State Bank Of India … v. Vineet Agrawal, Assistant Commissioner Of Income Tax And Others …

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO.13 OF 2002 State Bank of India…PetitionerVs.Vineet Agrawal, Assistant Commissioner of IncomeTax and others…Respondents Mr. Percy Pardiwala, Senior Advocate a/w. Mr. Nitesh Joshi and Ms. DishaShah i/b. Bhave & Co. for Petitioner.Mr. Suresh Kumar for Respondents. CORAM : UJJAL BHUYAN &MILIND N. JADHAV, JJ.DATE: SEPTEMBER 21, 2020 JUDGMENT and ORDER: (Per Ujjal Bhuyan, J.) Heard Mr. Percy Pardiwala, learned senior counsel along with Mr.Joshi, learned counsel for the petitioner; and Mr. Suresh Kumar, learnedcounsel for the respondents. 2.By filing this petition under Article 226 of the Constitution ofIndia, petitioner seeks quashing of notice dated 30.03.2001 issued byrespondent No.1 under section 148 of the Income Tax Act, 1961 (briefly'the Act' hereinafter) for the assessment year 1990-91 and subsequentnotices issued under sections 143(2) and 142(1) of the said Act. 3.Petitioner is the State Bank of India. It is a corporation establishedby and under the State Bank of India Act, 1955 having its corporateoffice at Mumbai. Since its formation in the year 1955, petitioner ismainly engaged in the business of banking activities in India as well asin foreign countries through its branch offices. One of the major sourcesof income of the petitioner is interest earned from its lending activities. 3.1Petitioner is assessed to income tax under the Act with respondent No.1 as the assessing officer. 3.2.For the assessment year 1990-91, petitioner filed its return ofincome declaring total income of Rs.230,49,30,716.00. It is stated that inthe said return of income, petitioner had offered to tax the entire receiptof interest from money advanced as credit in the profit and loss accountwithout claiming any exemption under section 10(15)(iv)(c), (d), (e) and(f) of the Act as the details were not fully collected. A note was made inthe return to the effect that particulars of petitioner's claim of interestexempt under section 10(15)(iv) were being collected and would besubmitted separately. Further, in the return of income petitioner alsoclaimed exemption under section 10(15)(iv)(h) of the Act for an amountof Rs.20,58,08,915.00 being interest received on tax free bonds. 3.3.In the course of the assessment proceeding, respondent No.1 hadissued letter dated 14.08.1992 calling upon the petitioner to explain thatborrowed funds were not used for making investments to earn theexempt income. Petitioner submitted reply dated 22.08.1992 furnishingnecessary details in respect of interest claimed as exempt under section10(15)(iv)(c), (d), (e) and (f). Full details of exemption claimed werefurnished. It is stated that exemption in respect of eligible interest wasclaimed on the gross amount as interest received from each of the partieswere disclosed separately and exemption was claimed on the basis of thetotal of all those amounts without reducing any expenditure. 3.4.Respondent No.1 passed assessment order on 26.03.1993 undersection 143(3) of the Act determining petitioner's total income atRs.10,51,38,85,506.00. According to the petitioner, assessing officeroverlooked the claim made by the petitioner for exemption under section10(15)(iv) of the Act on the ground that details were not filed during theassessment proceeding though petitioner's claim to exemption of intereston tax free bonds was allowed. 3.5.When petitioner brought to the notice of respondent No.1 that allthe details and information were furnished vide letter dated 22.08.1992,he passed an order under section 154 of the Act dated 23.06.1993allowing exemption under section 10(15)(iv) for an amount ofRs.2,58,45,37,461.00. 3.4.Respondent No.1 passed assessment order on 26.03.1993 undersection 143(3) of the Act determining petitioner's total income atRs.10,51,38,85,506.00. According to the petitioner, assessing officeroverlooked the claim made by the petitioner for exemption under section10(15)(iv) of the Act on the ground that details were not filed during theassessment proceeding though petitioner's claim to exemption of intereston tax free bonds was allowed. 3.5.When petitioner brought to the notice of respondent No.1 that allthe details and information were furnished vide letter dated 22.08.1992,he passed an order under section 154 of the Act dated 23.06.1993allowing exemption under section 10(15)(iv) for an amount ofRs.2,58,45,37,461.00. 3.6.On 23.12.1993, respondent No.1 issued a notice under section 148of the Act seeking to reopen the assessment of the petitioner for theassessment year 1990-91. Following such notice, petitioner filed itsreturn of income where it claimed exemption of interest under variousclauses of section 10(15)(iv) to the extent of Rs.4,69,92,61,038.00, inaddition to claiming exemption in respect of interest on tax free bondsamounting to Rs.20,58,08,915.00. 3.7.Pursuant to the above, respondent No.1 passed order dated31.03.1994 under section 143(3) read with sections 147 and 154 of theAct determining the revised total income of the petitioner atRs.7,46,80,10,649.00. In addition to the exemption granted in the orderdated 23.06.1993, respondent No.1 granted further exemption undersection 10(15)(iv) of an amount of Rs.90,97,32,802.00 accepting a partof petitioner's contention in respect of loans granted. 3.8.When petitioner received further details in respect of interestexemption under section 10(15)(iv), it furnished those details torespondent No.1 on 06.09.1994 but respondent No.1 refused to considerthe further claim of the petitioner. 3.9.At that stage, petitioner preferred appeal before the Commissionerof Income Tax (Appeals). The first appellate authority by his appellateorder dated 30.03.1995 directed respondent No.1 to consider the claimof the petitioner in respect of interest exemption under section 10(15)(iv)of the Act on the basis of information furnished by the petitioner and toallow the deduction according to law. 3.10. Respondent No.1 thereafter passed order dated 20.11.1995 givingeffect to the order of Commissioner of Income Tax (Appeals) byallowing further deduction of Rs.119,21,47,306.00 under section 10(15)(iv). 3.11. According to the petitioner, against its claim for exemption undersection 10(15)(iv) of Rs.469,92,61,038.00, it was allowed exemption ofRs.468,64,17,569.00, the break-up of which has been furnished asunder:- 1) Rs.258,45,37,461.00 vide order dated 23.06.1993 passedunder section 154;under section 154; 2) Rs.90,97,32,802.00 vide order dated 31.03.1994 passedunder section 143(3) read with sections 147 and 154; andunder section 143(3) read with sections 147 and 154; and 3) Rs.119,21,47,306.00 vide order dated 20.11.1995 givingeffect to the order of Commissioner of Income Tax(Appeals).effect to the order of Commissioner of Income Tax(Appeals). 4.Section 14A was inserted in Chapter IV of the Act by the FinanceAct, 2001 with retrospective effect from 01.04.1962. Chapter IV dealswith computation of total income and section 14A which is in ChapterIV deals with expenditure incurred in relation to income not includiblein total income. Sub-section (1) of section 14A says that for the purposesof computing the total income under Chapter IV, no deduction shall beallowed in respect of an expenditure incurred by the assessee in relationto income which does not form part of the total income under the Act. Itmay be mentioned that Finance Act, 2001 received the assent of thePresident on 11.05.2001. 4.Section 14A was inserted in Chapter IV of the Act by the FinanceAct, 2001 with retrospective effect from 01.04.1962. Chapter IV dealswith computation of total income and section 14A which is in ChapterIV deals with expenditure incurred in relation to income not includiblein total income. Sub-section (1) of section 14A says that for the purposesof computing the total income under Chapter IV, no deduction shall beallowed in respect of an expenditure incurred by the assessee in relationto income which does not form part of the total income under the Act. Itmay be mentioned that Finance Act, 2001 received the assent of thePresident on 11.05.2001. 5.Be that as it may, petitioner received a notice dated 30.03.2001issued by respondent No.1 under section 148 of the Act. As per thisnotice, respondent No.1 stated that he had reason to believe that incomeof the petitioner chargeable to tax for the assessment year 1990-91 had escaped assessment within the meaning of section 147 of the Act and,therefore, he proposed to re-assess the income. Petitioner was calledupon to file return of income in terms of the said notice within 30 days. 5.1.Petitioner filed its return of income by mentioning that it waswithout prejudice and under protest. Contending that no incomechargeable to tax had escaped assessment and that petitioner haddisclosed fully and truly all material facts necessary for its assessment,request was made to respondent No.1 for furnishing the reasons on thebasis of which the impugned notice was issued. 5.2.In the meanwhile, petitioner was served with notices undersection 143(2) as well as under section 142(1) of the Act. 6.Central Board of Direct Taxes (CBDT) issued a circular dated23.07.2001 regarding insertion of section 14A in the Act with effectfrom 01.04.1962 and its application. After noting that instances of re-opening of old assessments which had caused hardship to a large numberof tax payers leading to increase in avoidable litigation had come to itsnotice, it directed that assessment proceedings which had attainedfinality before 01.04.2001 should not be re-opened under section 147 ofthe Act to disallow expenditure incurred to earn such exempt income byapplying the newly inserted section 14A. 7.When the petitioner pointed out the above CBDT circular torespondent No.1, it was informed that the said circular was notapplicable to the petitioner as the assessment of the petitioner was re-opened by issuing notice under section 148 of the Act on 30.03.2001,thus taking the view that the assessment proceeding was pending as on01.04.2001. 8.After several rounds of communication, respondent No.1 videletter dated 04.12.2001 furnished the reasons for re-opening of assessment to the petitioner. As per the reasons furnished, respondentNo.1 was of the view that by claiming gross receipts as exempt andclaiming the cost of borrowing etc. from its business income, petitionerin fact claimed double deduction which is not permissible in law. It isalso stated that petitioner had not furnished details of expenses incurredto earn interest on approved foreign exchange loans. However, based onthe data from the assessment year 1998-99, the cost for earning intereston such lending comes to more than 80%. Thus, excess exemption wasallowed by more than Rs.280 crores. This resulted in escapement ofincome by allowing excess exemption under section 10(15)(iv)(c) and(f) of the Act. 9.Aggrieved, petitioner has preferred the present writ petitionseeking the reliefs as indicated above. 9.Aggrieved, petitioner has preferred the present writ petitionseeking the reliefs as indicated above. 10.This Court by order dated 05.03.2002 had passed an interim orderstaying the operation of the impugned notice dated 30.03.2001.Thereafter by order dated 27.06.2002, the writ petition was admitted forhearing and interim relief in terms of prayer clause (d) of the petitionwas granted meaning thereby that respondents were restrained fromtaking any steps in furtherance of or pursuant to the impugned noticedated 30.03.2001 and the subsequent notices issued under sections143(2) and 142(1) of the Act. 11.Respondent No.1 has filed affidavit. It is stated that impugnednotice under section 148 of the Act was issued on 30.03.2001 after dulyrecording reasons and after obtaining approval of the Commissioner ofIncome Tax under section 151 of the Act. Gist of the reasons recordedwas supplied to the petitioner on 04.12.2001. Reference has been madeto the assessment proceeding wherein the assessing officer had issuedletter dated 14.08.1992 to the petitioner to explain that borrowed fundswere not used for making the investments to earn such income. It wasmentioned that failure to furnish particulars of interest paid on borrowed funds attributable to such investments would result in the expenditurebeing disallowed as being laid out for earning income which is not to beincluded in the total income under section 10 of the Act. Petitioner in itsreply dated 22.08.1992 had stated that the particulars would besubmitted in due course after collecting the same from the differentbranches. Such details were never furnished and thus, petitioner hadfailed to disclose fully and truly all material facts necessary for itsassessment for that assessment year. That apart, it is stated that petitionerhad furnished only the details of gross interest income claimed to beexempted under section 10(15)(iv) without furnishing details ofexpenses incurred for earning such income. 11.1. In paragraph 12 of the affidavit it is clarified that the impugnednotice under section 148 was not issued in view of proposed section 14Ain the Finance Bill, 2001. Petitioner's case was examined in the light offacts of the case and various judicial pronouncements whereafterrespondent No.1 came to the conclusion that there was reason to believethat by allowing exemption on the gross receipts in place of net receiptsafter adjustment of the expenditure, the income had escaped assessment.Reliance has been placed on the decision of the Supreme Court in thecase of Escorts Limited Vs. Union of India, 199 ITR 43 contending thatby claiming exemption on the gross income and getting the deduction ofexpenses incurred with respect to such income, petitioner had availeddouble deduction which could never have been the legislative intent. Inso far CBDT circular dated 23.07.2001 is concerned, it is contended thatthe same is not applicable in the case of the petitioner. In thecircumstances, respondent No.1 seeks dismissal of the writ petition. 12.Respondent No.1 has also filed additional affidavit in replyenclosing therewith the detailed reasons recorded for re-opening theassessment as well as the satisfaction recorded by Commissioner ofIncome Tax while granting approval to respondent No.1 for issuance ofnotice under section 148 of the Act. 12.Respondent No.1 has also filed additional affidavit in replyenclosing therewith the detailed reasons recorded for re-opening theassessment as well as the satisfaction recorded by Commissioner ofIncome Tax while granting approval to respondent No.1 for issuance ofnotice under section 148 of the Act. 13.Mr. Pardiwala, learned senior counsel for the petitioner hasmeticulously taken us to the materials on record and submits thatissuance of the impugned notice is clearly without jurisdiction in asmuch as respondent No.1 could not have formed any reasonable beliefthat income chargeable to tax for the said assessment year had escapedassessment on account of petitioner failing to disclose fully and truly allmaterial facts, this being a case of re-opening of an assessment madeunder section 143(3) of the Act after four years. Since the veryfoundation for initiation of the process of re-opening is absent, theimpugned notice is liable to be set aside and quashed being withoutjurisdiction. That apart, he submits that it has been the consistent view ofthe courts that if an assessee earns both taxable and exempt income andthe business generating the taxable and exempt income is regarded asone indivisible business and the expenditure is incurred for the purposeof the business of the assessee then there can be no disallowance of anypart of the expenditure on the ground that a portion of the expenditure isrelatable to the earning of exempt income. His further contention is thatwhen the petitioner had made its claim that the sum ofRs.469,92,61,038.00 was not chargeable to tax, it had made itabundantly clear that the said amount represented the gross interest thatwas earned. This claim was considered by respondent No.1 and wasallowed to the extent of Rs.468,64,17,569.00 at various stages. In suchcircumstances, respondent No.1 could not have formed any reasonablebelief that income of the petitioner chargeable to tax had escapedassessment on account of failure on the part of the petitioner to furnishfully and truly all material facts necessary for the purpose of assessmentparticularly regarding claim of exemption under section 10(15)(iv) of theAct. In support of his submissions, Mr. Pardiwala has relied upon thefollowing decisions:- 1.CIT Vs. Industrial Investment Trust Company Limited, 67ITR 436;ITR 436; 2.CIT Vs. New Great Insurance Company Limited, 90 ITR 348; 3.CIT Vs. Indian Bank Limited, 56 ITR 77 (SC); 4.State Bank of India, Mumbai Vs. Joint Commissioner ofIncome Tax, ITAT, Mumbai Bench, ITA Nos.1292 and 1293 /Mumbai / 2001 decided on 06.06.2002;Income Tax, ITAT, Mumbai Bench, ITA Nos.1292 and 1293 /Mumbai / 2001 decided on 06.06.2002; 5.Escorts Limited(supra); 6.DIL Limited Vs. Assistant Commissioner of Income Tax, 343ITR 296;ITR 296; 7.Ajanta Pharma Limited Vs. Assistant Commissioner ofIncome Tax, 267 ITR 200; andIncome Tax, 267 ITR 200; and 8.Caprihans India Limited Vs. Tarun Singh, DeputyCommissioner of Income Tax, 266 ITR 566.Commissioner of Income Tax, 266 ITR 566. 13.1. Mr. Pardiwala has also drawn our attention to the proviso to sub-section (3) of section 14A of the Act which was inserted by the FinanceAct, 2002 with retrospective effect from 11.05.2001. He submits thateven as per this proviso, the assessing officers are restrained from re-opening assessment for any assessment year concluded on or before01.04.2001. Therefore, this is also a prohibition for respondent No.1from seeking to re-open the completed assessment of the petitioner forthe assessment year 1990-91. 7.Ajanta Pharma Limited Vs. Assistant Commissioner ofIncome Tax, 267 ITR 200; andIncome Tax, 267 ITR 200; and 8.Caprihans India Limited Vs. Tarun Singh, DeputyCommissioner of Income Tax, 266 ITR 566.Commissioner of Income Tax, 266 ITR 566. 13.1. Mr. Pardiwala has also drawn our attention to the proviso to sub-section (3) of section 14A of the Act which was inserted by the FinanceAct, 2002 with retrospective effect from 11.05.2001. He submits thateven as per this proviso, the assessing officers are restrained from re-opening assessment for any assessment year concluded on or before01.04.2001. Therefore, this is also a prohibition for respondent No.1from seeking to re-open the completed assessment of the petitioner forthe assessment year 1990-91. 14.Mr. Suresh Kumar, learned standing counsel, Revenue submitsthat the writ petition filed is not maintainable in as much as theprocedure laid down in GKN Driveshafts (India) Limited Vs. Income TaxOfficer, 259 ITR 19 has not been followed by the petitioner. In that case,Supreme Court had clarified that when a notice under section 148 of theAct is issued, the proper course of action for the noticee is to file returnand if he so desires, to seek reasons for issuing notice. In such aneventuality, assessing officer is bound to furnish reasons within areasonable time to which noticee would be entitled to file objections. Ifobjections are filed, assessing officer is bound to dispose off the same bypassing a speaking order. This procedure having not been availed of bythe petitioner, Court may not invoke its extra-ordinary jurisdiction underArticle 226 of the Constitution of India. Referring to a decision of thisCourt in Ajanta Pharma Limited Vs. Assistant Commissioner of Income Tax, 295 ITR 218, he submits that in that case this Court had relegatedthe petitioner to avail the procedure laid down in GKN Driveshafts(India) Limited(supra). In such circumstances, he submits that the writpetition may not be entertained. 15.Submissions made by learned counsel for the parties have beenconsidered. Also perused the materials on record and carefullyconsidered the decisions cited at the Bar. 16.We find that Mr. Suresh Kumar has basically raised a preliminaryobjection regarding non-availing of the procedure by the petitioner aslaid down by the Supreme Court in GKN Driveshafts (India) Limited(supra). But before dealing with this aspect, it would be apposite to firstdilate on the relevant provisions of section 147 of the Act. The presentcase deals with assessment year 1990-91 where the initial assessmentorder was passed on 26.03.1993 under section 143(3) of the Act.Impugned notice under section 148 of the Act was issued on 30.03.2001.It is in that context that we will have to discuss and analyze section 147.It says that if the assessing officer has reason to believe that any incomechargeable to tax has escaped assessment for any assessment year, hemay assess or re-assess such income. However, as per the first proviso,where an assessment under sub-section (3) of section 143 or section 147has been made for the relevant assessment year, no action shall be takenunder section 147 after expiry of four years from the end of the relevantassessment year unless any income chargeable to tax has escapedassessment for such assessment year by reason of the failure on the partof the assessee to make a return under section 139 or in response to anotice issued under sub-section (1) of section 142 or section 148 or todisclose fully and truly all material facts necessary for its assessment forthat assessment year. 17.The present case is one were the impugned notice issued undersection 148 of the Act is clearly beyond four years from the end of the assessment year in question. Therefore, what is relevant to note is thatthe assessing officer must have or form reason to believe that anyincome of the petitioner chargeable to tax has escaped assessment byreason of the failure on the part of the petitioner to disclose fully andtruly all material facts. 17.The present case is one were the impugned notice issued undersection 148 of the Act is clearly beyond four years from the end of the assessment year in question. Therefore, what is relevant to note is thatthe assessing officer must have or form reason to believe that anyincome of the petitioner chargeable to tax has escaped assessment byreason of the failure on the part of the petitioner to disclose fully andtruly all material facts. 18.The expressions 'reason to believe' and 'failure on the part of theassessee to disclose fully and truly all material facts' have been subjectedto numerous judicial pronouncements, and it is not necessary to burdenthis judgment by making reference to the long line of judicialprecedents. Suffice it say that there must be a live link between thereasons recorded and formation of the belief that income chargeable totax has escaped assessment because of failure on the part of the assesseeto disclose fully and truly all material facts necessary for assessmentwhich must not be fanciful or based on suspicion. Both the conditionsmust co-exist in order to confer jurisdiction on the assessing officer. Ofcourse, the assessee is required to make a true and full disclosure of theprimary facts at the time of the original assessment. Production beforethe assessing officer books of accounts or other materials from which therequired evidence with due diligence could have been discovered by theassessing officer would not necessarily amount to disclosurecontemplated by law. But the duty of the assessee in any case does notextend beyond making a true and full disclosure of primary facts. Oncehe has done that, his duty ends. It is for the assessing officer to draw thecorrect inference from the primary facts. Once such an inference isdrawn which may appear subsequently to be erroneous that could not bea basis for initiation of action for re-opening assessment as it wouldamount to change of opinion and change of opinion cannot be a groundfor re-opening concluded assessment. 19.Having discussed the above, let us now address the preliminaryissue raised by Mr. Suresh Kumar. In GKN Driveshafts (India)Limited(supra), writ petition filed by the noticee challenging the notice issued under section 148 of the Act was dismissed by the High Court.Declining to interfere with such decision of the High Court, SupremeCourt clarified that when a notice is issued under section 148 of the Act,the proper course of action for the assessee is to file return and if he sodesires, he may seek the reasons for issuing notice. If reasons are soughtfor, assessing officer is bound to furnish the reasons within a reasonabletime. On receipt of reasons, noticee is entitled to file objection toissuance of notice in which event assessing officer would be bound todispose off the same by passing a speaking order. In that case sincereasons were disclosed, it was held that assessing officer had to disposeoff the objection, if filed, by passing a speaking order before proceedingwith the assessment. This decision was rendered by the Supreme Courton 25.11.2002. It was applied by this Court in the second AjantaPharma case i.e., 295 ITR 218 wherein the matter was remanded to theassessing officer to grant opportunity to the petitioner to file additionalobjections and thereafter to dispose off the same in terms of judgment ofthe Supreme Court in GKN Driveshafts (India) Limited (supra). 20.In the instant case, the impugned notice was issued on 30.03.2001and the reasons were furnished by respondent No.1 to the petitioner on04.12.2001; all before the judgment was rendered in GKN Driveshafts(India) Limited (supra). Therefore, a view can be taken that since theimpugned notice and furnishing of reasons had preceded the judgment inGKN Driveshafts (India) Limited, the later may not have applicabilityin the present case. That apart, in the first Ajanta Pharma case i.e., 267ITR 200, this Court after referring to the Constitution Bench judgmentin Calcutta Discount Company Limited Vs. Income Tax Officer, 41 ITR191 held that Supreme Court in GKN Driveshafts (India) Limited(supra) nowhere lays down the law to the effect that the noticee is totallydebarred from approaching the High Court under Article 226 of theConstitution of India when the exercise of power by the authority undersection 148 of the Act ex-facie appears to be without jurisdiction. It wasreiterated that mere availability of an alternative remedy can be no bar for exercise of writ jurisdiction when the authority seeks to assumejurisdiction which it does not possess or act in totally arbitrary manner. Itwas held thus, “15.If one reads the decision of the apex Court in GKN's case(supra), as rightly submitted by the learned advocate for thepetitioners, it nowhere lays down the law to the effect that theparty is totally debarred from approaching this Court underArticle 226 of the Constitution of India when an exercise ofpowers by the authority under Section 148 of the said Act exfacie appears to be without jurisdiction. Undoubtedly, whethersuch an exercise is with or without jurisdiction will have to berevealed from the notice and reasons on the face thereof. At thesame time, it is also well-settled and the decision of theConstitution Bench of apex Court in Calcutta Discount Co.'s case(supra) is very clear on the point that mere availability of analternative relief can be no bar for exercise of a writ jurisdictionwhen the authorities seek to assume jurisdiction which they donot possess or act in totally arbitrary manner. The decision inGKN's case (supra) certainly reminds the assessee that when anotice under Section 148 is issued, the proper course of action isto file a reply with his objections including those in relation tothe absence of jurisdiction. However, it does not lay down thelaw to the effect that when such an objection is in relation toabsence of jurisdiction and the same is revealed ex facie orapparent on the face of notice or reasons in support thereof, theassessee has compulsorily to invite an order from the AssessingOfficer in relation to the absence of jurisdiction. It is another casethat when certain facts are to be ascertained or various othermaterials are to be gone through to arrive at a finding about theabsence of jurisdiction, in which case, certainly, the assessee willhave to approach the Assessing Officer. It is so because, thejurisdiction under Article 226 of the Constitution of India beingan extraordinary jurisdiction cannot be allowed to be availed as amatter of course. In order to decide an issue of jurisdiction,findings of the authority on the factual aspect may be necessary.In that case, certainly primarily the assessee will have toapproach the Assessing Officer. That does not. mean that theassessee is invariably bound to approach the Assessing Officer ineach and every case. There can be the cases, like the one in hand,where he may be entitled to approach the Court directly underArticle 226 of the Constitution of India.” 20.1. Thereafter this Court referred to the decision in Caprihans IndiaLimited (supra) in support of the above view. That was also a casewhere notice issued under section 148 of the Act was put to challenge inwrit proceeding and the revenue had relied upon GKN Driveshafts 20.1. Thereafter this Court referred to the decision in Caprihans IndiaLimited (supra) in support of the above view. That was also a casewhere notice issued under section 148 of the Act was put to challenge inwrit proceeding and the revenue had relied upon GKN Driveshafts (India) Limited (supra). After discussing GKN Driveshafts (India)Limited, this Court observed that the assessee should have filed its returnpursuant to the impugned notice and should have sought for the reasonsfor issuing such notice. This Court further observed that it would haverejected the writ petition on this ground but the reasons having beendisclosed by the assessing officer prima facie showed that there wasnothing in the reasons to indicate failure on the part of the assessee todisclose fully and truly all material facts necessary for assessment. Onthat ground this Court declined to dismiss the writ petition in limine. 21.There is one more reason for us to adopt a similar view. Asalready noted above, this writ petition was admitted for hearing byissuing rule way back on 27.06.2002. Having admitted the petition forhearing and such a long period having elapsed, it would neither be fairnor reasonable to relegate the petitioner to file objection to the reasonsrecorded before respondent No.1. This is more so because respondentNo.1 has filed affidavits justifying the reasons recorded and issuance ofthe impugned notice. In other words, to direct the petitioner to fileobjection before respondent No.1 would be a mere formality, respondentNo.1 having already disclosed his mind. 22.In the circumstances, we are unable to accept the preliminaryobjection raised on behalf of the revenue. 23.This brings us to the substance of the issue i.e., whetherrespondent No.1 could form an opinion that he had reason to believe thatincome of the petitioner chargeable to tax for the assessment year 1990-91 had escaped assessment by reason of failure on the part of thepetitioner to disclose fully and truly all material facts necessary forassessment? 24.In our view, the facts or the materials on record say otherwise. Asalready noted above, in the petitioner's return of income for the assessment year 1990-91, it had mentioned that particulars of its claim tointerest exempt under section 10(15)(iv) were being collected and wouldbe submitted separately. In the said return of income petitioner hadclaimed exemption of Rs.20,58,08,915.00 under section 10(15)(iv)(h)being interest received on tax free bonds. It has been noted that in thecourse of the assessment proceeding, respondent No.1 had written to thepetitioner on 14.08.1992 calling upon the petitioner to explain thatborrowed funds were not used for making investments to earn income,exemption of which was sought under section 10. Petitioner vide letterdated 22.08.1992 submitted necessary details with regard to interestclaimed as exemption under section 10(15)(iv)(c), (d), (e) and (f) of theAct. Besides furnishing copies of loan agreements, branch-wise detailsin respect of the borrowers, clause under which exemption for interestincome was sought and the amount of interest earned from each of theparties were pointed out. It is the petitioner's case that exemption inrespect of eligible interest was claimed on the gross amount. As interestreceived from each of the parties was disclosed separately, exemptionwas claimed on the basis of the total amount without reducing anyexpenditure. It was thereafter that assessment order was passed on26.03.1993 under section 143(3) of the Act. While determining the totalincome of the petitioner at Rs.10,51,38,85,506.00, claim of the petitionerto exemption under section 10(15)(iv) was overlooked on the groundthat though petitioner had stated in the return of income that it would befiling relevant details and information in support of such claim, no suchdetails and information were filed. 25.When the petitioner brought to the notice of respondent No.1 thedetails and information furnished by it vide letter dated 22.08.1992,respondent No.1 rectified the assessment order by an order dated23.06.1993 passed under section 154 wherein it was held that relevantdetails were filed by the petitioner and after going through thedocuments, allowed exemption under section 10(15)(iv) of the Act to theextent of Rs.2,58,45,37,461.00. It may be mentioned that along with the said letter, a list was annexed which furnished branch-wise informationof borrowers, the clause under which interest income was treated asexempt and borrower-wise amount of interest. From this list it wasevident that interest was allowed as exempt under section 10(15)(iv) ofthe Act on gross basis. 26.Thereafter notice under section 148 of the Act was issued to thepetitioner on 23.12.1993 for re-opening the assessment for theassessment year 1990-91. Pursuant thereto petitioner filed its return ofincome wherein it claimed exemption of interest under section 10(15)(iv)(c), (d), (e) and (f) of the Act to the extent of Rs.4,69,92,61,038.00;besides claiming exemption in respect of interest on tax free bonds ofRs.20,58,08,915.00. On completion of re-assessment proceeding,respondent No.1 passed order dated 31.03.1994 under section 143(3)read with sections 147 and 154 of the Act determining revised totalincome at Rs.7,46,80,10,649.00. 27.When the petitioner received further details from its branches,those were submitted to respondent No.1 in furtherance of its claim toexemption of interest under section 10(15)(iv) of the Act to the extent ofRs.1,18,46,53,220.00. When respondent No.1 refused to consider thesame, petitioner preferred appeal before the Commissioner of IncomeTax (Appeals) against the order passed under section 143(3) read withsections 147 and 154 of the Act wherein petitioner claimed that it waseligible for an exemption of Rs.4,69,92,61,038.00 under section 10(15)(iv) of the Act in the assessment order as was originally passed. Appealof the petitioner was allowed by the Commissioner of Income Tax(Appeals) who by his order dated 30.03.1995 directed respondent No.1to consider the claim of the petitioner in respect of interest under section10(15)(iv) of the Act. Thereafter respondent No.1 passed theconsequential order on 20.11.1995 giving effect to the order of theappellate authority. By the said order, he allowed further deduction ofRs.119,20,47,306.00 under section 10(15)(iv) of the Act. 28.Given the above scenario, can it be reasonably construed thatthere was failure on the part of the petitioner to disclose fully and trulyall material facts necessary for its assessment? We are afraid answer tothe above has to be in the negative. As rightly held by this Court in DILLimited (supra), beyond the period of four years when an assessment issought to be re-opened, there must be failure on the part of the assesseeto fully and truly disclose all material facts necessary for assessment. 29.Even otherwise also, in Indian Bank Limited (supra), SupremeCourt had held that no general principle is deducible for the propositionthat if a part of the income of a business is tax free, expenditure incurredfor the purpose of earning its income is outside the purview of section10. 28.Given the above scenario, can it be reasonably construed thatthere was failure on the part of the petitioner to disclose fully and trulyall material facts necessary for its assessment? We are afraid answer tothe above has to be in the negative. As rightly held by this Court in DILLimited (supra), beyond the period of four years when an assessment issought to be re-opened, there must be failure on the part of the assesseeto fully and truly disclose all material facts necessary for assessment. 29.Even otherwise also, in Indian Bank Limited (supra), SupremeCourt had held that no general principle is deducible for the propositionthat if a part of the income of a business is tax free, expenditure incurredfor the purpose of earning its income is outside the purview of section10. 30.In Industrial Investment Trust Company Limited (supra), thisCourt held that if expenses are allowable as business expenses, thosewould be allowed to be deducted from the income of the business whichis liable to tax; the circumstance that the business activity has producedincome, a part of which is liable to tax and a part of which is free fromtax, will not permit the allocation of the expenses between these twoparts of income and allow only that part which is attributable to earningof the taxable income. This view was followed by this Court in NewGreat Insurance Company Limited(supra). The question which arosein that case was whether dividends received by the assessee companywhich otherwise satisfied the requirements of section 99 of the Act wereupon the terms of that section gross dividends in the hands of theassessee or net dividends after deducting proportionate managementexpenses? After careful analysis, this Court held that the assesseecompany was entitled to a rebate on the gross dividends and not on thenet dividends i.e., not after deducting proportionate managementexpenses. with retrospective effect from 01.04.1962, the same may not be of anyassistance to the revenue in as much as the retrospective amendment oflaw would only negate the inference sought to be drawn of the failure todisclose material facts, which aspect was highlighted by this Court inDIL Limited (supra). As a matter of fact, respondent No.1 has stated inthe affidavit that its action of seeking to reopen the assessment is notbased on section 14A of the Act. 32.That being the position, we are of the considered opinion that noreasonable view can be taken that there was failure on the part of thepetitioner to disclose fully and truly all material facts necessary for itsassessment for the assessment year 1990-91. If that be so thenrespondent No.1 could not have formed any reason to believe that anyincome of the petitioner chargeable to tax for the said assessment yearhad escaped assessment. Thus the condition precedent for re-opening theconcluded assessment of the petitioner is absent in the present case. Insuch circumstances, issuance of the impugned notice under section 148of the Act is clearly without jurisdiction and is therefore illegal andinvalid. 33.Consequently, the impugned notice dated 30.03.2001 issued byrespondent No.1 under section 148 of the Act as well as the subsequentnotices issued under sections 143(2) and 142(1) of the Act are hereby setaside and quashed. 34.Rule is made absolute. However, there shall be no order as tocosts. 35.This order will be digitally signed by the Private Secretary of thisCourt. All concerned will act on production by fax or email of a digitallysigned copy of this order. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.)