It Is Now Well Settled That The Term "Escaped Assessment" Includes Both Non-Assessment And Under Assessment. (See Tax Officer-Cum-Regional Transport Officer v. Chargeable To Tax Have Been Under Assessed And (Ii) That He Must Also Have Reason To Believe

M/s.Jayaram Paper Mills Ltd., Represented by its Director,Super A 12 & 13, Industrial Estate,Guindy,Chennai – 600 032. .. Petitioner vs. 1.The Commissioner of Income Tax Chennai, Income Tax Department, 121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 2.The Assistant Commissioner of Income Tax Company Circle II(3), Main Building, Income Tax Department, 121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034... Respondents Writ Petition filed under Article 226 of the Constitution ofIndia, praying for the issue of a Writ of Certiorarified Mandamus,calling for the records of the petitioner on the file of thesecond respondent to quash the impugned notice dated 7.7.2008 inNo.AACJ6259R r/w the letter of rejection dated 31.8.2009 for theAssessment Year 2004-2005 and consequently direct the secondrespondent not to proceed further. For Petitioner: Mr.S.Sridhar For Respondents: Mr.K.Subramaniam, Standing Counsel. The petitioner has come up with this writ petitionchallenging a notice issued under section 148 of the Income TaxAct, 1961 and an order overruling the objections filed by thepetitioner to the said notice.https://hcservices.ecourts.gov.in/hcservices/ 2. I have heard Mr.S.Sridhar, learned Counsel for the petitioner and Mr.K.Subramaniam, learned Standing Counsel for thedepartment. 3. The petitioner is a company, whose mainobjects, as per the Articles and Memorandum of association,include the manufacturing and marketing of paper and the businessof financing. The company was incorporated in 1974. For theassessment year 2004-05 relating to the previous year ending 31-3-2004, the petitioner filed a return of income on 1-11-2004disclosing a total income of Rs. 3,02,626/-. This income wasarrived at by the petitioner by showing an income ofRs.12,80,258/- as interest earned in the activity of moneylending, under the head 'business' and after claiming admissibleexpenses and set off as against brought forward losses. 4. However, the second respondent issued a noticedated 7-7-2008 under section 148 of the Income Tax Act,1961 andcalled for various details. The petitioner filed objections andrequested the respondent to furnish reasons for reopening theassessment. By a letter dated 30-7-2009, the second respondentfurnished reasons. It was pointed out by the second respondent inthat letter that in the return filed by the petitioner, theexpenditure unconnected with the earning of interest was found tohave been claimed and that brought forward business loss waswrongly set off against income from other sources, contrary to theprovisions of section 72. 5. By a letter dated 27-8-2009, the petitioner filedobjections to the reasoning given by the second respondent andrequested the second respondent to drop further proceedings. Butby a reply dated 31-8-2009, the second respondent rejected therequest and held that the initiation of proceedings under section147 was correct and proper. Therefore, the petitioner is beforethis court, challenging the notice under section 148 of the Act. 6. It is now well settled that the term "escapedassessment" includes both non-assessment and under assessment.(see Tax Officer-cum-Regional Transport Officer vs. Durg TransportCompany (Pvt) Ltd --1975 (4) SCC 43 and CIT vs. Sun EngineeringWorks (P) Ltd- 1992(4) SCC 363). In a long line of decisions, theSupreme Court has held that this court, under Article 226 of theConstitution, has power to set aside a notice under section 147 ofthe Income Tax Act, 1961, if the conditions precedent for theexercise of the jurisdiction do not exist. 6. It is now well settled that the term "escapedassessment" includes both non-assessment and under assessment.(see Tax Officer-cum-Regional Transport Officer vs. Durg TransportCompany (Pvt) Ltd --1975 (4) SCC 43 and CIT vs. Sun EngineeringWorks (P) Ltd- 1992(4) SCC 363). In a long line of decisions, theSupreme Court has held that this court, under Article 226 of theConstitution, has power to set aside a notice under section 147 ofthe Income Tax Act, 1961, if the conditions precedent for theexercise of the jurisdiction do not exist. 7. One of the earliest decisions that arose on thequestion of reopening of assessment due to income escapingassessment, under section 34 of the Indian Income Tax Act,1922 asamended in 1948, was the one in Calcutta Discount Co. Ltd., vs.ITO (AIR 1961 SC 372). The provisions of section 34 were similar,though not in pari materia, to section 147 of the present Act. Bya majority opinion, the Constitution Bench of the Supreme Courtheld in that case that two pre-conditions are to be satisfied, tohttps://hcservices.ecourts.gov.in/hcservices/confer jurisdiction under the above provision, namely (i) that theITO must have reason to believe that income, profits or gains chargeable to tax have been under assessed and (ii) that he mustalso have reason to believe that such under assessment hadoccurred by reason of either the omission or failure on the partof the assessee to file a return or omission or failure on thepart of an assessee to disclose fully and truly, all materialfacts necessary for the assessment. In paragraph-8 of the saiddecision, the Supreme Court held that the section postulates aduty on every assessee to disclose fully and truly all materialfacts and that the question as to what are material facts, woulddiffer from case to case. The court further pointed out inparagraph -9 that the Explanation to section 34 (of the old Act)was inserted "to meet a possible contention that when some accountbooks or other evidence has been produced, there was no duty onthe assessee to disclose further facts, which on due diligence,the ITO might have discovered". The court held that in view of theExplanation to section 34, no asssessee would be heard to contendthat by disclosing certain evidence, he should be deemed to havedisclosed other evidence, which might have been discovered by theassessing authority by pursuing an investigation on the basis ofwhat had been disclosed. However the Apex court also made it clearthat once all primary facts are disclosed, it is not necessary forthe assessee to render any more assistance by telling theassessing authority what inferences, whether of facts or of lawcould be drawn. 8. In the next decision, CIT vs. A.Raman & co (AIR 1968SC 49), the Apex court held in paragraph 6 -- (i) that the court,in exercise of its powers, can ascertain whether the ITO had inhis possession, any information and (ii) that the court may alsodetermine whether from such information, the ITO may have reasonto believe that income chargeable to tax had escaped assessment.But the jurisdiction of the court extends no further. The Supremecourt made it clear that it is for the ITO and not this court, todecide whether on the information in his possession, he shouldcommence a proceeding for assessment or re-assessment and that theITO alone is entrusted with the power to administer the Act. 9. Elaborating on the reach of the term "reason tobelieve" appearing in section 34 (1-A) of the old Act, it was heldin Sheo Nath Singh vs. Appellate Assistant Commissioner of IncomeTax {(1972) 3 SCC 234}, that the belief must be that of an honestand reasonable person based upon reasonable grounds and that theITO may act on direct or circumstantial evidence but not on meresuspicion, gossip or rumour. 9. Elaborating on the reach of the term "reason tobelieve" appearing in section 34 (1-A) of the old Act, it was heldin Sheo Nath Singh vs. Appellate Assistant Commissioner of IncomeTax {(1972) 3 SCC 234}, that the belief must be that of an honestand reasonable person based upon reasonable grounds and that theITO may act on direct or circumstantial evidence but not on meresuspicion, gossip or rumour. 10. In Gemini Leather Stores vs. I.T.O. {(1975) 4 SCC375}, the Supreme Court held that if the ITO had all materialfacts before him when he made the original assessment and if itwas plainly a case of oversight on the part of the ITO and theincome chargeable to tax had escaped assessment, not by reason ofthe omission or failure on the part of the assessee to disclosefully and truly all material facts, the ITO cannot take recoursehttps://hcservices.ecourts.gov.in/hcservices/to section 147 (a) to remedy the error resulting from his ownoversight. 11. Again, in Income Tax Officer vs. Lakhmani Mewal Das{(1976) 3 SCC 757} the Supreme court pointed out that the dutycast upon the assessee is to make a true and full disclosure ofthe primary facts at the time of the original assessment. But theSupreme Court also made it clear in that decision that the mereproduction of the books of account or other evidence from whichthe ITO could have, with due diligence, discovered material facts,would not necessarily amount to a disclosure contemplated by law.It was held therein that the duty of the assessee does not extendbeyond making a true and full disclosure of primary facts and thatit was for the ITO to draw a correct inference from those primaryfacts. If an ITO had drawn an inference which was foundsubsequently to be erroneous, the mere change of opinion withregard to that inference would not justify the initiation ofaction for reopening the assessment. After holding so, the Apexcourt also added a note of caution that once there existreasonable grounds for the ITO to form the belief, it would besufficient to clothe him with jurisdiction and that thesufficiency of grounds which induced the ITO to act, is not ajusticiable issue. While the existence of the belief can bechallenged by the assessee, the sufficiency of reasons for thebelief cannot be challenged. 12. In S. Ganga Saran and Sons (P) Ltd vs. I.T.O.{(1981) 3 SCC 143}, it was again reiterated that before the ITOcan assume jurisdiction to issue notice under section 147 (a), 2distinct conditions are to be fulfilled namely (i) that he musthave reason to believe that the income of the assessee had escapedassessment and (ii) that he must have reason to believe that suchescapement was by reason of omission or failure on the part of theassessee to disclose truly and fully all material facts, necessaryfor the assessment. The Apex court also pointed out that thebelief entertained by the ITO must not be arbitrary or irrational,but must be based on reasons which are relevant and material. 13. In Indian Oil Corporation vs. I.T.O. {(1986) 3 SCC409}, the Supreme court indicated that section 147 (a) postulatesa duty on every assessee, firstly to disclose facts; secondly,those which are material; thirdly, the disclosure must be full andfourthly, true. What facts are material and necessary forassessment, will differ from case to case. 13. In Indian Oil Corporation vs. I.T.O. {(1986) 3 SCC409}, the Supreme court indicated that section 147 (a) postulatesa duty on every assessee, firstly to disclose facts; secondly,those which are material; thirdly, the disclosure must be full andfourthly, true. What facts are material and necessary forassessment, will differ from case to case. 14. Referring to the scope of operation of clauses (a)and (b) of section 147, the Supreme court held in Niranjan and Co.Pvt. Ltd vs. C.I.T {(1986) Supp. SCC 272} that reopening undersection 147 can only be made after completed assessment if theIncome Tax Officer has reason to believe under clause (a) that byreason of omission or failure on the part of the assessee to makea return or to disclose fully or truly all relevant facts, incomechargeable to tax has escaped assessment for that year. Reopeningis also possible under clause (b) notwithstanding that there wasno omission or failure on the part of the assessee, if the IncomeTax Officer has in consequence of information in his possession,https://hcservices.ecourts.gov.in/hcservices/reason to believe that income chargeable to tax has escapedassessment. 15. Dwelling on the circumstances under which thereopening may not amount to a mere change of opinion, the SupremeCourt held in Phool Chand Bajrang Lal Vs. I.T.O. {(1993) 4 SCC 77}that the ITO may start reassessment proceedings either becausesome fresh facts come to light which were not previously disclosedor some information with regard to the facts previously disclosedcomes into his possession which tends to expose the untruthfulnessof those facts. In such situations, it is not a case of merechange of opinion or the drawing of a different inference from thesame facts. 16. After tracing the law on the point right from theearliest decision of the Constitution Bench in Calcutta DiscountCo. Ltd. and while agreeing with the decision in Phool ChandBajrang Lal, the Supreme court held in Sri Krishna Private Ltd.,vs. I.T.O {(1996) 9 SCC 534} that the existence of the reasons tobelieve is supposed to be the check, a limitation, upon the powerto reopen assessment and that sections 148 (2) and 151 imposefurther checks by respectively prescribing (i) the requirement torecord reasons and (ii) the requirement for the Commissioner tosatisfy himself that it was a fit case for the issue of a notice.Therefore the power conferred upon the ITO was held by the Apexcourt to have been hedged with several safeguards conceived in theinterest of eliminating room for abuse of this power by theassessing officers. 17. In Raymond Woollen Mills Ltd vs. Income Tax Officer{(1999) 236 ITR 34 (SC)}, assessment was reopened on the groundthat the assessee was charging to its profit and loss account,fiscal duties paid during the year as well as labour charges,power, fuel, wages, chemicals etc., and that however, whilevaluing its closing stock, the elements of fiscal duty and theother direct manufacturing costs were not included. The reason forreopening was that such non-inclusion resulted in undervaluationof inventories and understatement of profits. When a challenge wasmade, the Supreme Court rejected it on the ground that the Courtcould only see whether there was prima facie some material on thebasis of which the assessment could be reopened and that thesufficiency or correctness of the material cannot be considered.The Court made it clear that it would be open to the assessee toprove the assumption of the Assessing Officer to be erroneous andthat there were no new facts, while participating in theproceedings. 18. Indicating the procedure to be followed in cases where anotice under section 148 is issued, the Supreme Court held in GKNDriveshafts (India) Ltd Vs. Income Tax Officer {(2003) 259 ITR 19}that when a notice under section 148 is issued, the proper courseof action for the noticee is to file a return and if he sodesires, to seek reasons for issuing notice. The assessing officeris then obliged to furnish reasons, after receipt of which, thenoticee can file objections. Thereafter, the assessing officer ishttps://hcservices.ecourts.gov.in/hcservices/bound to pass a speaking order disposing of the objections. 19. Having thus seen the broad canvas on which the courtshave painted the nature and scope of the power under section 148,right from the Constitution Bench decision in Calcutta DiscountCo., upto GKN Driveshafts, let us now take a look at Section 147of the Act. It reads as follows: "147. Income escaping assessment:- If theAssessing Officer has reason to believe that any incomechargeable to tax has escaped assessment for anyassessment year he may, subject to the provisions ofSections 148 to 153, assess or reassess such income andalso any other income chargeable to tax which hasescaped assessment and which comes to his noticesubsequently in the course of the proceedings under thissection, or recompute the loss or the depreciationallowance or any other allowance, as the case may be,for the assessment year concerned (hereafter in thissection and in sections 148 to 153 referred to as therelevant assessment year): Provided that where an assessment under sub-section(3) of Section 143 or this section has been made for therelevant assessment year, no action shall be takenunder this section after the expiry of four years fromthe end of the relevant assessment year, unless anyincome chargeable to tax has escaped assessment for suchassessment year by reason of the failure on the part ofthe assessee to make a return under section 139 or inresponse to a notice issued under sub section (1) ofSection 142 or section 148 or to disclose fully andtruly all material facts necessary for his assessment,for that assessment year: Provided further that the Assessing Officer mayassess or reassess such income other than the incomeinvolving matters which are the subject-matter of anyappeal, reference or revision, which is chargeable totax and has escaped assessment. Explanation 1.- Production before the AssessingOfficer of account books or other evidence from whichmaterial evidence could with due diligence have beendiscovered by the Assessing Officer will not necessarilyamount to disclosure within the meaning of the foregoingproviso. Explanation 2.- For the purpose of this section,the following shall also be deemed to be cases whereincome chargeable to tax has escaped assessment,namely:- (a) Where no return of income has been furnished bythe assessee although his total income or the totalincome of any other person in respect of which he isassessable under this Act during the previous yearexceeded the maximum amount which is not chargeable toincome-tax; (b) Where a return of income has been furnished byhttps://hcservices.ecourts.gov.in/hcservices/the assessee but no assessment has been made and it isnoticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss,deduction, allowance or relief in the return; (c) Where an assessment has been made, but(i) such income has been assessed at too low arate ; or(ii) income chargeable to tax has beenunderassessed; or(iii) such income has been made the subject ofexcessive relief under this Act; or(iv) excessive loss or depreciation allowance or anyother allowance under this Act has beencomputed." (b) Where a return of income has been furnished byhttps://hcservices.ecourts.gov.in/hcservices/the assessee but no assessment has been made and it isnoticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss,deduction, allowance or relief in the return; (c) Where an assessment has been made, but(i) such income has been assessed at too low arate ; or(ii) income chargeable to tax has beenunderassessed; or(iii) such income has been made the subject ofexcessive relief under this Act; or(iv) excessive loss or depreciation allowance or anyother allowance under this Act has beencomputed." 20. Section 147 underwent a substantial change, first by theDirect Tax Laws (Amendment) Act, 1987 (Act 4 of 1988) and later byother amendments. Prior to the amendment in 1988, section 147contained clauses (a) and (b) and Explanations 1 and 2. Afteramendment, clauses (a) and (b) have been deleted and Explanation 2has taken a new shape. The Explanation 2, as it stands today,creates a deeming fiction in 3 types of situations namely (i) whenno return is filed even though the total income exceeds themaximum amount; (ii) when a return of income is filed but noassessment has been made and the Assessing Officer notices eitheran understatement of the income or a claim for excessive loss,deduction, allowance or relief in the return; and (iii) where anassessment had been made but there is either understatement ofincome or assessment at a lower rate or grant of excessive reliefor the computation of excessive loss or depreciation or otherallowance. 21. Even before the Amendment under Act 4 of 1988, there wasa deeming fiction in section 147 under Explanation 1. But theimport of the same was not so much as it is under Explanation 2inserted after the amendment. Prior to the Direct Tax Laws(Amendment) Act, 1988, section 147 read as follows:- "Section 147. Income escaping assessment If- (a) the Assessing Officer has reason tobelieve that, by reason of the omission orfailure on the part of an assessee to make areturn under section 139 for any assessment yearto the Assessing Officer or to disclose fullyand truly, all material facts necessary for hisassessment for that year, income chargeable totax has escaped assessment for that year, or(b) notwithstanding that there has been noomission or failure to as mentioned in clause(a) on the part of the assessee, the AssessingOfficer has in consequence of information in hispossession reason to believe that incomechargeable to tax has escaped assessment for anyassessment year,https://hcservices.ecourts.gov.in/hcservices/he may, subject to the provisions ofsections 148 to 153, assess or reassess such income or recompute the loss or the depreciationallowance, as the case may be, for theassessment year concerned (hereafter in sections148 to 153 referred to as the relevantassessment year). Explanation 1 – For the purposes of thissection, the following shall also be deemed tobe cases where income chargeable to tax hasescaped assessment, namely:-(a) where income chargeable to tax has beenunderassessed; or(b) where such income has been assessed attoo loo a rate; or (c) where such income has been made thesubject of excessive relief under this Act orunder the Indian Income Tax Act, 1922 (11 of1922); or (d) where excessive loss or depreciation allowance has been computed.Explanation 2 – Production before theAssessing Officer of account books or otherevidence from which material evidence could withdue diligence have been discovered by theAssessing Officer will not necessarily amount todisclosure within the meaning of this section." Explanation 1 – For the purposes of thissection, the following shall also be deemed tobe cases where income chargeable to tax hasescaped assessment, namely:-(a) where income chargeable to tax has beenunderassessed; or(b) where such income has been assessed attoo loo a rate; or (c) where such income has been made thesubject of excessive relief under this Act orunder the Indian Income Tax Act, 1922 (11 of1922); or (d) where excessive loss or depreciation allowance has been computed.Explanation 2 – Production before theAssessing Officer of account books or otherevidence from which material evidence could withdue diligence have been discovered by theAssessing Officer will not necessarily amount todisclosure within the meaning of this section." 22. After the aforesaid amendment under Act 4 of 1988, yetanother amendment was made by Direct Tax Laws (Amendment) Act,1989 and the words "for reasons to be recorded by him in writing,is of the opinion", appearing in the first line of Section 147,was substituted by the words "has reason to believe". Thus asubstantial change has been made to Section 147 by the amendmentsof the years 1988 and 1989. 23. In the Statement of Objects and Reasons accompanying theDirect Tax Laws (Amendment) Bill, 1987 (which became Act 4 of1988), it was indicated in paragraph-2(i) that in view of theproposed amendment, no assessment order would generally berequired to be passed, once the acknowledgement of return ofincome was issued and that however if a return of income isscrutinised, the process of investigation will be initiated. 24. In the Notes on Clauses, explaining in detail, theprovisions of the Bill, it was stated, in relation to the proposedamendments to Sections 147 and 148, as follows:- "Clause 54 seeks to substitute newsections for the existing sections 147 and 148relating to income escaping assessment andissue of notice on such escapement of income. Clause (a) of the existing sectionempowers the Income Tax Officer to assess orre-assess the income escaping assessment, ifhttps://hcservices.ecourts.gov.in/hcservices/he has reason to believe that income hasescaped assessment and such escapement has occurred on account of either assessee'somission or failure to file a return of incomeor failure to disclose fully and truly allmaterial facts necessary for his assessmentfor that year. Clause (b) empowers the IncomeTax Officer to reopen an assessment,notwithstanding the fact that there is noomission or failure, as mentioned in clause(a) on the part of the assessee, if he has, inconsequence of information in his possession,reason to believe that income chargeable totax has escaped assessment. occurred on account of either assessee'somission or failure to file a return of incomeor failure to disclose fully and truly allmaterial facts necessary for his assessmentfor that year. Clause (b) empowers the IncomeTax Officer to reopen an assessment,notwithstanding the fact that there is noomission or failure, as mentioned in clause(a) on the part of the assessee, if he has, inconsequence of information in his possession,reason to believe that income chargeable totax has escaped assessment. Under the proposed amendment, separateprovisions contained in the existing clauses(a) and (b) of the section are to besimplified and merged into a single provisionenabling the Assessing Officer to assess orre-assess income which has escaped assessmentfor any assessment year, after recordingreasons for doing so. The existingrequirements of having "reason to believe" or"information in possession", are dispensedwith. It is further provided in the newsection that once an assessment is reopened,any other income which has escaped assessmentand which comes to the notice of the AssessingOfficer subsequently in the course of theproceeding under this section, can also beincluded in the assessment.A proviso to the new sub-section providesthat if an assessment has been made for therelevant assessment year under sub-section (3)of section 143 or this section, no actionshall be taken under this section after theexpiry of four years from the end of therelevant assessment year, unless the incomehas escaped assessment due to the failure onthe part of the assessee to file a returnunder section 139 or 142(1) or 148 or todisclose fully and truly all material factsnecessary for his assessment.Explanation 1 to the new section, whichclarifiesthemeaningoftheterm'disclosure', is the same as Explanation 2 inthe existing section.Explanation 2 to the new sectionclarifies that the following shall also bedeemed to be cases of income escapingassessment:-(i) Where no return of income has beenfurnished by an assessee, although his totalincome is above the taxable limit; (ii) Where a return of income has beenfurnished but no assessment has been made, andthe assessee is found to have understand his https://hcservices.ecourts.gov.in/hcservices/ income or claimed excessive loss, deduction,etc., in the return; and (iii) Where an assessment has been made,but income chargeable to tax has beenunderassessed or assessed at too low a rate orany excessive loss or relief or depreciationallowance or any other allowance under the Acthas been allowed. The existing provisions of sub-section(1) of section 148 provide that a noticeissued under this section shall tantamount toa notice issued under sub-section (2) ofsection 139. The existing sub-section (2)provides that before issuing a notice underthis section, the Income Tax Officer willrecord his reasons for doing so.In the new section 148, reference to sub-section (2) of section 139 is to be removed asthat sub-section is being deleted. Sub-section(2) of the section is to be deleted, as therequirementofrecordingreasonsisincorporated in section 147 itself. The newsection 148, therefore, provides that beforemaking the assessment, reassessment orrecomputation under section 147, the AssessingOfficer shall serve on the assessee, a noticerequiring him to furnish the return of incomewithin such period, not being less than 30days, as may be specified in the notice." 25. Thus it is clear that the scope of the deeming fictionwhich was found in Explanation 1 under Section 147, before itsamendment, was enlarged in the form of Explanation 2, by theamendment under Act 4 of 1988. The effect of this deeming fictiondid not fall for consideration in any of the decisions that aroseeven upto Sri Krishna Private Ltd. Therefore, even while keepingin mind the elementary principles laid down in the aforesaiddecisions, we may have to apply them to the extent that they arenow permissible in view of the Explanation-2. 26. By virtue of Explanation 2 - (i) non-furnishing of return by an assessee, whose totalincome is above the ceiling limit, will be deemed to be a case ofincome escaping assessment;(ii) understatement of income or a claim of excessive loss,deduction, allowance or relief in the return furnished by theassessee, will also be deemed to be a case of income escapingassessment, in cases where a return is filed but no assessment ismade; (iii) underassessment of income chargeable to tax, assessmentof income at too low a rate, grant of excessive relief under theAct to an income and the computation of excessive loss orhttps://hcservices.ecourts.gov.in/hcservices/depreciation allowance or any other allowance, would also bedeemed to be a case of income escaping assessment, in cases where an assessment has been made. 27. In the light of the above deeming fiction, if we now lookat the order dated 31.8.2009, passed by the second respondent,overruling the objections of the petitioner to the initiation ofproceedings, it is seen that the petitioner admittedly earnedincome solely from interest on fixed deposits and inter corporatedeposits and debited significant amount of expenditure. TheAssessing Officer has taken a stand, prima facie, that theexpenditure debited to the profit and loss account under variousheads are not incidental to the earning of interest income.Therefore the stand taken by the second respondent that he hasreason to believe that certain income chargeable to tax escapedassessment, cannot be said to be vague, irrational or devoid ofany basis. 28. The learned counsel for the petitioner relied upon twodecisions, one, of the Division Bench of the Delhi High Court andanother, of the Division Bench of this Court. In KLM Royal DutchAirlines vs. Assistant Director of Income Tax {2007 (292) ITR 49},relied upon by the learned counsel, a notice under Section 148 wasissued on the ground that the income earned by rendering technicalservices cannot be claimed by the Airlines, as covered by Article8 of the Double Taxation Avoidance Agreement. The Division Benchof the Delhi High Court found that the assessee had filed a returnunder Section 139 on 31.10.2002 and that since no order ofassessment had been finalised by the Assessing Officer, there wasno scope for initiating proceedings for "re-assessment". The focusof the Delhi High Court was on the word "re-assessment", in thelight of the fact that in that case, an inquiry had been initiatedafter scrutiny by the Assessing Officer. Though the Division Benchof the Delhi High Court, relying upon a Full Bench decision of thevery same Court in CIT vs. Kelvinator of India Ltd {2002 (256) ITR1} also held that the amendment to Section 147 with effect from1.4.1989 had not altered the position in so far as the lawrelating to change of opinion was concerned, the purport of thedeeming fiction did not arise for consideration in that case.Therefore, the decision of the Delhi High Court does not assistthe petitioner. 29. In Sterlite Industries (India) Ltd vs. AssistantCommissioner of Income Tax {2008 (305) ITR 339}, relied upon bythe learned counsel for the petitioner, the Division Bench of thisCourt was concerned with a notice issued under Section 148, afterthe expiry of 5 years from the assessment year. The Division Benchfound that in that case, the assessment was originally completedunder Section 143(3) on 28.3.2003, by the Assistant Commissioner,Circle-2(3), Mumbai, in respect of the assessment year 2000-01.Subsequently the case was transferred to the Company Circle,Chennai. The Company Circle, Chennai, allegedly receivedinformation from the Enforcement Directorate that the assessee hadgiven some orders of import, but failed to produce the originalbills of entry. On the basis of the said information, the Deputyhttps://hcservices.ecourts.gov.in/hcservices/Commissioner suspected that there was every chance of inflatedexpenditure being booked on account of import. When the suspicion was brought to the notice of the Commissioner, the Commissionergranted approval for the issue of notice under Section 148. Uponperusal of the reasons recorded and the communications between theDeputy Commissioner and Commissioner, the Division Bench came tothe conclusion that what was raised by the Revenue was only a"doubt" and not a "specific finding" and that the AssessingOfficer failed to record (i) that he had reasons to believe thatthere was underassessment and (ii) that such underassessment hadoccurred by reason of the omission or failure on the part of theassessee. 30. But in the case on hand, the reason recorded by thesecond respondent cannot be said to be vague or a mere doubt. Fromthe return of income filed by the petitioner, the AssessingOfficer had found that the petitioner had earned interest ondeposits to the tune of Rs.12,80,258/- and that they soughtdeduction of a sum of Rs.9,26,830.84 towards admissible expensesthat included the general administrative expenses, vehiclemaintenance, salaries etc. The losses brought forward from theprevious assessment years were also set off and the petitionerclaimed a total income of only Rs.3,02,626.16. It is this thatprompted the second respondent to issue a notice under Section 148and hence on facts, the case of the petitioner is patentlydistinguishable from the one in Sterlite Industries case.Moreover, Explanation 2 was not in issue in Sterlite Industriescase. Therefore, that case is of no assistance to the petitioner. 31. In any event, the petitioner is only at the threshold.Once it is found that the Assessing Officer had reason to believethat there was income escaping assessment, it is not open to thisCourt to make a roving enquiry, since the reasons are notjusticiable. All that can happen, by allowing the proceedings tocontinue, is that the Assessing Officer may pass an order ofassessment or re-assessment. The petitioner would then have aspate of statutory remedies. Therefore, the case on hand, in myopinion, is not one that warrants interference at this stage. 32. In view of the above, the writ petition is dismissed. Nocosts. Consequently connected miscellaneous petition is alsodismissed.Sd/Asst.Registrar /true copy/ Svn Sub Asst.Registrar To 1.The Commissioner of Income Tax Chennai, Income Tax Department, 121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 2.The Assistant Commissioner of Income Tax Company Circle II(3), Main Building, Income Tax Department, 121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. +1cc to Mr.K.Subramaniam,Advocate Sr 60176+1cc to Mr.J.Balachander, Advocate Sr 59939RJ(CO)km/13.11. W.P.No.20258 of 2009