Case: N.D. Bhatt, Inspecting Assistant Commissioner of Income Tax and Another Vs. I.B.M. World Trade Corporation

Smt. SUJATA MANOHAR, J.M/s. I.B.M. World Trade Corporation, who are the appellants in Appeal No. 173 of 1982 and the respondents in Appeal No. 106 of 1982 are hereinafter referred to as "the appellant". The appellant is a Company incorporated under the laws of United States. At all material times, it carried on business in India and was declared a Company for the purposes of the Indian Income-Tax Act, 1922, by the Central Board of Revenue in the year 1953 which declaration still subsists. At all relevant times, the appellant was being assessed as a non-resident Company.2. The present appeals pertain to Assessment Years 1959-60 to 1973-74. In its returns for these Assessment Years the appellant-Company claimed certain expenses which were the proportionate share of the assessee company in the expenses incurred by the Companys Headquarters at New York as well as the expenses incurred by the Area Headquarters of the Company in Manila or Tokyo. The expenses incurred at the Companys Headquarters in New York are allocated amongst its branches all over the world in such proportion as the gross revenue of the branch bears to the gross total revenue of the Company. Similarly the expenses incurred by the concerned Area Headquarters are also allocated to each of the Branches served by it in the same proportion as the branchs gross revenue to the total gross revenue earned by all the branches coming under the Area Headquarters. The Area Headquarters of the appellant at the relevant time were located first at Manila and then at Tokyo. Towards the end of 1965, an India Region Office of the Company was set up. This office, however, did not serve the appellant-Company during any of the years which are relevant to the present appeals. It was set up to serve the needs of other regions in South Asia such as Sri Lanka, Bangaladesh, Nepal and Afganisthan.3. In each of the Assessment Years in question, the appellant received a statement from the Headquarters in New York showing the allocation of expenses relating to the Headquarters as well as the Area Headquarters coming to the share of the appellant. The appellant claimed in each of the Assessment Years 1959-60 to 1973-74 expenses on the basis of the statement so received. These have been allowed by the Department while making assessment. The manner in which these expenses were so allocated to the appellant was explained to the Income-tax Officer concerned, and this method of allocation was accepted while making the assessment for the above Assessment Years. The assessment for Assessment Years 1959-60 to 1973-74 were completed by 30th March, 1974.4. In the meanwhile, on account of an application made by the appellant to the Reserve Bank of India for remittance of Head Office Expenses to the Headquarters, New York, Reserve Bank of India, inter alia, wrote a circular letter dated 13th February, 1973 to the appellant under which they pointed out that it has been decided that the application for remittance of Head Office Expenses by branches, subsidiaries of the Company for the year 1973 onwards would be considered by the Reserve Bank of India only on production of Income-tax Assessment Orders in original showing that the amounts had been admitted by the Income-tax authority as chargeable to their revenue. The letter required the appellants to furnish to the Reserve Bank of India, Income-tax Assessment Orders in original for the years prior to 1973 and also required them to furnish, inter alia, the exact formula adopted by the Company calculating the amounts together with actual calculations leading to the amount claimed for remittance. From February, 1973 onwards there is correspondence exchanged between the Exchange Control Department of the Reserve Bank of India and the appellants. The appellants furnished certain clarification by their letter dated 30th April, 1973 showing the details of the Headquarters expenses for 5 years 1967 to 1971. With this letter a statement by Mr. B.H. Withem Vice President, Finance, of the Company, enunciating the rationale behind Headquarters expenses, the composition thereof and the methodology adopted for apportioning the same were also explained. A certificate from Messrs Price Watergate authenticating the method of allocating Headquarters expenses to all the branches was also enclosed. Thereafter the Reserve Bank of India by its letter dated 7th February, 1974 asked the appellants to furnish the ratio which the Indian Branchs gross revenue in that year bore to the total gross revenue of all the branches of IBM for the year 1971. As a result, the appellants were required to go into the methodology as well as the actual figures adopted by them for the purposes of allocating expenses of the Headquarters as well as Area Headquarters to the appellants.5. Thereupon the appellants discovered that a mistake had been made in allocating area headquarters expenses to the appellants for the Assessment Years 1967-68 to 1973-74. It seems that after the India Region Office was set up towards the end of 1965, the expenses of this office were allocated to the appellants in proportion to their income although the India Region Office did not serve the appellants at all. Instead, what should have been allocated to the appellants were the expenses of the Asian Headquarters located in Tokyo as was being done previously. As a result, a larger amount of expenses was allocated to the appellants than what should have been allocated. On discovery of this error, C.R. Williamson, President, IBM World Trade American/Far East Corporation, wrote a letter dated 1st November, 1974 to the appellants in New Delhi in which he has pointed out that it was incorrect to allocate to the appellants the expenses of the India Region Office. What should have been charged was a proportion of the Area Headquarters expenses of the Asian Pacific Headquarters located at Tokyo from which considerable support was given to India. He pointed out that on account of this error there had been an over-remittance of $ 338,922. For the same reasons the allocation made to India for the year 1971-72 also had incorrect amounts included therein. In these years, however, support responsibility from Asian Pacific Headquarters ceased and, therefore, no allocation from that area was warranted. Consequently all requests for remittances of Headquarters expenses from 1971 onwards should be withdrawn and resubmitted with the correct charge. He also directed that the Income-tax returns for all these years should also be amended accordingly and all requisite steps should be taken in this behalf.6. Pursuant to these directions, the appellants by their letter dated 22nd November, 1974 made a voluntary disclosure under section 271 (4A)(ii) of the Income Tax Act, 1961 in respect of income underassessed for the Assessment Years 1967-68 to 1973-74. This letter was addressed to the Commissioner of Income-tax, Bombay City II. The appellants have set out in the letter that the amount of allocated share of the Headquarters expenses claimed as tax deductible expenses for these Assessment Years was based on debit notes issued by the IBM World Trade Corporation, New York. The letter sets out in detail how, upto the end of 1965, the appellants in India used to report to the New York Headquarters through the Asian Pacific Headquarters located first at Manila and then at Tokyo. At the end of 1965, India Region Office was set up. The appellants, however, until the end of 1970 continued to draw support from Asian Pacific Headquarters. An error in principle had arisen in allocation of expenses in that India Region Office Expenses had been allocated to India rather than the Area Headquarters expenses which should have been correctly charged. As a result, there had been an excess charge of Headquarters expense allocable to India of Rs. 61,19,092/- for the years 1966 to 1972. A yearwise break down was also annexed to the letter. In addition, the findings of a detailed examination carried out in New York were also annexed. The letter pointed out that the errors had arisen inadvertently and a full disclosure was being made voluntarily immediately on the determination of the full facts. The letter requested waiver of penalty under section 271(4A)(ii) of the Income Tax Act, 1961. Amended returns for the years 1966 to 1972 were also submitted and a self assessment of the tax payable was made and the tax amount of Rs. 49,29,148/- was also enclosed.7. Nothing was heard from the Commissioner of Income Tax thereafter. However, the appellants received notices from the Income Tax Officer under section 148 of the Income Tax Act for the Assessment Years 1967-68 to 1973-74, all dated 5th January, 1976. On an enquiry by the appellants, the Inspecting Assistant Commissioner clarified to the appellants that the notices under section 148 were issued to regularise the voluntary returns filed by the assessee along with voluntary disclosures under section 271(4A) of the Income Tax Act, 1961 on November 22, 1974. This is recorded in the appellants letter to the Inspecting Assistant Commissioner dated 9th February, 1976. The appellants, by their further letter dated 2nd March, 1976 addressed to the Inspecting Assistant Commissioner, have again referred to the discussion which they had with him and have submitted that the returns already filed with the Department on November 22, 1974 should be treated as returns in respect of their said notices under section 148. Thereafter the appellant received a notice under section 148 for the Assessment Year 1959-60 dated 18th March, 1976. They also received notices under section 148 for the Assessment Years 1960-61 to 1966-67 all dated 10th October, 1976.8. On account of a series of letters/notices received by the appellants from the department requiring them to furnish details of accounts, expenditure, exports, imports, cost structure etc., for the Assessment Years 1959-60 to 1973-74, the appellants filed in this Court Misc. Petition No. 174 of 1978 on 16th February, 1978 which has been disposed of by a learned Single Judge of this Court by his impugned order. The learned Judge, by his judgment and order dated 1st September, 1981 has partly allowed the petition. He has set aside the notices under section 148 for the Assessment Years 1959-60 to 1966-67. He has, however, upheld the notices under section 148 pertaining to the Assessment Years 1967-68 to 1973-74. The appellants have preferred Appeal No. 173 of 1982 from the judgment of the learned Single Judge in so far as the judgment upholds notices under section 148 for the Assessment Years 1967-68 to 1973-74. The Department has filed Appeal No. 106 of 1982 from the judgment of the learned Single Judge in so far as it sets aside the notices under section 148 pertaining to the Assessment Years 1959-60 to 1966-67.9. Section 147 as it stood at the material time was as follows :"If ---(a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that 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 or recompate the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).Explanation 1 :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 income chargeable to tax has been under-assessed; or(b) where such income has been assessed to too low a rate; or(c) Where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or(d) where excessive loss or depreciation allowance has been computed.Explanation 2: 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 this section."Section 148 as it stood at the relevant time was as follows :"(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139; 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.(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so."Under section 151 as it stood at the relevant time, it was provided as follows:"(1) No notice shall be issued under section 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice.(2) No notice shall be issued under section 148 after the expiry of four years from the end of the relevant assessment year, unless the Chief Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice."In the present case, notices under section 148 have been issued in view of the Assessing Officer having reason to believe that the appellant/assessee has failed to disclose fully and truly all material facts necessary for his assessment for the years concerned, that is to say under section 147(a) of the Income-tax Act, 1961 as it stood at the relevant time.10. Now, for the Assessment Years 1959-60 to 1966-67, there was no error on the part of the assessee in claiming a deduction on account of Headquarters expenses. The same were correctly computed. So there was no omission or failure on the part of the assessee to disclose material facts. Under section 148(2) reasons are required to be recorded by the assessing authority for re-opening any assessment. These were produced before the learned Single Judge and are annexed to the affidavit in rejoinder of the appellants dated 28th August, 1989 in the writ petition. The assessing authority has referred to the fact that the assessee has admitted an excess charge of Headquarters expenses allocated to the appellants amounting to Rs. 61.19 lakhs for the accounting years 1968 to 1972. The Assessing Officer goes on to state that it has come to his knowledge that the Headquarters expenses claimed by the assessee are not based on actual service or benefits obtained by the assessee but are based on the ratio of Indian Branchs turnover to the world turnover of the branches and subsidiaries and in view thereof he has reopened assessments for the said period.11. In respect of Accounting Years 1968 to 1972 the learned Judge, in our view, has rightly come to the conclusion that the assessing authority was informed by the assessee about the basis and the method of allocation of headquarters expenses to the appellant-assessee. It was aware of the method of allocating expenses at the time of making the assessment orders for these assessment years. The reasons show merely a change of opinion on the part of the assessing authority. In these circumstances, it cannot be held that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for these years. We agree with the reasoning and conclusion arrived at by the learned Judge for quashing the notices served on the assessee under section 148 of the Income Tax Act, 1961 for these Assessment Years.12. In respect of Assessment Years 1967-68 to 1973-74 there was admittedly an error on the part of the New York Headquarters of the appellants-Company in calculating the expenses allocated to the appellants in India. This mistake was discovered for the first time in 1974 when the appellants headquarters in New York were required to make detailed calculations to supply the information sought by the Reserve Bank of India for remittance of the expenses from India to New York. We have already referred to the nature of the error. The facts show that the error was inadvertant. When the new India Region Office opened at the end of 1965, the Headquarters erroneously allocated to the appellants, the expenses of India Region Branch instead of the Area Headquarters.13. In these circumstances, can it be said that there has been any failure or omission on the part of the assessee to disclose fully and truly all material facts In the first place, there is no doubt that the assessee had disclosed to the assessing authority the method of calculating the Headquarters expenses which were allocated to the appellant. Therefore, the assessing authorities were fully aware of the fact that the assessee was claiming Headquarters expenses on the basis of debit notes given to them by the Headquarters at New York and that these debit notes were based on the calculation of expenses to be allocated to the assessee on a pro rata basis as set out earlier. If the department wanted any further particulars regarding these calculations or any details in connection with the debit notes so furnished, it could have asked the assessee to furnish such details. In fact, the Department did ask the assessee for such particulars which were in fact furnished to the Department. It is an accepted position that neither the appellant/assessee nor the Department realised that the figures pertaining to India Region Office should not have been submitted and instead, figures pertaining to the Area Headquarters should have been submitted. There was, therefore, no omission or failure to disclose any material facts.14. The assessee is under an obligation to disclose only all basic facts. The assessee cannot be expected to draw any inference or to disclose any inference to be made from these basic facts. In the case of (Indian Oil Corporation v. Income-Tax Officer, Central Circle V, Calcutta)1, reported in 159 I.T.R. 956 the Supreme Court considered a case where the facts were very similar to the facts which are before us. In that case the asessee was a company incorporated in U.K. It had its principal place of business in Assam. The assessee claimed deduction of certain expenses as administrative charges incurred by the assessee-Company in London for management and secretarial work carried on, on behalf of the assessee in London. The expenses represented approximately 40% of the total composite management expenses of the Company in London covering these expenses in respect of their management and secretarial work of all its branches. This was done in the Assessment Year 1954-55 and onwards. In the Assessment Year 1954-55 the Income-tax Officer called for an auditors report regarding the reasonableness of the allocation of such expenses. But nothing further seems to have been done. For the Assessment Year 1963-64, the assessee furnished a certificate from the London auditor which revealed that reasonable charges allocable to the assessee would be about 10% of the total administrative expenses incurred by the Headquarters from London. The assessee was asked to produce similar certificates for the Assessment Years 1957-58, 1958-60 and on his failing to produce the same, the Income-tax Officer issued notices under section 147(a) for reopening the assessments for those years. The Supreme Court held that the assessee had all along disclosed and the Revenue was aware that London management expenses were incurred on behalf of the assessee by the Company in London which incurred such expenses for the assessee as well as other allied Companies. The fact of allocation of a portion of these expenses to the assessee was known all along to the Revenue. The nature and quantum of work done was disclosed; whether the allocation was excessive or not was an inferential fact. The Court said that simply because auditors opined for the assessment year 1963-64, that ten per cent would be a reasonable charge, it could not be said that the assessee had failed to disclose fully and truly all basic facts at the time of the original assessment. There was no evidence or allegation that such an opinion was available with the assessee at or before the time of the original assessment. All the basic facts in this case were disclosed. Therefore, it could not be said that there was failure to disclose fully and truly all basic facts. The Court said, "To confer jurisdiction under Clause (a) of section 147 to reopen an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, two conditions are required to be fulfilled; the first is that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to tax, had been underassessed or escaped assessment; the second is that he must have reason to believe that such escapement or under- assessment was occasioned by reason of the assessees failure to disclose fully and truly all material facts necessary for the assessment of that year. Both these conditions are conditions precedent to be satisfied". The ratio of this judgment directly applies to the present case also where the appellant/assessee had disclosed all basic facts in its possession at the time of the original assessments. It was not aware of the inadvertant error in calculation. Hence there was no question of the assessee not disclosing such an error. In the case of (Calcutta Credit Corporation Ltd. v. I.T.O.)2, reported in 79 I.T.R. 483 also a similar ratio has been laid down.15. Moreover, the assessee must be aware of those facts which are not disclosed before it can be said that there is any omission or failure on his part to disclose the same. In the case of (Commissioner of Income-Tax, Bombay v. Balvantrai S. Jain)3, reported in 72 I.T.R. 59, the Bombay High Court held that the assessee cannot be said to have failed to disclose the facts in question as he had no knowledge of those facts. It interpreted section 34(1)(a) of the Income-Tax Act, 1922 which is in para materia with the present section 147(a) and held that section 34(1)(a) covers only cases where the assessee, knowing all the material facts, deliberately withholds information. The section cannot apply to a case where the assessee was not aware of the facts which he was supposed to disclose.16. There are similar observations in the case of (Sampat Ram Budhmal Dugar v. Commissioner of Wealth-Tax)4, reported in 164 I.T.R. page 178. The Court there dealt with section 17(1)(a) of the Wealth-Tax Act, 1957, which is also in pari materia with section 147(a) of the Income-tax Act, 1961. The Court said that omission or failure to disclose fully or truly any material fact postulates the knowledge of this fact at the relevant time. A person cannot be held guilty of omission or failure to disclose a fact of which he had no knowledge.17. It is sought to be argued by Dr. Balasubramaniam on behalf of the Department that in the present case the assessee must be considered to have been aware of the error because the appellant-Company at New York is a very large world-wide organization having expert Accountants and Auditors. Hence one should not accept that the accounts department committed any error in calculating the allocation of expenses or that such error came to light only in November, 1974. This contention is raised for the first time in these proceedings. In the reasons which are set out for reopening the assessment for the years 1967-68 to 1973-74, it is nowhere mentioned that the error in calculation was throughout known to the assessee and that information regarding wrong calculation of headquarter expenses allocated to the assessee was deliberately withheld by the assessee. Not only is this not recorded as a reason for reopening the assessment, but the documents which are before us in these proceedings all indicate to the contrary and we have no reason to disbelieve these documents. It is quite clear that by the letter dated 22nd November, 1974 the assessee had voluntarily disclosed to the Commissioner of Income-tax the error in calculation of headquarters expenses. The excess debit has arisen because larger expenses of the region office rather than the area office have been taken into account. The assessee has voluntarily disclosed this error on learning of it, has calculated the excess income and paid tax on self assessment on this additional income. All this was done long prior to the notices being issued to the assessee under section 148 in respect of these Assessment Years. The contention of Dr. Balasubramniam in this connection is, therefore, without merit.18. It is also well settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reasons so recorded can be looked at for sustaining or setting aside a notice issued under section 148. In the case of (Equitable Investment Co. (P.) Ltd. v. Income-tax Officer)5, reported is 174 I.T.R. page 714, a Division Bench of the Calcutta High Court has held that where a notice issued under section 148 of the Income-Tax Act, 1961, after obtaining the sanction of the Commissioner of Income-tax, is challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which the sanction of the Commissioner of Income-tax has been obtained . The Income-tax Department cannot rely on any other material apart from the report. In the case before it, the Calcutta High Court refused to take into consideration the affidavit filed by the Income-Tax Department giving some additional reasons. In the present case, the reasons which are given by the Inspecting Assistant Commissioner for re-opening the assessments which are annexed to the affidavit in rejoinder of the appellants are to the effect that in respect of the assessment years 1967-68 to 1973-74 there are errors in the principle of allocating headquarters expenses to India which have been deducted. The net effect is that there has been an excess charge of headquarters expenses allocated to India. Each of the notices sets out the relevant error for the accounting year. The reasons, therefore, do not indicate in any manner any deliberate omission or suppression of any fact or of this error, on the part of the assessee at the time of the original assessment. Nor do these reasons allege that the assessee was in possession of the facts which it has failed to prove. In these circumstances, the provisions of section 147(a) are not attracted.19. It is also contended by the appellants that the sanction which is granted by the Commissioner for Assesment Years 1967-68 to 1973-74 under section 151 of the Income-tax Act, 1961 is without any application of mind, because below the reasons so disclosed it is found that the sanctioning authority has merely said `yes. According to the appellants, looking to the reasons set out, it should have been clear to the sanctioning authority that there was no failure or omission on the part of the assessee to disclose any material fact. Had the sanctioning authority applied its mind, it would not have given such a sanction. The appellant/assessee relied on the decision in the case of (Chhugamal Rajpal v. S.P. Chaliha)6, reported in 79 I.T.R. page 603, where the Supreme Court on the facts before it held that the Income-tax Officer had not even come to a prima facie conclusion that the loan transactions to which he referred were not genuine transactions. His conclusions that there was a case for investigating the truth of the alleged transactions was not the same thing as saying that there were reasons for the issue of the notice. The Commissioner had mechanically accorded permission for issue of notice. In that case also the Commissioner had merely added the word `yes and fixed his signature. The Court came to the conclusion that the Commissioner had not applied his mind. We are not willing to read this case as laying down that where the Commissioner only adds a word `yes, he has not applied his mind. This will depend upon the facts and circumstances of each case. In the present case, however, looking to the reasons which have been recorded and which were before the Commissioner, there is nothing which would indicate that there was any omission on the part of the assessee to furnish any material facts. In fact the reasons themselves describe this so-called omission and failure as an inadvertant error in the principle of allocating expenses. In these circumstances, the sanction ought not to have been given by the Commissioner. But we need not press this aspect of the case in support of our conclusion in view of our finding that in any case, the notices under section 148 have been issued without the provisions of section 147(a) being attracted to the facts and circumstances of the case.20. The appellant/assessee has also objected to the large number of queries raised by the assessing authority in the course of the assessment which clearly indicate that the entire assessment on all aspects was being reopened for each of the assessment years. The appellant/assessee has submitted that when the reassessment is on a specific ground, the reassessment should ordinarily be confined to determine the income which has escaped assessment. It was submitted that the entire assessment could not have been reopened by the department in any event. The appellant/assessee has relied upon the decision of the Supreme Court in the case of (Commissioner of Income-tax v. Sun Engineering Works P. Ltd.)7, reported in 198 I.T.R. Page 297, where various conflicting decisions of different High Court have been examined. We need not go into this question because in any event the notices for Assessment Years 1967-68 to 1973-74 are required to be set aside because they do not comply with the requirement of section 147(a) of the Income-tax Act, 1961.

Decision reasoning: 0[ds]10. Now, for the Assessment Years7, there was no error on the part of the assessee in claiming a deduction on account of Headquarters expenses. The same were correctly computed. So there was no omission or failure on the part of the assessee to disclose material facts. Under section 148(2) reasons are required to be recorded by the assessing authority forany assessment. These were produced before the learned Single Judge and are annexed to the affidavit in rejoinder of the appellants dated 28th August, 1989 in the writ petition. The assessing authority has referred to the fact that the assessee has admitted an excess charge of Headquarters expenses allocated to the appellants amounting to Rs. 61.19 lakhs for the accounting years 1968 to 1972. The Assessing Officer goes on to state that it has come to his knowledge that the Headquarters expenses claimed by the assessee are not based on actual service or benefits obtained by the assessee but are based on the ratio of Indian Branchs turnover to the world turnover of the branches and subsidiaries and in view thereof he has reopened assessments for the said period.11. In respect of Accounting Years 1968 to 1972 the learned Judge, in our view, has rightly come to the conclusion that the assessing authority was informed by the assessee about the basis and the method of allocation of headquarters expenses to theIt was aware of the method of allocating expenses at the time of making the assessment orders for these assessment years. The reasons show merely a change of opinion on the part of the assessing authority. In these circumstances, it cannot be held that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for these years. We agree with the reasoning and conclusion arrived at by the learned Judge for quashing the notices served on the assessee under section 148 of the Income Tax Act, 1961 for these Assessment Years.12. In respect of Assessment Years74 there was admittedly an error on the part of the New York Headquarters of thein calculating the expenses allocated to the appellants in India. This mistake was discovered for the first time in 1974 when the appellants headquarters in New York were required to make detailed calculations to supply the information sought by the Reserve Bank of India for remittance of the expenses from India to New York. We have already referred to the nature of the error. The facts show that the error was inadvertant. When the new India Region Office opened at the end of 1965, the Headquarters erroneously allocated to the appellants, the expenses of India Region Branch instead of the Area Headquarters.13. In these circumstances, can it be said that there has been any failure or omission on the part of the assessee to disclose fully and truly all material facts In the first place, there is no doubt that the assessee had disclosed to the assessing authority the method of calculating the Headquarters expenses which were allocated to the appellant. Therefore, the assessing authorities were fully aware of the fact that the assessee was claiming Headquarters expenses on the basis of debit notes given to them by the Headquarters at New York and that these debit notes were based on the calculation of expenses to be allocated to the assessee on a pro rata basis as set out earlier. If the department wanted any further particulars regarding these calculations or any details in connection with the debit notes so furnished, it could have asked the assessee to furnish such details. In fact, the Department did ask the assessee for such particulars which were in fact furnished to the Department. It is an accepted position that neither the appellant/assessee nor the Department realised that the figures pertaining to India Region Office should not have been submitted and instead, figures pertaining to the Area Headquarters should have been submitted. There was, therefore, no omission or failure to disclose any materialcontention is raised for the first time in these proceedings. In the reasons which are set out for reopening the assessment for the years4, it is nowhere mentioned that the error in calculation was throughout known to the assessee and that information regarding wrong calculation of headquarter expenses allocated to the assessee was deliberately withheld by the assessee. Not only is this not recorded as a reason for reopening the assessment, but the documents which are before us in these proceedings all indicate to the contrary and we have no reason to disbelieve these documents. It is quite clear that by the letter dated 22nd November, 1974 the assessee had voluntarily disclosed to the Commissioner ofthe error in calculation of headquarters expenses. The excess debit has arisen because larger expenses of the region office rather than the area office have been taken into account. The assessee has voluntarily disclosed this error on learning of it, has calculated the excess income and paid tax on self assessment on this additional income. All this was done long prior to the notices being issued to the assessee under section 148 in respect of these Assessment Years. The contention of Dr. Balasubramniam in this connection is, therefore, without merit.18. It is also well settled that the reasons for reopening are required to be recorded by the assessing authority before issuing any notice under section 148 by virtue of the provisions of section 148(2) at the relevant time. Only the reasons so recorded can be looked at for sustaining or setting aside a notice issued under section 148. In the case of (Equitable Investment Co. (P.) Ltd. v.Officer)5, reported is 174 I.T.R. page 714, a Division Bench of the Calcutta High Court has held that where a notice issued under section 148 of theAct, 1961, after obtaining the sanction of the Commissioner ofis challenged, the only document to be looked into for determining the validity of the notice is the report on the basis of which the sanction of the Commissioner ofhas been obtained . TheDepartment cannot rely on any other material apart from the report. In the case before it, the Calcutta High Court refused to take into consideration the affidavit filed by theDepartment giving some additional reasons. In the present case, the reasons which are given by the Inspecting Assistant Commissioner forreopening the assessmentswhich are annexed to the affidavit in rejoinder of the appellants are to the effect that in respect of the assessment years74 there are errors in the principle of allocating headquarters expenses to India which have been deducted. The net effect is that there has been an excess charge of headquarters expenses allocated to India. Each of the notices sets out the relevant error for the accounting year. The reasons, therefore, do not indicate in any manner any deliberate omission or suppression of any fact or of this error, on the part of the assessee at the time of the original assessment. Nor do these reasons allege that the assessee was in possession of the facts which it has failed to prove. In these circumstances, the provisions of section 147(a) are notconclusions that there was a case for investigating the truth of the alleged transactions was not the same thing as saying that there were reasons for the issue of the notice. The Commissioner had mechanically accorded permission for issue of notice. In that case also the Commissioner had merely added the word `yes and fixed his signature. The Court came to the conclusion that the Commissioner had not applied his mind. We are not willing to read this case as laying down that where the Commissioner only adds a word `yes, he has not applied his mind. This will depend upon the facts and circumstances of each case. In the present case, however, looking to the reasons which have been recorded and which were before the Commissioner, there is nothing which would indicate that there was any omission on the part of the assessee to furnish any material facts. In fact the reasons themselves describe thisomission and failure as an inadvertant error in the principle of allocating expenses. In these circumstances, the sanction ought not to have been given by the Commissioner. But we need not press this aspect of the case in support of our conclusion in view of our finding that in any case, the notices under section 148 have been issued without the provisions of section 147(a) being attracted to the facts and circumstances of theneed not go into this question because in any event the notices for Assessment Years74 are required to be set aside because they do not comply with the requirement of section 147(a) of the2. We would like to point out that in the appealfiled by the Department in Appeal No. 106 of 1982 an unaffirmed affidavit in reply on behalf of the Department is annexed at pages 162 to 228 which affidavit is not on record and does not appear to have been filed in Court before the learned Single Judge or before us. Similarly there is an extract under the heading `Press Commission at page 139 which also appears to be an extra addendum inserted in the appealwhich was not before the learned Single Judge. These two documents are required to be ignored. The only affidavits which are filed by the Department are the affidavit of N.D. Bhatt dated 11th April, 1978 and the affidavit of S.K. Tyagi dated 12th September, 1980.