Little Angels Educational Society, Visakhapatnam v. $ The Income Tax Officer, Ward-3(2), Range-3,Ayakar Bhavan, Dabagardens, Visakhapatnam

* THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE RAMESH RANGANATHAN +WRIT PETITION Nos.24241, 24242, 24243, 24244 & 24245 of 2010 % 01.3.2011 Little Angels Educational Society, Visakhapatnam,Represented by its Secretary, M.Venu Mohan VERSUS ...Petitioner $ The Income Tax Officer, Ward-3(2), Range-3,Ayakar Bhavan, Dabagardens, Visakhapatnam ...Respondent < GIST: > HEAD NOTE: ! Counsel for Petitioners: Sri A.V.Krishna Koundinya ^Counsel for Respondent: Sri S.R.Ashok ? Cases referred1)72 ITR 67 (2003) (Kerala)2)(2009) 123 TTJ (Visakha) 1953)(1961) 41 ITR 191 (SC)4)(2002) 256 ITR 1 (Delhi)5)(2007) 294 ITR 310 (Delhi)6)(2010) 320 ITR 561 (SC) : (2010) 2 SCC 7237)(1987) 164 ITR 216 (Calcutta)8)(1991) 2 SCC 5589)(2000) 10 SCC 37110)(1999) 237 ITR 549 (Bom)11)(2008) 291 ITR 1 (SC) : (2008) 14 SCC 20812)AIR 1961 SC 609 13)AIR 1957 AP 36814)(1971) 3 SCC 20 = AIR 1970 SC 64515)(1959) 35 ITR 1 (SC) : AIR 1959 SC 257 16)(2008) 281 ITR 394 (Del) THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION Nos.24241, 24242, 24243, 24244 and 24245 of2010 March 01, 2011 Between:Little Angels Educational Society, Visakhapatnam,Represented by its Secretary, M.Venu Mohan And … Petitioner The Income Tax Officer, Ward-3(2), Range-3,Ayakar Bhavan, Dabagardens, Visakhapatnam … Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION Nos.24241, 24242, 24243, 24244 and 24245 of 2010 COMMON ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) These writ petitions are filed challenging the communication dated06.9.2010 issued by the respondent. By the said communication, theobjections raised by the petitioners to the notices dated 30.3.2010, underSection 148 of the Income Tax Act, 1961 (the Act), proposing to reassessthe income for five assessment years i.e., 2004-05 to 2007-08 wererejected. As all the matters are interconnected, they are being disposedof by this common order. We will notice the factual background from W.P.No.24241 of 2010. The petitioner is an educational institution registered under Section 12Aof the Act with effect from 21.3.2003. They were granted exemptionunder Section 10(23-C)(vi) of the Act vide orders dated 28.10.2005passed by the Chief Commissioner of Income Tax, Visakhapatnam forthe years 2003-04 to 2005-06. They filed a return of income for the assessment year 2004-2005 showing the taxable income as ‘nil’. Thesaid return was taken up for scrutiny. The respondent issued noticeunder Section 143(2) and 142(1) of the Act. In response the petitionerproduced relevant information and records. The scrutiny was completedaccepting the taxable income as ‘nil’ as declared by the assessee withthe advent of claiming exemption under Section 10(23-C) of the Act onthe excess of income over expenditure. It appears that, during theenquiry, the respondent sought clarification with respect to certaintransactions of the petitioner with M/s.Margadarsi Chit Funds (P) Ltd.,(hereafter, Chit Fund). Vide their letter dated 08.3.2006, the petitionersubmitted an explanation denying that it is “an investment”. Thepetitioner took up the plea that it is a long term liability, and not aninvestment or a deposit. For the assessment year 2005-2006, the return of income, filed bythe petitioner declaring taxable income as ‘nil’, was accepted afterscrutiny, and an assessment order was passed under Section 156 of theAct on 28.8.2006. For subsequent years 2006-07, 2007-08 as well as forthe assessment year 2003-04 also the return of income filed by thepetitioner, showing taxable income as ‘nil’, was accepted andassessment orders were passed. Be it noted that, when the return ofincome for the assessment years 2003-04, 2005-06 and 2007-08 wasscrutinized, the respondent did not raise any queries with respect toinvestment/ deposit by the petitioner in the Chit fund. For the assessment year 2005-2006, the return of income, filed bythe petitioner declaring taxable income as ‘nil’, was accepted afterscrutiny, and an assessment order was passed under Section 156 of theAct on 28.8.2006. For subsequent years 2006-07, 2007-08 as well as forthe assessment year 2003-04 also the return of income filed by thepetitioner, showing taxable income as ‘nil’, was accepted andassessment orders were passed. Be it noted that, when the return ofincome for the assessment years 2003-04, 2005-06 and 2007-08 wasscrutinized, the respondent did not raise any queries with respect toinvestment/ deposit by the petitioner in the Chit fund. The respondent issued notice dated 30.3.2010 under Section 148of the Act proposing to reassess the income for the respectiveassessment years. The petitioner was directed to submit a return in theprescribed form. The petitioner sent a reply requesting the respondent totreat the earlier return as the one filed in response to the notice underSection 148 of the Act. On the request of the petitioner, by acommunication dated 02.7.2010, the respondent furnished the reasonsindicating that participation in a chit fund scheme, floated by the Chitfund, was in contravention of Section 11(5) of the Act, in which case thecondition prescribed under Section 13(1)(d) of the Act becomeapplicable, and the assessee is not entitled to claim exemption underSection 11(1) of the Act. While furnishing reasons, the respondent reliedon the judgment of the Kerala High Court[[1]], and the decision of theIncome Tax Appellate Tribunal in M/s.Priyadarshini Educational Academy v ACIT[[2]], to the effect that any investment made by anassessee, other than in the modes prescribed under Section 11(5) of theAct, disentitled them from claiming under the head ‘current liabilities’ thebenefit of exemption under Section 11(1) of the Act. In response to thereasons furnished, the petitioner filed objections on 20.7.2010 explaining that in their balance sheet for the year ending 31.3.2004, shows theamount due to the Chit fund was shown, and that the liability was aftervarious chits were auctioned and funds were realised by the society; andthat payment to the Chit fund was towards reducing the chit liability. Thepetitioner also pleaded that the decision of the I.T.A.T. in Priyadarshiniwas wrongly applied. The petitioner also submitted that the assessingofficer enquired into the matter at the time of original assessment; areassessment could not be made on change of opinion; and, in the garbof pending reassessment, the respondent could not review the earlierassessment order. The petitioner also raised the plea of limitationcontending that the notice of reassessment, having been issued beyondthe period of four years after the assessment, was unsustainable. Inresponse to the objections filed by the petitioner , the impugned rejectionorder was passed. The petitioner also stated that on 19.1.2006 they had made anapplication for renewal of exemption granted under Section 80G of theAct; the respondent had directed them to furnish certain information forthe purpose of granting renewal of exemption; in the said communicationdated 01.5.2006, additional information was sought with regard to thepayments made to the Chit fund during the periods ending 31.3.2003,31.3.2004 and 31.3.2005, and they provided information whereafterexemption under Section 80G of the Act was renewed for the period from01.4.2005 to 31.3.2008. The petitioner, therefore, alleges that all therelevant facts with regard to the payments made to the Chit fund werebefore the assessing officer when he passed the original assessmentorders and the present proposal for reassessment is, therefore, a result ofa change of opinion, which is without jurisdiction. In all the matters, the respondent filed counter-affidavits as well asadditional counter affidavits with the following averments andallegations. The assessee filed income tax return for the assessmentyear 2004-05 disclosing an income of Rs.15,20,085/- claiming exemptionunder Section 10(23-C) of the Act. The same was processed and theassessment order was passed on 28.8.2006. There is nothing in theassessment file or in the said order to show that the assessing officer hadconsidered the issue on the anvil of Sections 11(5) and 13(1)(d) of theAct. The order is also silent about the Chit fund transactions and there isnothing in the assessment file to indicate that the assessing officer hadconsidered the exemption on the ground of alleged investment in a Chitfund in contravention of Section 11(5) of the Act. There is no basis toallege that reopening of the assessment was on the ground of change ofopinion. The Chief Commissioner of Income Tax issued proceedingsdated 28.10.2005 under Section 10(23-C) of the Act. This enured to thebenefit of the petitioner for the assessment years 2003-04 to 2005-06. Subsequently, by order dated 21.9.2007, the Chief Commissionerrefused to renew the sanction under Section 10(23-C) of the Act for theassessment year 2006-07 on the ground that the petitioner had violatedSection 11(5) of the Act, apart from submitting the application belatedly. The order has become final. By proceedings dated 24.12.2010, the ChiefCommissioner revoked the approval granted under Section 10(23-C) ofthe Act for the assessment years 2003-04 to 2005-06 on the ground thatthe petitioner had violated Section 11(5) of the Act by investing funds in aChit fund. It is further stated by the respondent that there was no occasion forthe assessing officer to consider the question of denial of exemptionunder Section 13(1)(d) of the Act on the ground of violation of Section11(5) of the Act. Having come to know of the legal position, after thedecision of the I.T.A.T. in Priyadarshini, the assessing officer hadcaused reopening of the assessment on 26.3.2010 duly recordingreasons and securing the approval of the Commissioner clearlyindicating that investment of surplus in a Chit fund entailed forfeiture ofthe benefit of exemption under Section 11 of the Act in view of thedecision in Priyadarshini. It is further stated that the efforts of the petitioner for obtainingrenewal of exemption under Section 80G of the Act, and the respondentcalling for further information in connection thereto, have no relevance tothe validity of reopening the assessment. The respondent asserts thatthe proposals for considering exemption under Section 80G or Section10(23-C) of the Act do not form part of the assessment file. Theproceedings under the said Sections being distinct, the files aremaintained independently. The assessing officer was not havinginformation furnished by the petitioner under Section 80G of the Act and,therefore, the allegation that such information had formed the basis forthe change of opinion was not correct. Even if the entire material hadcome to the knowledge of the assessing officer during the course of theproceedings under Section 80G of the Act, the same does not preventreopening of the assessment under Sections 147 and 148 of the Act, ifsuch material had not been considered under Section 143(3) of the Acton the touchstone of Sections 11 and 13 of the Act. Whether subscription made to a Chit fund partakes the character ofinvestment or otherwise depends on the facts and circumstances of thecase? As the issue involves appreciation of facts, it is not open to thepetitioner to invoke the jurisdiction of this Court under Article 226 of theConstitution of India. The petitioner has got an effective remedy by wayof appeal to the Commissioner, and a second appeal to the AppellateTribunal, and a further appeal to the High Court. In view of theavailability of effective remedies under the Statute, a writ petition would not, ordinarily, be entertained. Whether subscription made to a Chit fund partakes the character ofinvestment or otherwise depends on the facts and circumstances of thecase? As the issue involves appreciation of facts, it is not open to thepetitioner to invoke the jurisdiction of this Court under Article 226 of theConstitution of India. The petitioner has got an effective remedy by wayof appeal to the Commissioner, and a second appeal to the AppellateTribunal, and a further appeal to the High Court. In view of theavailability of effective remedies under the Statute, a writ petition would not, ordinarily, be entertained. The Counsel for the petitioners, Sri A.V.Krishna Koundinya,submits that the notices under Section 148 of the Act are illegal andwithout jurisdiction as they are the result of change of opinion. Whenthere is no failure on the part of the assessee to make full disclosure ofthe material facts, on a mere change of opinion the assessment cannotbe reopened. The petitioner disclosed all the material when the return ofincome for the assessment years 2004-05 and 2006-07 were scrutinized. The petitioner had also furnished necessary clarification with regard tothe payments made to Chit fund at the time of obtaining renewal ofexemption under Section 80G of the Act. The respondent, havingcompleted assessment with all the necessary material before him, cannotreopen the assessment. The exercise of power is arbitrary and illegal. The Counsel would then urge that the notices under Section 148 of theAct for the assessment years 2003-04, 2004-05 and 2005-06 are timebarred under Section 147 of the Act as they are issued on 30.3.2010 afterexpiry of four years from the end of relevant assessment year. Withdrawal of exemption, under Section 10(23-C) of the Act, is only anattempt to sustain the reassessment proceedings and is unsustainable. The Counsel relied on Calcutta Discount Co. Ltd., v Income TaxOfficer[[3]],CIT v Kelvinator of India Ltd[[4]](Kelvinator-I), CIT v Eicher Ltd[[5]]and CIT v Kelvinator of India Ltd[[6]](Kelvinator-II). The Senior Counsel for Income Tax, Mr.S.R.Ashok, made thefollowing submissions: (i) In view of the proviso to Section 147(1) readwith Section 149 of the Act, the reassessment proceedings are not barredby limitation; (ii) the previous scrutiny of the tax returns under Sections143(1) and (3) of the Act, for the assessment years 2004-05 and 2006-07,does not amount to a change of opinion. Mere acceptance of the returnof income, after scrutiny under Section 143(2) and 142(1) of the Act, is noindication that the assessing officer had applied his mind to the materialdisclosed by the assessee. At no point of time was the issue ofcontravention of Section 11(5) of the Act, by making payments to a Chitfund, considered by the assessing officer and, therefore, the conditionprecedent for exercising jurisdiction under Section 147 of the Act verymuch exists in the case; (iii) As on 28.8.2006, when the assessmentorders were passed for the assessment years 2004-05 and 2005-06, theexemption under Section 10(23-C) of the Act was holding the field, andthe assessing officer could not have gone into the question ofinvestments at that point of time; (iv) the subsequent decision of theTribunal or the Court itself can be a ground for reassessment underSection 147 of the Act; (v) the process of granting/renewing exemptionunder Section 10(23-C), and renewing exemption under Section 80G of the Act, by the Commissioner are dealt with separately in separate files;they do not form part of assessment files and, therefore, it cannot be saidthat the assessing officer had knowledge of the alleged disclosure; and(vi) For the assessment year 2006-07 the Chief Commissioner hadrefused to grant renewal of exemption under Section 10(23-C) of the Act,vide order dated 21.9.2007, in view of the contravention of Section 11(5)of the Act. Subsequently, by order dated 24.12.2010, the Commissionerhad revoked the exemption order dated 28.10.2005 for 2003-04, 2004-05and 2005-06 and, therefore, reassessment proceedings are justified. TheSenior Counsel relied on the decisions in Mrs.Leela Nath v CIT[[7]],A.L.A. Firm v CIT[[8]],ITO v Saradbhai M.Lakhani[[9]],CIT v Miss EstherP.Carvalho[[10]], CIT v Rajesh Jhaveri Stock Brokers (P) Ltd.[[11]]. Maintainability of writ petitions The question of maintainability of writ petition is intricatelyconnected with the question of lack of jurisdiction under Section 147 ofthe Act for reassessment, and the consequential impugnedcommunication of reasons on the request of the petitioner. Thereforeboth the issues need to be considered together. Of course if, on a primafacie consideration, this Court comes to the conclusion that the impugnedaction for reassessment of income is outside the scope of Section 147 ofthe Act, any attempt of the respondent would suffer from inherent lack ofjurisdiction or a jurisdictional error as the case may be. If, prima facie,itis demonstrable that initiation of reassessment proceedings satisfies thejurisdictional issues, a deeper probe is not called for. In such an event,the petitioner can avail the remedy of an appeal under Section 246(1)(b)of the Act, and thereafter, remedy of an appeal under Section 253(1) ofthe Act against which an appeal, on question of law, would lie to the HighCourt under Section 260-A of the Act. Of course against the notice ofreassessment under Section 148 of the Act, and the communication ofreasons therefor, no appeal would lie. Therefore, to the limited extent ofscrutinizing jurisdictional errors, a writ petition may lie. We may howeverhasten to add that this cannot be a rigid norm. As rightly pointed out bythe Senior Counsel for Revenue, the issue whether or not incomechargeable to tax escaped assessment generally or as contemplatedunder Explanation II to Section 147(1) of the Act is a question of factwhich would depend on the peculiarities of each case. If such aneventuality arises, the High Court may refuse even to review thejurisdictional questions, relegating the petitioner to the remedy of anappeal under the Act. It is settled law that the writ jurisdiction, especially in tax matters, isnot, ordinarily, exercised in view of elaborate appeal system provided bythe Statute itself. The authorities in this regard are galore. We wouldrefer to two of them. In C.A.Abraham v ITO, Kottayam[[12]], a DivisionBench of the Supreme Court considered this aspect. The case arose outof a show cause notice issued by the assessing officer for imposingpenalty under Section 28 of the Income Tax Act, 1922 (1922 Act). Theshow cause notice was followed by an order imposing penalty againstwhich an appeal was unsuccessfully filed. When certiorari proceedingswere initiated in the Kerala High Court, following the decision of this Court in Mareddi Krishna Reddy v ITO, Tenali[[13]], the Kerala HighCourt refused certiorari. Before the Supreme Court, two questions arose:whether the High Court could entertain a writ petition ignoring thealternative remedy provided by the Act, and whether penalty proceedingscan be interpreted pointing out deficiencies. The Apex Court held that,“the assessee cannot abandon to resort to machinery provided under theAct and directly invoke remedy under Article 226 of the Constitution ofIndia”. The relevant observations are as below. Court in Mareddi Krishna Reddy v ITO, Tenali[[13]], the Kerala HighCourt refused certiorari. Before the Supreme Court, two questions arose:whether the High Court could entertain a writ petition ignoring thealternative remedy provided by the Act, and whether penalty proceedingscan be interpreted pointing out deficiencies. The Apex Court held that,“the assessee cannot abandon to resort to machinery provided under theAct and directly invoke remedy under Article 226 of the Constitution ofIndia”. The relevant observations are as below. In our view, the petition filed by the appellant should not havebeen entertained. The Income Tax Act provides a completemachinery for assessment of tax and imposition of penalty andfor obtaining relief in respect of any improper orders passed bythe Income Tax authorities, and the appellant could not bepermitted to abandon resort to that machinery and to invoke thejurisdiction of the High Court under Article 226 of the Constitutionwhen he had adequate remedy open to him by an appeal to theTribunal.been entertained. The Income Tax Act provides a completemachinery for assessment of tax and imposition of penalty andfor obtaining relief in respect of any improper orders passed bythe Income Tax authorities, and the appellant could not bepermitted to abandon resort to that machinery and to invoke thejurisdiction of the High Court under Article 226 of the Constitutionwhen he had adequate remedy open to him by an appeal to theTribunal. In Champalal Binani v The Commissioner of Income Tax, West Bengal[[14]]the Commissioner of Income Tax had issued a notice to theappellant under Section 33-B of the Income Tax Act, 1922 to show causeas to why the orders of assessment for AYs 1953-1954 to 1960-1961should not be revised. Copies of the notices were sent to the addressesdisclosed in the IT Returns. On the date of hearing, none appeared forthe assessee. The Commissioner set aside the orders and directed theITO to make fresh assessment after enquiry and investigation. Againstthe said order, the appellant moved the High Court of Calcutta by filing awrit petition. Holding that the notice under Section 33-B was not servedon the assessee, the learned single Judge set aside the order of theCommissioner. The Division Bench reversed holding that notice wasserved. The Supreme Court dismissed the appeal and reiterated thatwhen Income Tax Act provides complete and self-contained machineryfor redressal of grievances, no party can be allowed to invoke theextraordinary remedy under Article 226 of the Constitution. The relevantobservations are as follows (para 5). We deem it necessary once more to emphasize that theIncome Tax Act provides a complete and self-contained machinery for obtaining relief against improper action taken bythe departmental authorities, and normally the party feelinghimself aggrieved by such action cannot be permitted to refuseto have recourse to that machinery and to approach the HighCourt directly against the action. … A writ of certiorari isdiscretionary; it is not issued merely because it is lawful to do so.Where the party feeling aggrieved by an order of an Authorityunder the Income Tax Act has an adequate alternative remedywhich he may resort to against the improper action of theauthority and he does not avail himself of that remedy the HighCourt will require a strong case to be made out for entertaining apetition for a writ. Where the aggrieved party has analternative remedy the High Court would be slow toentertain a petition challenging an order of a taxingauthority, which is ex facie with jurisdiction. A petition for awrit of certiorari may lie to the HighCourt, where the orderis on the face of it erroneous or raises question ofjurisdiction or of infringement of fundamental rights of thepetitioner. (emphasis supplied) (emphasis supplied) In view of the settled legal position, except considering the questionof jurisdiction, we are not inclined to go into various other aspects of thematter although both the Counsel made elaborate submissions. We mayremind that proceedings under Section 147 of the Act are at the initialstage. The respondent is required to complete the exercise ofreassessment following the procedure contemplated under the Act andthe Income Tax Rules. After affording an opportunity of hearing to thepetitioner, the respondent might as well drop the reassessmentproceedings or may pass an order against which there are adequateremedies upto the High Court in the appeal system prescribed under theStatute. Provisions and Precedents Section 34 of the 1922 Act dealt with the procedure in case of,“income escaping assessment.” The Constitution Bench of the SupremeCourt in Calcutta Discount Company by a majority of 3 : 2, held that, “toconfer jurisdiction under Section 34 two conditions have to be satisfied. The first is that Income Tax Officer must have reason to believe thatincome, profits or gains chargeable to income tax have been underassessed. The second is that he must have also reason to believe thatsuch “under assessment” has occurred by reason of either (i) omission orfailure on the part of an assessee to make a return of his income, or (ii)omission or failure on the part of assessee to disclose fully and truly allmaterial facts necessary for his assessment for that year.” The Court alsoruled that if there are some reasonable grounds for thinking that there had been any non-disclosure that could have a material bearing on thequestion of under assessment and would be sufficient to give jurisdictionto the assessing officer to issue notice of assessment. Whether suchgrounds and reasons are adequate or not for arriving at the conclusionthat there was a non-disclosure of material facts would not be open forthe Court’s investigation. In other words to give special jurisdiction to theIncome Tax Officer there should exist prima facie grounds for thinkingthat there had been some non-disclosure of material facts. After repeal of the 1922 Act, Section 34 was enacted as Section147 of the 1961 Act. There was no difference in the scope and purportsof the provision to the extent of conferring jurisdiction on the Income TaxOfficer or the method and manner of assessment/ reassessmentthereunder. Section 147 of the Act was amended by the Direct Tax Laws(Amendment) Act 1987 with effect from 01.4.1989. After suchamendment, the relevant Sections read as under. 147.Income escaping assessment. If the Assessing Officerhas reason to believe that any income chargeable to tax hasescaped assessment for any assessment year, he may, subjectto the provisions of sections 148 to 153, assess or reassesssuch income and also any other income chargeable to tax whichhas escaped assessment and which comes to his noticesubsequently in the course of the proceedings under thissection, or recompute the loss or the depreciation allowance orany other allowance, as the case may be, for the assessmentyear concerned (hereafter in this section and in sections 148 to153 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 relevantassessment year, no action shall be taken under this sectionafter the expiry of four years from the end of relevantassessment year, unless any income chargeable to tax hasescaped assessment for such assessment year by reason ofthe failure on the part of the assessee to make a return undersection 139 or in response to a notice issued under sub-section(1) of Section 142 or section 148 or to disclose fully and truly allmaterial facts necessary for his assessment, for thatassessment year: Provided that where an assessment under sub- section(3) of section 143 or this section has been made for the relevantassessment year, no action shall be taken under this sectionafter the expiry of four years from the end of relevantassessment year, unless any income chargeable to tax hasescaped assessment for such assessment year by reason ofthe failure on the part of the assessee to make a return undersection 139 or in response to a notice issued under sub-section(1) of Section 142 or section 148 or to disclose fully and truly allmaterial facts necessary for his assessment, for thatassessment year: Provided further that the Assessing Officer may assessor reassess such income other than the income involvingmatters which are the subject matters of any appeal, referenceor revision, which is chargeable to tax and has escapedassessment. Explanation 1:- Production before the Assessing Officerof account books or other evidence from which materialevidence could, with due diligence, have been discovered by theAssessing Officer will not necessarily amount to disclosurewithin the meaning of the foregoing proviso. Explanation 2:- For the purposes of this section, the following shall also be deemed to be cases where incomechargeable to tax has escaped assessment, namely:- (a) where no return of income has been furnished by theassessee although his total income or the total income of anyother person in respect of which he is assessable under this Actduring the previous year exceeded the maximum amount whichis not chargeable to income- tax; (b) where a return of income has been furnished by theassessee but no assessment has been made and it is noticedby the Assessing Officer that the assessee has understated theincome or has claimed excessive loss, deduction, allowance orrelief in the return; (c) where an assessment has been made, but- (i) income chargeable to tax has been under- assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive reliefunder this Act; orunder this Act; or (iv) excessive loss or depreciation allowance or any otherallowance under this Act has been computed. Explanation 3:- For the purpose of assessment or reassessmentunder this section, the Assessing Officer may assess orreassess the income in respect of any issue, which hasescaped assessment, and such issue comes to his noticesubsequently in the course of the proceedings under thissection, notwithstanding that the reasons for such issue have notbeen included in the reasons recorded under sub-section (2) ofsection 148. 149. Time limit for notice (1) No notice under section 148 shall be issued for the relevantassessment year,- (a) if four years have elapsed from the end of the relevantassessment year, unless the case falls under clause (b);assessment year, unless the case falls under clause (b); (b) If four years, but not more than six years, have elapsed fromthe end of the relevant assessment year unless the incomechargeable to tax which has escaped assessment amounts to oris likely to amount to one lakh rupees or more for that year. Explanation.- In determining income chargeable to tax which hasescaped assessment for the purposes of this sub- section, theprovisions of Explanation 2 of section 147 shall apply as theyapply for the purposes of that section. (2) The provisions of sub- section (1) as to the issue of noticeshall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to beserved is a person treated as the agent of a non- resident undersection 163 and the assessment, reassessment orrecomputation to be made in pursuance of the notice is to bemade on him as the agent of such non- resident, the notice shallnot be issued after the expiry of a period of two years from theend of the relevant assessment year. The scope of Section 147 of the Act was considered by theSupreme Court in Rajesh Jhaveri. Therein the assessee had filed the (2) The provisions of sub- section (1) as to the issue of noticeshall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to beserved is a person treated as the agent of a non- resident undersection 163 and the assessment, reassessment orrecomputation to be made in pursuance of the notice is to bemade on him as the agent of such non- resident, the notice shallnot be issued after the expiry of a period of two years from theend of the relevant assessment year. The scope of Section 147 of the Act was considered by theSupreme Court in Rajesh Jhaveri. Therein the assessee had filed the return which was processed under Section 143(1) of the Act acceptingthe loss returned by the assessee. The assessing officer issued noticeunder Section 148 of the Act on the ground that the claim of bad debts,as explained was not acceptable. Objections were raised while filing theearlier return again. On a request made, the reasons recorded forreassessment were furnished. Objections were disposed of holding thatintimation of reassessment under Section 148 of the Act was valid, andthe plea of lack of jurisdiction was negatived. In the challenge before theHigh Court of Gujarat the assessee was successful, and the notice underSection was set aside. In the appeal before the Supreme Court, interalia, it was contended that the assessing officer had reopened theassessment by issuing notice in terms of Section 148 of the Act on theground that it has reason to believe that income assessable to tax hadescaped assessment within the meaning of Section 147 of the Act, andthe return having been processed under Section 143(1) of the Act doesnot bar reopening of the assessment. The Supreme Court accepted theplea holding that, “the intimationunder Section 143(1)(a) cannot betreated to be an order of assessment ... ... and there being noassessment the question of change of opinion does not arise ”. It wasalso observed that the intimation under Section 143(1)(a) of the Act isdeemed to be a demand of notice under Section 156 of the Act for theapparent purpose of making machinery proceedings relating to recoveryof tax applicable. After noticing Section 147 of the Act, as amended witheffect from 01.4.1989, it was laid down that the assessing officer couldhave jurisdiction to issue notice under Section 148 read with Section147(a) when he has reason to believe that the income has escapedassessment. The relevant observations are as follows. The scope and effect of Section 147 as substituted witheffect from 1-4-1989, as also Sections 148 to 152 aresubstantially different from the provisions as they stood prior tosuch substitution. Under the old provisions of Section 147,separate clauses (a) and (b) laid down the circumstances underwhich income escaping assessment for the past assessmentyears could be assessed or reassessed. To confer jurisdictionunder Section 147(a) two conditions were required to besatisfied, firstly, the assessing officer must have reason tobelieve that income, profits or gains chargeable to income taxhave escaped assessment, and secondly, he must also havereason to believe that such escapement has occurred by reasonof either omission or failure on the part of the assessee todisclose fully or truly all material facts necessary for hisassessment of that year. Both these conditions were conditionsprecedent to be satisfied before the assessing officer could havejurisdiction to issue notice under Section 148 read withSection 147(a) but under the substituted Section 147existence of only the first condition suffices. In other wordsif the assessing officer for whatever reason has reason tobelieve that income has escaped assessment it confersjurisdiction to reopen the assessment. It is however to benoted that both the conditions must be fulfilled if the case fallswithin the ambit of the proviso to Section 147. The case at handis covered by the main provision and not the proviso. (emphasis supplied) In Kelvinator-II the Supreme Court took the same view whileholding thus. (emphasis supplied) In Kelvinator-II the Supreme Court took the same view whileholding thus. On going through the changes, quoted above, made toSection 147 of the Act, we find that, prior to the Direct Tax Laws(Amendment) Act, 1987, reopening could be done under the abovetwo conditions and fulfilment of the said conditions alone conferredjurisdiction on the assessing officer to make a back assessment,but in Section 147 of the Act (with effect from 1-4-1989), theyare given a go-by and only one condition has remained viz.that where the assessing officer has reason to believe thatincome has escaped assessment, confers jurisdiction toreopen the assessment. Therefore, post-1-4-1989, power toreopen is much wider. However, one needs to give a schematicinterpretation to the words “reason to believe” failing which, we areafraid, Section 147 would give arbitrary powers to the assessingofficer to reopen assessments on the basis of “mere change ofopinion”, which cannot be per se reason to reopen. We must alsokeep in mind the conceptual difference between power to reviewand power to reassess. The assessing officer has no power toreview; he has the power to reassess. But reassessment has to bebased on fulfilment of certain precondition and if the concept of“change of opinion” is removed, as contended on behalf of theDepartment, then, in the garb of reopening the assessment, reviewwould take place. One must treat the concept of “change ofopinion” as an in-built test to check abuse of power by theassessing officer. Hence, after 1-4-1989, the assessing officer haspower to reopen, provided there is “tangible material” to come to theconclusion that there is escapement of income from assessment.Reasons must have a live link with the formation of the belief. Ourview gets support from the changes made to Section 147 of theAct, as quoted hereinabove. Under the Direct Tax Laws(Amendment) Act, 1987, Parliament not only deleted the words“reason to believe” but also inserted the word “opinion” in Section147 of the Act. However, on receipt of representations from thecompanies against omission of the words “reason to believe”,Parliament reintroduced the said expression and deleted the word“opinion” on the ground that it would vest arbitrary powers in theassessing officer. (emphasis supplied) The condition precedent for exercising jurisdiction under Section147 of the Act is “the reason to believe that income chargeable to tax hadescaped assessment” . When is income said to have escapedassessment? In Maharaj Kumar Kamal Singh v CIT[[15]], the SupremeCourt held that one cannot put “a very narrow and artificial limitation onthe meaning of the word “escape”.” If the assessing officer comes to knowsubsequently about such “escape”, subject to Sections 148 to 153 of the Act, proceedings can be initiated for reassessment. Explanation 2 toSection 147 of the Act enumerates the illustrative cases where incomechargeable to tax had escaped assessment. These are: (i) when noreturn of income has been furnished by the assessee though his incomeduring the previous year is assessable to tax; (ii) where return of incomehas been furnished but assessment has not been made and it is noticedthat the assessee claimed excessive loss, deduction, allowance or reliefin the return; and (iii) where an assessment has been made, but incomehas been under-assessed, or at too low a rate, or the income has beenmade the subject of excessive relief, or excessive loss or depreciationallowance has been computed. Act, proceedings can be initiated for reassessment. Explanation 2 toSection 147 of the Act enumerates the illustrative cases where incomechargeable to tax had escaped assessment. These are: (i) when noreturn of income has been furnished by the assessee though his incomeduring the previous year is assessable to tax; (ii) where return of incomehas been furnished but assessment has not been made and it is noticedthat the assessee claimed excessive loss, deduction, allowance or reliefin the return; and (iii) where an assessment has been made, but incomehas been under-assessed, or at too low a rate, or the income has beenmade the subject of excessive relief, or excessive loss or depreciationallowance has been computed. The intention of the legislature is very clear. Any instance where theincome has escaped assessment under the Act either by reason of notfiling return or filing return claiming excessive loss, deduction, allowanceor relief, it can be reassessed. The power to reassess is now very wide,subject, however, to the time limit for issuing notice of reassessment aswell as the time limit for passing the reassessment order after issue ofnotice. Thus in appropriate petitions for judicial review the impugnedorders and the notices under Section 148 of the Act have to be subjectedto scrutiny with reference to the condition precedent required forreopening the assessment i.e., whether the respondent has reason tobelieve that income returned by the petitioner had escaped assessment. Here, we may mention that though in the affidavit accompanying thewrit petition, the petitioner has not raised the plea of limitation. It has beenraised during the course of the submissions but not seriously pursued.Under Section 149(1)(b) of the Act, no notice under Section 148 of the Actshall be issued for the relevant assessment years if four years, but notmore than six years, have elapsed from the end of relevant assessmentyear unless the income chargeable to tax which has escaped assessmentamounts to or is likely to amount to one lakh rupees or more for that year. The notices under Section 148 of the Act were issued on 29.3.2010 wellwithin the time prescribed under Section 149 of the Act and on thatground the petitioner may not succeed. Reverting to the issue of inherent lack of jurisdiction, we may noticethe admitted facts. The petitioner is an educational society constitutedunder the memorandum of association dated 25.4.1984. They obtainedregistration under Section 12-A of the Act with effect from 21.3.2003. Thepetitioner obtained necessary exemption by order dated 30.5.2003entitling the petitioner to qualify for exemption under Section 80G (5)(vi) ofthe Act for the period from 21.3.2003 to 31.3.2005. The petitioner thenapplied for approval for the purpose of Section 10(23-C)(vi) of the Act,which was granted vide order dated 28.10.2005 passed by the ChiefCommissioner of Income Tax, Visakhapatnam. The petitioner filed ‘Nil’ Reverting to the issue of inherent lack of jurisdiction, we may noticethe admitted facts. The petitioner is an educational society constitutedunder the memorandum of association dated 25.4.1984. They obtainedregistration under Section 12-A of the Act with effect from 21.3.2003. Thepetitioner obtained necessary exemption by order dated 30.5.2003entitling the petitioner to qualify for exemption under Section 80G (5)(vi) ofthe Act for the period from 21.3.2003 to 31.3.2005. The petitioner thenapplied for approval for the purpose of Section 10(23-C)(vi) of the Act,which was granted vide order dated 28.10.2005 passed by the ChiefCommissioner of Income Tax, Visakhapatnam. The petitioner filed ‘Nil’ return for the assessment years 2003-04 to 2007-08 claiming deductionunder Section 10(23-C) (vi) of the Act. During the scrutiny of the returnsfor the assessment years 2004-05 and 2006-07 under Section 143(1) ofthe Act, the assessing officer sought clarification with regard to the currentliability schedule showing the chit liability to Chit fund. Denying that itwas an investment made, the petitioner submitted that the paymentsmade to Chit fund are towards reducing the chit liability. The assessingofficer passed orders for the assessment years 2004-05 and 2005-06 on28.8.2006. The assessment order for the assessment year 2006-2007was passed on 06.5.2008. These three assessment orders were passedunder Section 143(3) of the Act accepting the deduction claimed by thepetitioner presumably in view of the sanction/approval under Section10(23-C)(vi) of the Act, which was effective at that time. Further, inrelation to the return of income for the assessment years 2003-04 and2007-08, intimation under Section 143(1) of the Act was sent on09.3.2004 and 13.4.2008 respectively. Be it also noted that it is only inrelation to the assessment years 2004-05 and 2006-07 that the assessingofficer raised objection with regard to the deduction claimed underSection 10(23-C) of the Act in view of the petitioner’s transactions with theChit fund. The question of change of opinion does not arise when there isno assessment (Rajesh Jhaveri). There is indeed assessment for theyears 2004-05 to 2006-07 under Section 143(3) of the Act. The point, asurged, is that as there is already assessment after considering primaryfacts, the assessing officer cannot assume jurisdiction based on thechange of opinion. We are afraid we cannot accept the submission forreasons more than one. First, clause (b) of Explanation 2 to Section 147 of the Act, in caseno assessment is made but the assessing officer notices that theassessee claimed excessive deduction/allowance/relief in the return, itcertainly amounts to “income escaping assessment”. Similarly, underclause (c)(iii) of Explanation to Section 147 of the Act, if the assessmentis made but the income has been made subject to excessive relief underthe Act even then it amounts to the income escaping assessment. Theembargo in initiating the proceedings for reassessment is contained inthe first proviso to Section 147 of the Act which corresponds to clause (c)to Explanation 2. In plain terms if an assessment was made underSection 143(3) of the Act for the relevant assessment year, no actionshall be taken under Section 147 of the Act after expiry of four years fromthe end of relevant assessment year. The second part of the proviso,however, dilutes this; if the escapement was occasioned due to failure onthe part of the assessee to file a return or due to failure of the assessee todisclose fully and truly all material facts necessary for the assessmentpursuant to a notice under Section 142(1) or Section 148 of the Act. Whether there is a failure on the part of the assessee to disclose fully andtruly all material facts for the purpose of assessment for the relevantassessment year is an altogether different aspect from initiatingreassessment proceedings under Section 147 of the Act. In response toa notice under Section 148 of the Act, for the purpose of reassessmentunder Section 147 of the Act, an assessee may have an objection onsuch a ground. It is, however, always a question of fact whether suchdisclosure was reason enough to bar reassessment. Initial plea that anassessee disclosed fully and truly all material facts cannot, by itself, be aground to deny jurisdiction to the assessing officer under Section 147 ofthe Act. Secondly the exemption under Section 11(1) of the Act is subject,inter alia, to the condition that