Mylapore, Chennai-600 004 v. The Assistant Commissionerof Income Tax Company Circle Vi (4)

DATED : 15.07.2015 CORAM: THE HONOURABLE MR. JUSTICE S.VAIDYANATHAN WRIT PETITION NO.1738 OF 2015 RESERVED ON 30.3.2015 M/s.Sword Global India Private Limited, (Foremerly known as Global Software (India) P.Ltd.)Arihant Nitco Park, 4[th] Floor,90, Dr.Radhakrishnan Salai, Mylapore, Chennai-600 004 .. Petitioner Vs. 1. The Assistant Commissionerof Income Tax Company Circle VI (4) 121, Nungambakkam High Road Chennai-34 Company Circle VI (4) 121, Nungambakkam High Road Chennai-34 2 The Deputy Commissioner of Income Tax Company Circle VI (4) 121 Nungambakkam High Road Chennai-34 Company Circle VI (4) 121 Nungambakkam High Road Chennai-34 3 The Income Tax Officer (OSD III) Company Range VI 121 Nungambakkam High Road Chennai-34 (OSD III) Company Range VI 121 Nungambakkam High Road Chennai-34 4 Commissioner of Income Tax-VI 121 Nungambakkam High Road Chennai-34 121 Nungambakkam High Road Chennai-34 .. Respondents Prayer: Writ Petition filed under Article 226 of theConstitution of India, for the issuance of a writ of Certiorari, tocall for the records of the 2nd respondent and quash the impugnednotice under section 148 of the Act in PAN : dated 26.3.2014 and the consequential impugned order of the 3rd respondentin F.NO.Co.R. VI/OSD-III/ 2007-08 dated 7.11.2014 for the Assessmentyear 2007-2008. For Petitioner : Mr.Aravind P.Datar, SC for Mr.R.Sandeep Bagmar Challenging the Notice issued under Section 148 of the IncomeTax, 1961 (in short, ‘the Act’) issued by the second respondent,dated 26.03.2014 proposing to re-assess the income for the assessmentyear 2007-08 having reason to believe that the income chargeable totax has escaped assessment; as well as the consequential order, dated7.11.2014 passed by the third respondent, rejecting the objectionsfiled by the petitioner for re-opening of the assessment, thepetitioner has come forward with the present writ petition. 2. The Petitioner is a Private limited company incorporatedunder the Companies Act, 1956 in India on 23 March 1999 and isengaged in the business of development and export of software. ThePetitioner is a 100% Export Oriented Undertaking (‘EOU’) as per theletter of approval from the Ministry of Industry, Department ofIndustrial Policy and Promotion (DIPP) dated 17 May 1999 and GreenCard No. DOE/STPI-C/99/1242 dated 06 July 1999 and registered withSoftware Technology Park of India (‘STPI’). Subsequently, thePetitioner renewed its registration as a 100% EOU for a furtherperiod of five years from 06 July 2004 to 05 July 2009 vide letterdated 20 July 2004 from the Director, STPI. The Petitioner hasaccepted the terms and conditions of the renewal vide letter dated22.07.2004. 3. The brief case of the petitioner is that they filed itsreturn of income for the Assessment Year (‘AY’) 2007-08 on 19 October2007 declaring a total income of Rs.29,242/- after claiming an amountof Rs.4,02,37,947 as deduction under Section 10B of Act and it wasselected for scrutiny and a notice dated 22 July 2008 under Section143(2) of the Act was issued. During the course of scrutinyproceedings, the 1[st] Respondent called for various details from timeto time. The 1[st] Respondent vide notice dated 27 April 2009 hadspecifically called for the following details: a. Annual accounts including directors and auditors report;and b. Form 56G for claim of deduction under section 10B. 3. The brief case of the petitioner is that they filed itsreturn of income for the Assessment Year (‘AY’) 2007-08 on 19 October2007 declaring a total income of Rs.29,242/- after claiming an amountof Rs.4,02,37,947 as deduction under Section 10B of Act and it wasselected for scrutiny and a notice dated 22 July 2008 under Section143(2) of the Act was issued. During the course of scrutinyproceedings, the 1[st] Respondent called for various details from timeto time. The 1[st] Respondent vide notice dated 27 April 2009 hadspecifically called for the following details: a. Annual accounts including directors and auditors report;and b. Form 56G for claim of deduction under section 10B. 3.1. In response to the above notice, filed letter dated 06 May2009 with the Balance Sheet and auditors report, the computation fordeduction under Section 10B of the Act and Certificate from theChartered Accountant in Form 56G in support of deduction undersection 10B. The 1[st] Respondent vide notice dated 23 June 2009requested for numerous details in an annexure. The Petitioner videits reply dated 3 August 2009 furnished details as required undernotice dated 23 June 2009 and has specifically disclosed the detailsof the directors requested in serial no. 3 of the said annexure. The1[st] Respondent after discussion and verification of the detailsfurnished by the Petitioner in response to the notice dated 23 June2009 completed the assessment under section 143(3) read with section92CA(4) of the Act by accepting the income returned by thePetitioner. 3.2. While so, the 2[nd] Respondent without obtaining approval fromthe Chief Commissioner or Commissioner as required under section 151of the Act, initiated reassessment proceedings under section 147 ofthe Act by issuing a notice dated 26 March 2014 under Section 148 ofthe Act (Impugned Notice). The said notice does not state whether thenecessary sanction of the Chief Commissioner or Commissioner wasobtained and also does not state the reasons for re-opening. ThePetitioner, vide letter dated 8 May 2014 sought a copy of the reasonsrecorded on the basis of which the impugned notice has been issued.The 2[nd] Respondent vide his letter dated 16 June 2014 furnished fourreasons for reopening the assessment. In response to the reasonsfurnished by the 2[nd] Respondent for reopening the assessment underSection 147 of the Act, the Petitioner filed its objections asregards the jurisdiction to the reopen the assessment and to thereasons for reopening the assessment vide letter dated 27 August2014. However, the 3[rd] Respondent vide order dated 07 November 2014rejected the objections raised by the Petitioner for reopening theassessment under Section 147 of the Act. Hence the writ petition. 4. A counter affidavit has been filed on behalf of the secondrespondent, wherein, it has been stated that after obtaining theadministrative sanction under Section 151 of the Act, the secondrespondent has exercised his jurisdiction of reopening theassessment. The petitioner company has failed to satisfy theconditions laid down in Section 2(22-A) of the Act regarding thedomestic company. Out of share capital 2,80,000 equity shares ofRs.10/- each, 2,79,999 were held by holding company Sword GlobalLtd., UK and remaining 1 share was held by the ultimate holdingcompany Sword Group, France. The declaration and payment of dividendwas approved by the Board in France and hence, it cannot be 4. A counter affidavit has been filed on behalf of the secondrespondent, wherein, it has been stated that after obtaining theadministrative sanction under Section 151 of the Act, the secondrespondent has exercised his jurisdiction of reopening theassessment. The petitioner company has failed to satisfy theconditions laid down in Section 2(22-A) of the Act regarding thedomestic company. Out of share capital 2,80,000 equity shares ofRs.10/- each, 2,79,999 were held by holding company Sword GlobalLtd., UK and remaining 1 share was held by the ultimate holdingcompany Sword Group, France. The declaration and payment of dividendwas approved by the Board in France and hence, it cannot be considered as a domestic company. The petitioner company being aforeign company, the dividend distribution tax is to be paid underSection 115A(1)(a)(i) and not under Section 115-O of the Act, whichrelates to tax on distributed profits of domestic company. It is alsostated that the petitioner company had incurred expenditure inforeign currency to the extent of Rs.5,77,40,000 by way of travellingand management fees, however, it has been wrongly included in exportturnover, which has to be excluded. Therefore, it is evident thatthere had been omission and failure on the part of the petitioner todisclose fully and truly all the materials facts stated above. Thepetitioner was assessed under lower rate and excess relief wasgranted as per Explanation 2 to Section 147, the same shall be deemedto be cases wherein income chargeable to tax has escaped assessmentunder the Act. Though the petitioner is a 100% EOU formed in May,1999, necessary ratification in terms of Explanation 2(iv) of Section10B of the Act was not obtained. Further, the petitioner seeks toplace both sections 10A and 10B on the same footing by drawinganalogy that what is provided as sufficient under Section 10A shouldautomatically hold good under Section 10B also which is impermissibleand not tenable in law. It is a case of income chargeable to taxhaving escaped from assessment in view of Explanation 2 (c) toSection 147 which provides for reassessment in cases of excess reliefor excessive allowance granted erroneously under the provisions ofthe Act. Therefore, there has been proper and diligent exercise ofthe powers conferred under Section 147 and the same has been proposedand contemplated only after due ascertainment of the jurisdictionalfact that provides for a reason to believe that there has beenescapement to tax warranting a revision of assessment. As thepetitioner was assessed at lower rate of tax, the respondent hadreason to believe that income had escaped assessment. Therefore,notice for reopening was issued. It is also stated that there was nopre-existing opinion on the facts that is sought to be brought to taxunder Section 147 which categorically enures as an income chargeableto tax, but has escaped assessment. Therefore, the concept of changeof opinion as claimed by the petitioner does not arise so far as thefacts of the present case is concerned. 5. It is also stated that the initiation of reassessment interms of Section 147 has been carried out within the period oflimitation which expires only on 31.3.2014, whereas notice forreassessment was issued on 26.3.2014 after getting necessary sanctionfrom the concerned authority and hence, notice issued under Section148 of the Act was not time barred as alleged by the petitioner. Theimpugned order dated 7.11.2014 was passed taking into considerationthe objections filed by the petitioner in pursuant to the noticeunder Section 148 and reasons recorded for reopening the assessmentand they are justified in the facts and circumstances of the case. Itis also stated that the writ petition under Article 226 is notmaintainable since it is wholly misconceived. With these averments,the second respondent sought for dismissal of the writ petition. 6. Heard the learned senior counsel appearing for the petitionerand the learned standing counsel for the Income Tax and perused theentire materials. 7. Mr.Arvind P.Datar, learned senior counsel appearing for thepetitioner would contend that after four years of the assessment year2007-08, the second respondent issued notice dated 26.03.2014 underSection 148 of the Act, seeking to reopen the assessment, without anytangible materials and without assigning reasons that incomechargeable to tax has escaped assessment by reason of failure on thepart of the petitioner to disclose fully and truly all material factsnecessary for the assessment which is a precondition for reopeningthe assessment, which is untenable and that the notice merely statedthat the Assessing Officer has ‘reason to believe’ that the incomechargeable to tax for the assessment year 2007-08 has escapedassessment and such ground is available only if the notice is withinfour years of the assessment year. 8. The learned senior counsel submitted that the expression usedin section 147 of the Act “reason to believe” is the power of theAssessing Officer to reopen the assessment, though wide are notplenary, but it cannot be reopened merely on suspicion or for thepurpose of making some enquiries. On the basis of the materialsbefore the Assessing Officer, he has to form a belief that aparticular income escaped from the assessment for the relevantassessment year by reason of any omission or failure on the part ofthe assessee to disclose fully or truly all material facts for therelevant assessment year. According to him, the second respondentsought for reopening the assessment on the basis of materials alreadyavailable on record, which amount to mere change of opinion. 9. He would further contend that without obtaining approval from thecompetent authority as required under Section 151 of the Act, thesecond respondent had initiated reassessment proceedings underSection 147 by issuing a notice dated 26.3.2014 under Section 148 ofthe Act and a perusal of the notice, it is clear that there was nomention regarding sanction accorded by the competent authority, i.e.Chief Commissioner. He also contended that the second respondenterred in reopening the assessment to deny the tax holiday benefitunder Section 10B of the Act without appreciating that the said claimwas already accepted for preceding assessment years and havingaccepted the same, it is not appropriate for the respondent nowdenying the same on the ground that non-availability of ratificationfrom the Board of Approval. He pointed out that though the petitionerhas raised objections with sufficient materials and acceptablereasons, however, the 3[rd] respondent has simply rejected the samemechanically without appreciating the claim of the petitioner. Withthese contentions, the learned senior counsel sought for settingaside the impugned proceedings. 10. In support of his contentions, the learned senior counselrelied upon the following decisions, viz., i) “Fenner (India) Ltd. Versus DCIT (2000)241 ITR 672 (Mad)“ 10. In support of his contentions, the learned senior counselrelied upon the following decisions, viz., i) “Fenner (India) Ltd. Versus DCIT (2000)241 ITR 672 (Mad)“ ”Mere escape of income is insufficient to justify theinitiation of action after the expiry of four years fromthe end of the assessment year. Such escapement must be byreason of the failure on the part of the assessee eitherto file a return referred to in the proviso or to trulyand fully disclose the material facts necessary for theassessment.”Unless, the condition in the proviso issatisfied, the Assessing Officer does not acquirejurisdiction to initiate any proceeding under Section 147of the Act after the expiry of four years from the end ofthe assessment year. Thus, in cases where the initiationof the proceedings is beyond the period of four years fromthe end of the assessment year, the Assessing Officer mustnecessarily record not only his reasonable belief thatincome has escaped assessment but also the default orfailure committed by the assessee. Failure to do so wouldvitiate the notice and the entire proceedings. If theAssessing Officer chooses to entertain the belief that theassessment has been made in the background of theassessee's failure to disclose truly and fully allmaterial facts, it is necessary for him to record thatfact, and in the absence of a record to that effect, itcannot be held that a notice issued without recording sucha fact is capable of being regarded as a valid notice. ii) “Dynacraft Air Controls v Sneha Joshi 355 ITR 102 (Bom) “Under section 147, for the Assessing Officer to re-open an assessment, he must have reason to believethat income chargeable to tax has escaped assessmentfor any assessment year. Under the proviso to section147, where an assessment has been made under section143(3), no action shall be taken under that sectionafter the expiry of four years from the end of therelevant assessment year, unless any income chargeableto tax has escaped assessment for such assessment yearby reason of the failure on the part of the assesseeto disclose fully and truly all material factsnecessary for his assessment, for that assessmentyear. This is now a jurisdictional requirement whichmust be fulfilled where an assessment is sought to bere-opened beyond a period of four years. The existenceof the jurisdictional condition must be indicated inthe reasons which are furnished to the assessee. Thefulfilment of the condition is a pre-requisite and ifit is absent, an assessment cannot be reopened beyond four years. The Assessing Officer cannot improve uponthe reasons for re-opening the assessment or bridgethe lacunae later. If the reasons disclosed do notindicate the fulfilment of the jurisdictionalrequirement, the re-opening is invalid.” four years. The Assessing Officer cannot improve uponthe reasons for re-opening the assessment or bridgethe lacunae later. If the reasons disclosed do notindicate the fulfilment of the jurisdictionalrequirement, the re-opening is invalid.” iii) “CIT v Kelvinator of India (2010) 2 SCC 723”"The concept of "change of opinion" on the part of theAssessing Officer to reopen an assessment does notstand obliterated after the substitution of section147 of the Income Tax Act, 1961, by the Direct TaxLaws (Amendment) Acts, 1987 and 1989. After theamendment, the Assessing Officer has to have reason tobelieve that income has escaped assessment, but thisdoes not imply that the Assessing Officer can reopenan assessment on mere change of opinion. The conceptof "change of opinion" must be treated as an in- builttest to check the abuse of power. Hence, after April1, 1989, the Assessing Officer has power to reopen anassessment, provided there is "tangible material" tocome to the conclusion that there was escapement ofincome from assessment. Reason must have a link withthe formation of the belief. Decisions of the DelhiHigh Court in Cit v. Kelvinator of India Ltd. (2002)256 ITR 1 (FB) and CIT v. Eicher Ltd. (2007) 294 ITR310 affirmed."iv) “United Electrical Co.(P) Ltd. Versus Commissionerof Income-tax”“What disturbs us more is that even the AdditionalCommissioner has accorded his approval for actionunder section 147 mechanically. We feel that if theAdditional Commissioner had cared to go through thestatement of said V.K. Jain, perhaps he would not havegranted his approval, which was mandatory in terms ofproviso to sub-section (1) of section 151 of the Actas the action under section 147 was being initiatedafter the expiry of four years from the end of therelevant assessment year. As highlighted above, thelegislature has provided certain safeguards to preventarbitrary exercise of powers by an assessing officer,particularly after a lapse of substantial time fromcompletion oil assessment. The power vested in theCommissioner to grant or not to grant approval iscoupled with a duty. The Commissioner is required toapply his mind to the proposal put up to him forapproval in the light of the material relied upon bythe assessing officer. The said power cannot beexercised casually and in a routine manner, we areconstrained to observe that in the present case, therehas been no application of mind by the AdditionalCommissioner before granting the approval.” 11. On other hand, Mr.Pramod Kumar Chopda, learned counsel appearingfor the respondents, while reiterating the averments of the counteraffidavit, would submit that actually, after obtaining necessarysanction from the designated authority under Section 151, the secondrespondent has issued notice under Section 147 of the Act and it wasnot mentioned in the notice and mere non-mentioning of the same, doesnot vitiate the proceedings. He also contended that petitionercompany has not furnished true and correct details regarding thepayment of dividend and the assessee company is not a domesticcompany since failed to comply with the requirements under Section 2(2D) of the Act and that it had distributed profit as per provisionsof Section 115-O of the Act, which is contrary and not applicable tothe petitioner company and that it had failed to furnish the Board ofapproval to claim deduction under Section 10B, which formed thereasons to believe for the second respondent that the incomechargeable to tax for the assessment year 2007-08 has escapedassessment within the meaning of Section 147 of the Act andaccordingly, the impugned proceedings were rightly initiated and theit does not fall within the purview of ‘change of opinion’ ascontended by the petitioner. Hence, the learned counsel sought fordismissal of the writ petition. 12. The reasons for re-opening the assessment under Section 148of the Act for the assessment year 2007-08 given by the secondrespondent, read as under: i) “Since the entire share capital is held by theForeign Companies and accounts and declaration ofdividend are approved by Board in France, it cannotbe considered as a domestic company under Section 2(22A) and only a foreign company under Section 2(23A) of the Act. Hence any tax payable will be atthe rate applicable to a foreign company.”ii) “As per clause 2(a) notes on accounts thecompany had paid dividend aggregating toRs.2,52,00,000 in foreign currency (Interimdividend of Rs.1,68,09,000 paid on 15.03.2007 andfinal dividend of Rs.84 Lakhs paid on 24.05.2007).Since the dividend distributed is to be consideredas not covered under Section 115-O it has to betaxed as dividend received by a foreign companyunder Section 115A(1)(a)(i) at 20% plus Surcharge2.5%. Since the total dividend exceeds Rs.1 croreand education cess 3%.”iii) “The assessee is having EEFC accounts atChennai as well as at London, UK. As per notes onaccounts 2(d) the assessee had incurred expenditurein foreign currency to the extent of Rs.5,77,40,000by way of travelling Rs.5,71,09,000/- & managementfee of Rs.6,31,000/-. Under Explanation 2(iii) to Section 10B the expenses incurred if any in foreignexchanges in providing technical services outsideIndia shall not be included in export turnover. Asper the details furnished in Annexure to Form 56G,an amount of $20,44,100.41 has been shown foreignexchange realized in EEFC as detailed below: HSBC A/c UK $ 6,55,000ABN AMRO Chennai $13,89,100.41However, if expenses incurred out of EEFC accounthas to be excluded from export turnover.” iv) “As per Circular issued by the Board in March2009/June 2009 undertakings claiming deductionunder section 10B should get the approval ratifiedby the Board provided under explanation 2(iv) undersection 10B of the Act. As per the particularsfurnished under Form 56G, the assessee got approvalas 100% EOU in May 1999. Under Foreign Trade Policyissued under foreign Trade & DevelopmentRegulations Act, the license has to be renewed atthe end of each of the five years. Sinceratification from Board of Approval is notavailable, the deduction claimed under section 10Bto the extent of Rs.4,02,37,947/- needs to bedisallowed.” 13. It is not in dispute that the above said reasons have beenduly intimated to the petitioner and after receipt of the same, itseems that the petitioner has also filed their objections dated27.08.2014 which were duly considered and by order, dated 7.11.2014impugned in the writ petition, the third respondent has rejected thesame. 14. A notice under Section 148 of the Act, dated 26.03.2014 hasbeen issued to the petitioner proposing to re-assess the income forthe assessment year 2007-08 by the second respondent, since thesecond respondent has reason to believe that the income in respect ofthe said assessment year has escaped assessment within the meaning ofSection 147 of the Act. It is relevant to extract Sections 147 to 149of the Act, which read as under: "147. If the Assessing Officer has reason to believe thatany income chargeable to tax has escaped assessment forany assessment year, he may, subject to the provisions ofSections 148 to 153, assess or reassess such income andalso any other income chargeable to tax which has escapedassessment and which comes to his notice subsequently inthe course of the proceedings under this section, or re-compute the loss of or the depreciation allowance or any https://hcservices.ecourts.gov.in/hcservices/ "147. If the Assessing Officer has reason to believe thatany income chargeable to tax has escaped assessment forany assessment year, he may, subject to the provisions ofSections 148 to 153, assess or reassess such income andalso any other income chargeable to tax which has escapedassessment and which comes to his notice subsequently inthe course of the proceedings under this section, or re-compute the loss of or the depreciation allowance or any https://hcservices.ecourts.gov.in/hcservices/ other allowance, as the case may be, for the assessmentyear concerned (hereafter in this section and in Sections148 to 153 referred to as the relevant assessment year) :Provided that where an assessment under Sub-section (3) ofSection 143 or this section has been made for the relevantassessment year, no action shall be taken under thissection after the expiry of four years from the end of therelevant assessment year, unless any income chargeable totax has escaped assessment for such assessment year byreason of the failure on the part of the assesses to makea return under Section 139 or in response to a noticeissued under Sub-section (1) of Section 142 or Section 148or to disclose fully and truly all material factsnecessary for his assessment for that assessment year." “Explanation 1.--Production before the Assessing Officerof account books or other evidence from which materialevidence could, with due diligence, have been discoveredby the Assessing Officer will not necessarily amount todisclosure within the meaning of the foregoing proviso.Explanation 2.--For the purposes of this section, thefollowing 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 ofany other person in respect of which he is assessableunder this Act during the previous year exceeded themaximum amount which is 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 understatedthe income or has claimed excessive loss, deduction,allowance or relief in the return; (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessiverelief under this Act; or (iv) excessive loss or depreciation allowance or any otherallowance under this Act has been computed. “148. Issue of notice where income has escapedassessment.--(1)Beforemakingtheassessment,reassessment or recomputation under Section 147, theAssessing Officer shall serve on the assessee a noticerequiring him to furnish within such period, as may bespecified in the notice, a return of his income or theincome of any other person in respect of which he is assessable under this Act during the previous yearcorresponding to the relevant assessment year, in theprescribed form and verified in the prescribed manner andsetting forth such other particulars as may beprescribed ; and the provisions of this Act shall, so faras may be, apply accordingly as if such return were areturn required to be furnished under Section 139. (2) The Assessing Officer shall, before issuing any noticeunder this section, record his reasons for doing so. “149. Time limit for notice.--(1) No notice underSection 148 shall be issued for the relevant assessmentyear,- (a) if four years have elapsed from the end of therelevant assessment year, unless the case falls underClause (b); assessable under this Act during the previous yearcorresponding to the relevant assessment year, in theprescribed form and verified in the prescribed manner andsetting forth such other particulars as may beprescribed ; and the provisions of this Act shall, so faras may be, apply accordingly as if such return were areturn required to be furnished under Section 139. (2) The Assessing Officer shall, before issuing any noticeunder this section, record his reasons for doing so. “149. Time limit for notice.--(1) No notice underSection 148 shall be issued for the relevant assessmentyear,- (a) if four years have elapsed from the end of therelevant assessment year, unless the case falls underClause (b); (b) if four years, but not more than six years, haveelapsed from the end of the relevant assessment yearunless the income chargeable to tax which has escapedassessment amounts to or is likely to amount to one lakhrupees or more for that year.Explanation.--In determining income chargeable to taxwhich has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 to Section 147shall apply as they apply for the purposes of thatsection. (2) The provisions of Sub-section (1) as to the issue ofnotice shall be subject to the provisions of Section 151.(3) If the person on whom a notice under Section 148 is tobe served is a person treated as the agent of a non-resident under Section 163 and the assessment,reassessment or re-computation to be made in pursuance ofthe notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiryof a period of two years from the end of the relevantassessment year.” 15. It is no doubt true that an assessment order once made isordinarily final. Section 154 of the Act confers a power ofrectification of mistakes apparent from the record. Section 147 ofthe Act empowers the Assessing Officer to assess or reassess theincome in the circumstances mentioned therein. The power to reopen anassessment under Section 147 is in the nature of an exception to thegeneral principle that an assessment order once made would be final.The power to reopen an assessment is not unbridled or unrestrictedand it is subject to the proviso embodied in the section itself. Theproviso prescribes restrictions on the power of reopening the assessment by limiting the time period to four years from the end ofthe relevant assessment year, unless any income chargeable to tax hasescaped assessment by reason of failure on the part of the assessee(i) to submit a return under Section 139, or (ii) to respond to thenotices issued under Section 142(1), or (iii) to respond to thenotices issued under Section 148, or (iv) to disclose fully and trulyall material facts necessary for the assessment of the income forthat assessment year. Explanation 1 to Section 147 lays down thatmere production of the books of account or other evidence from whichthe Assessing Officer could, with due diligence, have discoveredcertain facts would not amount to disclosure within the meaning ofthe provision. Explanation 2 to Section 147 enumerates cases where itwould presume that income chargeable to tax has escaped assessment.If the assessment is to be reopened after the expiry of four yearsfrom the end of the relevant assessment year, under the proviso toSection 147 of the Act, following conditions must exist, viz., (i) The Assessing Officer must have a reason to believe that anyincome chargeable to tax has escaped assessment for the anyassessment year. The expression "reason to believe" does not mean apurely subjective satisfaction on the part of the Assessing Officer.The reason must be held in good faith. It cannot be merely apretence. It is open to the court to examine whether the reasons forthe formation of the belief has a rational connection with or arelevant bearing on the formation of the belief and are notextraneous or irrelevant for the purpose of the section. To thisextent, action of an Assessing Officer in starting the proceedingsunder Section 147 in respect of income escaping assessment is open tochallenge in a court of law. (ii) The Assessing Officer must have a reason to believe thatsuch income had escaped assessment by reason of failure on the partof the assessee (a) to make a return under Section 139 ; or (b) torespond to the notice issued under Section 142(1) or 148 of the Act,or (c) to disclose fully and truly all the material facts necessaryfor his assessment of income for that year. 16. Therefore, it is clear that both the aforementionedconditions imposed must co-exist to confer jurisdiction on theAssessing Officer to reopen the assessment under Section 147. Sub-section (2) of Section 148 of the Act makes it imperative for theAssessing Officer to record his reasons before initiatingproceedings. Where a notice under Section 147 of the Act is to beissued after the expiry of four years from the end of the relevantassessment year, the Commissioner or the Joint Commissioner, as thecase may be, should be satisfied on the reasons recorded by theAssessing Officer that it is a fit case for issue of such notice. 17. The power of reassessment conferred under Section 147 of theAct can be exercised within a period of four years from the end of https://hcservices.ecourts.gov.in/hcservices/ the relevant assessment year without restrictions imposed by theproviso to that section. However, after the expiry of four years fromthe end of the relevant assessment year, power of the AssessingOfficer is restricted by the limitations imposed under the proviso,as stated earlier. 17. The power of reassessment conferred under Section 147 of theAct can be exercised within a period of four years from the end of https://hcservices.ecourts.gov.in/hcservices/ the relevant assessment year without restrictions imposed by theproviso to that section. However, after the expiry of four years fromthe end of the relevant assessment year, power of the AssessingOfficer is restricted by the limitations imposed under the proviso,as stated earlier. 18. Section 147 of the Act is the source of power of theAssessing Officer for reopening of the assessment. Section 148contains procedural restrictions for issuance of a notice forexercise of the power of reopening of an assessment conferred underSection 147. Section 149 prescribes the time limit for issuance of anotice under Section 148. Therefore, the conditions laid down underSection 147 of the Act for the purposes of reopening the assessmentmust be satisfied before the notice can be issued. The conditionslaid down in Section 147 are the jurisdictional facts necessary forthe purpose of exercise of the power under Section 147. Thejurisdictional facts prescribed under Section 147 must exist before anotice under Section 148 can be issued. The time limit prescribedunder Section 149 of the Act for issuance of a notice under Section148 is in addition to and not in derogation with the necessaryconditions required to be satisfied under Section 147 of the Act. Inother words, if the basic jurisdictional facts required for reopeningof an assessment under Section 147 of the Act do not exist it wouldnot be competent for the Assessing Officer to issue a notice underSection 148. Even where the jurisdictional facts prescribed underSection 147 exist and all conditions laid down under Section 147 andthe proviso thereto are satisfied, the notice under Section 148 canbe issued only after the Assessing Officer has recorded his reasonsfor doing so under Sub-section (2) of Section 148 and has furtherobtained the necessary sanction for issuance of the notice asrequired under Section 151 of the Act. Such notice is also requiredto be issued within the time limit prescribed under Section 149 ofthe Act. In fact, Section 149 of the Act, does not relax therestriction of four years prescribed in the proviso to Section 147 ofthe Act for issuance of a notice under the proviso to Section 147.The restriction of four years would be applicable unless the incomechargeable to tax has escaped assessment by reason of failure of theassessee to make a return under Section 139 or in response to anotice under Section 142 or 148 of the Act or the failure of theassessee to disclose fully and truly all material facts. If thereassessment is required to be made on account of the failure of theassessee to disclose fully and truly all material facts necessary forhis assessment, obviously, the restriction of four years put underthe proviso to Section 147 would not be applicable and notice can beissued after the expiry of a period of four years, but within thetime limit of 7 or 10 years, as the case may be, prescribed underSection 149 of the Act. The object of Section 149 in imposing therestriction of seven years or ten years where the income likely tohave escaped assessment is less than Rs.50,000 or Rs.1,00,000, as thecase may be, is not to permit reopening of the assessment where the tax liability would not be significant as compared with the effortsthat would be required for reopening of an assessment after a passageof seven or ten years, as the case may be. To repeat, the time-limitimposed under Section 149 of the Act for issuance of the notice isnot in derogation of and is not for enlarging the time restrictionimposed under the proviso to Section 147 of the Act but to put anadditional time restriction even where there is no restriction oftime for reopening of the assessment on account of failure of theassessee to disclose fully and truly all material facts. tax liability would not be significant as compared with the effortsthat would be required for reopening of an assessment after a passageof seven or ten years, as the case may be. To repeat, the time-limitimposed under Section 149 of the Act for issuance of the notice isnot in derogation of and is not for enlarging the time restrictionimposed under the proviso to Section 147 of the Act but to put anadditional time restriction even where there is no restriction oftime for reopening of the assessment on account of failure of theassessee to disclose fully and truly all material facts. 19. Reverting to the case on hand, it is not in dispute that thescrutiny assessment under Section 143(3) was completed on 16.12.2010and the time limit of four years to invoke Section 147 of the Act istill 31.03.2014. It is not in dispute that the impugned notice underSection 148 has been issued on 26.3.2014 by the second respondentproposing to reassess the income for the assessment year 2007-08since he had reason to believe that the income chargeable to tax forthe said assessment year has escaped assessment within the meaning ofSection 147 of the Act. Therefore, when it is clear that thereassessment resorted to by the second respondent is within theperiod of four years, now this Court is required to examine whetherthere any tangible material is exist on record for the assessingofficer to form the requisite belief that that the income chargeableto tax, has escaped assessment. 20. According to the third respondent, the petitioner/assesseehad not furnished the true information regarding its status and thedetails regarding payment of dividend and not disclosed full and truematerial facts on the claim of deduction under Section 10B of theAct. It is the case of the Revenue that the petitioner company is nota domestic company, but it worked out the tax on its distributedprofit as per provisions of Section 115-O of the Act, which, in fact,applicable only to a domestic company and that it has made expensesin foreign country to the extent of Rs.5,77,41,000, which is liableto be excluded from the export turnover for the purpose ofcalculating exemption under Section 10B of the Act and further, thepetitioner company has not furnished the approval from the competentauthorities for continuance of 100%. These factors, according to thedepartment, were not considered at the time of original assessmentproceedings since the petitioner has not disclosed full and truematerial facts, which prompted the respondents to reopen theassessment. Therefore, having regard to the facts and circumstances,I am of the considered view that the second respondent has rightlyinitiated the reassessment proceedings after getting necessarysanction as required under Section 151 from the designated authority.I am also of the view that mere non-mentioning of sanction accordedby the authority in the impugned notice, would not in any way fatalto the process of reopening. In fact, a perusal of the above saidfactors, would prima facie establish that the income chargeable totax for the assessment year 2007-08 has escaped assessment within the meaning of Section 147 of the Act which had formed a reason for theAssessing Officer to believe that the income has escaped assessment. meaning of Section 147 of the Act which had formed a reason for theAssessing Officer to believe that the income has escaped assessment. 21. However, the learned senior counsel appearing for thepetitioner would vehemently contend that in order to exercise thejurisdiction under section 147 of the Act, the Assessing Officer musthave a reason to believe that the income has escaped assessment andthere must be a rational connection between that belief and tangiblematerial on the basis of which the belief is formed and in thepresent case, absolutely there was no tangible or fresh materialavailable with the Assessing Officer and in fact, the secondrespondent during the regular assessment proceedings under Section143(3) had examined all the details disclosed by the petitioner andconcluded the proceedings and now it is not open to him to reopen theconcluded assessment on the same material and if he resorted to thesame, it would be nothing but amount to change of opinion and it issettled law that no assessment can be reopened merely because theAssessing Officer has changed his mind. 22. Of-course, it is true that no fresh material was availablewith the second respondent to proceed with the reassessmentproceedings. However, it is to be noted that the second respondenthad categorically mentioned the reasons as stated supra, by which, hehad a reason to believe that the income chargeable to tax has escapedassessment inasmuch as the specific case of the Revenue is that thepetitioner has not disclosed fully, truly all necessary material toenable the department to assess the income correctly regarding theparticulars, viz., the petitioner company is not a domestic company,tax rate applicability on dividend distributor, expenses incurred outof EEFC Fund and Board of approval to claim deduction under Section10B. Therefore, there is a failure on the part of the petitioner todisclose the above material facts and in such circumstances, theAssessing Officer has rightly initiated the reassessment proceedingson the basis of available material on record, which was specific,relevant and considerable, and after recording the reasons for his own belief that in the original assessment proceedings, thepetitioner/assessee had not disclosed the material facts truly andfully and therefore income chargeable to tax had escaped assessment.In my opinion, he, therefore, correctly invoked the provisions ofSections 147 and 148 of the Act. In this regard it is worthwhile torefer the decision of the Hon’ble Supreme Court reported in “PhoolChand Bajrang Lal v. ITO, (1993) 4 SCC 77, at page 96, wherein, ithas been held as under in para 26: “26.We are not persuaded to accept the argument of MrSharma that the question regarding truthfulness orfalsehood of the transactions reflected in the return canonly be examined during the original assessmentproceedings and not at any stage subsequent thereto. Theargument is too broad and general in nature and doesviolence to the plain phraseology Sections 147(a) and 148 of the Act and is against the settled law by this Court.We have to look to the purpose and intent of theprovisions. One of the purposes of Section 147, appears tous to be, to ensure that a party cannot get away bywilfully making a false or untrue statement at the time oforiginal assessment and when that falsity comes to notice,to turn around and say “you accepted my lie, now yourhands are tied and you can do nothing”. It would betravesty of justice to allow the assessee that latitude.(Emphasis added) of the Act and is against the settled law by this Court.We have to look to the purpose and intent of thepro