High Court, in its decision, in Vipan Khanna v. Asstt. CIT [2002] 255 ITR 2201 dealt with the question as to whether, after initiating the proceedings under section 147on the ground that the petitioner had claimed depreciation at a higher rate, the Assessing Officer would be justified in launching an inquiry into the issues which were not connected with the claim of depreciation. This question was answered in the negative. 15.A Division Bench of the Kerala High Court held in Travancore Cements Ltd. v. CIT[2008] 305 ITR 1701 , that upon the issuance of a notice under section 148(2), when the proceedings were initiated by the Assessing Officer on the issues in respect of which he had formed a reason to believe that the income had escaped assessment, it was not open to the Assessing Officer to carry out an assessment, or reassessment in respect of the other issues which were totally unconnected with the proceedings that were already initiated and which came to his knowledge during the course of the proceedings. The Division Bench held that in respect of an issue which is totally unconnected to the basis on which the Assessing Officer formed a reason to believe that income escaped assessment and issued a notice undersection 148, it was open to him to issue a fresh notice by following sub-section (2) of section 148with regard to the escaped income which came to his knowledge during the course of the proceedings. The Kerala High Court held as follows: ". . .The Assessing Officer gets jurisdiction under section148to assess or reassess the income which has escaped assessment only after sub-section (2) of section 148is complied with. The question is whether sub-section (2) of section 148has to be complied with if any other income chargeable to tax has escaped assessment, or which comes to his knowledge subsequently in the course of the proceedings. In other words, when proceedings are already on in respect of one item in respect of the income for which he had already recorded reasons is it necessary that he should record reasons for assessing or reassessing any of the items which are totally unconnected with the proceedings already initiated. Suppose under two heads, income has escaped assessment and those two heads are inter-linked and connected, the proceedings initiated or notice already issued under sub-section (2) of section 148 would be sufficient if the escaped income on the second head comes to the knowledge of the officer in the course of the proceedings. But if both the items are unconnected and totally alien then the assessing authority has to follow sub-section (2) of section 148 6 ITA No.2032/Kol/2018 Dipti Mehta AY- 2010-11 with regard to the escaped income which comes to his knowledge during the course of the proceedings." 16.Hence, the Punjab and Haryana High Court and the Kerala High Court took the view that once the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or, as the case may be, reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment. 16.Hence, the Punjab and Haryana High Court and the Kerala High Court took the view that once the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment and proceeds to issue a notice under section 148, it is not open to him to assess or, as the case may be, reassess the income under an independent or unconnected issue, which was not the basis of the notice for reopening the assessment. 17.The Parliament stepped in to correct what it regarded as an incorrect interpretation of the provisions of section 147. The Memorandum explaining the provisions of the Finance (No. 2) Bill of 2009 states in this background that some courts had held that the Assessing Officer should restrict the reassessment proceedings only to the issues in respect of which the reasons have been recorded for reopening the assessment and that it was not open to him to touch upon any other issue for which no reasons have been recorded. This interpretation was regarded by Parliament as being contrary to the legislative intent. Hence, Explanation 3 came to be inserted to provide that the Assessing Officer may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings under section 147 though the reasons for such issue were not included in the reasons recorded in the notice under section148(2). 18.The effect of section 147as it now stands after the amendment of 2009 can, therefore, be summarised as follows : (i) The Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year; (ii) Upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub-section (1) of section 148; (iii) The Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment 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 the section; and (iv) Though the notice under section 148(2)does not include a particular issue with respect to which income has escaped assessment, he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. 19.It is by now well settled that for reopening of the assessment by issuing notice under section 148 of the Act, even in a case where previously no scrutiny assessment was carried out, the Assessing Officer must have reasons to believe that income chargeable to tax had escaped assessment. This aspect has been elaborated by this Court in the case of Inductotherm (India) P. Ltd vs. M. Gopalan, Deputy Commissioner of Income Tax reported in 356 ITR 481 making the following observations: he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. 19.It is by now well settled that for reopening of the assessment by issuing notice under section 148 of the Act, even in a case where previously no scrutiny assessment was carried out, the Assessing Officer must have reasons to believe that income chargeable to tax had escaped assessment. This aspect has been elaborated by this Court in the case of Inductotherm (India) P. Ltd vs. M. Gopalan, Deputy Commissioner of Income Tax reported in 356 ITR 481 making the following observations: “13. Despite such difference in the scheme between a return which is accepted under section 143(1) of the Act as compared to a return of which scrutiny assessment under section 143(3) of the Act is framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, re-assess the income or re-compute the loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. 16. It would, thus, emerge that even in case of reopening of an assessment which was previously accepted under section 143(1) of the Act without scrutiny, the Assessing Officer would have power to reopen the assessment, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer.” 20.In this context, it is also equally well settled that the term “reason to believe” is vitally different from “reason to suspect”. We may recall, for a brief while, section 147 of the Act contained the expression “if the Assessing Officer for the reasons to be recorded by him in writing is of the opinion”. However, it was soon realized that this expression “is of the opinion” would be too wide giving excessive powers to the Assessing Officer to resort to reopening of assessment. This expression was, therefore, quickly changed to bring back the expression “if the Assessing Officer has reason to believe”. This aspect was highlighted by the Supreme Court in the case of Commissioner of Income Tax vs. Kelvinator of India Ltd. reported in 320 ITR 561. In context of section 147 of the Act post its amendment w.e.f. 01.04.1989, the Supreme Court held that Section 147 does not vest arbitrary power in the Assessing Officer and held that even post amendment of 01.04.1989 in section 147, concept of change of opinion would apply. It was observed as under: “6. 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 fulfillment of the said conditions alone conf