IN THE HIGH COURT OF JUDICATURE AT PATNA CWJC No.15682 of 2009 Lalit Construction Pvt.Ltd, a Company Registered under Companies Act, 1956, having its registered office at B.N. Appartment, Kankarbagh, Patna – 800020 through it’s Managing Director, Sri Satyendra Kumar. ……. Petitioner Versus 1. Commissioner of Income Tax, Central, Patna, office of Central Revenue Building, Birchand Patel Path, Patna 2. Assistant Commissioner of Income Tax, Central Circle - 03, Patna, office of Central Revenue Building, Birchand Patel Path, Patna …… Respondents ----------- For the Petitioner : Mr Krishna Mohan Mishra, Advocate For the Respondents : Mrs. Archana Sinha, Advocate ------ 4 30.11.2010 Heard learned counsel for the petitioner and learned counsel for the Income Tax Department representing the respondents. The petitioner is a Company engaged in construction business. It constructs flats and sells them to different buyers. The return of the Company’s income was being filed since 1994 onwards. As per its system of accounting, it filed return for the assessment year 2005- 06 and on that basis regular assessment was made by the Assessing Officer. While conducting the assessment proceeding in the next assessment year, the Assessing Officer, as 2 per clear statement in paragraph 8 of the counter affidavit found that the books of account of the assessee was not correct as it was not reflecting true profit of the construction business. In that view of the matter for the Assessment Year 2006-07, the books of accounts were rejected and income was determined on the basis of accounting standard – 7 (AS – 7). In course of that assessment proceeding, the Assessing Officer claims to have perused the accounts of the petitioner relating to Assessment Year 2005-06 and found that the assessee is not reflecting true income of his business because of not adopting the Account Standard – 7. On account of such view formed in course of assessment proceeding of the succeeding year, the impugned decision was taken for re-assessment proceeding against the petitioner under Section 147 of the Income Tax Act (hereinafter referred to as “the Act”). On 13.1.2009 notice under Section 148 of the Act was issued proposing to make re-assessment for the Assessment Year 2005-06. The petitioner requested for supply of reasons available on record for such a notice. The respondents supplied the reasons as appear 3 from Annexure 3, which is also dated 13.1.2009. The crux of the reasons contained in Annexure 3 is that on perusal of the returns, it appeared that the assessee had not shown income as per the Accounting Standard AS– 7, as required in the case of Builders, which resulted into escapement of income. The petitioner submitted his objections against the notice under Section 148 of the Act and assailed the reasons mainly on the ground that AS- 7 was not an account system notified by the Central Government under Section 145 (2) of the Act and the Institute of Chartered Accountant does not have statutory authority to lay down Account Standard for the purpose of the Act. Besides such objections, the petitioner challenged the decision to initiate re-assessment proceeding on the ground that the accounting system of the petitioner disclosed all the relevant details and was accepted by the Assessing Officer and only on account of subsequent change of opinion in respect of efficacy of the Accounting System of the petitioner, the Assessing Officer could not have exercised power to order for re-assessment as it will amount to exercising a power of review, which is not 4 available to the Assessing Officer under the Act. Initially, an objection was raised on behalf of the Revenue that since re-assessment proceeding has finally culminated into an order of assessment under Section 144 of the Act, dated 8.10.2009 contained in Annexure A to the counter affidavit hence multiplicity of proceedings should be avoided and the petitioner should be relegated to authorities under the Act, where he can challenge the assessment order dated 8.10.2009 on all grounds including the grounds taken by him against order under Section 147 of the Act. On this issue, learned counsel for the petitioner has rightly submitted that an order for re-assessment goes to the root of the re-assessment proceeding and relates to jurisdiction of the Assessing Officer and hence on account of petitioner having objected to exercise of such jurisdiction he is entitled to full and fair consideration of his case under Article 226 of the Constitution of India. He placed reliance upon a decision of the Supreme Court in the case of Calcutta Discount Company Ltd. v. I.T.O., reported in 41 I T R 191. In that judgment the majority view found the re- 5 assessment proceeding bad in law and after holding so, it noticed the subsequent assessment order and set aside the same on the ground that re-assessment proceeding was itself without jurisdiction. Hence we have heard the parties on merits. The assessment order contained in Annexure-A shows that the petitioner did not participate in that proceeding and admittedly no appeal etc. has been preferred by the petitioner against the order of assessment dated 8.10.2009. In the facts of the case, the issue of multiplicity of proceedings is not attracted. It is not necessary to refer to a large number of judgments of the Apex Court and this Court wherein it has been categorically held that for exercise of jurisdiction under Section 147 of the Act, the Assessing Officer must show that he “ has reasons to believe”, that any income chargeable to tax has escaped assessment. Elaborating the issue further it has been held that reasons to believe must be founded upon some material coming to the knowledge of the Assessing Officer, may be even through assessment proceeding of later Assessment Year but it should not be 6 on account of change of view in respect of materials that were considered in course of regular assessment. In other words, it has been firmly established that the Assessing Officer cannot initiate reassessment as if he has power of review. He cannot take a different view simply on account of change of opinion. On the basis of aforesaid yardstick, in the present case, it is evident that in course of regular assessment for the year in question the Accounting System of the petitioner disclosing the relevant facts was accepted and only because a different view of Accounting System was taken in course of assessment proceeding for the next Assessment Year, the assessment proceeding of the earlier year is sought to be re-opened. This amounts to review only on account of change of opinion in respect of the Accounting System followed by the petitioner. In view of the aforesaid discussions, there is no option but to hold that the decision of the Assessing Officer to proceeding under Sections 147 and 148 of the Act against the petitioner is without any valid basis and there was nothing to substantiate or support 7 his belief that any income chargeable to the tax has escaped assessment. The reason for such belief, in the present case lies only in change of opinion of the Assessing Officer regarding suitability of the Accounting System of the petitioner. Hence the proceeding for re-assessment and the notice under Section 148 of the Act is held to be bad in law. As a result, the subsequent assessment order is also held to be bad in law. The writ petition, thus, stands allowed. There shall be no order as to costs. Spd/- (Shiva Kirti Singh, J.) ( Dr. Ravi Ranjan, J.)