Mr. C.s. Aggarwal, Sr. Adv. With Mr. Prakash Kumar, Adv v. Assistant Director Of

IN THE HIGH COURT OF DELHI AT NEW DELHIW.P.(C) 16574-75 of 2006 and 16576-77/2006 KLM ROYAL DUTCH AIRLINES ...Petitioner through Mr. C.S. Aggarwal, Sr. Adv. with Mr. Prakash Kumar, Adv. Versus ASSISTANT DIRECTOR OF ...Respondent throughINCOME-TAX Mr. Sanjeev Sabharwal, Adv. Date of Hearing: December 20, 2006 Date of Decision: January 12, 2007 CORAM:HON'BLE MR. JUSTICE VIKRAMAJIT SENHON'BLE DR. JUSTICE S. MURALIDHAR 1. Whether reporters of local papers may be Yes allowed to see the Judgment? allowed to see the Judgment? 2. To be referred to the Reporter or not? Yes 3. Whether the Judgment should be reported Yes in the Digest? in the Digest? J U D G M E N T 1.In these writ petitions the Order disposing of the Objectionsfiled by KLM Dutch Airlines ('Assessee' for short) to the initiationof re-assessment proceedings has been challenged; a prayer hasalso been made for the issuance of a writ of Certiorari or any likeOrder quashing the impugned Notice under Section 148 of theIncome-Tax Act [ for short 'IT Act'] dated 8.3.2006; and forWP(C) No.16574-75/2006Page 1 of 26 quashing the re-assessment proceedings initiated in pursuance tothe Notice dated 8.3.2006. The assailed Notice pertains toAssessment Year (AY) 2001-2002 in WP(C) 16576-77 and to AY2003-2004 in WP(C) No.16574-75. On a perusal of the impugnedNotice it appears that the Assistant Director of Income Tax [forshort Assessing Officer(AO)] intends to 'reassess' the income ofthe Petitioner/Assessee inter alia since the word 'assessed' hasbeen scored out. This is noteworthy since avowedly noassessment has in fact been framed. 2.The Assessee had filed its Return of Income under Section139 of the IT Act on 31.10.2002 for AY 2002-03 declaring a 'niltaxable income' and consequently seeking a refund of taxdeducted/deposited. Exemption under Section 90 of the IT Acthas been claimed in respect of income earned from “technicalhandling”. On 19.1.2004 a notice under Section 148 of the IT Actwas issued in respect of AY 2002-2003. In response thereto theAssessee filed its Return of Income once again declaring niltaxable income. The AO thereupon issued a Questionnaire dated21.3.2005 inter alia containing the following queries: Why receipts from technical handling is not taxable,furnish the evidence regarding claim that receipt iscovered under DTAA? WP(C) No.16574-75/2006 What is technical handling and apportioned expenses?Furnish evidence for the amount received undertechnical handling and expenses incurred? Assessee's case is that these queries were duly answered in termsof its letter dated 28.3.2005. The Assessee thereafter receivedthe impugned Notice dated 8.3.2006 also under Sections 147-148of the IT Act stating that the AO had 'reason to believe' thatincome had escaped assessment, this view having been concurredwith by the Commissioner of Income Tax. The Assessee againfurnished its Return of Income though under protest andsimultaneously requested for supply of the reasons recorded forissuance of the Notice dated 8.3.2006. On 10.4.2006 a noticeunder Section 143(2) of the IT Act seeking further informationwas issued. Thereupon, the following reasons recorded on8.3.2006 for the issuance of the Notice under Section 148 of theIT Act were conveyed by the AO to the Assessee on 3.7.2006:- M/s KLM Royal Dutch Airlines Netherlands AY 2002-03 Reasons for Issuance of Notice u/s 148 of the Income TaxAct, 1961 The assessee is a company incorporated in Netherlands.It is into the business operations of aircraft ininternational business as well as rendering of technicalservices to other airlines. The assessee during the yearunder consideration has declared the income from WP(C) No.16574-75/2006 M/s KLM Royal Dutch Airlines Netherlands AY 2002-03 Reasons for Issuance of Notice u/s 148 of the Income TaxAct, 1961 The assessee is a company incorporated in Netherlands.It is into the business operations of aircraft ininternational business as well as rendering of technicalservices to other airlines. The assessee during the yearunder consideration has declared the income from WP(C) No.16574-75/2006 rendering of technical services in its return of incomeand has claimed the same to be covered under Article-8of the DTAA between Indian and Netherlands. However,no assessment for the relevant assessment year has beenmade u/s 143(3) of the Income Tax Act, 1961. It is asettled position, in the light of the decision of Delhi ITATin the case of British Airways PLC, that income fromrendering of technical services cannot be claimed ascovered under Article 8 of the DTAA. Therefore, theincome from rendering technical services shall besubjected to tax in India. In view of the foregoing I have reasons to believe thatincome chargeable to tax has escaped assessment for therelevant assessment year within the meaning of Section147 r.w.s. 148 of the Income Tax Act, 1961. (Pravin Rawal)Assessing Officer By letter dated 24.7.2006 the Assessee filed Objections to theinitiation of re-assessment proceedings. Subsequently, a letterdated 6.10.2006 was issued by the AO to the Assessee granting ita final opportunity to comply with the Notice under Section 142(1) by 12.10.2006, failing which the AO would make theassessment as per provisions of Section 144 of the IT Act. It is atthis stage that the present Writ Petition has been filed. 3.In respect of AY 2003-2004, on 25.2.2004 the Assessee suomoto filed its Return of Income for AY 2003-2004 on the samelines as in the previous year. A Notice dated 29.12.2004 underSection 143(2) of the IT Act came to be issued to the Assessee,inexplicably at the address of its Chartered Accountant. This wasfollowed by a Notice dated 16.9.2005 under Section 143(2) of theIT Act issued yet again at the address of the CharteredAccountant, followed by a Notice under Section 142(1) of the ITAct dated 10.10.2005 raising certain specific queries oneamongst them being:- “Please furnish details of all foreign payments made inconnection with your operations in India includingpayments relating to engineering and technical handlingservices”. The Assessee asseverates that a detailed Reply dated 13.2.2006had been forwarded in which the Questionnaire had been dulyreplied to. One of the grounds taken therein was that a noticeunder Section 142(1) had been received by the Assessee on14.10.2005; and since no action had been started under Section143(2) hence the proposed action was barred by limitation. It isat this stage that the impugned Notice dated 8.3.2006 underSection 148 came to be issued, which was responded to in termsof the Assessee's letter dated 7.4.2006 along with the demanded WP(C) No.16574-75/2006 Return of Income. The next event is the issuance of a Noticeunder Section 143(2) of the IT Act, replied to by the Assessee interms of the letter dated 17.4.2006 praying inter alia forfurnishing a copy of the reasons. These are identical to the'reasons' dated 8.3.2006 already extracted above. On 24.7.2006,in respect of AY 2003-2004 the Assessee filed Objections to theinitiation of re-assessment proceedings which have been rejectedby the impugned undated common Order pertaining to both AYs,stated to have been received by the Assessee on 19.7.2006. WP(C) No.16574-75/2006 Return of Income. The next event is the issuance of a Noticeunder Section 143(2) of the IT Act, replied to by the Assessee interms of the letter dated 17.4.2006 praying inter alia forfurnishing a copy of the reasons. These are identical to the'reasons' dated 8.3.2006 already extracted above. On 24.7.2006,in respect of AY 2003-2004 the Assessee filed Objections to theinitiation of re-assessment proceedings which have been rejectedby the impugned undated common Order pertaining to both AYs,stated to have been received by the Assessee on 19.7.2006. 4.At this stage it will be relevant to take note of two decisionsof the Income Tax Appellate Authority (ITAT) on the subjectunder consideration. On 24.9.2001 in the matter of BritishAirways Plc. -vs- Deputy Commissioner of Income-Tax, 80 ITD 90the ITAT Delhi-A Bench had come to the conclusion that so far asBritish Airways was concerned “the rendering of engineering andground handling services to other airlines are in no wayinextricably linked with the operation of the aircrafts. If for anyreason the assessee stops rendering these services to the otherairlines, the activity of transport of international traffic in personsand cargo will not be affected in any manner. .... Thus, in theultimate analysis, applying the analogy discussed in detail while interpreting Article 8 of DTAA, I am fully in agreement with thefinding of the authorities below that the present activity cannotbe taxed under section 44BBA of the Income-tax Act, 1961”.Thereafter, on 12.2.2004 ITAT Delhi-B Bench has decidedLufthansa German Airlines -vs- Deputy Commissioner of Income-Tax, 90 ITD 310 and “noted that as per Article 8(4) of DTAAbetween India and Germany, the profit from the participation “ina pool” will not be taxable in India. But Article 8(2) of DTAAbetween India and UK talks of “participation in pool of any kindby enterprises engaged in air transport”. The use of the word“pools” envisages that there could be several pools orunderstanding i.e. more than one. Here the word “pool” does notindicate a pool which is internationally recognized. The use ofthe word “pools of any kind” clearly indicates that it was in thenature of commercially understood meaning. But in theinternational aviation industry, there is only one pool i.e. IATP.Certainly, in the case of British Airways, it was not a case ofparticipation in a pool. In the appellant's case, it is participationin IATP only. This was the reason that the ITAT has to find out themeaning of the word “pool” in the case of British Airways.Moreover, in the case of British Airways, it was “pools of anykind” but in the case of the appellant, it was not a pool of any kind but only IATP. Thus, the facts in the case of British Airwayswere altogether different then the facts of the appellant's caseand the view taken by the ITAT in the case of British Airways isnot applicable in the case of appellant as the facts are entirelydifferent. We have also noted that British Airways has renderedservices to Atlas Air Corporation which is not a member of IATP.The services rendered to that airline could not be bound by IATPmanual.” We cannot ignore the fact that the Lufthansa decisionhas not been taken into consideration by the Revenue in the“reasons for issuance of notice u/s 148 of the Income-Tax Act,1961 dated 8.3.2006”. kind but only IATP. Thus, the facts in the case of British Airwayswere altogether different then the facts of the appellant's caseand the view taken by the ITAT in the case of British Airways isnot applicable in the case of appellant as the facts are entirelydifferent. We have also noted that British Airways has renderedservices to Atlas Air Corporation which is not a member of IATP.The services rendered to that airline could not be bound by IATPmanual.” We cannot ignore the fact that the Lufthansa decisionhas not been taken into consideration by the Revenue in the“reasons for issuance of notice u/s 148 of the Income-Tax Act,1961 dated 8.3.2006”. 5.Mr. C.S. Aggarwal, learned Senior Counsel for the Assesseehas emphasised upon the distinction between the two airlinesdecisions delivered by different Benches of the ITAT. Accordingto him, British Airways had been extending technical handlingservices to entities not covered by the DTAA and hence was foundnot to be entitled to the benefits of the Treaty, whereas this wasnot the position in the Lufthansa case. It was for this reasonthat the Assessee had, in the Objections filed in consonance withthe ratio of GKN Drive Shafts (India) Ltd. -vs- ITO, 259 ITR 19(SC), specifically relied on the Lufthansa case, which, accordingWP(C) No.16574-75/2006Page 8 of 26 to the Assessee, applies on all fours in its favour. We, however,shall steer clear from recording any conclusion on this aspectsince it is not called for in the context of the present WritPetitions. Presently, we are not concerned with the merits of thedispute; the only question is whether the pending proceedingsunder Sections 147/148 are palpably devoid of jurisdiction andhence are liable to be terminated through the exercise of thejurisdiction vested in this Court under Articles 226 and 227 of theConstitution of India. 6.Mr. Sanjeev Sabharwal, learned counsel for the Respondent/Revenue has set-out in sequential order the mannerin which re-assessment proceedings should be conducted. Itwould commence with the recording of 'reasons to believe' on thebasis of the information received by the AO that incomechargeable to tax has escaped assessment. It appears to us thatwhere an assessment has not been framed at all it is not possibleto posit that income has 'escaped' assessment. Notice underSection 147 calling upon the Assessee to file its Return of Incomewould thereupon be issued with the consequence that theAssessee would have to file its Return of Income. Simultaneouslywith or immediately after the Assessee makes this compliance it WP(C) No.16574-75/2006 would be entitled to be apprised of the 'reasons to believe' whichhad constituted the springboard for the Sections 147/148 action.The Assessee would then have the right to file Objectionsremonstrating against the assumption of re-assessmentproceedings which would have to be answered by the AO beforedelving further in the assessment, re-assessment or re-computation proceedings as the case may be. Mr. Sabharwal'scontention that during Re-assessment since the AO has to clarifythe contents of the Return and/or the escaped income noticesunder Section 143(3) are to be issued within twelve months, isnot free from doubt. He has not clarified as to whether thisprocedure can be followed without completing the relevantpending assessment. 7.In our opinion Sections 147/148 cannot be interpreted inisolation of the other provisions of Chapter-XIV of the IT Actwhich is the fasciculous dealing with the procedure forAssessment. Section 139 makes it mandatory for every personwhose total income exceeds the maximum amount which is notchargeable to Income-Tax, to furnish a Return of Income by thedue date. Section 142 deals with the inquiry before Assessment.The first sub-section thereof empowers the AO to issue a notice to WP(C) No.16574-75/2006 7.In our opinion Sections 147/148 cannot be interpreted inisolation of the other provisions of Chapter-XIV of the IT Actwhich is the fasciculous dealing with the procedure forAssessment. Section 139 makes it mandatory for every personwhose total income exceeds the maximum amount which is notchargeable to Income-Tax, to furnish a Return of Income by thedue date. Section 142 deals with the inquiry before Assessment.The first sub-section thereof empowers the AO to issue a notice to WP(C) No.16574-75/2006 any person to file a Return or to produce its Accounts or anydocuments or to provide any information as the AO may require.Sub-section(2) empowers the AO to make any inquiry heconsiders necessary. Sub-section (3) incorporates the audialteram partem rule of natural justice viz. providing to theaffected party an opportunity of being heard. Section 143 dealswith the dispatch of intimations specifying the sum payable as taxor interest that has been found by the AO to be due on the basisof the Return; it deals with refunds payable to the Assessee. Theneat question which arises before us is whether on thecommencement of assessment proceedings must they first bebrought to their logical conclusion by framing an assessmentbefore embarking on the proceedings as envisaged in Sections147/148 of the IT Act; or more precisely stated, can resort toSection 147 be made even whilst the normal assessmentproceedings are pending conclusion. To find the answer we mustkeep in perspective that every Return of Income filed underSection 139 may not result in its active and in-depth perusal orconsideration by the AO as it may receive an automatic onwardpassage under Section 143(1). However, once an inquiry hasbeen initiated by the AO, it cannot but result in either the Returnbeing accepted as having been correctly computed by the WP(C) No.16574-75/2006 concerned Assessee, or for an Assessment being conducted andconcluded thereon by the AO. The provisions of Section 147would have no role to play at this stage of the proceedings. Oncea Return of Income attracts the attention and scrutiny of the AO,it is his bounden duty to delve into every aspect thereof. The AOis sufficiently empowered to ask for all information necessary forframing the Assessment. The only fetter on the amplitude of hisdiscretion is that the Assessment must be framed within the timelimit set-down by Section 153 which, in substance, is two yearsfrom the end of the Assessment Year in which the income wasfirst assessable or one year from the end of the Financial Year. Aperusal of its second sub-section makes it clear that proceedingsunder Section 147 are altogether different to those under Section143. This distinction appears to have escaped the attention of theRevenue. Sub-section(2) stipulates that no order under Section147 shall be made after the expiry of one year from the end of theFinancial Year in which notice under Section 148 was served. 8.Section 147 of the IT Act deals with the powers of the AO to'assess' or reassess the income chargeable to tax which hasescaped assessment. Section 148 contemplates making the'assessment', reassessment or recomputation under Section 147. WP(C) No.16574-75/2006 8.Section 147 of the IT Act deals with the powers of the AO to'assess' or reassess the income chargeable to tax which hasescaped assessment. Section 148 contemplates making the'assessment', reassessment or recomputation under Section 147. WP(C) No.16574-75/2006 Keeping the factual matrix before us in perspective, it becomescritical to define the word assess since the AO is avowedly notreassessing or recomputing the income presented by the assesseefor taxation in the form of its Return. It is trite that the wordsassess, reassess or recompute are not synonymous of each other.It seems to us that an assessment must entail a conscious andconcerted calculation carried out by the concerned officer with aview to determine the amount of tax payable by any person. Theexercise commencing with Section 139 and ending at Section145A cannot be interpreted as identical to or overlappingSections 147/148/149. They are predicated on differentcircumstances and operate in disparate dimensions. The IT Actmakes it incumbent upon every person whose total incomeexceeds the maximum amount which is not chargeable to Income-Tax to file a Return of Income in order to kick-start the normalassessment procedure. However, it may happen that a personfails to file a Return of Income, say for the AY 2000-2001, eventhough he is liable to pay tax. It could also happen that a personmay file a Return of Income incorrectly offering for purposes oftaxation a sum lower than the correctly calculated income. Boththese situations have been obviously kept in view in 2ndExplanation to Section 147 and in its clauses (a) and (b). In either event the AO would invoke the powers conferred upon him bySection 147 of the IT Act culminating with the completion of theassessment. It is also conceivable that the incorrectness of theReturn may not be detected or noticed within the time period set-down in Section 153. In these circumstances if the AO has reasonto believe, predicated on information received by him, thatincome chargeable to tax has escaped assessment, he wouldinvoke the powers under section 147. On the other hand, where aReturn of Income has been filed but has been taken at its facevalue, without any proceedings under Section 143(2) and 143(3)having been conducted, no assessment exercise would obviouslyhave been undertaken. After the expiry of the time period set-down in Section 153, this situation can be remedied by the AO byinvoking Section 147. The word 'assessment' has been defined inthe Act in a most unsatisfactory manner, merely by stating that itincludes reassessment. A more comprehensive definition isreadily available in the Australian decision titled Batagol -vs-Federal Commissioner of Taxation, (1963) 109 CLR 243 in thesewords: “assessment means the completion of the process bywhich the provisions of the Act relating to liability to taxare given concrete application in a particular case withthe consequence that a specified amount of money will “assessment means the completion of the process bywhich the provisions of the Act relating to liability to taxare given concrete application in a particular case withthe consequence that a specified amount of money will 9.A 'clearance' or notice or intimation under Section 143(1)of the Act clearly falls beyond the parameters of this definition.In Punjab Tractors Ltd. -vs- Joint Commissioner of Income-Tax,[2002] 254 ITR 243 it was opined that it is not necessary thatassessment should have been finalised under Section 143(3)before it can be 'reopened' under Section 147, since anintimation under Section 143(1) operates an order of assessmentunless the AO proceeds to give notice under Section 143(2) andpasses an Order under Section 143(3). This very understandingof the law has been articulated by the Division Bench of theAllahabad High Court in Pradeep Kumar Har Saran Lal -vs-Assessing Officer, [1998] 229 ITR 46 which, in turn, followed theview of the Calcutta High Court in Jorawar Singh Baid -vs- CIT(Asstt.), [1992] 198 ITR 47 wherein it has been observed that-”the power that can be exercised under section 143(2) to correctthe assessment made under section 143(1) does not exclude thepower of the Assessing Officer to reopen the assessment undersection 147 if the ingredients of section 147 are satisfied. It isopen to the Assessing Officer to invoke the jurisdiction undersection 147, notwithstanding the fact that there are other WP(C) No.16574-75/2006 remedies open to him under the Act. It cannot, therefore, beaccepted that the reassessment under section 147 is vitiatedbecause the Assessing Officer failed to invoke his power tocorrect the assessment already completed under section 143(1)by issuing a notice under section 143(2) of the Act”. However,in the present case since inquiries had been initiated underSection 143(2), it became mandatory that they should haveculminated in an order under Section 143(3). 10.In Trustees of H.E.H. The Nizam's Supplemental FamilyTrust -vs- CIT, [2000] 242 ITR 381(SC) the Apex Court hasobserved that it is “settled law that unless the return of Incomealready filed is disposed of, notice for reassessment underSection 148 of the Income-tax Act, 1961, cannot be issued, i.e., noreassessment proceedings can be initiated so long as assessmentproceedings pending on the basis of the return already filed arenot terminated. According to the Revenue it is immaterialwhether the order is communicated or not and the only bar to thereassessment proceedings is that proceedings on the returnalready filed should have been terminated”. The followingconcluding passage from the said Judgment is self-explanatory:- A return of income filed in the form prescribed WP(C) No.16574-75/2006 along with an application for refund under section 237 ofthe Act is a valid return. There is no stopping the Income-tax Officer to complete the assessment on the basis of thereturn so filed. It may be that the Income-tax Officer maylimit the scope of examination of the return to satisfyhimself regarding the correctness of the amount claimedas refund. For that purpose, he will examine if the taxpaid by the assessee exceeds the amount of tax withwhich he is chargeable. If it is found that the income was“nil”, he will direct that refund be granted to theassessee of any amount of tax paid. That will certainly beassessment. The filing of a return in the form prescribedunder section 139 of the Act along with the applicationfor refund is not an empty formality. It assumesimportance if such return had not been filed earlier. Wehave reproduced the note/order dated November 10,1965, on the file pertaining to the assessment year 1963-64. In the file for the assessment year 1962-63 there isanother note which is as under:- “Please see my note in 1963-64 file. Refund tobe considered in the hands of the beneficiaries”. “Please see my note in 1963-64 file. Refund tobe considered in the hands of the beneficiaries”. A mere glance at this note would show that it couldnot be said that the Income-tax Officer gave finality tothe refund since no refund is granted either in the handsof the trust or in the hands of the beneficiaries. It is aninconclusive note where the Income-tax Officer left thematter at the stage of consideration even with regard torefund in the hands of the beneficiaries. This note wasalso not communicated to the trustees. When we examine the note dated November 10, 1965, on the file of 1963-64nothing flows from that as well. In any case if it is anorder, it would be appealable under section 249 of theAct. Since the period of limitation starts from the date ofintimation of such an order, it is imperative that such anorder be communicated to the assessee. Had the Income-tax Officer passed any final order, it would have beencommunicated to the assessee within a reasonableperiod. In any case, what we find is that the note datedNovember 10, 1965, is merely an internal endorsementon the file without there being an indication if the refundapplication has been finally rejected. By merelyrecording that in his opinion, no credit for tax deductedat source is to be allowed, the Income-tax Officer cannotbe said to have closed the proceedings finally. Thedecisions referred to by the Revenue are of no help in thepresent case. We are, thus, of the opinion that during thependency of the return filed under section 139 of the Actalong with the refund application under section 237 ofthe Act, action could not have been taken under section147/148 of the Act. Our answer to the question,therefore, is in the negative, i.e., against the Revenue. (underling added) 11.We would arrive at this very destination even if we were totraverse along a different dialectic, namely, if we were to analysethe circumstances in which Section 147 of the IT Act could beinvoked. There is plenitude of precedents on this aspect of theWP(C) No.16574-75/2006Page 18 of 26 law; hence only some of them shall be discussed. The questionthat had arisen before the Bombay High Court in WesternOutdoor Interactive P. Ltd. -vs- A.K. Phute, Income-Tax Officer,[2006] 286 ITR 620(Bom) was whether, upon the Rectificationbeing set aside by the Commissioner(Appeals), notice forreassessment on the same grounds could validly be initiated;there was no failure on the part of the assessee to disclosematerial facts and no fresh information had been received by theAO. At best, it was possible to say that two views were availableand in such a situation it was held that the said provision was notavailable. In particular, the Bench noted the followingenunciation of the law in Indian Oil Corporation -vs- ITO, [1986]159 ITR 956(SC): The principles on this branch of law are well-settled. To confer jurisdiction under clause (a) of section147 of the Act beyond the period of four years but withina period of eight years from the end of the relevant yearunder section 148, two conditions were required to befulfilled: the first is that the Income-tax Officer musthave reason to believe that the income, profits or gainschargeable to tax had been underassessed or escapedassessment; the second is that he must have reason tobelieve that such escapement or underassessment wasoccasioned by reason, so far as relevant for the present purpose, to disclose fully and truly all material factsnecessary for the assessment of that year. Both theseconditions are conditions precedent to be satisfied. See,in this connection, the observations of this court inCalcutta Discount Co. Ltd. -vs- ITO, [1961] 41 ITR 191. purpose, to disclose fully and truly all material factsnecessary for the assessment of that year. Both theseconditions are conditions precedent to be satisfied. See,in this connection, the observations of this court inCalcutta Discount Co. Ltd. -vs- ITO, [1961] 41 ITR 191. As is well-settled now by the several authorities ofthis court and of several High Courts, there must bematerials to come to the conclusion that there was'omission or failure to disclose fully and truly all materialfacts necessary for the assessment of the year'. Itpostulates a duty on every assessee to disclose fully andtruly all material facts necessary for the assessment.Therefore, an obligation is to disclose facts; secondly,those which are material; thirdly, the disclosure must befull and fourthly, true. What facts are material andnecessary for assessment will differ from case to case.In every assessment proceeding, for computing ordetermining the property tax due from the assessee, it isnecessary to know all the facts which help the assessingauthority in coming to the correct conclusion. From theprimary facts in his possession, whether on disclosure bythe assessee, or discovered by him on the basis of thefacts disclosed, or otherwise, the assesssing authorityhas to draw inferences as to certain other facts. But onthe primary facts, it is for the taxing authority to drawinferences. It is not necessary for the assessee to drawinferences for him. See, in this connection, theobservations in Calcutta Discount. 12.The Full Bench of this Court in Commissioner of Income-Tax -vs- Kelvinator of India Ltd., [2002] 256 ITR 1 had opinedthat the amendments introduced into Section 147 with effectfrom 1.4.1989 have not altered the position that a mere change ofopinion of the AO was not sufficient ground for embarking on areassessment. Calcutta Discount was duly considered andapplied by the Full Bench. The Full Bench further observed thatan order of assessment must be presumed to have been passedby the AO concerned after due and proper application of mind. Inthese circumstances the decision of the Division Bench inConsolidated Photoand Finvest Ltd. -vs- AssistantCommissioner of Income-Tax, [2006] 281 ITR 394(Delhi),inasmuch as it is irreconcilable with the views of the Full Bench,must be held not to lay down the correct law. This is especially sosince the assessment proceedings had not come to an end underthe first sub-section of Section 143, but under the third sub-section. A Division Bench of a particular High Court is fullybound by the view preferred by a larger Bench of that Court,regardless of the fact that another High Court prefers a differentview [in this case that of the Gujarat High Court as in GruhFinance Ltd. -vs- Joint Commissioner of Income-Tax (Assessment),[2000] 243 ITR482, Praful Chunilal Patel -vs- M.J. Makwana, Assistant CIT, [1999] 236 ITR 832(Guj.) and Garden Silk MillsLtd. -vs- Deputy CIT (No.1), [1996] 222 ITR 27(Guj.)]. The FullBench of this Court has taken into consideration both PrafulChunilal Patel as well as Garden Silk Mills. In Kelvinator theFull Bench had also analysed the earlier Division Benchdecisions, namely, Jindal Photo Films Ltd. -vs- DeputyCommissioner of Income-Tax, [1998] 234 ITR 170 presided overby R.C. Lahoti, J. (as learned Chief Justice of India then was) andBawa Abhai Singh -vs- Deputy Commissioner of Income-Tax,[2002] 253 ITR 83 comprising Arijit Pasayat and D.K. Jain (astheir Lordships then were). It is quite possible that had the Courtin Consolidated Photo been made aware of the consistentopinion of this Court in Jindal Photo and Bawa Abhai Singh,their conclusion may have been totally different, notwithstandingalternative view of the Gujarat High Court. 13.It also needs to be clarified that in Mahanagar TelephoneNigam Ltd. -vs- Chairman, Central Board of Direct Taxes, [2000]246 ITR 173 the Division Bench of this Court opined that anintimation under Section 143(1)(a) cannot be treated to be anOrder of Assessment. Therefore, although the assessment hadbeen completed under Section 143(1)(a), recourse could be taken WP(C) No.16574-75/2006 to Section 147. In that case while finalising assessment for theAY 1996-1997 under Section 143 it was found that the claim oflicense fee made by the assessee was erroneous and should havebeen disallowed. 14.The diametrically opposite position had arisen inCommissioner of Income-Tax -vs- Sun Engineering Works P. Ltd.,[1992] 198 ITR 297(SC). It was held that “in the reassessmentproceedings, it is not open to an assessee to seek a review of theconcluded item, unconnected with the escapement of income, forthe purpose of computation of the income escaping assessment;and, therefore, the Tribunal was right in holding that therespondent was not entitled to reagitate the question of the set-off of losses in the reassessment proceedings”. In other words,reassessment must invariably be preceded by a conclusion of theoriginal proceedings. The decision of the Supreme Court inEsthuri Aswathiah -vs- ITO, [1961] 41 ITR 539; 1961[2] SCR 911was applied by the Division Bench of the Madras High Court inM. Ct. Muthuraman -vs- Commissioner of Income-Tax, Madras,[1963] 50 ITR 656 in reaching the conclusion that for the AYs1953-54 and 1954-55 the proceedings were lawfully terminatedby the remark “N.A.” on the Assessment File and notices under Section 34 of the Indian Income-Tax Act, 1922 were not invalid.With regard to the AYs 1950-51 and 1951-1952 the assessmentproceedings have not been closed in any manner and as theywere pending, the notices under Section 34 were invalid. Finally,the notice for AY 1952-1953 was invalid as the notice was issuedbefore the date on which the Appeal in respect of that year wasdisposed of. 15.Applying this line of decisions to the facts of the presentcase, the inescapable conclusion that would have to be reached isthat while assessment proceedings remain inchoate, no 'freshevidence or material' could possibly be unearthed. If any suchmaterial or evidence is available, there would be no restrictionsor constraints on its being taken into consideration by the AO forframing the then current assessment. If the assessment is notframed before the expiry of the period of limitation for aparticular AY, it would have to be assumed that sinceproceedings had not been opened under Section 143(2), theReturn had been accepted as correct. It may be argued thatthereafter recourse could be taken to Section 147, provided freshmaterial had been received by the AO after the expiry oflimitation fixed for framing the original assessment. So far as the present case is concerned we are of the view that it is evidentthat, faced with severe paucity of time, the AO had attempted totravel the path of Section 147 in the vain attempt to enlarge thetime available for framing the assessment. This is notpermissible in law. present case is concerned we are of the view that it is evidentthat, faced with severe paucity of time, the AO had attempted totravel the path of Section 147 in the vain attempt to enlarge thetime available for framing the assessment. This is notpermissible in law. 16.Mr. Sabharwal, learned counsel for the Revenue, has alsochallenged the legal propriety of the present writ proceedings.We have already recorded our view on this aspect of the law inWP(C) Nos.4997/2005, 5010/2005, 5062/2005 titledBasuDistributors Pvt. Ltd. -vs- Income-Tax Officer Ward 2(3), NewDelhi decided on 15th December, 2006 and we do not intend tomake this Judgment prolix by reproducing them. Suffice it tostate that wherever and whenever it appears to the High Courtthat proceedings have been initiated or are continuing withoutthe authority of the law the High Court would be in dereliction ofduty if it hesitated in exercising the extraordinary powerscontained under Articles 226/227 of the Constitution of India. Inthe present case since the AO was duty-bound to conclude theassessment before resorting to Section 147 of the IT Act, it is ourbounden duty to issue a writ of Certiorari so as to bring theselegal proceedings to a definitive halt. The dicta in GKN Drive has beennotduly followed since the Objections filed by thePetitioners, in our view, have been disposed off contrary to law. 17.In this analysis the Writ Petitions are allowed. Theinitiation of proceeding under Section 147 of the IT Act wasirregular and illegal on the short ground that Returns of Incomehaving been filed and since no order of assessment had beenfinalised by the AO, there was no scope for invoking Section 147.The pending proceedings are quashed. Since this aspect of thelaw has already been clarified in various decisions, the Petitionershall be entitled to costs quantified nominally at Rs.25,000/-.Costs to be paid within six weeks. VIKRAMAJIT SEN, J S. MURALIDHAR, J January 12, 2007tp