-1- IN THE HIGH COURT OF BOMBAY AT GOA PANAJI WRIT PETITION NO. 101 OF 2000 1. Smt. Mira Ananta Naik, wife of late Shri Ananta N. Naik, aged about 67 years, resident of Thirtharupa, Aquem, Margao, Goa. 2. Shri Pandurang A. Naik, son of late Shri Ananta N. Naik, aged about 41 years, for himself and as legal representative of late Anant N. Naik, resident of Thirtharupa, Aquem, Margao, Goa. 3. Smt. Sandhya Pandurang Naik, wife of Mr. Pandurang A. Naik, aged about 37 years, resident of Thirtharupa, Aquem, Margao, Goa. 4. Shri Vinay A. Naik, son of late Shri Ananta N. Naik, aged about 35 years, resident of “Meera” N. D. Naik Marg, Aquem Alto, Margao – Goa, 403 601. 5. Smt. Manjusha Vinay Naik, wife of Mr. Vinay A. Naik, aged about 34 years, resident of “Meera” N. D. Naik Marg, Aquem Alto, Margao – Goa, 403 601. ...... Petitioners V e r s u s 1. The Deputy Commissioner of Income Tax (Investigation), Aykar Bhavan, EDC Complex, Patto, Panaji-Goa. -2- 2. The Joint Commissioner of Income Tax Panjim Range, Aykar Bhavan, EDC Complex, Patto, Panaji, Goa. 3. Union of India Represented by its Secretary, Ministry of Revenue, Central Secretariat, North Block, New Delhi – 110 001. ...... Respondents Mr. A. N. S. Nadkarni, Advocate with Mr. H. D. Naik, Advocate for the Petitioners. Mr. S. R. Rivonkar, Government Advocate for Respondents. CORAM : S. C. DHARMADHIKARI SANTOSH BORA, JJ. DATE : 26 th August, 2008. ORAL JUDGMENT (S. C. DHARMADHIKARI, J.) By this petition under Article 226 of the Constitution of India, the petitioners seek a declaration that the notices dated 13.12.1999 issued by the respondents are illegal, null and void and they seek a further relief by exercise of appropriate writs of quashing and setting aside the same. 2. The facts which are not in dispute are that the petitioners are assesses and their income is assessed to Income Tax. These are cases of petitioners being individual assesses. Their individual returns for the -3- assessment years 1989-90 to 1997-98 were scrutinized. We are not concerned in this case with the assessment of income when the petitioners carry on business as partners of a partnership firm. This is a case of their Individual Returns of Income being involved. 3. It is further undisputed before us that from 16.10.1996 to 20.10.1996, a search was conducted at the residence of late Anant N. Naik and his family in exercise of the powers conferred by Section 132 of the Income Tax Act, 1961. The assets were seized. His statement was recorded during the course of the said investigation on 20.10.96. 4. Between 16.01.97 to 30.12.97, assessment proceedings before the Assessing Officer, Dy. Commissioner of Income Tax, (Assistant) Special Range, Panaji, were held and pursuant thereto, he passed a Block Assessment Order on 31.12.1997 under Section 158 BC of the Income Tax Act, 1961. (Hereinafter referred to as the Act). 5. The petitioners' case is that the search and seizure proceedings were as a result of bias on the part of one of the Officer and that is how despite the Department not being able to sustain the Block Assessment Orders, it finally resorted to the provisions of Section 147 of the Income Tax Act. Be that as it may, further undisputed fact is that by Orders dated 07.06.1999 of the Income Tax Appellate Tribunal, Pune Bench, the Block -4- Assessment Proceedings were quashed. A copy of the said Order is at annexure 'C', page 78 of the petitioner paper book. 6. After the Block Assessment Orders were quashed by the Appellate Tribunal, the petitioners applied to respondent no.1 to release the assets seized during the course of the search under Section 132 of the Act. It is alleged by the petitioners that the Department adopted a hyper technical approach and informed the petitioners that the assets cannot be released until a copy of the Appellate Order is received by the Department. Ultimately, the petitioners had to file a representation on 04.10.1999 to the Commissioner of Income Tax, Panaji, requesting his intervention in the matter. 7. It is alleged that on 20.12.1999, the petitioners received copies of the notices under Section 148 of the Income Tax Act. Further, undisputed fact is that the petitioners filed returns and applied for copy of the reasons which came to be recorded while issuing notice under Section 148 of the Income Tax Act. The case of the petitioners was that these notices on the face of the same do not disclose any reasons but if there are reasons on record, the same be furnished was the request. Even this request was not acceded and on 18.01.00, reminders had to be issued by the petitioners to the Department. Finally, on 02.02.00, the copy of the Order sheets indicating the reasons were supplied to the petitioners and, thereafter, the present petition was filed on 22.03.00. -5- 8. This petition was placed for admission before the Division Bench of this Court on 10.04.00 and this Court was informed that against the Order of the Tribunal, the Department has preferred an appeal under Section 260-A of the Income Tax Act, 1961, in this Court, which is still pending. Such being the further factual position, this Court directed that the present petition be put up after the disposal of the subject appeal and, in the meantime, no final order shall be passed under Section 148 of the Income Tax Act in the proceedings pursuant to the show cause notice. 9. The matter thereafter came to be placed on 28.03.00 and after hearing the parties, this Court admitted the petition and granted an interim Order in terms of the earlier Order dated 10.04.00 to be effective till the hearing and final disposal of this Writ Petition. 10. The further factual position emerging from a perusal of the annexures to the petition is that the notice dated 13.12.99 (impugned notices) reads thus : “Whereas I have reason to believe that your income/chargeable to tax for the assessment year 1989-90 has escaped assessment within the meaning of Section 147 of the Income Tax Act. I, therefore, propose to reassess the income for the said assessment year and hereby require allowance under Section..... -6- You deliver to me before the expiry of 31 days from the date of service of this notice, a return in the prescribed form of your income for the said assessment year. This notice is being issue after obtaining the necessary satisfaction of the Addl. Commissioner/ Commissioner/Chief Commissioner of Income Tax G. R. Panaji.” Identical notices have been issued to all the petitioners/assesses. After the request to furnish reasons was made, each of the petitioners received a letter from the Dy. Commissioner of Income Tax (Investigation) Panaji, dated 19.01.00 enclosing with the communication copies of the Order sheets for the relevant assessment years which, according to the Department, constitute reasons for reopening of the assessment. Once again, more or less, identical reasons are on record in respect of the other notices. The reasons read thus : “SHRI ANAND NARACINHA NAIK A. Y. 1997-98 In this group of cases, a search and seizure operation u/s. 132 of the I.T. Act had been carried out from 16.10.1996 to 13.12.1996. During the course of search operations incriminating documents, books of accounts, fixed deposits receipts, jewellery, silver wares and cash was found and seized. After verification of these seized materials and after enquiring the assessee at the time of search, the following are found to be unaccounted in the books of the assessee. -7- Sr. No. Description 1. Out of total case of Rs.2,17,547/- found at the residence of the assessee, the unexplained and unaccounted cash was Rs.1,67,547/-. 2. Out of the total value of jewellery of Rs.12,54,360/- jewellery to the extent of the value of Rs.4,25,600/- was found to be acquired from undisclosed income of the assessee. 3. Out of Total fixed deposit receiopts like share certificates, Indira Vikas Patras, fixed deposit receipts, units, etc of Rs.39,79,014/- investments to the extent of Rs.20,40,614/- found to be made from his undisputed income. 4. Cvash credits of Rs.46,000/- made in the bank accounts were not explained at the time of search proceedings. 5. Out of the value of silver wares of Rs.2,17,184/- amount to the extent of Rs.2,35,484/- was found to be acquired from undisclosed income of the assessee. Hence, I have reason to believe that the income chargeable to tax has escaped assessment for the A.Y. 97-98 as per the meaning of sec. 147. The income is to be taxed equally at 50% in each hand between wife and husband. Issue notice u/s. 148.” These notices and the reasons supplied are impugned in the present petition. 11. Mr. Nadkarni, learned Counsel appearing for the petitioners contended before us that the notices are ex-facie bad in law being without jurisdiction. He submits that the pre-requisites for exercise of jurisdiction under Section 147 are well settled. Unless, the same are satisfied, there is no -8- question of the Assessment Officer reopening the Assessment Proceedings. He submits that the mandatory pre-requisites are a guarantee against arbitrary exercise of powers by the Authorities and the Department. It is a protection to the assesses in as much as assessment finalised cannot be re- opened save and except cases covered by Section 147 of the Act. He submits that if the impugned notices are tested on the touch stone of the subject provision, it would be apparent that the notices have been issued by the Department to get over the adjudication by the Income Appellate Tribunal and finally by this Court. Mr. Nadkarni pointed out that the Department has lost throughout and even its appeal to this Court under Section 260 A of the Income Tax Act has been dismissed. In such circumstances and when Block Assessment Orders gained finality, the impugned notices are nothing but an attempt to re-open them. Such attempts are impermissible in law much less by recourse to Section 147 of the Income Tax Act. He submits that each of these notices are after the Block Assessment Proceedings were quashed by the Income Tax Appellate Tribunal. Same contentions were urged during the proceedings before the Appellate Authority. Once the Appellate Authority is finding no merit in the case of the Department, then, recourse to Section 147 was impermissible in the peculiar facts of this case. This is not a case of Income Escaping Assessment. Moreso, when the Department admits that there were proceedings initiated by it, in such circumstances, the pre-requisite which is necessary to be satisfied for invoking Section 147 having not been fulfilled, the impugned notices are without jurisdiction and must be quashed on -9- this ground alone. 12. Mr. Nadkarni, then contended that the proceedings had been initiated malafide and to harass the assesses. There was one Officer in the Department who had been instrumental right throughout in the petitioners being harassed. The search and seizure was also at his instance. This Officer Mr. Kanekar is instrumental in issuance of these notices and thereafter he sat as an approval authority having been promoted. When all the proceedings are at his instance and these are allegations in the proceedings, then, the show cause notice must be quashed and set aside on this ground as well. 13. Mr. Nadkarni then contended that assuming without admitting that there are some reasons which are set out in the Order sheet, they, by no stretch of imagination can be said to be enough to invoke the powers under Section 147 of the Income Tax Act. Taking us through the Order sheets, Mr. Nadkarni contended that what they set out are facts relating to search and seizure and details of the articles seized. Thereafter, straight away, the Officer says that he has reason to believe that the Income is chargeable to tax but, has escaped assessment. He submits that merely reproducing the words of the Section is not enough. The belief must be reasonable and of concealment of the income or the income escaping assessment by the Department. If, there are no acts attributable to the assesses, then, merely -10- because the Department feels that notices under Section 148 should be issued is not reason enough. He submits that the income was more to the Department and the facts are to the knowledge of the Department. The incomes have been assessed, may be block wise, but the assessment was subject matter of challenge in proceedings to which the Department was very much a party. In such circumstances, the Order sheet does not indicate the necessary belief based upon which the powers were to be invoked. That apart, he submits that by no stretch of imagination, the Record Sheet can be termed to be a satisfaction contemplated by Section 147. For all these reasons, he submits that the Writ Petition be allowed and the reliefs prayed for be granted. 14. Mr. Nadkarni relied upon the following decisions in support of his contention. Bhor Industries Ltd. Mumbai v. Assistant Commissioner of Income Tax & Ors. (2003 (2) Mh. L. J. 810), M/s. Ganga Saran & Sons Pvt. Ltd., Calcutta v. The Income-tax Officer and Others (AIR 1981 S.C. 1363), German Remedies Ltd. v. Dy. Commissioner of Income Tax (2006 (1) Mh. L. J. 517), Ajanta Pharma Ltd. v. Assistant Commissioner of Income Tax & Ors. (2004 (Vol. 267) Income Tax Reports 200) and Commissioner of Income-tax v. Rao Thakur Narayan Singh (56 ITR 234). 15. On the other hand, Mr. Rivonkar, appearing for the Revenue contended before us that the Writ Petition may have been entertained but no -11- relief can be granted in favour of the petitioners. He submits that undisputed factual position is that the petitioners had filed returns and raised objections. The objections would be scrutinized by the Department. If the petitioners can very well satisfy the concerned Officer and support their objections by producing relevant materials, then, there is no reason to interfere at this stage. The entire attempt is to scuttle the proceedings, which should not be permitted even at the present stage. The Department has not concluded the matter. The satisfaction is only prima facie and it would be open for the assesses to place before the Department such material to support their objections and due consideration would be given to the same where after final orders would be passed. Therefore, there is no reason to interfere at this stage. 16. That apart, he submits that reasons are admittedly furnished and supplied at the request of the assesses. The reasons indicate that the assesses had not disclosed the source of the income and the articles seized including cash could not be satisfactorily explained. Such seizure and search operations can be made foundation for proceedings under Section 147 of the IT Act and that is reason enough to hold that the proceedings are based on the Income Escaping Assessment. Had there been no occasion to doubt the source of the income and finding that the income is undisclosed and concealed that the proceedings under Section 132 were resorted to and now after the same have been concluded, it is permissible for the Department to resort to Section 147. In such circumstances, none of the decisions which -12- have been cited by Shri Nadkarni would apply and the law laid down therein is distinguishable. 17. Mr. Rivonkar tendered written submissions and after inviting our attention to the details of the notices, he contended that on the date of the notices, there was no effective Assessment Order. The Assessment Proceedings were Block and they were in any event annulled by the ITAT on 07.06.1999. At the relevant time, the appeal under Section 260-A of the Act was pending before this Court but there was no stay. Therefore, Department could have proceeded and resorted to Section 147 of the Income Tax Act. The petitioners contend that no Income Escaped Assessment is a plea which can very well be raised in the Proceedings pursuant to the notices but on that ground, the satisfaction and prima facie opinion of the authority cannot be questioned. The provisions have been rightly invoked and once there were no effective Assessment Orders, the income not being assessed and completely unaccounted, resort to Section 147 of the Income Tax Act, was permissible, moreso, the foundation of the same being the material gathered during the search and seizure. Therefore, two independent provisions have been resorted to by two independent authorities. Now, returns have been filed by the petitioners and the assessment will be duly done. Therefore, this Court should not grant any reliefs in favour of the petitioners much less quash the impugned notices. For all these reasons, the petition be dismissed. -13- 18. Mr. Rivonkar has relied upon the following decisions in support of the above contentions. Raymond Woollen Mills Ltd., v. Income Tax Officer & Ors. (1999 (Vol. 236) Income Tax Reports 34), GKN Driveshafts (India) Ltd. v. Income Tax Officer & Ors. (2003 (Vol. 259) ITR 19), A.L.A. Firm v. Commissioner of Income Tax (1991 (Vol. 189) ITR 285) and Income Tax Officer v. Selected Dalurband Coal Co. Pvt. Ltd. (1996 (Vol. 217) Income Tax Reports 597). 19. For properly appreciating the rival contentions, reference to Section 147 of the Act would be necessary. The same reads thus : “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 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 -14- 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. 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; -15- (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 (iv)excessive loss or depreciation allowance or any other allowance under this Act has been computed.” A bare perusal of the same would indicate that it is Entitled “Income Escaping Assessment”. The Assessing Officer has reason to believe that any income chargeable to escapes Assessment for assessment year, then, subject to provisions of Section 148 to 153, the Assessing Officer can re-assess or assess 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 Proceedings under this Section. 20. The proviso of the same has been relied upon by Shri Rivonkar to support some of the notices and he has contented that there is no question of the proviso becoming applicable to some of the notices which are issued within a period of four years. In other words, the failure on the part of the assessee to make the return under Section 139 or in response to a notice issued under explanation (1) of Section 142 or 148 or to disclose fully and truly all material facts is something which is germane to these notices which -16- have been issued after four years have lapsed and such requirement cannot be read into the substantive the provision namely Section 147. 21. Mr. Rivonkar has also relied upon the explanation (1) to the said proviso. 22. For the present petition, it is not necessary to consider and determine or decide any larger issues or controversy. The factual situation in the present case is undisputed. The search and seizure proceedings culminated in Block Assessment, which Block Assessment was subject matter of challenge at the instance of the petitioners. A perusal of the Order of the Income Tax Appellate Tribunal would reveal that the Income Tax Appellate Tribunal was called upon to decide the contentions, which have been raised in Para 2 of one of its Order. One of the contentions raised was that the assessment extends to income disclosed in regular proceedings before the Assessment Officer. The Income Tax Appellate Tribunal has permitted authorities to make detailed submissions and thereafter in Para 12 of the Order has gone in to the details of the search proceedings. Thereafter, it considered the law on the point and subsequently held that the assessment cannot be sustained and the appeal challenging the search and seizure deserves to be allowed. Reasons are contained in Paras 12 to 18 of the Order passed by the Income Tax Appellate Tribunal. The search and seizure proceedings were commented upon and it is worthwhile noting that the Orders -17- were delivered on 07.06.1999 and, subsequently, the Department challenged them under Section 260-A of the Income Tax Act but even that challenge in this Court has failed. 23. It is also not disputed before us that the Block Assessment was carried out and the Block Assessment was the subject matter of the proceedings. Therefore, the notices which merely state that there is reason to believe that the income chargeable to tax for the relevant assessment year has escaped assessment without anything more, cannot be said to be something which would enable the authorities to invoke section 147 of the Income Tax Act in the peculiar facts of this case. The notices are identical and neither any details of the income chargeable to tax are disclosed in the notice nor it has been set out as to how that can be termed as having escaped assessment within the meaning of Section 147. The reasons supplied are recorded in an Order sheet for the years in question. The Reasons in the Order sheets and the same being supplied only after reminders to the Department. There is much substance in the contentions of Shri Nadkarni that the search having resulted in Block Assessment and the Department having resorted to S.158 BA to S. 158 BC of the I. T. Act, it cannot be said that the Income Escaped Assessment. In these proceedings the Income was assessed and taxed after it was brought to the notice of the Assessing Officer. Merely because the Block Assessment was not upheld by the Authorities under the I.T. Act, it cannot be reason enough in this case to invoke Section