Mphasis Ltd vs The Joint Commissioner Of Income Tax on 19 September, 2025

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Karnataka High Court

Mphasis Ltd vs The Joint Commissioner Of Income Tax on 19 September, 2025

Bench: M.Nagaprasanna

Reserved on : 21.08.2025 R
Pronounced on : 19.09.2025

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 19TH DAY OF SEPTEMBER, 2025

BEFORE

THE HON'BLE MR. JUSTICE M. NAGAPRASANNA

WRIT PETITION No.51586 OF 2019 (T - IT)

BETWEEN:

MPHASIS LIMITED
BAGMANE WORLD TECHNOLOGY CENTRE
WTC-3, 1ST FLOOR, KR PURAM
MARATHAHALLI OUTER RING ROAD
DODDANEKUNDI, BENGALURU - 560 048
REPRESENTED HEREIN BY ITS
SENIOR VICE PRESIDENT
MR. ARIJIT GANGULY
... PETITIONER

(BY SRI T.SURYANARAYANA, SR. ADVOCATE A/W.,
SMT. TANMAYEE RAJKUMAR, ADVOCATE)

AND:

1. THE JOINT COMMISSIONER OF INCOME TAX
(SPECIAL RANGE-4), 2ND FLOOR
BMTC BUILDING, 80 FEET ROAD
KORAMANGALA, BENGALURU - 560 095.

2. THE ASSISTANT COMMISSIONER OF INCOME TAX
SPECIAL RANGE 4, BMTC BUILDING
2

80 FEET ROAD, KORAMANGALA
BENGALURU - 560 095.

3. PRINCIPAL COMMISSIONER OF INCOME TAX-4
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORAMANGALA 6TH BLOCK
BENGALURU - 560 095.
... RESPONDENTS

(BY SRI RAVIRAJ Y. V., ADVOCATE)

THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE
CONSTITUTION OF INDIA PRAYING TO DECLARE THAT THE
IMPUGNED PROCEEDINGS INITIATED BY THE R-1 U/S 147 R/W
SEC. 148 OF THE ACT ARE BARRED BY LIMITATION AND OPPOSED
TO THE SAID PROVISIONS AND THEREFORE WITHOUT
JURISDICTION; QUASH THE ORDER DATED 07.11.2019 (ANNX-P)
PASSED BY THE R-2 REJECTING THE PETITIONER'S OBJECTION AS
TO HIS JURISDICTION AND LIMITATION IN RESPECT OF THE
ASSESSMENT YEAR 2012-13.

THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 21.08.2025, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-

CORAM: THE HON'BLE MR JUSTICE M.NAGAPRASANNA

CAV ORDER

The petitioner is before this Court calling in question

proceedings instituted under Section 148 r/w Section 147 of the

Income Tax Act, 1961 (hereinafter referred to as 'the Act' for short)

on the ground of it being barred by limitation and has sought
3

consequential action to be obliterated on the question of jurisdiction

as well.

2. Facts, in brief, germane are as follows: -

2.1. The petitioner is a Company incorporated under the

Companies Act, 1956 and is engaged in the business of providing

information technology solutions and services inter alia to

customers outside India. The petitioner is thus, in a contract with

foreign client. The petitioner undertakes software designing and

executes offshore part of the contract. Certain parts of the contract,

according to the averment in the petition, require execution

physically at the customers site i.e., onshore/onsite part of the

work is sub-contracted to its Associated Enterprises (for short

'Enterprises'). For the said purpose, the petitioner enters into

agreements with its Enterprises for provision of onsite software

development. Since payments are made to the Enterprises they

were not chargeable to tax in India. On an application made by the

petitioner, the Additional Commissioner of International Taxation is

said to have passed an order under Section 195(2) of the Act
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approving remittances of payments to the Enterprises without

deducting tax at source.

2.2. Things standing thus, during the financial year 2011-12

relevant to the assessment year 2012-13, the petitioner made

payments to its Enterprises for provision of services in the nature of

on-site development of software to the extent of ₹3,30,23,97,000/-

and an amount of ₹24,04,78,000/- for services in respect of

marketing services in foreign countries. The petitioner files its

return of income for the assessment year 2012-13 declaring income

of ₹3,40,40,79,170/- after claiming payment under Section 10A,

10AA, 10B of the Act. Before the return of income filed by the

petitioner was taken up for assessment under Section 143(3) of the

Act, the Deputy Director of Income Tax (International Taxation)

issued a show cause notice under Section 201(1) of the Act for the

assessment years 2011-12 and 2012-13 requiring the petitioner to

show cause as to why it should not be treated as an assessee in

default under Section 201(1) of the Act, on the score that the

petitioner had failed to deduct taxes at source on the amounts paid

to the Enterprises. The petitioner is said to have made submissions
5

that tax deduction at source was not warranted and the petitioner

cannot be treated as an assessee in default for non-deduction of

TDS. Thereafter, return of income for the assessment year 2012-13

was taken up under Section 143(3) and various information was

sought from the hands of the petitioner. In response to the notice

dated 02-05-2014 issued by the Assessing Officer, the petitioner is

said to have furnished entire copies necessary for an order in favour

of the petitioner.

2.3. A reference is made by the Assessing Officer to the

Transfer Pricing Officer, who in turn issues a notice on 11-12-2015

under Section 92CA of the Act calling upon the petitioner to furnish

details of selling commission paid for marketing services availed

from the Enterprises. The petitioner is said to have furnished details

and after furnishing details, the Transfer Pricing Officer passes an

order on 29-01-2016 determining an aggregate transfer pricing

adjustment at ₹45,39,63,715/-. The adjustment so made by the

Transfer Pricing Officer was on the ground that the petitioner had

not demonstrated that the cost incurred by the Enterprises are

relatable to specific streams of revenue; no independent business
6

would have paid such huge amount as selling commission without

verifiable basis. After thorough examination and verification of

material, the Assessing Officer passes an assessment order under

Section 143(3) of the Act. Aggrieved by the assessment order dated

21-04-2016, the petitioner files an appeal before the Commissioner

of Income Tax (Appeals) challenging the transfer pricing

adjustment made in respect of selling commission. The proceedings

are yet to be concluded.

2.4. When things stood thus, for the assessment year

2012-13 the Assessing Officer holding jurisdiction over the

Company issues a notice on 23-03-2018 under Section 148 of the

Act holding that there were reasons to believe that the income of

the petitioner chargeable to tax for the assessment year 2012-13

had escaped assessment and proposing to re-assess the income of

the petitioner. The petitioner was called upon to file its return of

income for the said assessment year. The petitioner responded to

the notice on 10-04-2018 contending that no income had escaped

assessment and under protest submitted return of income filed on

30-11-2012. The petitioner then requested for reasons recorded
7

for reopening the assessment under Section 147 of the Act, as also

sanction granted in terms of Section 151 of the Act. The petitioner

does not receive any response from the Assessing Officer. A year

thereafter, the petitioner receives another notice dated 29-03-2019

again under Section 148 of the Act proposing to reassess the

petitioner for the assessment year 2012-13 under Section 147 of

the Act. Once again, the petitioner was called upon to furnish

return of income. The petitioner again under protest furnished the

same and sought reasons for reopening the assessment and filed

objections to the notice so issued seeking reopening of assessment.

The 2nd respondent rejects the objections on 07-11-2019 on the

basis that TDS payments made to non-residents ought to have

been disclosed in the tax audit report under Section 44AB of the

Act. Subsequent orders are passed. Upon the said order, the

petitioner is before this Court calling in question the said orders so

passed by the respondents, on the score of them being without

jurisdiction having barred by limitation.
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5. Heard Sri T.Suryanarayana, learned senior counsel

appearing for the petitioner and Sri Y.V. Raviraj, learned counsel

appearing for the respondents.

6. The learned senior counsel for the petitioner would

vehemently contend that in terms of first proviso to Section 147 of

the Act, where a case for scrutiny assessment is completed under

Section 143(3) of the Act, the assessment can be reopened after a

period of 4 years from the end of the relevant assessment year

only, if there is failure on the part of the assessee to make a full

and true disclosure of all primary facts. In the case at hand, the

learned senior counsel would submit that there can be no failure on

the part of the petitioner, as everything is divulged. On this score

he seeks to place reliance on several judgments rendered by the

Apex Court, coordinate Benches of this Court and other High

Courts. He would further contend that while passing the assessment

order, the Assessing Officer was well aware of the payments made

by the petitioner to Enterprises. The assessment cannot be

reopened merely on account of change of opinion. It is his

submission that assessment cannot be reopened on account of
9

mistake in review of material on record. On the said submission

also, he seeks to place reliance upon several judgments. The third

contention of the learned senior counsel is, issuance of a second

notice without withdrawing the first notice is impermissible in law.

Therefore, the act of the Assessing Officer is without jurisdiction on

twin fault - one being it is reopened beyond the period of 4 years

and the earlier notice was not withdrawn. On all these contentions,

the learned senior counsel seeks quashment of proceedings.

7. Per contra, the learned counsel Sri Y.V.Raviraj appearing

for the revenue would seek to dispute the position by contending

that the petitioner on earlier orders passed is before the

Commissioner (Appeals). There is no bar for the Assessing Officer

to reopen the assessment if income has escaped assessment at the

time when Section 143(3) proceedings were taken up. The

Assessing officer has clearly held what are the reasons to believe as

obtaining under Section 147 of the Act. He would further contend

that the assessing officer issued first notice, but later found

material and therefore, issued the second notice. He would admit

the fact that the first notice is not withdrawn, but is only
10

abandoned. He would, but submit the petition be dismissed, leaving

open to the petitioner to avail all the remedy available in law.

8. I have given my anxious consideration to the submissions

made by the respective learned counsel and have perused the

material on record.

9. The afore-narrated facts, link in the chain of events and

dates are all a matter of record. In furtherance of the submissions

made, what is necessary to be noticed is, whether reopening of

assessment under Section 148 of the Act is beyond limitation, for

which, the provisions prevailing at the relevant point in time are

necessary to be noticed. Sections 143, 147 and 148 of the Act, as

was applicable to the assessment year 2012-13, read as follows:

"143. Assessment.
(1) Where a return has been made under section 139, or
in response to a notice under sub-section (1) of section 142,
such return shall be processed in the following manner,
namely:--

(a) the total income or loss shall be computed after
making the following adjustments, namely:--
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(i) any arithmetical error in the return; or
(ii) an incorrect claim, if such incorrect claim is
apparent from any information in the return;

(b) the tax and interest, if any, shall be computed on
the basis of the total income computed under
clause (a);
(c) the sum payable by, or the amount of refund due
to, the assessee shall be determined after
adjustment of the tax and interest, if any,
computed under clause (b) by any tax deducted at
source, any tax collected at source, any advance
tax paid, any relief allowable under an agreement
under section 90 or section 90A, or any relief
allowable under section 91, any rebate allowable
under Part A of Chapter VIII, any tax paid on self-
assessment and any amount paid otherwise by way
of tax or interest;
(d) an intimation shall be prepared or generated and
sent to the assessee specifying the sum
determined to be payable by, or the amount of
refund due to, the assessee under clause (c); and
(e) the amount of refund due to the assessee in
pursuance of the determination under clause (c)
shall be granted to the assessee:

Provided that an intimation shall also be sent to the assessee
in a case where the loss declared in the return by the assessee
is adjusted but no tax or interest is payable by, or no refund is
due to, him:

Provided further that no intimation under this sub-section
shall be sent after the expiry of one year from the end of the
financial year in which the return is made.
Explanation.--For the purposes of this sub-section,--
(a) "an incorrect claim apparent from any information in the
return" shall mean a claim, on the basis of an entry, in the
return,--
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(i) of an item, which is inconsistent with another entry
of the same or some other item in such return;

(ii) in respect of which the information required to be
furnished under this Act to substantiate such entry
has not been so furnished; or

(iii) in respect of a deduction, where such deduction
exceeds specified statutory limit which may have
been expressed as monetary amount or percentage
or ratio or fraction;

(b) the acknowledgement of the return shall be deemed to be
the intimation in a case where no sum is payable by, or
refundable to, the assessee under clause (c), and where no
adjustment has been made under clause (a).

(1A) For the purposes of processing of returns under sub-
section (1), the Board may make a scheme for centralised
processing of returns with a view to expeditiously determining
the tax payable by, or the refund due to, the assessee as
required under the said sub-section.

(1B) Save as otherwise expressly provided, for the purpose of
giving effect to the scheme made under sub-section (1A), the
Central Government may, by notification in the Official
Gazette, direct that any of the provisions of this Act relating to
processing of returns shall not apply or shall apply with such
exceptions, modifications and adaptations as may be specified
in that notification; so, however, that no direction shall be
issued after the 31st day of March, 2012.

(1C) Every notification issued under sub-section (1B), along
with the scheme made under sub-section (1A), shall, as soon
as may be after the notification is issued, be laid before each
House of Parliament.
13

(1D) Notwithstanding anything contained in sub-section (1),
the processing of a return shall not be necessary, where a
notice has been issued to the assessee under sub-section (2).

(2) Where a return has been furnished under section 139, or
in response to a notice under sub-section (1) of section 142,
the Assessing Officer shall,--

(i) where he has reason to believe that any claim of loss,
exemption, deduction, allowance or relief made in the return is
inadmissible, serve on the assessee a notice specifying
particulars of such claim of loss, exemption, deduction,
allowance or relief and require him, on a date to be specified
therein to produce, or cause to be produced, any evidence or
particulars specified therein or on which the assessee may
rely, in support of such claim:

Provided that no notice under this clause shall be served on
the assessee on or after the 1st day of June, 2003;

(ii) notwithstanding anything contained in clause (i), if he
considers it necessary or expedient to ensure that the
assessee has not understated the income or has not computed
excessive loss or has not under-paid the tax in any manner,
serve on the assessee a notice requiring him, on a date to be
specified therein, either to attend his office or to produce, or
cause to be produced, any evidence on which the assessee
may rely in support of the return:
Provided that no notice under clause (ii) shall be served on
the assessee after the expiry of six months from the end of
the financial year in which the return is furnished.

(3) On the day specified in the notice,--

(i) issued under clause (i) of sub-section (2), or as soon
afterwards as may be, after hearing such evidence and after
taking into account such particulars as the assessee may
produce, the Assessing Officer shall, by an order in writing,
allow or reject the claim or claims specified in such notice and
14

make an assessment determining the total income or loss
accordingly, and determine the sum payable by the assessee
on the basis of such assessment;

(ii) issued under clause (ii) of sub-section (2), or as soon
afterwards as may be, after hearing such evidence as the
assessee may produce and such other evidence as the
Assessing Officer may require on specified points, and after
taking into account all relevant material which he has
gathered, the Assessing Officer shall, by an order in writing,
make an assessment of the total income or loss of the
assessee, and determine the sum payable by him or refund of
any amount due to him on the basis of such assessment:

Provided that in the case of a--

(a) research association] referred to in clause (21) of section 10;
(b) news agency referred to in clause (22B) of section 10;
(c) association or institution referred to in clause (23A) of section
10;
(d) institution referred to in clause (23B) of section 10;
(e) fund or institution referred to in sub-clause (iv) or trust or
institution referred to in sub-clause (v) or any university or other
educational institution referred to in sub-clause (vi) or any hospital
or other medical institution referred to in sub-clause (via) of clause
(23C) of section 10,

which is required to furnish the return of income under sub-
section (4C) of section 139, no order making an assessment of
the total income or loss of such research association, news
agency, association or institution or fund or trust or university or
other educational institution or any hospital or other medical
institution, shall be made by the Assessing Officer, without giving
effect to the provisions of section 10, unless--

(i) the Assessing Officer has intimated the Central
Government or the prescribed authority the contravention of
the provisions of clause (21) or clause (22B) or clause (23A)
15

or clause (23B) or sub-clause (iv) or sub-clause (v) or sub-
clause (vi) or sub-clause (via) of clause (23C) of section 10,
as the case may be, by such research association, news
agency, association or institution or fund or trust or
university or other educational institution or any hospital or
other medical institution, where in his view such
contravention has taken place; and
(ii) the approval granted to such research association or other
association or fund or trust or institution or university or
other educational institution or hospital or other medical
institution has been withdrawn or notification issued in
respect of such news agency or fund or trust or institution
has been rescinded :

Provided further that where the Assessing Officer is
satisfied that the activities of the university, college or other
institution referred to in clause (ii) and clause (iii) of sub-section
(1) of section 35 are not being carried out in accordance with all or
any of the conditions subject to which such university, college or
other institution was approved, he may, after giving a reasonable
opportunity of showing cause against the proposed withdrawal to
the concerned university, college or other institution, recommend
to the Central Government to withdraw the approval and that
Government may by order, withdraw the approval and forward a
copy of the order to the concerned university, college or other
institution and the Assessing Officer:

Provided also that notwithstanding anything contained in
the first and the second proviso, no effect shall be given by the
Assessing Officer to the provisions of clause (23C) of section 10 in
the case of a trust or institution for a previous year, if the
provisions of the first proviso to clause (15) of section 2 become
applicable in the case of such person in such previous year,
whether or not the approval granted to such trust or institution or
notification issued in respect of such trust or institution has been
withdrawn or rescinded.

(4) Where a regular assessment under sub-section (3) of this
section or section 144 is made,--
16

(a) any tax or interest paid by the assessee under sub-section (1)
shall be deemed to have been paid towards such regular
assessment ;

(b) if no refund is due on regular assessment or the amount
refunded under sub-section (1) exceeds the amount refundable on
regular assessment, the whole or the excess amount so refunded
shall be deemed to be tax payable by the assessee and the
provisions of this Act shall apply accordingly.

(5) Omitted by the Finance Act, 1999, w.e.f. 1-6-1999.
.... .... ....
147. Income escaping assessment : - If the Assessing
Officer has reason to believe that any income chargeable to tax has
escaped assessment for any assessment year, he may, subject to
the provisions of sections 148 to 153, assess or reassess such
income and also any other income chargeable to tax which has
escaped assessment and which comes to his notice subsequently in
the course of the proceedings under this section, or recompute the
loss or the depreciation allowance or any other allowance, as the
case may be, for the assessment year concerned (hereafter in this
section and in sections 148 to 153 referred to as the relevant
assessment year) :

Provided that where an assessment under sub-section (3) of
section 143 or this section has been made for the relevant
assessment year, no action shall be taken under this section
after the expiry of four years from the end of the relevant
assessment year, unless any income chargeable to tax has
escaped assessment for such assessment year by reason of
the failure on the part of the assessee to make a return
under section 139 or in response to a notice issued under
sub-section (1) of section 142 or section 148 or to disclose
fully and truly all material facts necessary for his
assessment, for that assessment year:

Provided further that nothing contained in the first proviso shall
apply in a case where any income in relation to any asset (including
financial interest in any entity) located outside India, chargeable to
tax, has escaped assessment for any assessment year:
17

Provided also that the Assessing Officer may assess or reassess
such income, other than the income involving matters which are
the subject matters of any appeal, reference or revision, which is
chargeable to tax and has escaped assessment.

Explanation 1.--Production before the Assessing Officer of account
books or other evidence from which material evidence could with
due diligence have been discovered by the Assessing Officer will not
necessarily amount to disclosure within the meaning of the
foregoing proviso.

Explanation 2.--For the purposes of this section, the following shall
also be deemed to be cases where income chargeable to tax has
escaped assessment, namely :--

(a) where no return of income has been furnished by the assessee
although his total income or the total income of any other person
in respect of which he is assessable under this Act during the
previous year exceeded the maximum amount which is not
chargeable to income-tax ;

(b) where a return of income has been furnished by the assessee
but no assessment has been made and it is noticed by the
Assessing Officer that the assessee has understated the income
or has claimed excessive loss, deduction, allowance or relief in
the return ;

(ba) where the assessee has failed to furnish a report in respect of
any international transaction which he was so required under
section 92E;

(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 excessive relief
under this Act ; or
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(iv) excessive loss or depreciation allowance or any other
allowance under this Act has been computed;]

(d) where a person is found to have any asset (including financial
interest in any entity) located outside India.

Explanation 3.--For the purpose of assessment or reassessment
under this section, the Assessing Officer may assess or reassess
the income in respect of any issue, which has escaped
assessment, and such issue comes to his notice subsequently in
the course of the proceedings under this section,
notwithstanding that the reasons for such issue have not been
included in the reasons recorded under sub-section (2) of
section 148.

Explanation 4.--For the removal of doubts, it is hereby clarified
that the provisions of this section, as amended by the Finance
Act, 2012, shall also be applicable for any assessment year
beginning on or before the 1st day of April, 2012.

148. - Issue of notice where income has escaped
assessment :- (1) Before making the assessment, reassessment
or recomputation under section 147, the Assessing Officer shall
serve on the assessee a notice requiring him to furnish within
such period, as may be specified in the notice, a return of his
income or the income of any other person in respect of which he
is assessable under this Act during the previous year
corresponding to the relevant assessment year, in the prescribed
form and verified in the prescribed manner and setting forth such
other particulars as may be prescribed; and the provisions of this
Act shall, so far as may be, apply accordingly as if such return
were a return required to be furnished under section 139 :

Provided that in a case--

(a) where a return has been furnished during the period
commencing on the 1st day of October, 1991 and ending on the
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30th day of September, 2005 in response to a notice served
under this section, and
(b) subsequently a notice has been served under sub-section (2)
of section 143 after the expiry of twelve months specified in the
proviso to sub-section (2) of section 143, as it stood immediately
before the amendment of said sub-section by the Finance Act,
2002 (20 of 2002) but before the expiry of the time limit for
making the assessment, re-assessment or recomputation as
specified in sub-section (2) of section 153, every such notice
referred to in this clause shall be deemed to be a valid notice:

Provided further that in a case--

(a) where a return has been furnished during the period
commencing on the 1st day of October, 1991 and ending on the
30th day of September, 2005, in response to a notice served
under this section, and

(b) subsequently a notice has been served under clause (ii) of
sub-section (2) of section 143 after the expiry of twelve months
specified in the proviso to clause (ii) of sub-section (2) of section
143, but before the expiry of the time limit for making the
assessment, reassessment or recomputation as specified in sub-
section (2) of section 153, every such notice referred to in this
clause shall be deemed to be a valid notice.

Explanation.--For the removal of doubts, it is hereby declared
that nothing contained in the first proviso or the second proviso
shall apply to any return which has been furnished on or after the
1st day of October, 2005 in response to a notice served under
this section.

(2) The Assessing Officer shall, before issuing any notice under
this section, record his reasons for doing so.

(Emphasis supplied)
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Proviso to Section 147 mandates that, where a scrutiny assessment

has been completed under Section 143(3), such assessment can be

reopened only after the period of four years from the end of the

relevant assessment year, if there is failure on the part of the

assessee to make full and true disclosure on all primary facts,

failing which reopening of assessment is impermissible in law.

10. Therefore, it becomes necessary to notice the show cause

notice issued by the Assessing Officer on 23-03-2018. It reads as

follows:

"PAN:AAACB6820C Dated: 23/03/2018

To,
The Principal Officer/Managing Director,
M/s Mphasis Ltd.,
Bagmane World Technology Centre,
WTC-3 Block B, 1st Floor
K R Puram Marathahalli Outer Ring Road
Doddanekkundi, Bengaluru - 560048

******
Whereas I have reason to believe that your
income chargeable to tax for the assessment Year
2012-13 has escaped assessment within the meaning
of section of 147 of Income Tax Act
21

I therefore propose to assess/reassess the
income for the said assessment year and hereby
require you to deliver to me a return in the prescribed
form of your income in respect of which you are
assessable for the said assessment year within 15
days from the date of service of the notice.

Yours faithfully.

Sd/-
(SHASHIDHAR S.SHET)
Asst. Commissioner of Income Tax,
Circle-4(1)(2), Bengaluru."

(Emphasis added)

The Assessing Officer indicates that he has reason to believe that

the income chargeable to tax for the assessment year 2012-13 has

escaped assessment within the meaning of Section 147 of the Act.

Therefore, the Assessing Officer is wanting to reopen the

assessment for the year 2012-13. Four years period for reopening

the assessment of 2012-13 comes to an end on 31-03-2017. The

notice is issued on 23-03-2018. Therefore, it becomes necessary to

notice as to what were the reasons to believe indicated in the notice

for reopening the assessment. The notice is quoted hereinabove.

Not a word of reason is indicated therein. Therefore, on the face of

it, it stood foul of Section 147. The petitioner gave detailed reply by

way of objections and sought reasons that formed for issuance of a
22

notice under Section 147. There is stark silence on the part of the

department. No reply is given for one year. What comes about is

another notice on 29-03-2019 one year thereafter for the very

same assessment year 2012-13, under the very same provision of

law. The petitioner again furnishes reply under protest, files the

return of income for the year 2012-13 and seeks reasons. Reasons

are communicated now by the respondent on 27-08-2019. The

reasons that are germane to be noticed are as follows:

".... ..... ....

2. Assessee has made payments to its Associated Enterprises
("AEs") for on-site services which are in the nature of software
development services and for marketing of its products and
services in overseas countries. On winning a contract for a
project assessee subcontracts a certain part of the project to its
AEs and in turn the AEs are paid for the services rendered to the
assessee company. The AEs also render market services in
overseas countries and due to marketing efforts of the AEs, if a
contract is won by ML, a certain percentage of contract value is
paid as selling commission to the AEs for the services rendered.
The details of total payments made to the AEs for AY 2012-13 is
as under.

Software Marketing Total
Development Services
330,23,97,435/- 6,74,38,638 336,98,35,977/-
_
23

3. Assessee was required to deduct tax at source on the
payments made to the AEs. But no tax had been
deducted by the assessee thereon either at the time of
crediting or subsequently. As per the Act the liability
to deduct tax on payment to the AEs rest on assessee.
Hence, non-compliance to TDS provisions results in a
direct gain to the ML, as it is able to enhance its profits
by not deducting tax at source, assessee has thus
failed to discharge its duty which results in loss to the
exchequer. It is a fact that no application was
tendered by it u/s 195(2) especially in where huge
remittances to non-residents were involved with
massive tax effect and also, when such payments are
not explicitly declared exempt by the provisions of the
IT Act. Since these payments made by assessee to the
AEs are taxable under the Act and the DTAA either as
FTS/Royalty and as per section 195 of the IT Act the
order u/s 201(1) and 201(1A) of the IT Act was
passed on 27/2/2013 by the Assessing Officer of
International Taxation, Bangalore, holding assesse as
assessee-in-default/ Same was communicated to this
office with letter dated 10/3/2016.

(Emphasis added)

The reason is that payments made by the assessee to the

Enterprises are taxable under the Act and as per Section 195 of the

Act, order under Section 201 was passed on 27-02-2013 by the

Assessing Officer of International Taxation holding the assessee in

default and was communicated to the assessee on 10-03-2016. The

said notice is ostensibly issued in the year 2019 and the reason

rendered for reopening the assessment is an order dated

27-02-2013.
24

11. As observed hereinabove, the assessment can be

reopened only if true and primary facts are not divulged while filing

the return of income. The learned senior counsel has taken through

the return of income so filed, insofar as it concerns the software

packaging services or development charges paid to the Enterprises.

The relevant portion of it reads as follows:

(`000's)
"Year ended Year ended
31 March 2012 31 March 2011
Software development 3,302,397 3,509,759
charges paid to entities
where control exist

-MphasiS USA 2,739,627 2,638,108

-MphasiS UK 217,315 3,65,392

-Others 345,455 506,259

Software development 69,417 71,678
charges paid to other
related parties

-Hewlett-Packard Globalsoft 4,137 48,413
Private Limited

-HP Services (Singapore) 65,280 23,265
Pte Limited

Software support and 1,056,118 1,052,284"
annual maintenance
charges paid to other
related parties*
25

12. The notice would run foul on the following reasons:

The details of the payments made to the Enterprises were
disclosed in the audited financial statements, Form No.3CEB
as also Form No.3 CD, all of which were furnished to the
Assessing Officer.

The deduction claimed under Section 10AA of the Act included
the payments made to the Enterprises and this claim was
examined by the Assessing Officer.

The Transfer Pricing Officer examined the payments made to
the Enterprises and made an adjustment in respect of the
sales commission paid to the Enterprises.

The Assessing Officer while passing the assessment order
incorporated the adjustment made by the Transfer Pricing
Officer.

It is not in dispute that deduction was claimed by the petitioner

under Section 10AA of the Act. While so claiming the payments

made to the Enterprises were also examined by the Assessing

Officer. After having so done for the year 2013, it was not open to
26

the Assessing Officer to have reopened the assessment beyond four

years, as obtaining under Section 147 of the Act.

13. The Apex Court in the case of CALCUTTA DISCOUNT

COMPANY LIMITED v. INCOME TAX OFFICER1 has held as

follows:

"..... .... ....

5. The only point raised before us is that the courts
below were wrong in holding that the first ground that the
notices were issued without the existence of the necessary
conditions precedent which confers jurisdiction under Section
34 had not been made out. As it is no longer disputed that
Section 34 as amended in 1948 applies to the present case
we have to consider the section as it stood after the
amendment in 1948, in deciding this question of jurisdiction.
The relevant portion of the section was in these words:

"34. Income escaping assessment.-- (1) If--

(a) the Income Tax Officer has reason to
believe that by reason of the omission or failure on
the part of an assessee to make a return of his
income under Section 22 for any year or to disclose
fully and truly all material facts necessary for his
assessment for that year, income, profits or gain
chargeable to income tax have escaped assessment
for that year, or have been under-assessed, or
assessed at too low a rate, or have been made the
subject of excessive relief under the Act, or
excessive loss or depreciation allowance has been
computed, or

(b) notwithstanding that there has been no
omission or failure as mentioned in clause (a) on the
part of the assessee, the Income Tax Officer has in
consequence of information in his possession reason
to believe that income, profits or gains chargeable to

1
(1961) 41 ITR 191 (SC)
27

income tax have escaped assessment for any year,
or have been under-assessed, or assessed at too low
a rate or have been made the subject of excessive
relief under this Act, or that excessive loss or
depreciation allowance has been computed.

He may in cases falling under clause (a) at any time
within eight years and in cases falling under clause (b) at
any time within four years of the end of that year, serve on
the assessee, or, if the assessee is a company, on the
principal officer thereof, a notice containing all or any of the
requirements which may be included in a notice under sub-
section (2) of Section 22 and may proceed to assess or
reassess such income, profits or gains or recompute the loss
or depreciation allowance; and the provisions of this Act
shall, so far as may be, apply accordingly as if the notice
were a notice issued under that sub-section:

Provided that--

"(i) the Income Tax Officer shall not issue a
notice under this sub-section, unless he has recorded
his reasons for doing so and the Commissioner is
satisfied on such reasons recorded that it is a fit case
for the issue of such notice;

(ii) the tax shall be chargeable at the rate at
which it would have been charged had the income,
profits or gains not escaped assessment or full
assessment, as the case may be; and

(iii) where the assessment made or to be made
is an assessment made or to be made on a person
deemed to be the agent of a non-resident person
under Section 43, this sub-section shall have effect as
if for the periods of eight years and four years a period
of one year was substituted.

Explanation.-- Production before the Income
Tax Officer of account-books or other evidence from
which material facts could with due diligence have
been discovered by the Income Tax Officer will not
necessarily amount to disclosure within the meaning of
this section."

6. To confer jurisdiction under this section to
issue notice in respect of assessments beyond the
period of four years, but within a period of eight years,
28

from the end of the relevant year two conditions have
therefore to be satisfied. The first is that the Income
Tax Officer must have reason to believe that income,
profits or gains chargeable to income tax have been
under-assessed. The second is that he must have also
reason to believe that such "underassessment" has
occurred by reason of either (i) omission or failure on
the part of an assessee to make a return of his income
under Section 22, or (ii) omission or failure on the part
of an assessee to disclose fully and truly all material
facts necessary for his assessment for that year. Both
these conditions are conditions precedent to be
satisfied before the Income Tax Officer could have
jurisdiction to issue a notice for the assessment or
reassessment beyond the period of four years but
within the period of eight years, from the end of the
year in question.

7. No dispute appears to have been raised at any
stage in this case as regards the first condition not having
been satisfied and we proceed on the basis that the Income
Tax Officer had in fact reason to believe that there had been
an under-assessment in each of the assessment years,
1942-43, 1943-44 and 1944-45. The appellant's case has all
along been that the second condition was not satisfied. As
admittedly the appellant had filed its return of income under
Section 22, the Income Tax Officer could have no reason to
believe that underassessment had resulted from the failure
to make a return of income. The only question is whether the
Income Tax Officer had reason to believe that "there had
been some omission or failure to disclose fully and truly all
material facts necessary for the assessment" for any of these
years in consequence of which the under-assessment took
place.

8. Before we proceed to consider the materials on
record to see whether the appellant has succeeded in
showing that the Income Tax Officer could have no reason,
on the materials before him, to believe that there had been
any omission to disclose material facts, as mentioned in the
section, it is necessary to examine the precise scope of
disclosure which the section demands. The words used are
"omission or failure to disclose fully and truly all material
29

facts necessary for his assessment for that year". It
postulates a duty on every assessee to disclose fully and
truly all material facts necessary for his assessment. What
facts are material, and necessary for assessment will differ
from case to case. In every assessment proceeding, the
assessing authority will, for the purpose of computing or
determining the proper tax due from an assessee, require to
know all the facts which help him in coming to the correct
conclusion. From the primary facts in his possession,
whether on disclosure by the assessee, or discovered by him
on the basis of the facts disclosed, or otherwise -- the
assessing authority has to draw inferences as regards certain
other facts; and ultimately, from the primary facts and the
further facts inferred from them, the authority has to draw
the proper legal inferences, and ascertain on a correct
interpretation of the taxing enactment, the proper tax
leviable. Thus, when a question arises whether certain
income received by an assessee is capital receipt, or revenue
receipt, the assessing authority has to find out what primary
facts have been proved, what other facts can be inferred
from them, and taking all these together, to decide what the
legal inference should be.

9. There can be no doubt that the duty of
disclosing all the primary facts relevant to the decision
of the question before the assessing authority lies on
the assessee. To meet a possible contention that when
some account books or other evidence has been
produced, there is no duty on the assessee to disclose
further facts, which on due diligence, the Income Tax
Officer might have discovered, the legislature has put
in the Explanation, which has been set out above. In
view of the Explanation, it will not be open to the
assessee to say, for example -- "I have produced the
account books and the documents : You, the assessing
officer examine them, and find out the facts necessary
for your purpose : My duty is done with disclosing
these account-books and the documents". His
omission to bring to the assessing authority's
attention these particular items in the account books,
or the particular portions of the documents, which are
relevant, amount to "omission to disclose fully and
truly all material facts necessary for his assessment".
30

Nor will he be able to contend successfully that by
disclosing certain evidence, he should be deemed to
have disclosed other evidence, which might have been
discovered by the assessing authority if he had
pursued investigation on the basis of what has been
disclosed. The Explanation to the section, gives a
quietus to all such contentions; and the position
remains that so far as primary facts are concerned, it
is the assessee's duty to disclose all of them --
including particular entries in account books,
particular portions of documents and documents, and
other evidence, which could have been discovered by
the assessing authority, from the documents and other
evidence disclosed.

10. Does the duty however extend beyond the
full and truthful disclosure of all primary facts? In our
opinion, the answer to this question must be in the
negative. Once all the primary facts are before the
assessing authority, he requires no further assistance
by way of disclosure. It is for him to decide what
inferences of facts can be reasonably drawn and what
legal inferences have ultimately to be drawn. It is not
for somebody else -- far less the assessee -- to tell the
assessing authority what inferences whether of facts
or -- law should be drawn. Indeed, when it is
remembered that people often differ as regards what
inferences should be drawn from given facts, it will be
meaningless to demand that the assessee must
disclose what inferences -- whether of facts or law he
would draw from the primary facts.

11. If from primary facts more inferences than
one could be drawn, it would not be possible to say
that the assessee should have drawn any particular
inference and communicated it to the assessing
authority. How could an assessee be charged with
failure to communicate an inference, which he might
or might not have drawn?

12. It may be pointed out that the Explanation to
the sub-section has nothing to do with "inferences"
and deals only with the question whether primary
31

material facts not disclosed could still be said to be
constructively disclosed on the ground that with due
diligence the Income Tax Officer could have
discovered them from the facts actually disclosed. The
Explanation has not the effect of enlarging the section,
by casting a duty on the assessee to disclose
"inferences" to draw the proper inferences being the
duty imposed on the Income Tax Officer.

13. We have therefore come to the conclusion
that while the duty of the assessee is to disclose fully
and truly all primary relevant facts, it does not extend
beyond this.

14. The position therefore is that if there were in
fact some reasonable grounds for thinking that there
had been any non-disclosure as regards any primary
fact, which could have a material bearing on the
question of "underassessment" that would be
sufficient to give jurisdiction to the Income Tax Officer
to issue the notices under Section 34. Whether these
grounds were adequate or not for arriving at the
conclusion that there was a non disclosure of material
facts would not be open for the court's investigation.
In other words, all that is necessary to give this
special jurisdiction is that the Income Tax Officer had
when he assumed jurisdiction some prima facie
grounds for thinking that there had been some non-
disclosure of material facts."

(Emphasis supplied)

A coordinate bench of this Court in the case of EIT SERVICES

INDIA PRIVATE LIMITED v. THE DEPUTY COMMISSIONER OF
32

INCOME TAX2 while considering the entire spectrum of law has

held as follows:

"..... .... ....
"24. The analysis of the points for consideration raised
hereinabove is as follows:-

(i) Whether the petitioner assessee has failed to
"disclose fully and truly all material facts
assessment?"

25. In W.P.No.15061/2013, for the purpose of initiating
proceedings under Section 147 of the I.T. Act, as the
Assessment Year in question is 2005-2006 and notice at
Annexure-'G' seeking to initiate proceedings was issued on
29.03.2012, in terms of the proviso to Section 147 of I.T. Act,
any action taken after the expiry of four years from the end of
relevant assessment year would require that the assessee has
failed to disclose fully and truly all material facts necessary for
assessment.

26. The relevant extract of Section 147 of I.T. Act prior
to its substitution reads as follows:-

"147. If the Assessing Officer has reason to
believe that any income chargeable to tax has escaped
assessment for any assessment year, he may, subject
to the provisions of sections 148 to 153, assess or
reassess such income and also any other income
chargeable to tax which has escaped assessment and
which comes to his notice subsequently in the course of
the proceedings under this section, or recompute the
loss or the depreciation allowance or any other
allowance, as the case may be, for the assessment year
concerned (hereafter in this section and in sections 148
to 153 referred to as the relevant assessment year) :

Provided that where an assessment under sub section
(3) of section 143 or this section has been made for the
relevant assessment year, no action shall be taken
2
W.P.No.15061 of 2013 decided on 19th December, 2023
33

under this section after the expiry of four years from the
end of the relevant assessment year, unless any income
chargeable to tax has escaped assessment for such
assessment year by reason of the failure on the part of
the assessee to make a return under section 139 or in
response to a notice issued under sub-section (1) of
section 142 or section 148 or to disclose fully and truly
all material facts necessary for his assessment, for that
assessment year:

xxx"

Accordingly, the jurisdiction to re-open the
assessment is only if there is statement of income filed
by the petitioner failing to fully and truly disclose all
material facts necessary for assessment.

27. The law laid down by the Constitution Bench of the
Apex Court in Calcutta Discount Company Ltd. v. Income
Tax Officer,[(1961) 41 ITR 191 (SC)] on the above aspect
regarding disclosure requires to be noticed. The validity of
notice under Section 34 of Indian Income Tax I.T. Act,
1922 (corresponding to Section 147 of the Income Tax
Act, 1961), whereby re-assessment proceedings was
sought to be initiated was called in question by the
assessee on the ground that the said notice was issued
without the existence of necessary condition precedent
which confers jurisdiction under Section 34 of Indian
Income Tax I.T. Act, 1922. The relevant observations are as
follows:-

"8. Before we proceed to consider the materials on
record to see whether the appellant has succeeded in
showing that the Income Tax Officer could have no
reason, on the materials before him, to believe that
there had been any omission to disclose material facts,
as mentioned in the section, it is necessary to examine
the precise scope of disclosure which the section
demands. The words used are "omission or failure to
disclose fully and truly all material facts necessary for
his assessment for that year". It postulates a duty on
every assessee to disclose fully and truly all material
facts necessary for his assessment. What facts are
material, and necessary for assessment will differ from
34

case to case. In every assessment proceeding, the
assessing authority will, for the purpose of computing
or determining the proper tax due from an assessee,
require to know all the facts which help him in coming
to the correct conclusion. From the primary facts in his
possession, whether on disclosure by the assessee, or
discovered by him on the basis of the facts disclosed,
or otherwise--the assessing authority has to draw
inferences as regards certain other facts; and
ultimately, from the primary facts and the further facts
inferred from them, the authority has to draw the
proper legal inferences, and ascertain on a correct
interpretation of the taxing enactment, the proper tax
leviable. Thus, when a question arises whether certain
income received by an assessee is capital receipt, or
revenue receipt, the assessing authority has to find out
what primary facts have been proved, what other facts
can be inferred from them, and taking all these
together, to decide what the legal inference should be.

9. There can be no doubt that the duty of disclosing all
the primary facts relevant to the decision of the
question before the assessing authority lies on the
assessee. To meet a possible contention that when
some account books or other evidence has been
produced, there is no duty on the assessee to disclose
further facts, which on due diligence, the Income Tax
Officer might have discovered, the legislature has put
in the Explanation, which has been set out above. In
view of the Explanation, it will not be open to the
assessee to say, for example -- "I have produced the
account books and the documents: You, the assessing
officer examine them, and find out the facts necessary
for your purpose : My duty is done with disclosing
these account-books and the documents". His
omission to bring to the assessing authority's attention
these particular items in the account books, or the
particular portions of the documents, which are
relevant, amount to "omission to disclose fully and
truly all material facts necessary for his assessment".
Nor will he be able to contend successfully that by
disclosing certain evidence, he should be deemed to
have disclosed other evidence, which might have been
discovered by the assessing authority if he had pursued
investigation on the basis of what has been disclosed.
The Explanation to the section, gives a quietus to all
such contentions; and the position remains that so far
35

as primary facts are concerned, it is the assessee's
duty to disclose all of them--including particular entries
in account books, particular portions of documents and
documents, and other evidence, which could have been
discovered by the assessing authority, from the
documents and other evidence disclosed.

10. Does the duty however extend beyond the full and
truthful disclosure of all primary facts? In our opinion,
the answer to this question must be in the negative.
Once all the primary facts are before the assessing
authority, he requires no further assistance by way of
disclosure. It is for him to decide what inferences of
facts can be reasonably drawn and what legal
inferences have ultimately to be drawn. It is not for
somebody else -- far less the assessee -- to tell the
assessing authority what inferences whether of facts or
-- law should be drawn. Indeed, when it is remembered
that people often differ as regards what inferences
should be drawn from given facts, it will be
meaningless to demand that the assessee must
disclose what inferences -- whether of facts or law he
would draw from the primary facts.

11. If from primary facts more inferences than one could be
drawn, it would not be possible to say that the assessee
should have drawn any particular inference and
communicated it to the assessing authority. How could an
assessee be charged with failure to communicate an
inference, which he might or might not have drawn?

12. It may be pointed out that the Explanation to the sub-
section has nothing to do with "inferences" and deals only
with the question whether primary material facts not
disclosed could still be said to be constructively disclosed on
the ground that with due diligence the Income Tax Officer
could have discovered them from the facts actually disclosed.
The Explanation has not the effect of enlarging the section, by
casting a duty on the assessee to disclose "inferences" to
draw the proper inferences being the duty imposed on the
Income Tax Officer.

13. We have therefore come to the conclusion that while the
duty of the assessee is to disclose fully and truly all primary
relevant facts, it does not extend beyond this."
36

28. From the above, it can be stated as follows:-

a) Assessee is to disclose the primary facts in his
possession and the Assessing Authority on the
basis of such recovery or facts discovered on the
basis of facts disclosed or otherwise, could draw
inferences regarding such other facts.

b) The duty to disclose does not extend beyond full
and truthful disclosure of all primary facts.

c) It is not the duty of the assessee to tell the
Assessing Authority what inferences whether of
facts or law should be drawn.

d) There is no duty cast on the assessee to disclose
inferences which is a duty imposed on the
Income Tax Officer.

e) The duty to disclose primary facts extends to
making a disclosure which is full and true and
excludes falsity.

29. It is to be noted that as the profits derived from
export of computer software is eligible for deduction under
Section 10A of the I.T. Act which has been claimed by the
petitioner, at the same time profits derived from business of
rendering technical services outside India are eligible for
deduction under section 80HHE of the I.T. Act.

30. Further, in terms of Explanation-2 to Section
10A(iv), the term export turnover excludes "... expenses, if
any incurred in foreign exchange in providing the technical
services outside India". Section 80HHE provides for deductions
in respect of profits from export of computer software where
the business entity provides technical services outside India in
connection with developments or production of computer
software. Hence, the aspect of deduction under Section 10A or
under Section 80HHE of the I.T. Act as the case may be, has
been a subject matter of litigation between the petitioner and
the Revenue. Whether the petitioner is eligible for deduction
under Section 10A under the head of 'Profits' derived from
37

export of computer software or under the head of 'rendering
technical services outside India' and having a nexus with
export outside India of computer software is an unresolved
issue between the petitioner and the Revenue. It is the case of
Revenue that unless a nexus is shown, the assessee cannot
claim deduction and that the tangible material that was made
available during the assessment proceedings for the
Assessment Year 2008-2009 including MSAs, Work Orders,
SCWs and Invoices has led to the initiation of proceedings
under Section 147 of the I.T. Act. The case made out by the
Revenue is that there is non-disclosure as contemplated
under Section 147 of the I.T. Act of the tangible
material that was placed before the assessing authority
with respect to the proceedings in Assessment Year
2008-2009 and on such ground of non-disclosure fully
and truly, that the re-assessment proceedings have
been initiated. It is in such context that a finding is to
be recorded as to whether the assessee has failed to
"disclose fully and truly all material facts necessary for
assessment".

31. In the present case, the assessee has filed his
declaration in Form-56F in terms of Rule 16D of the Income
Tax Rules, 1962 whereby, assessee who seeks to claim
deduction under Section 10A of the I.T. Act has to make a
declaration in Form-56F in the form of report of an accountant
along with the return of income4. The omission of Rule 16D
was only later and was in existence on the relevant date when
the assessee has filed the return of Income. In terms of the
declaration, the accountant has certified that the petitioner
was engaged in export of computer software and the relevant
details relating to deduction under Section 10A of the I.T. Act
has been detailed in Annexure-'A'. The further declaration in
Annexure-'1' annexed to Annexure-'A' which provides details
relating to claim by the exporter for deduction under Section
10A of the I.T. Act contains a declaration as follows:-
38

Name of the Software Software Software Software Software
undertaking Technology Technology Technology Technology Technology
Park Park(India Park(India Park Unit-IV Park
Unit-I Development Engineering Technical
Centre)Unit-II Centre)Unit-III Support
Contact
Centre
Unit-V
Location and Digital Digital GlobalSoft Digital GlobalSoft Digital Digital
address of GlobalSoft Limited 45/14, Limited 45/14, GlobalSoft Globalsoft
undertaking Limited 45/14 Tumkur Road Tumkur Road Limited 3rd Limited Plot No.
Tumkur Road Yeshwanthpur, Yeshwanthpur, floor, Khanija 39/40,
Yeshwanthpur, Bangalore-560 Bangalore-560 Bavan, 49, Electronics City
Bangalore-560 022. 022. Race Course Hosur Road,
022 Digital Globalsoft Digital Globalsoft Road, Bangalore-560
Limited 93A, Limited 93A, Bangalore-560 100
Industrial Industrial Suburb, 001. Digital
Suburb, Yeshwanthpur II Digital Globalsoft
Yeshwanthpur II Stage Bangalore- GlobalSoft Limited "Surya
Stage, Bangalore- 560 022. Limited Plot Park",
560 022. No. 39/40, Electronics City
Electronics City Hosur Road
Hosur Bangalore-560
Road, 100
Bangalore-560
100
Nature of Development Development of Development of Development IT Enabled
Business of of Computer Computer software of Computer Services
the Computer software and and software software and (Technical
undertaking software and software services services software Support)
software services
services
Date of Initial October 21, April 22, 1996 December 18, March 10, March 22,
Registration 1992 1997 2000 2002
in
FTZ/EPZ/SEZ
Date of September September 1, September 1, March 10, June 30, 2002
commenceme 13, 1996 1998 2000
nt of 1993
Manufacture
or production

Number of Note 1 Nine Seven Six third
consecutive
years of
which
deduction is
claimed
Amount of 13,484,517 163,088,699 231,579,813 1,350,964,255 32,231,736
sale proceeds, Reference Reference Reference Reference Reference
if any that are Number of Number of Number of Number of Number of
39

credited to permission permission permission permission permission
separate EC.BY.OPL363/ EC.BY.OPL363/2 EC.BY.OPL363/25 EC.BY.OPL363/ EC.BY.OPL363/
account 25 5 41 2541 2
maintained 41 41 (1256)-92/93 (1256)-92/93 541
by the (1256)-92/93 (1256)-92/93 EC.BY.OPL.53/254 EC.BY.OPL.53/ (1256)-92/93
assessee with EC.BY.OPL.53/ EC.BY.OPL.53/25 1 2 EC.BY.OPL.53/
any bank 25 41 (1793)-93/94 541 2
outside India 41 (1793)-93/94 (1793)-93/94 541
and the (1793)-93/94 (1793)-93/94
reference
number of
Reserve Bank
of India
according
permission
for the same

32. The obligation of disclosure extends to disclosing
fully and truly material facts necessary for assessment.
Pursuant to the order passed by CIT, Bangalore-1 under
Section 263 of the I.T. Act dated 22.12.2009 the assessment
proceedings were directed to be re-done by recording a
finding as to eligibility of deduction under Section
10A/80HHE of the I.T. Act. In the fresh assessment
proceedings initiated culminating in passing of the
Assessment Order by the order dated 24.12.2010 as regards
the expenditure relating to providing technical services
outside India, the material was placed before the Assessing
Officer on such aspect as is revealed from the observations
at paras-9 and 10 of the order, which are extracted
hereinbelow:

"9. When the above issues are raised before the AR
of the assessee, AR of the assessee made a detailed
submission. The gist of the submission made by the
assessee are that the activities regarding which the
expenditure incurred in foreign exchange do not amount to
providing of technical services outside India regarding
exclusion of communication expenses from both export turn
over and total turn over, the same was claimed to be done
on the basis of parity between export turn over and total
turn over and also on the basis of definition of total turn
over elsewhere in the provisions of the IT Act.

10. In light of the above submissions, on verification of the
details collected in respect of expenditure incurred in foreign
40

exchange, it is clear that the company's employees visit the
clients' location and provide software development services
to the clients which are group companies. Therefore all
these services rendered by the company are of the nature
of technical services and therefore expenditure incurred in
providing these services amounting to Rs.263,01,80,361/-
are required to be reduced from the export turn over as per
the definition of export turn over contained in the provisions
of Section 10A of the I.T. Act."

33. Accordingly, it is clear that there has been declaration
including of expenditure relating to providing technical
services. Once such primary facts have been declared and
the assessee had made the declaration and claimed
deduction under Section 10A of the I.T. Act, there was no
further obligation on the assessee. If the Assessing Officer
was of the view that details furnished would fall within
Section 80HHE and not under Section 10A of the I.T. Act and
accordingly, assessee was not entitled to claim such
expenditure under Section 10A of the I.T. Act, the non-
drawing of such legal inference by the assessing officer at
the relevant point of time cannot result in holding that there
is no true and full disclosure of primary facts."

(Emphasis supplied)

In the light of the judgment of the Constitution Bench of the Apex

Court in the case of CALCUTTA DISCOUNT supra, as followed by

the coordinate bench of this Court, what would unmistakably

emerge is that, reopening of assessment can happen only if full and

true facts are not divulged by the assessee. The facts in the case

at hand are identical, as complete facts are already divulged by the

assessee, which is clear from the chart quoted hereinabove.
41

Therefore, the proceeding instituted does not comply with the

requirement of Section 147 of the Act.

14. Now, let me answer the second contention, whether

review or change of opinion of the Assessing Officer can result in a

proceeding of the kind impugned in the subject petition. It is an

admitted fact that the Assessing Officer had assessed the return of

income of the petitioner completely. He was well aware of the

payments made by the petitioner to the Enterprises. An order was

passed under Section 201 of the Act, before passing the original

assessment order. Having been aware, for over five years the

Assessing Officer does not make any disallowance as obtaining

under Section 40 of the Act, which clearly indicates that the

Assessing Officer had formed an opinion that no such disallowance

was warranted. If disallowance was not warranted, tax deduction at

source also was not warranted. The Assessing Officer changes his

opinion 5 years thereafter and reopens the assessment on such

change of opinion, which is the impugned notice in the case at

hand. If this could be done or otherwise, need not detain this court

for long or delve deep into the matter.
42

14.1. The Apex Court in the case of COMMISSIONER OF

INCOME-TAX v. KELVINATOR OF INDIA LIMITED3 has held as

follows:

".... ..... ....

6. We must also keep in mind the conceptual
difference between power to review and power to
reassess. The assessing officer has no power to
review; he has the power to reassess. But
reassessment has to be based on fulfilment of certain
precondition and if the concept of "change of opinion"
is removed, as contended on behalf of the Department,
then, in the garb of reopening the assessment, review
would take place.

7. One must treat the concept of "change of
opinion" as an in-built test to check abuse of power by
the assessing officer. Hence, after 1-4-1989, the
assessing officer has power to reopen, provided there
is "tangible material" to come to the conclusion that
there is escapement of income from assessment.
Reasons must have a live link with the formation of
the belief. Our view gets support from the changes
made to Section 147 of the Act, as quoted
hereinabove. Under the Direct Tax Laws (Amendment)
Act, 1987, Parliament not only deleted the words
"reason to believe" but also inserted the word
"opinion" in Section 147 of the Act. However, on
receipt of representations from the companies against
omission of the words "reason to believe", Parliament
reintroduced the said expression and deleted the word
"opinion" on the ground that it would vest arbitrary
powers in the assessing officer.

3
(2010) 320 ITR 561 (SC) : (2010) 2 SCC 723
43

8. We quote hereinbelow the relevant portion of
Circular No. 549 dated 31-10-1989, which reads as
follows:

"7.2. Amendment made by the Amending
Act, 1989, to reintroduce the expression 'reason to
believe' in Section 147.--A number of
representations were received against the
omission of the words 'reason to believe' from
Section 147 and their substitution by the 'opinion'
of the Assessing Officer. It was pointed out that
the meaning of the expression, 'reason to believe'
had been explained in a number of court rulings in
the past and was well settled and its omission
from Section 147 would give arbitrary powers to
the Assessing Officer to reopen past assessments
on mere change of opinion. To allay these fears,
the Amending Act, 1989, has again amended
Section 147 to reintroduce the expression 'has
reason to believe' in the place of the words 'for
reasons to be recorded by him in writing, is of the
opinion'. Other provisions of the new Section 147,
however, remain the same."

(emphasis supplied)"

(Emphasis supplied)

14.2. The coordinate bench in the case of EIT SERVICES supra

considers this aspect as well and holds that mere change of opinion

cannot result in reopening of assessment. The coordinate bench

follows the judgment of the Apex Court in the case of

KELVINATOR OF INDIA supra. The coordinate bench has held as

follows:
44

"(ii) Whether the re-assessment notice under Section 147
r/w Section 148 of the I.T. Act is merely a product of
change in opinion and accordingly is impermissible in
law?

............ ........... ...........

35. It is the contention of Sri Percy Pardiwalla, learned
Senior Counsel appearing on behalf of Ms.Tanmayee Rajkumar
for the petitioner/assessee, that the reasons for re-opening
would indicate the stand of the Revenue that the deputation of
technical man-power relating to software development activity
conducted abroad had no link with the STP units in India.
Further, that such activity was known as body shopping and
eligible for deduction under Section 80HHE of the I.T. Act and
was not an activity that was eligible for deduction as regards
expenses under Section 10A of the I.T. Act.

36. It is submitted that this very aspect has been a
subject matter of consideration by the Assessing Officer while
passing a fresh Assessment Order on 24.12.2010 consequent to
the directions made in the order under Section 263 of the I.T.
Act dated 22.12.2009 vide F.No.17/263/CIT-1/2009-10
(Annexure-'C'). It is submitted that in the Assessment Order
passed, while computing deduction under Section 10A there was
exclusion of expenditure relating to the visits of the Company's
employees as well as expenses incurred relating to software
development services to the clients amounting to
Rs.263,01,80,361/-. Accordingly, it is contended that the
very aspect of profits from rendering technical services in
context of export of computer software having been
examined and a decision based on legal appreciation
having been arrived at, cannot be reconsidered
subsequently in reassessment proceedings, as it is
impermissible to reopen assessment on the basis of
"mere change of opinion".

37. The Apex Court in Commissioner of Income Tax,
Delhi v. Kelvinator of India Ltd, [(2010) 2 SCC 703]
[Kelvinator] has reiterated the settled position that mere
change of opinion cannot be a ground for re-opening concluded
assessments. The observations made at paras-5, 6, 7 and 8 are
extracted as herein below:
45

"5. On going through the changes, quoted above, made to
Section 147 of the Act, we find that, prior to the Direct Tax
Laws (Amendment) Act, 1987, reopening could be done
under the above two conditions and fulfillment of the said
conditions alone conferred jurisdiction on the assessing
officer to make a back assessment, but in Section 147 of the
Act (with effect from 1-4 1989), they are given a go-by and
only one condition has remained viz. that where the
assessing officer has reason to believe that income has
escaped assessment, confers jurisdiction to reopen the
assessment. Therefore, post-1-4-1989, power to reopen is
much wider. However, one needs to give a schematic
interpretation to the words "reason to believe" failing which,
we are afraid, Section 147 would give arbitrary powers to the
assessing officer to reopen assessments on the basis of
"mere change of opinion", which cannot be per se reason to
reopen.

6. We must also keep in mind the conceptual
difference between power to review and power to
reassess. The assessing officer has no power to
review; he has the power to reassess. But
reassessment has to be based on fulfillment of certain
precondition and if the concept of "change of opinion"
is removed, as contended on behalf of the Department,
then, in the garb of reopening the assessment, review
would take place.

7. One must treat the concept of "change of opinion"
as an in-built test to check abuse of power by the
assessing officer. Hence, after 1-4 1989, the assessing
officer has power to reopen, provided there is
"tangible material" to come to the conclusion that
there is escapement of income from assessment.
Reasons must have a live link with the formation of
the belief. Our view gets support from the changes
made to Section 147 of the Act, as quoted
hereinabove. Under the Direct Tax Laws (Amendment)
Act, 1987, Parliament not only deleted the words
"reason to believe" but also inserted the word
"opinion" in Section 147 of the Act. However, on
receipt of representations from the companies against
omission of the words "reason to believe", Parliament
reintroduced the said expression and deleted the word
"opinion" on the ground that it would vest arbitrary
powers in the assessing officer.
46

8. We quote herein below the relevant portion of Circular No.
549 dated 31-10-1989, which reads as follows:

"7.2. Amendment made by the Amending
Act, 1989, to reintroduce the expression
'reason to believe' in Section 147.--A number of
representations were received against the
omission of the words 'reason to believe' from
Section 147 and their substitution by the
'opinion' of the Assessing Officer. It was
pointed out that the meaning of the expression,
'reason to believe' had been explained in a
number of court rulings in the past and was
well settled and its omission from Section 147
would give arbitrary powers to the Assessing
Officer to reopen past assessments on mere
change of opinion. To allay these fears, the
Amending Act, 1989, has again amended
Section 147 to reintroduce the expression 'has
reason to believe' in the place of the words 'for
reasons to be recorded by him in writing, is of
the opinion'. Other provisions of the new
Section 147, however, remain the same."

(Emphasis supplied)

43. It is clear that the Assessing Officer excluding the
expenditure incurred by the assessee in connection with the
provision of technical services outside India and specifically
expenditure involved relating to Company's employees visit
to client's location to provide software development services
to the clients have been excluded [see para 10]. If that were
to be so, revisiting the decision arrived at once again to
further reduce the eligible deduction under Section 10A of
the I.T. Act would amount to a review on the ground of
change of opinion which is impermissible.

44. Though in Kelvinator (supra), the observation is that
where there is tangible material to come to the conclusion
that there is escapement of income from assessment, in the
present case, the tangible material as asserted by the
Revenue is itself not complete.
47

45. A perusal of Section 148 of I.T. Act, the notice along with
the reasons for reopening make it clear that the tangible
material relied upon are the MSA's, Works contracts/SCW's,
Invoices and other details relating to the deduction claimed
under Section 10A of the I.T. Act. All of which is stated to
have come to the notice of the Department relating to the
Assessment Year 2008-2009. However, even on a perusal of
para-2.10 of the Assessment Order relating to the
Assessment Year 2008- 2009, "... the assessee as has been
asked on innumerable occasions to submit MSAs and SOWs
that it had with its clients the assessee has only been able to
provide some of the sample MSAs and SOWs...". Similar
observation is made at para-2.12, which reads as follows, "...
the assessee has not been able to submit all the SOWs and
MSAs entered for software contract services...". The finding
by the Assessing Authority is by placing the burden on the
assessee regarding correlation between the MSA, SOW/ work
order vis-a-vis work carried out by STP/SCZ unit.

46. In light of the above, the tangible material sought
to be relied upon itself not being complete, it cannot
be held that the MSAs and SCWs would demonstrate
that the declaration made by the assessee leads to a
conclusion that there has been escapement of income.
It is also a settled position that reassessment
proceedings cannot be in the nature of review and
accordingly, the material as has come to light in the
assessment proceedings for the Assessment Year
2008- 2009 cannot be a sufficient ground to resort to
reassessment proceedings.

(Emphasis supplied)

In the light of the judgment of the coordinate bench, the change of

opinion of the Assessing Officer cannot result in a proceeding under

Section 148 of the Act.
48

14.3. A Full Bench of this Court in the case of DELL INDIA

PRIVATE LIMITED v. JOINT COMMISSIONER OF INCOME-

TAX4 was considering a reference being made, as to whether there

could be a review based upon change of opinion of the Assessing

Officer. The issue referred to the Full Bench is as follows:

"By the order dated September 2, 2015, a Division
Bench of this court in Joint CIT (LTU) v. Dell India Pvt. Ltd.
[2016] 382 ITR 310 (Karn) directed that this writ appeal
should be placed before the Chief Justice for considering the
issue of referring the following three questions to a larger
Bench. The said three questions are as under:

"1. Whether the Division Bench judgment in the case
of CIT v. Rinku Chakraborthy (2011) 242 CTR (Karn) 425
lays down good law ?

2. Whether the judgment in the Rinku Chakraborthy
(supra) is per incurium in view of the fact that it relies upon
the judgment of the apex court in the case of Kalyanji Mavji
and Co. v. CIT [1976] 102 ITR 287 (SC); [1976] CTR 85
(SC), which has been specifically overruled by the apex
court in the case of Indian and Eastern Newspaper Society
v. CIT [1979] 119 ITR 996 (SC)?

3. Whether 'reason to believe' in the context of
section 147 of the Income-tax Act, 1961 can be based
on mere 'change of opinion' of the Assessing Officer?"

The Full Bench answers the issues in the following manner:

"16. At this stage, we may make a useful
reference to a subsequent decision of the apex court in
the case of CIT v. Kelvinator of India Ltd. (supra). It is
a decision of the Bench of three hon'ble judges. In
paragraphs 3.1 and 3.2 of the said decision, the apex

4
(2021) 432 ITR 212
49

court has quoted section 147 which existed prior to
April 1, 1989 and after April 1, 1989. Paragraphs 3.1
and 3.2 of the said decision read thus (page 563 of
320 ITR) :

"3.1 After enactment of Direct Tax Laws
(Amendment) Act, 1987, i.e., prior to April 1, 1989,
section 147 of the Act, reads as under :

'147. Income escaping assessment.--If the
Assessing Officer, for reasons to be recorded by him
in writing, is of the opinion that any

income chargeable to tax has escaped
assessment for any assessment year, he may,
subject to the provisions of sections 148 to 153,
assess or reassess such income and also any other
income chargeable to tax which has escaped
assessment and which comes to his notice
subsequently in the course of the proceedings under
this section, or recompute the loss or the
depreciation allowance or any other allowance, as
the case may be, for the assessment year concerned
(hereafter in this section and in sections 148 to 153
referred to as the relevant assessment year).'

3.2 After the Amending Act, 1989, section 147
reads as under :

'147. Income escaping assessment.--If the
Assessing Officer has reason to believe that any
income chargeable to tax has escaped assessment
for any assessment year, he may, subject to the
provisions of sections 148 to 153, assess or reassess
such income and also any other income chargeable
to tax which has escaped assessment and which
comes to his notice subsequently in the course of the
proceedings under this section, or recomputed the
loss or the depreciation allowance or any other
allowance, as the case may be, for the assessment
year concerned (hereafter in this section and in
sections 148 to 153 referred to as the relevant
assessment year)." (underlines supplied)

We are concerned with the provision of section
147 as amended with effect from April 1, 1989. In
paragraph 4 of the said decision, the apex court held
thus (page 564 of 320 ITR) :
50

"On going through the changes, quoted
above, made to section 147 of the Act, we find that,
prior to the Direct Tax Laws (Amendment) Act, 1987,
reopening could be done under the above two
conditions and fulfilment of the said conditions alone
conferred jurisdiction on the Assessing Officer to
make a back assessment, but in section 147 of the
Act (with effect from April 1, 1989), they are given a
goby and only one condition has remained, viz., that
where the Assessing Officer has reason to believe
that income has escaped assessment, confers
jurisdiction to reopen the assessment. Therefore,
post-April 1, 1989, power to reopen is much wider.
However, one needs to give a schematic
interpretation to the words 'reason to believe' failing
which, we are afraid, section 147 would give
arbitrary powers to the Assessing Officer to reopen
assessments on the basis of 'mere change of
opinion', which cannot be per se reason to reopen.
We must also keep in mind the conceptual difference
between power toreview and power to reassess. The
Assessing Officer has no power to review; he has the
power to reassess. But reassessment has to be
based on fulfilment of certain precondition and if the
concept of 'change of opinion' is removed, as
contended on behalf of the Department, then, in the
garb of reopening the assessment, review would
take place. One must treat the concept of 'change of
opinion' as an in-built test to check abuse of power
by the Assessing Officer. Hence, after April 1, 1989,
Assessing Officer has power to reopen, provided
there is 'tangible material' to come to the conclusion
that there is escapement of income from
assessment. Reasons must have a live link with the
formation of the belief. Our view gets support from
the changes made to section 147 of the Act, as
quoted hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987, Parliament not only deleted
the words 'reason to believe' but also inserted the
word 'opinion' in section 147 of the Act. However, on
receipt of representations from the companies
against omission of the words 'reason to believe',
Parliament reintroduced the said expression and
deleted the word 'opinion' on the ground that it
would vest arbitrary powers in the Assessing Officer.

7.2 Amendment made by the Amending Act,
1989, to reintroduce the expression "reason to
believe" in section 147.--A number of representations
were received against the omission of the words
"reason to believe" from section 147 and their
51

substitution by the "opinion" of Assessing Officer. It
was pointed out that the meaning of the expression,
"reason to believe" had been explained in a number
of court rulings in the past and was well-settled and
its omission from section 147 would give arbitrary
powers to the Assessing Officer to reopen past
assessments on mere change of opinion. To allay
these fears, the Amending Act, 1989 has again
amended section 147 to reintroduce the expression
"has reason to believe" in place of the words "for
reasons to be recorded by him in writing, is of the
opinion". Other provisions of the new section 147,
however, remain the same'." (underlines supplied)

17. Thus, what is held by the apex court is that
when a power under section 147 is to be exercised,
concept of change of opinion must be treated as an in-
built test to check abuse of power of the Assessing
Officer. Further, it is held that after April 1, 1989, the
Assessing Officer has power to reopen provided there
is a tangible material to come to the conclusion that
there is escapement of income from assessment. The
apex court held that mere change of opinion on
consideration of the same material is no ground to
invoke section 147 of the said Act.

18. As noted earlier, the decision in the case of Rinku
Chakraborthy (supra) is based only on what is held in clause
(2) of paragraph 13 of the decision in the case of Kalyanji
Mavji and Company (supra). The decision rendered in the
case of Kalyanji Mavji and Company (supra) was by a Bench
of two hon'ble judges. Subsequently, a larger Bench of three
hon'ble judges in the case of Indian and Eastern Newspaper
Society (supra) has clearly held that oversight, inadvertence
or mistake of the Assessing Officer or error discovered by
him on the reconsideration of the same material does not
give him power to reopen a concluded assessment. It was
expressly held that the decision in the case of Kalyanji Mavji
and Company (supra), on this aspect does not lay down the
correct law. The decision in the case of Rinku Chakraborthy
(supra) is based solely on the decision of the apex court in
the case of Kalyanji Mavji and Company (supra) and in
particular what is held in clause (2) of paragraph 13. The
said part is held as not a good law by a subsequent decision
52

of the apex court in the case of Indian and Eastern
Newspaper Society (supra).

19. Therefore, in the light of law laid down in the case
of Indian and Eastern Newspaper Society (supra), the first
question will have to be answered in the negative by holding
that the decision in the case of Rinku Chakraborthy does not
lay down correct position of law to the extent to which it
follows what is held in clause (2) of paragraph 13 of the
decision of the apex court in the case of Kalyanji Mavji and
Company (supra). The second question will have to be
answered in the affirmative. In view of the consistent
decisions of the apex court holding that "reason to
believe" in the context of section 147 of the Income-
tax Act cannot be based on mere change of opinion of
the Assessing Officer, the third question will have to
be answered in the negative. In fact, in view of the
settled law, framing of question No. 3 was not
warranted at all.

20. We make it clear that we have not made any
adjudication on the controversy on the merits of writ appeal
and now the appeal will have to be placed before the
concerned Division Bench for deciding the same on merits in
the light of what we have held above. The questions whether
a case for reopening of the assessment in accordance with
section 147 of the said Act is made out and whether a writ
court ought to interfere with the impugned notice, are left to
be decided by a Division Bench."

(Emphasis supplied)

In the light of the judgment of the full bench and the order passed

by the coordinate bench, the proceedings instituted would become

unsustainable. This is the second limb of unsustainability of the

impugned proceedings.
53

15. The third limb is, whether issuance of a second notice

without withdrawing the first notice is invalid. It is a matter of

record that the first notice was issued on 23-03-2018. The

petitioner files his return under protest and sought reasons to be

divulged. Nothing happens over a year. Then comes the second

notice. Therefore, in the teeth of subsistence of the first notice

under Section 148 of the Act, the second notice under the same

provision, a year later, cannot emerge. Again, this need not detain

this Court for long or delve deep into the matter.

15.1. The High Court of Calcutta in the case of INDIAN

TUBES COMPMANY LIMITED v. INCOME TAX OFFICER5 has

held as follows:

"Dr. Pal first contends that the first two notices dated
February 11, 1983, should be declared invalid, in view of the
fact that without taking the necessary satisfaction of the
Commissioner of Income-tax/Central Board of Revenue, the
Income-tax Officer issued such notice for reopening an
assessment after the expiry of more than four years as
required under the law.

As regards the other two notices dated March 29, 1983, Dr.
Pal contends that pursuant to the earlier invalid notices
dated February 11, 1983, the petitioner having already filed

5
(2005) 272 ITR 439 (Calcutta)
54

the returns, there was no scope for giving further notices
under section 148 of the Act when no assessment had been
made on the basis of the subsequent returns filed by the
petitioner, in compliance with the earlier notices dated
February 11, 1983. In support of such contention, Dr. Pal
relies upon a Supreme Court decision in the case of CIT v. S.
Raman Chettiar [1965] 55 ITR 630.

This application is opposed by the income-tax authority and
Mr. Mitra, learned counsel appearing on behalf of the
Revenue, has opposed the aforesaid two contentions raised
by Dr. Pal.

Mr. Mitra contends that the first two notices dated February
11, 1983, were patently illegal, inasmuch as, by those
notices the Income-tax Officer tried to reopen assessments
made more than four years earlier without taking the
required satisfaction of the Commissioner of Income-
tax/Central Board of Revenue. Mr. Mitra contends, in view of
such mistake, the Income-tax Officer concerned after taking
satisfaction from the aforesaid authority issued the
subsequent two notices dated March 29, 1983. According to
Mr. Mitra, if any return is submitted by the petitioner in
obedience to the earlier notice dated February 11, 1983,
those are to be ignored, inasmuch as those returns were
filed pursuant to an illegal demand. Mr. Mitra, thus, contends
that there was no illegality in initiating fresh proceeding by
giving fresh notice dated March 29, 1983, after complying
with the formalities required under the Income-tax Act. In
support of such contention, Mr. Mitra, relies upon two
decisions of the Allahabad High Court, one in the case of
Ashok Kumar Dixit v. ITO [1992] 198 ITR 669 and the other
in the case of Sukhlal Ice and Cold Storage Co. v. ITO [1993]
199 ITR 129.

The only question that arises for determination,
therefore, in this writ application is whether the
Income-tax Officer could initiate fresh proceeding
under section 148 of the Act on March 29, 1983, when
pursuant to the earlier invalid notice dated February
11, 1983, the petitioner had already submitted the
returns.
55

After hearing the learned advocates for the parties and
after going through the aforesaid materials, I find that
the question involved herein has practically been
answered by the Supreme Court in the case of CIT v. S.
Raman Chettiar [1965] 55 ITR 630 relied upon by Dr.
Pal. In the said case, an invalid notice under section
34 of the Indian Income-tax Act, 1922, which is
equivalent to section 148 of the present Income-tax
Act, was served and the return was submitted
pursuant to such notice. The question was whether
that was a valid return and whether the notice of
assessment ignoring such return could be upheld.

In such facts, the Supreme Court was of the view that
although the notice under section 34 was invalid, the
return submitted pursuant to that invalid notice was a
"return" within the meaning of section 22(3) of the
said Act and the Income-tax Officer could not ignore
or disregard that return and issue a fresh notice under
section 34 on the assumption that there had been an
omission or failure on the part of the assessee to make
a return of his income under section 22, and on that
ground the assessment under section 34 was held to
be invalid. In the said case, the Supreme Court further
held that there was no warrant in the Income-tax Act
for treating returns as "voluntary returns" and "non-
voluntary returns" and whatever be the impelling
cause or motive, if a return, otherwise valid, is filed by
an assessee before the receipt of a valid notice under
section 34, it is to be treated as a return within the
meaning of section 22(3) of the 1922 Act.

Applying the aforesaid principles to the facts of the
case, it is clear that when the petitioner filed returns
in compliance with the invalid notice dated February
11, 1983, under section 148 of the 1961 Act, those
returns should be treated as "returns" and as such
before making assessment on the basis of those
returns, no further notice under section 148 of the Act
could be passed.
56

I now propose to deal with the two decisions cited by
Mr. Mitra. In the case of Sukhlal Ice and Cold Storage
Co. [1993] 199 ITR 129 (All), for re- assessment, the
Income-tax Officer issued a notice under section 148
of the Income-tax Act, 1961, for the assessment year
1982-83 but the Tribunal held that the notice was
illegal because the reason for the issue of the notice
was not on record. Subsequently, the Income-tax
Officer issued another notice under section 147 of the
Act for the same assessment year by setting out the
necessary reason and after removal of defects pointed
out earlier. In such a case, it was held that since the
Tribunal had recorded a finding to the effect that the
very initiation of the proceeding under section 147 by
the earlier notice was without jurisdiction, there was
no earlier proceeding subsisting when the second
notice was served upon the assessee.

In the case before us, the earlier notice has not been
declared by any Tribunal as invalid and at the same time the
returns submitted pursuant to the earlier notices have not
been assessed and thus the earlier proceedings were
pending at the time of issuing the second notice and as such
the principles laid down in the said decision cannot have any
application to the facts of the present case.

In the case of Ashok Kumar Dixit [1992] 198 ITR 669
(All), during the pendency of a proceeding in
pursuance of a notice issued earlier against the
petitioner under section 148, a second notice under
section 148 had been issued ; but it does not appear
from the judgment passed in the said case whether
the assessee filed any return pursuant to such notice.
Under such circumstances, the Division Bench of the
Allahabad High Court was of the view that only
because the earlier notice had been issued, that by
itself in law cannot be a bar for issuing the second
notice. Therefore, the said decision cannot have any
application to a case, where pursuant to the first
notice a return has already been filed. I have already
pointed out that in this case, the second notice under
section 148 was issued at a point of time when the
57

assessee had already filed the return for the self-same
period and no assessment had been made on the basis
of such return. Therefore, in the case of Ashok Kumar
Dixit [1992] 198 ITR 669 (All), the court had no
occasion to deal with a situation like the one involved
herein."

(Emphasis supplied)

15.2. A division bench of the High Court of Gujarat in the case

of MARWADI SHARES & FINANCE LIMITED v. DEPUTY

COMMISSIONER OF INCOME-TAX6 has held as follows:

"11. Though in our opinion the petition could have
been decided on only one of the several contentions raised
by the petitioner, in view of the possibility that the aggrieved
party may carry the matter further, we would like to express
our opinion on all contentions raised before us. For
consideration of such contentions, we would club all
arguments except of withdrawal of the first notice of
reopening which would be considered separately. We may
recall, the Department previously issued a notice dated
March 31, 2015. We have reproduced the reasons recorded
by the Assessing Officer for issuing such notice. This notice
was challenged by the petitioner before this court. After
some discussion at the bar, counsel for the Revenue, under
instructions, stated that the notice of reopening of the
assessment would be withdrawn by the Assessing Officer
with a view to issuing a fresh notice after recording fresh
reasons. Thereupon, fresh notice came to be issued on March
29, 2017. We have also reproduced reasons recorded by the
Assessing Officer for issuance of such notice. In the previous
notice, the reasons recorded merely stated that the
information was received by the office in response to
fictitious losses created by some broker by misusing client
code modifications facility. The petitioner M/s. Marwadi

6
(2018) 94 Taxmann.com 398 (Gujarat) / (2018) 407 ITR 49
58

Shares and Finance Ltd. was reported to be one of the
beneficiaries of misuse of such facility. Such fictitious losses
had been adjusted by the assessee against the profits of
other years. Thus, it could be argued that the Assessing
Officer had merely proceeded on the information received by
him. His approach was therefore possible of being faulted as
having acted on bare information without his own application
of mind and thus relying on borrowed satisfaction. In the
fresh reasons, he gave some background facts which, to be
honest, were highly jumbled up. He referred to the past
litigation and recorded that the High Court had directed
recording of fresh reasons. This obviously was a clear error.
Ordinarily, we would not give any such direction. In any
case, the order of the High Court which is reproduced in this
judgment nowhere records any such direction. However, this
by itself would not be fatal to the cost of the Revenue. The
background facts are clearly severable from the reasons
which succeed which formed the core of the recorded
reasons by the Assessing Officer. Thus, the reasons
summarized the information available with the Assessing
Officer principally suggesting that there was systematic
misuse of the client code modification facility with a view to
buy losses to be offset against the profit of the year. The
Assessing Officer has taken note of the investigation report
and, in particular, cited instance of such exercise in case of
the assessee. He formed a belief that the assessee had
claimed fictitious losses of Rs. 5.69 crores (rounded off)
through this process.
... ... ....
16. The law on subject is sufficiently clear. There
can be only one process of assessment or
reassessment. Pending any such assessment or
reassessment, there cannot be a notice of reopening.
The courts have held that there cannot be reopening of
assessment which is not yet complete. The counsel for
the petitioner has referred to several decisions in this
regard which we have noted. Reference to only one of
them would be sufficient. This court in the case of
Aditya Medisales Ltd. (supra) had occasion to take into
consideration various judgments of the High Courts
and Supreme Court in the background of facts which
were thus. The petitioner had filed the return of
59

income for the assessment year 2005-06. Notice of
reopening the assessment issued by the Assessing
Officer. Such notice was challenged by the petitioner
before the High Court. The High Court had admitted
the petition and granted interim relief staying further
proceedings pursuant to such notice. When the
petition was pending, the Assessing Officer issued yet
another notice under section 147 of the Act seeking to
reopen the petitioner's assessment for the same
assessment year, however, on the basis of
independent reasons possibly upon availability of fresh
material.

This second notice of reopening was challenged on
various grounds including on the ground that in face of
the pendency of the first notice of reopening, there
could not be successive second reopening of the
assessment. The court held and observed as under:

"7. There cannot be two parallel assessments
based on two notices. As long as first assessment is
not completed, question of reassessment would not
arise. Once a notice is issued under section 148 of the
Act, it triggers initiation of proceedings for
assessment or reassessment of income which may
have escaped assessment earlier. During such
assessment, any income which may come to the
notice of Assessing Officer may also be brought to
tax. Till this assessment is not completed, it would
not be possible for him to form a belief that income
chargeable to tax had escaped assessment. Until the
assessment, be it original or reopened, is pending
before the Assessing Officer, the question of issuing
notice for reopening would not arise. As noted, in the
case of CIT v. RanchhoddasKarsondas [1959] 36
ITR569 (SC), the Supreme Court had taken a view
that till the assessment proceedings are pending, it
cannot be stated that there was escapement of
income. To our mind, there is no distinction whether
the pending assessment is pursuant to the return
filed by the assessee originally or in response to the
notice of reassessment issued by the Assessing
Officer. In either case within the contours of the
provisions for assessment, the assessment of the
60

income of the assessee at the hands of the Revenue is
at large.

8. We are conscious that the conclusion that we have
arrived at, may lead to a piquant situation for the Revenue.
In a given case, it may so happen that notice for reopening
may have been issued within the period of four years from
the end of relevant assessment year, on the reasons
recorded, which may have no relevance to non- disclosure
of material facts. After four years it is entirely possible that
the Revenue may chance upon further materials not
disclosed by the assessee in the original return or during
the assessment proceedings which may have a bearing on
income escaping assessment. The suggestion that if
additional information is available with the Revenue later
on, it is always open for the Assessing Officer to withdraw
the first notice and issue second notice including both sets
of reasons, would fail in such an example. In the example
cited, the Revenue would have a difficult choice to make
whether to rest on the notice already issued and the
reasons recorded for the same which would deprive the
Revenue of the additional grounds to support reopeningor
after withdrawing the first notice to issue a fresh notice
which would be beyond a period of four years and thereby
sacrifice the reasons already recorded, which would not
sustain the test of failure on part of the assessee to disclose
truly and fully all material facts. However, such difficulty
in making a choice, would not govern the
interpretation of statutory provisions or would permit
us to enlarge the scope of reassessment by holding
that the second notice of reopening pending
reassessment would also be permissible. We do not
discern any concept of alternative or protective notice
of reassessment. In the result, impugned notice of
reopening is bad in law. This is despite the fact that
the first notice came to be quashed on the ground
that on the basis of reasons recorded, it cannot be
stated that income chargeable to tax had escaped
assessment.

9. To this conclusion, we may however add a
caveat. In a given case, if it is found that the notice
itself is invalid being non est or ab initio void, it would
be no valid notice in eye of law, pursuant to which
any valid assessment proceedings would initiate. For
example, if the notice is issued by an authority who
was simply not competent or was issued without the
61

sanction of the Commissioner when so required, the
notice would be void, non est and having no effect in
eye of law. Such a notice would not reopen an
assessment, would not commence assessment
proceedings and whenever so declared, such a
declaration would relate back to the original issuance
thereof. In such a situation, if the Revenue has issued
a second notice for reopening, the same would not be
rendered invalid. In this context we may recall, the
Supreme Court in the case of CIT v.
RanchhoddasKarsondas (1959) 36 ITR 569 (SC), in
the context of notice of reopening issued pending a
return of nil income filed by the assessee linked the
validity of the notice to the validity of the return
observing that if the return filed by the assessee was
no return, the conditions of section 34 (of the Act of
1922) would apply and the Assessing Officer could
carry out the assessment."

17. When therefore in the present case the first
notice of reopening of assessment was not withdrawn,
there was no scope, nor permissible in law to issue
fresh notice of reopening. The counsel for the
Revenue, however, vehemently contended that such
withdrawal of notice of reopening must be deduced
from facts and attendant circumstances. His
contention was that the Revenue had, all along,
intended to withdraw the notice and the fact, that such
notice was abandoned, was sufficient to establish
withdrawal thereof. We, however, hold a slightly
different belief. A notice of reopening which is once
issued would remain in operation unless it is
specifically withdrawn, quashed or gets time barred.
First instance would be at the volition of the Assessing
Officer as the person who had issued the notice. He
can recall the notice for valid reasons and may even
issue a fresh notice which is not impermissible in law.
Nevertheless, there has to be an action of withdrawal.
Mere intention, a stated intention or even an intention
which is otherwise put in practice cannot be equated
with withdrawal of the notice. By mere intention to
abandon the proceedings arising out of the notice, the
Assessing Officer cannot bring about the desired result
of withdrawing the notice. The notice was either
62

withdrawn or is stood as it is, may be without any
follow up action on the part of the Assessing Officer.

18. The material on record would clearly demonstrate
that the Assessing Officer in the present case did not travel
beyond expressing his clear intention to withdraw the notice.
He had so stated before the High Court through his advocate
on June 21, 2016 when Special Civil Application No. 2120 of
2016 was being disposed of. He has so stated at multiple
places in the reply dated November 20, 2017 filed before us.
At no stage, either he passed and communicated the order of
withdrawal of the notice to the petitioner. Even the files do
not show any such formal withdrawal of the notice with or
without communication thereof to the petitioner. The
conclusion that we have reached would invariably result in
frustrating the Revenue's attempt to reopen the assessment
and may have been seen to be based on somewhat technical
reasons. Having succeeded on all other grounds, the
Revenue may legitimately feel somewhat disappointed.
Nevertheless, our duty is to give effect to the legal
principles. The law does not recognize two parallel
assessments. In absence of withdrawal of the first notice of
reassessment, the proceedings would survive making the
subsequent notice of reopening invalid."

(Emphasis supplied)

In the light of the afore-quoted judgments of the High Courts of

Calcutta and Gujarat, to which I am in respectful agreement, the

notice so issued, which is second in line, in the teeth of subsistence

of the notice, first in line, is contrary to law. If the notice itself was

contrary to law, the proceedings taken up in a notice that was

invalid, are all nullity in law. In view of the issues being answered
63

by the Apex Court, coordinate bench of this Court and various High

Courts, the orders impugned are rendered unsustainable.

16. The learned counsel for the respondents has placed

reliance upon several judgments of the Apex Court and different

High Courts which are all distinguishable without much ado, as they

were clear cases of escaped assessment and the Apex Court holds

that if there were reasons to believe, it could be reopened.

17. In the light of the above-said reasons, the following:

ORDER

(i) Writ Petition is allowed.

(ii) Notice dated 29-03-2019 issued by the 1st respondent and the order dated 07-11-2019 passed by the 2nd respondent stand quashed.

Sd/-

(M.NAGAPRASANNA) JUDGE Bkp/CT:SS

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