IN THE HIGH COURT OF BOMBAY AT GOA. WRIT PETITION NO. 15 OF 1997. Zuari Estate Development and Investment Company Private Limited, a Company incorporated under the Companies Act, 1956 and having its Administrative Office at Salgaocar Chambers, Margao. ... Petitioners. Versus 1. Shri J.R. Kanekar, Deputy Commissioner of Income Tax (Assessment) Special Range, Panaji, having his office at Pundalik Niwas, Panaji. 2. Union of India through the Secretary to Government of India, Ministry of Finance, New Delhi. ... Respondents. Mr. Porus F. Kaka, Mr. D. Pangam and Ms. Gandha Sambari, Advocates for the Petitioners. Mr. S.R. Rivonkar and Ms. Amina Fadte, Advocates for the Respondent No. 1. Coram : F.I. REBELLO AND P.V. HARDAS, JJ. Date : 30th July 2003. ORAL JUDGMENT (PER REBELLO, J.) The petitioner company carries on business of hiring of plant and machinery. The petitioner had by an Agreement, dated 28th June 1982, entered into with Prerna Premises Private Limited, agreed to purchase three office premises, being office premise nos. 22, 22A and 23 in Maker Chambers III, at Nariman Point, - 2 - Bombay-400 021 as well as four open car parking spaces, being car parking space nos. 17 to 20, for a total cost of Rs. 28,66,634/-. It is the case of the petitioner that it subsequently became a member of the Maker Chambers III Premises Co-operative Society Limited. By an Agreement, dated 19th June 1984, entered into between the petitioner and the Bank of Maharashtra, the petitioner agreed to sell and the Bank agreed to purchase from the petitioner all the right, title and interest of the petitioner in the said office premises and car parking spaces for a consideration, which was to be calculated at the rate of Rs. 1,600/- per square foot for the office premises and at Rs. 80,000/- for each of the car parking spaces. Under Clause 2 of the Agreement the consideration was to be discharged in the following manner:- Rs. 2,00,000/- as earnest money before the execution of the Agreement and the balance to be paid at the time of execution of final document of sale and transfer of the property by the petitioner. It was also provided that if the petitioner puts the bank in possession of the premises before execution of the final document of sale and transfer, then the Bank was to pay to the petitioner 95% of the total consideration as reduced by Rs. 2,00,000/- and the balance of 5% on the execution of the final document of sale. Clause 3 of the Agreement provided that from the date the Bank was put in possession of the premises, the Bank would be - 3 - liable to pay the maintenance charges, municipal taxes, cesses and all other outgoings in respect thereof. Clause 5 provided that the sale of the premises would be completed only after expiry of five years from the date of the Agreement but before the expiry of the sixth year from the date of the Agreement, time being the essence of the contract. The Agreement further provided that the Bank would have an option either to complete the transaction or rescind the same and, in the event the Bank rescinded the Agreement, the petitioner would refund the entire amount that may have been paid by the Bank to the petitioner within one year of the rescission on return of possession of the premises by the Bank. It was further agreed that the parties would sign such papers and documents as were necessary for completion of the sale on payment of the full purchase price payable by the Bank to the petitioner. By Clause 9 of the Agreement, the Bank had agreed that once the Bank was put in possession of the premises, they would not sell, transfer, assign, let out or give on leave and licence basis or in any other manner part with possession of the premises or any portion or portions thereof to anyone else pending completion of the sale. After the Bank had paid to the petitioner, on 20th June 1984, the sum of Rs. 84,47,111/-, being 95% of the consideration agreed upon, the petitioner put and handed over possession in part performance of the Agreement of sale to the Bank on - 4 - 20th June 1984 itself. 2. By letter of 12th June 1990, in terms of Clause 5 of the Agreement of Sale, dated 19th June 1984, the Bank called upon the petitioner to complete the transaction and convey the property to the Bank by 18th June 1990. It is the case of the petitioner that certain disputes had arisen owing to which the petitioner did not complete the transactions. By letter of 16th June 1993, the petitioner confirmed that the petitioner had put the premises in possession of the Bank and that the petitioner would take all necessary steps for transfer of the said premises on or before 30th September 1993. It is the case of the petitioner that even thereafter, the petitioner was unable to complete the transactions and there were demands by the Bank on the petitioner to complete the transaction. The rest of the averments regarding the dispute between the Bank and the petitioner need not be adverted to. Suffice it to say that the petitioner had also recorded, confirmed and assured the Bank that it would take all steps for transfer of the property alongwith the share certificates on or before 30th September 1997. It is the case of the petitioner that in view of the uncertainties prevailing and the fact that the transfer of premises had not been completed, the petitioner in the accounts of the year 1991 had disclosed the amount - 5 - of Rs. 84,47,111/- received by it as a current liability under the heading "Advance against deferred sale of building". Note no. 2 of the notes of accounts forming part of the balance sheet as on 31st March 1991 reads as under:- "The Company has entered into an agreement for sale of above buildings vide agreement dated 19-6-84 which inter alia provides that the sale of the said buildings shall be completed only after the period of expiration of five years from the date of agreement but before the expiration of sixth year at the option of the purchasers to complete the transaction or to rescind the same for a sum of Rs. 85,40,800/- plus reimbursement of non-refundable deposits, transfer fees etc. A sum of Rs. 84,47,111/- (being 95% of consideration agreed upon Rs. 81,13,760/- deposits Rs. 1,27,831/- and transfer fees Rs. 2,05,520/-) received from the purchasers have been shown under the head Current Liabilities and the possession of the buildings was given to the purchasers on 20-6-84 and they have agreed to reimburse the Company the outgoings of the said building. The Purchasers, though have exercised the option to purchase the same, the execution of the sale and conveyance is not completed pending negotiations with the purchasers and hence no adjustments in this regard have been made in the books of accounts of the Company." The petitioner filed its return of income for the Assessment year 1991-92 on 31st December 1991. Alongwith the return, the profit and loss account as well as the balance sheet were also enclosed. The notes on accounts referred to earlier, according to the - 6 - petitioner, made a full and true disclosure of all the relevant facts. It is the case of the petitioner that till date it has not received any intimation or assessment order from the respondent no. 1 in respect of the return of income filed for the assessment year 1991-92. It is the case of the petitioner that thereafter it filed its return for the assessment years 1992-93, 1993-94 and 1994-95, wherein a similar note appeared in the accounts of the respective years. 3. In the course of the Assessment Proceedings for the Assessment Year 1994-95, respondent no. 1 raised a query as to why the capital gains arising on the sale of the premises should not be taxed in the Assessment Year 1991-92. The petitioner in reply to the query filed a detailed letter, dated 18th October 1996, wherein the relevant facts were set out exhaustively. It was also pointed out that the amendments brought out in Section 2(47) by the insertion of Sub-Clauses (v) and (vi) were applicable only to transactions entered into after the Assessment Year 1988-89. The petitioner also pointed out that possession of the premises had been handed over prior to 1st April 1987, the amendment brought about in the definition in Section 2(47), therefore, could not be applicable for the Assessment Year 1991-92. It was also pointed out that the mere exercise of the option by the Bank would not result in a - 7 - transfer as the expression is understood in Section 2(47) of the Act. In these circumstances, the petitioner called upon the respondent no.. 1 to drop the proceedings. It is the case of the petitioner that respondent no. 1 had fixed a hearing on 29th October 1996. The petitioner appeared before the Commissioner and as desired furnished details under cover of letter dated 5th November 1996. It is the case of the petitioner that respondent no. 1 thereafter completed the assessment for the Assessment Year 1994-95 by an Order, dated 4th December 1996, under Section 143(3) and assessed the petitioner to the income returned. It is the case of the petitioner that, therefore, they were shocked and surprised to receive on 12th December 1996 a notice under Section 148 dated 4th December 1996 by which the respondent no. 1 had recorded that he had reason to believe that the petitioner’s income chargeable to tax for the Assessment Year 1991-92 had escaped assessment and, therefore, proposed to reassess the income for the Assessment Year 1991-92 and called upon the petitioner to furnish within 30 days from the date of service of the notice a return in the prescribed form. The petitioner by letter, dated 3rd January 1997, had called on the respondent no. 1 to furnish the reasons recorded by him prior to the issue of the impugned notice dated 4th December 1996. - 8 - Petitioner contends that till date the petitioner has not received any reply to the said notice. The petitioner thereafter filed the present petition on 13th January 1997. The petition came up for admission before this Court on 27th January 1997, on which date, the learned Bench granted Rule. However, this Court permitted the respondent no. 1 to proceed with the assessment but further ordered that the demand, if any, on the basis of such assessment, could be raised only after obtaining an Order of this Court. The petitioner filed a return of income pursuant to notice, dated 12th February 1997. Petitioner declared Rs. 9,110/- in the return as filed. By letter, dated 12th May 1997, the respondent no. 1 forwarded a copy of the reasons recorded by him prior to the issuance of notice under Section 148. The respondent no. 1 thereafter completed the assessment under Section 143(3) read with Section 147 by an Order dated 28th January 1999. The respondent no. 1 held that on construction of relevant Clauses of the Agreement, it was clear that Clause 5 was inserted only with a view to avoiding payment of capital gain tax immediately. The respondent no. 1 took the view that till the period the Bank of Maharashtra exercised the option of purchase, the Agreement was a leave and licence Agreement between the petitioner and the Bank of Maharashtra. He also came to the conclusion that the sale price was fixed not on the rates prevailing on 19th - 9 - June 1994 but the price which was estimated to be the prevailing price in 1989-90 when the buyer exercised the option. Respondent no. 1 held that the contract to sell the property became effective from 12th June 1990, that is, the date on which the Bank exercised its option to purchase the property. The respondent no. 1 also held that the petitioner allowed the buyer to retain the property in part performance from 12th June 1990 and hence the transfer took place in terms of Section 2(27(v) and on that date capital gains were chargeable. 4. The petitioner filed an appeal to the CIT (Appeals), on 19th April 1999. That appeal was dismissed by Order dated 21st August 2000. The petitioner has preferred an appeal against the Order of the Commissioner of Income Tax, dated 21st August 2000. The respondent no. 1 thereafter forwarded a demand to the respondent no. 3 for recovery of the amount and issued a notice on 5th March 2003. It is the case of the petitioner that it has duly replied to the notice dated 5th March 2003 and the Summons dated 27th March 2003. Certain disputes that arose between the Bank of Maharashtra and the petitioner have also been set out. It is sought to be pointed out that in view of the proceedings which are pending in the suit filed by the Bank of Maharashtra, the office premises have not - 10 - been conveyed or transferred to the Bank of Maharashtra. In the prayer Clauses in the petition an additional prayer clause c(i) has been added to prohibit the respondents etc., from in any manner taking steps or proceedings pursuant to or in implementation of the impugned Demand Notices, dated 6th December 1999, 5th March 2003 and Summons, dated 27th March 2003. 5. At the hearing of the petition on behalf of the respondent no. 1 the learned counsel has raised a preliminary objection as to the maintainability of the petition. It is firstly contended that the petitioner has an efficacious alternate remedy available to show cause to the Assessing Officer, as well as an appeal and also a second appeal against the assessment Order and in the light of that this Court should not exercise its extraordinary jurisdiction. It is also submitted that in the present case, the petitioner has also filed an appeal against the assessment Order passed by the Assessing Officer on 28th January 1999, which is pending before the Income Tax Appellate Tribunal. It is, therefore, submitted that this Court should not exercise its extraordinary jurisdiction on the facts and circumstances of the case. Reliance has been placed firstly on the Judgment of the Division Bench of the Rajasthan High Court in Rajan Products v. Union of Rajan Products v. Union of Rajan Products v. Union of India and another India and another India and another, (2001) 247 ITR 101. In that case the - 11 - Court held that an Assessee has an alternative remedy of filing appeal before the appropriate authority provided under the Income-tax Act, 1961 and no cause of action had arisen for the assessee for filing a writ petition. It is in those circumstances that the High Court declined to exercise its extraordinary jurisdiction. Next reliance is placed in the Judgment of GKN GKN GKN Driveshafts (India) Ltd. v. Income-Tax Officer and Driveshafts (India) Ltd. v. Income-Tax Officer and Driveshafts (India) Ltd. v. Income-Tax Officer and others others others, (2003) 259 ITR 19, to contend that when a notice under Section 148 of the Income Tax Act, 1961, is issued, the proper course of action for the noticee is to file the return and, if he so desires, to seek reasons for issuing the notices. In that case on receiving the notices under Section 148, the appellant filed the returns. The appellant also received notices under Section 143(2) calling for further information on certain points in connection with the returns. Thereupon the appellant filed writ petitions challenging the notices. The High Court dismissed the writ petitions holding that the petitions were premature and the appellant could raise its objections to the notices by filing reply to the notices before the Assessing Officer. On the other hand, on behalf of the respondents, their learned counsel contends that this Court has admitted the petition and once it has admitted - 12 - the petition, the issue of jurisdiction is alive for consideration by this Court and in these circumstances the mere fact that the respondents were permitted to carry on the assessment proceedings should not result in this Court declining to exercise its extraordinary jurisdiction. All these objections were available at the time the petition was filed. This Court despite the efficacious alternate remedy available, admitted the petition. Once that be the case the petition shall be disposed off on merits. Our attention is invited to the Judgment of the Apex Court in the case of Coco-Cola Coco-Cola Coco-Cola Export Corporation v. Income-Tax Officer and another Export Corporation v. Income-Tax Officer and another Export Corporation v. Income-Tax Officer and another, (1998) 231 ITR 200. In that case the High Court had dismissed the petition on the ground that the petitioner had a alternative remedy available under the statute where all the questions raised by the appellant could be examined in detail. The High Court also held that the matter as to the exact scope and ambit of the two letters were awaiting decision at the appellate stage before the Income Tax Authorities and in that view of the matter it did not think fit to give expression to any opinion as to the scope of the two letters as that would seriously prejudice either the appellant or the Revenue and, accordingly, dismissed the petition and directed the Income Tax Officer to make inquiry whether the deduction which had been allowed and which were in excess of the limit fixed by the two letters were legal - 13 - or not. The Apex Court held on the facts of that case that the High Court erred in not exercising jurisdiction when the facts were all there and law clear on the subject and, accordingly, set aside the Order and allowed the appeal as filed by the assessee, the appellant before it. Considering the arguments advanced, in our opinion, it would be inappropriate at this stage after having admitted the petition and further having passed earlier a conditional Order directing the Assessment Officer to proceed with the assessment but to make a demand on the basis of such assessment only after obtaining an Order from the Court to dismiss the petition on that count after six years. In other words, though the petitioner was directed to go before the Assessment Officer, yet this Court retained jurisdiction to decide the issue as to whether it was open to the Assessing Authority to issue the notices. In our opinion, on the facts of the present case, the fact that the petition was entertained eventhough the petitioner had an efficacious alternative remedy, it would be too late in the day, to tell the petitioner to proceed with the appeal before the ITAT as the authorities have already held against the petitioner if we find that the notices issued are without jurisdiction. The preliminary objection raised by the Counsel for the - 14 - respondents has to be rejected. 6. Coming to the merits of the matter, on behalf of the petitioner, it is submitted that the re-opening for the reasons recorded are erroneous and bad in law. It is firstly contended that for re-opening an assessment, the Assessing Officer must have valid "reasons to believe", which reasons must have a rational and direct nexus and are intelligible and acceptable in law and do not amount to a change of opinion. Reliance for that is placed on the Judgment of the Apex Court in Ganga Saran & Sons P. Ltd. v. Income-Tax Officer and Ganga Saran & Sons P. Ltd. v. Income-Tax Officer and Ganga Saran & Sons P. Ltd. v. Income-Tax Officer and others others others, (1981) 130 ITR 1. Reliance is also placed on the Judgment of the Apex Court in Coca-Cola Export Coca-Cola Export Coca-Cola Export Corporation v. Income-Tax Officer and another (Supra). Corporation v. Income-Tax Officer and another (Supra). Corporation v. Income-Tax Officer and another (Supra). It is then submitted that it is the duty of the assessee only to disclose primary facts and not inferences and for that purpose reliance is placed on the Judgment of Commissioner of Income Tax, Bombay-VIII v. Mangilal Commissioner of Income Tax, Bombay-VIII v. Mangilal Commissioner of Income Tax, Bombay-VIII v. Mangilal Dhanraj Dhanraj Dhanraj, (1985) 155 ITR 71 of this Court and the case of Chemicals and Fibres of India Ltd. v. M.K.N. Pillai Chemicals and Fibres of India Ltd. v. M.K.N. Pillai Chemicals and Fibres of India Ltd. v. M.K.N. Pillai and another and another and another, (1984) 146 ITR 280 again of this Court. It is then submitted that under the Scheme of the Act for there to be a valid re-opening, information must come from extraneous source. Otherwise, irrespective of whether an assessment is made or not, it would mean that where a return has been processed under Section 143(2) - 15 - and found by the then Officer not to have understated any income on the basis of the very same documents, reassessment under Section 147 can be made on the same grounds that the assessee had understated the income. This would render the limitation contemplated by the Act under Section 143(2) as totally meaningless. Reliance for the proposition that only extraneous information can be relied upon is placed on the Judgment of Andhra Bank Andhra Bank Andhra Bank Ltd. v. Commissioner of Income Tax Ltd. v. Commissioner of Income Tax Ltd. v. Commissioner of Income Tax, (1997) 225 ITR 447. It is then submitted that the position of law pre 1988 and post 1988 is the same qua the fact the there cannot be a change in the opinion on the same facts irrespective of whether an assessment is made under Section 143(1) or otherwise. Reliance for that is placed on the Judgment of the Full Bench of the Delhi High Court in Commissioner of Income-Tax v. Kelvinator Commissioner of Income-Tax v. Kelvinator Commissioner of Income-Tax v. Kelvinator of India Ltd. of India Ltd. of India Ltd., (2002) 256 ITR 1. Reliance is also placed on the Judgment of United Electrical Co. P. United Electrical Co. P. United Electrical Co. P. Ltd. v. Commissioner of Income-Tax and others Ltd. v. Commissioner of Income-Tax and others Ltd. v. Commissioner of Income-Tax and others, (2002) 258 ITR 317 of the Delhi High Court. It is also submitted that the word ‘noticed’ which also means information, intelligence, as referred to in Webster’s Dictionary and Random’s House, also shows that the position post 1988 is pari materia with the old provision of law. Position of petitioner’s return for the assessment year 1991-92 as stated by the respondents in their affidavit-in-reply clearly shows that they were - 16 - processed in accordance with law and, therefore, there are only two possibilities following from the respondents assertions (a) summary assessment made under Section 143(1)(a) on the petitioner but no Section 143(2) notice issued as the then Assessing Officer was of the opinion that the assessee has not understated its income on examination of the Return of Income and (b) no summary assessement under Section 143(1)(a), but the Assessing Officer still not exercising his rights under Section 143(2) and thus, obviously satisfied that in the return of income that there was no understatement of income. In either case it is contended that the exercise in 1996 was an attempt to invoke the jurisdiction based on the same documents from the return of income clearly discloses change of opinion on the same facts and must be held to be contrary to law. Reference is placed on the CBDT Circular, which has been considered in the Judgment of the Delhi High Court in the case of Commissioner of Income-Tax v. Kelvinator of Commissioner of Income-Tax v. Kelvinator of Commissioner of Income-Tax v. Kelvinator of India Ltd. (Supra). India Ltd. (Supra). India Ltd. (Supra). It is then submitted that the reasoning of the Officer that sub-clause (v) of Section 2(47)