Assam Co. Ltd. v. Union of India & Ors.

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The Tax Publishers2005 TaxPub(DT) 1473 (Gau-HC) : (2005) 006 (I) ITCL 0061 : (2005) 275 ITR 0609 : (2005) 197 CTR 0659 : (2006) 150 TAXMAN 0571 Assam Co. Ltd. v. UOI (Gauhati) () INCOME TAX --Reassessment----NOTICE UNDER SECTION 148Assessee disclosed primary facts truly and fully and notice issued misreading High Court judgment--Assessee-company was engaged in the business of cultivation, manufacture and sale of tea. It submitted its return disclosing inter alia that cess was paid by it under Agricultural Act and deduction for cess so paid was claimed while computing income. The AO allowed the deduction as asked for by the assessee. However, subsequently the notices under section 148 were issued stating that in claiming deduction of the amount of cess paid on green leaves for determining the composite income under rule 8 of the Income Tax Rules, 1962, it was not mentioned in the returns that the cess was the tax paid under the Assam Taxation (On Specified Land) Act, 1990 and thereby the assessees had failed to make full and true disclosure of all material facts with regard to such payment. The revenue maintained that in Jorehaut Group Ltd. v. Agrl. ITO (1997) 226 ITR 622 (Gau), cess paid had been held to be a tax, and the assessees were entitled to a deduction thereof only from 60 per cent. of the composite agricultural income, they could not be allowed the said benefit in determining the 100 per cent. composite income under the Income Tax Act as otherwise it would result in double deduction for the same payment. The assessee argued that it had made a full and true disclosure of all material facts necessary for assessment in their returns mentioning, inter alia, therein the amount debited on account of cess on green leaves. Therefore, it was entitled to the deduction in determining the 100 per cent. composite income and the AO on a scrutiny of all relevant materials having allowed the deduction in completing the assessment under section 143(3) of the Act, it could not be construed to be a case of income escaping assessment within the meaning of section 147 of the Act. Held: Notices to be quashed as the decision cited in Jorehaut case (supra) did not reflect the view as stated by the revenue, therefore, there was no question of escapement of income. Further, the true and full facts had been disclosed by the assessee in computation of income, the audited statements of the account and the tax audit report, etc. Income Tax Act, 1961 s.148 Assam Agrl. IT Act, 1939 s.8 Assam Co. Ltd. v. Union of India (Gauhati) In the Gauhati High Court Amitava Roy, J. 11 March 2005 Counsel : U. Bhuyan for the respondents. JUDGMENT Amitava Roy J. This batch of petitions register a challenge to the notices issued under section 148 of the Income Tax Act, 1961 (hereafter referred to as 'the Act'), purportedly initiating a proceeding/action under section 147 thereof on the ground that the income of the assessees/writ petitioners as computed therein had escaped assessment for the different assessment years mentioned therein. The notices though are differently dated and relatable to varying assessment years, a substantial homogeneity in the contextual background being evident and common questions of law having been raised, the petitions deserve to be disposed of by this common judgment and order. I have heard Mr. R. P. Agarwalla, senior advocate assisted by Mr. R. L. Jain, advocate, for the petitioners in W. P. (C) No. 1163 of 2003, W. P. (C) No. 1258 of 2003, W. P. (C) No. 1259 of 2003, W. P. (C) No. 1260 of 2003 and W. P. (C) No. 6630 of 2003 and Mr. G. K. Joshi, senior advocate assisted by Mr. R. K. Joshi and Ms. U. Chakrabarty advocates for the petitioners in W. P. (C) No. 4102 of 2003, W. P. (C) No. 4103 of 2003 and W. P. (C) No. 4111 of 2003. Mr. U. Bhuyan, learned standing counsel, Income-tax department represented the revenue. The pleaded facts in W. P. (C) No. 1163 of 2003 would be adequately illustrative of the factual premises. The petitioner-company is engaged in the business of cultivation, manufacture and sale of tea and is regularly assessed under the Act. It submitted its return for the assessment year 1995-96 on 29-11-1995, and paid all the taxes due as per the return. It submitted along with its return, all relevant documents such as computation of income, audited statements of accounts, tax audit report, etc. The jurisdictional assessing officer on completion of the assessment for the year in question determined the total taxable income at Rs. 3,45,05,704, which was subsequently revised. The petitioner/assessee duly paid all taxes as assessed. It was thereafter that the impugned notice dated 27-3-2002, by the Assistant Commissioner of Income-tax (Circle 2), Dibrugarh, was issued notifying the petitioner that the said authority had reason to believe that its income chargeable to tax for the assessment year in question had escaped assessment within the meaning of section 147 of the Act requiring reassessment of its income for the said assessment year. In reply thereto the petitioner while requesting the authority to treat its original return to be the one submitted in compliance with the notice sought for a copy of the reasons required to be recorded under section 148(2) of the Act for issuance of such reassessment notice. By communication dated 17-4-2002, respondent No. 3 furnished the reasons in reply whereto the petitioner submitted a representation detailing its stand in response to the notice with a request to drop the reassessment proceedings. As the revenue persisted with the proceedings in spite of the objection raised, the instant petition was filed seeking to invoke the writ jurisdiction of this court. The present bunch of petitions has two petitioners, Assam Company Ltd. and M/s. Bajaloni Group Ltd. They are similarly situated inasmuch as though the dates of the impugned notices and the assessment years are different, there is a community of grievances inasmuch as they are one in contending on identical grounds that the impugned action of the respondents in invoking sections 147 and 148 of the Act in the prevailing facts and circumstances is per se illegal and without any authority of law. The individual facts of all the petitions have, therefore, been avoided in the interest of brevity. In the counter filed in W. P. (C) No. 1163 of 2003, W. P. (C) No. 1258 of 2003, W. P. (C) No. 1259 of 2003 and W. P. (C) No. 1260 of 2003, the revenue's plea in essence is that in claiming deduction of the amount of cess paid on green leaves for determining the composite income under rule 8 of the Income-tax Rules, 1962 (hereafter referred to as 'the Rules'), it was not mentioned in the returns that the cess was the tax paid under the Assam Taxation (On Specified Land) Act, 1990 (hereafter referred to as 'the 1990 Act'), and thereby the assessees had failed to make full and true disclosure of all material facts with regard to such payment. The revenue maintained that as decided by this court in Jorehaut Group Ltd. v. Agrl. Income Tax Officer (1997)226 ITR 622, cess payable on green leaves under the 1990 Act is to be deducted only from 60 per cent. of the composite income and as the above judicial determination is binding on all authorities, the reassessment proceedings had been initiated. As the cess paid has been held to be a tax, in the above reported decision and the assessees are entitled to a deduction thereof only from 60 per cent. of the composite agricultural income, they cannot be allowed the said benefit in determining the 100 per cent. composite income under the Act as otherwise it would result in double deduction for the same payment. Before adverting to the rival arguments, it would be advantageous to notice the recorded reasons in support of the impugned decision as communicated to the petitioners. It transpires from the communications to the above effect that the concerned respondent authority was of the view that in terms of the decision of this court in Jorehaut Group Ltd. (1997) 226 ITR 622, the assessees were entitled to deduction of cess on green leaves only from 60 per cent. of the composite agricultural income and, therefore, 40 per cent. of the cess amount allowed as deduction in determining the composite income under rule 8(2) of the Rules, was an income which had escaped assessment within the meaning of section 147 of the Act. Mr. Agarwalla has assertively urged that as the assessees had made a full and true disclosure of all material facts necessary for assessment in their returns mentioning, inter alia, therein the amount debited on account of cess on green leaves they were entitled to the deduction in determining the 100 per cent. composite income and the assessing officer on a scrutiny of all relevant materials having allowed the deduction in completing the assessment under section 143(3) of the Act, it could not be construed to be a case of income escaping assessment within the meaning of section 147 of the Act. According to learned senior counsel, the respondent authority had thoroughly misinterpreted and misread the decision of this court in Jorehaut Group Ltd. (1997) 226 ITR 622, and had misapplied the same rendering the very basis of the impugned reassessment proceeding nonexistent. He maintained that this court not having held in the said decision that the cess paid on green leaves was not an admissible deduction in working out the composite income, the purported reason for issuing the impugned notices is imaginary and they are thus liable to be adjudged non est in law. Contending that the cess involved is in fact a payment under the 1990 Act, for which obviously deduction is allowable in computing the 100 per cent. composite income under rule 8 of the Rules, Mr. Agarwalla underlined that the impugned decision of the respondent- authority being on a total misreading of the decision of this court in Jorehaut Group Ltd. (1997) 226 ITR 622, is an abuse of the process of law warranting interference of this court. It was argued that as the 100 per cent. composite income under rule 8(1) of the Rules was computed by allowing the deduction of the cess amount paid under the 1990 Act and the taxable income under the Act and the agricultural income was calculable there from, the respondent authority had no jurisdiction to reopen the computation so made in face of the catena of decisions of the apex court to the above effect. It not being the case of any of the parties that the cess paid though a tax under the 1990 Act was not allowable as a permissible deduction under the Act while computing the composite income under rule 8(1) of the Rules, the impugned reassessment proceeding which has the effect of reopening the computation already made is without jurisdiction. Mr. Agarwalla further contended that as the assessment of the tax payable on the basis of the return submitted by the petitioner had been made under section 143(3) of the Act permitting the deduction of the cess amount mentioned in the return, the decision to initiate reassessment proceeding amounts to a change in the opinion of the assessing authority in favour of withdrawing the deduction earlier permitted on a non-existent ground. Inviting the attention of this court to sections 147 and 148 of the Act learned senior counsel emphasised that the essential preconditions for invocation of power thereunder being conspicuously absent in the instant case, the impugned notices are on the face of the records illegal, unauthorised and unsustainable in law and are liable to be quashed. There being no legally acceptable reason to believe that any income chargeable to tax had escaped assessment in any of the assessment years involved, the impugned action being per se opposed to the mandate of the above provisions of the Act is liable to be adjudged illegal and unconstitutional. The petitioners having admittedly submitted its return, in W. P. (C) No. 1163 of 2003 and W. P. (C) No. 1258 of 2003 pertaining to the assessment years 1995/1996 and 1996/1997, disclosing fully and truly all material facts necessary for assessment, Mr. Agarwalla urged that the impugned notices relating to these assessment years having been issued after the expiry of four years from the end of the relevant assessment year, those were barred by time as well and on that count alone are non est in law. Referring to the stand taken in the respondents' counter that the impugned notices were issued as the petitioners had failed to disclose in their return that the cess paid was tax under the 1990 Act, Mr. Agarwalla, contended that the same besides being obviously untenable is also liable to be ignored as the same was not incorporated in the reasons set out in the impugned notices. The reason in support of the reassessment proceeding having spelt out in the notices, it was not open for the respondent authority to supplement the same by fresh grounds in its affidavit, he asserted. He contended that the ratio decidendi in Jorehaut Group Ltd. (1997) 226 ITR 622, is that the cess paid is a tax and the determination recorded in the said decision is nothing beyond that. It was contended that the facts of the reported case though not clear, it is inferable that no deduction for the cess amount paid had been allowed under the Act justifying the deduction while computing the taxable agricultural income under section 8(2)(e) of the Assam Agricultural Income Tax Act, 1939. He contended that intimation under section 143 (1) (a) of the Act was also an assessment and that the present was a case of change of opinion of the assessing authority for no acceptable reason recognised in law. There being no conceivable reason to believe in the facts and circumstances of the case that any taxable income has escaped assessment, learned senior counsel argued that the impugned action of the respondent authorities is palpably illegal and without jurisdiction and thus the impugned notices are liable to be set aside and quashed. In support of his contentions, Mr. Agarwalla placed reliance on the following authorities. Jorehaut Group Ltd. v. Agrl. Income Tax Officer (1997) 226 ITR 622 (Gauhati) ; CIT v. Sun Engineering Works P. Ltd. (1992) 198 ITR 297 (SC) ; Assam Co. Ltd. v. State of Assam (2001)248 ITR 567 (SC) ; Tata Tea Ltd. v. State of West Bengal (1988)173 ITR 18 (SC) ; Bazaloni Group Ltd. v. CIT (2005)272 ITR 11 (Gauhati) ; Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax (1971) 82 ITR 147 (SC) ; Income Tax Officer v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) ; Ganga Saran and Sons Pvt. Ltd. v. Income Tax Officer (1981) 130 ITR 1 (SC) ; Parashuram Pottery Works Co. Ltd. v. Income Tax Officer (1977)106 ITR 1 (SC) ; Associated Stone Industries (Kotah) Ltd. v. CIT (1997) 224 ITR 560 (SC) ; Joint CIT (Assessment) v. George Williamson (Assam) Ltd. (2002) 258 ITR 126 (Gauhati) ; Hindustan Lever Ltd. v. R. B. Wadkar, Asst. CIT (No. 1) (2004) 268 ITR 332 (Bom). Mr. Joshi, learned senior counsel, while endorsing the above assertions urged that under the constitutional scheme read with the relevant provisions of the Act, the taxable income under the Act and the gross agricultural income are computable from the calculations made to work out the composite income in terms of rule 8 of the Rules. He contended with reference to articles 246, 366(1), as well as entry 82 of List I and entry 46 of List II of the Seventh Schedule to the Constitution of India that the computation of the composite income made under rule 8 is final and absolute not liable to be reopened or reassessed to vary the apportionments for identifying the business income and the agricultural income as has been consistently held by the apex court. The effect of the impugned notices being not only to interfere with such computation but also to raise the percentage of taxable income under the Act, the same is patently unsustainable being in contravention of the constitutional scheme, he pleaded. Referring to the returns submitted by the petitioners, he emphatically contended that all material facts necessary for assessment were disclosed fully and truly, inter alia, mentioning the amount of cess paid and allowable as permissible deduction while computing the composite income. As no additional allowance against 60 per cent. agricultural income was claimed by the petitioner on that count, the very basis of the impugned notices being non-existent, the impugned decision was ex facie illegal and non est, in law. He reiterated that as the reported decision in Jorehaut Group Ltd. (1997) 226 ITR 622 (Gauhati), is not an authority on the point that the cess paid under the 1990 Act was not allowable as permissible deduction while computing the composite income under rule 8, the respondent authorities having proceeded on a clear misconception of law, the impugned notices are liable to be quashed. He further argued that assuming that this court in Jorehaut Group Ltd. (1997) 226 ITR 622, had held that permissible deduction of the cess paid under the 1990 Act was limited only in respect of the 60 per cent. of the composite income, such a determination in face of the Apex Court decision to the contrary would be per incuriam and thus cannot be acted upon in law. Mr. Bhuyan in reply has argued that the reasons in support of the impugned action being based wholly on the understanding of the ratio of this court's decision in Jorehaut Group Ltd. (1997) 226 ITR 622 etc., those could not by any means be dubbed as irrelevant, inadequate or non-existent. Referring to the three petitions, W. P. (C) No. 6630 of 2003, W. P. (C) No. 4111 of 2003 and W. P. (C) No. 4103 of 2003 pertaining to the assessment years 1999-2000 and 2001-02, learned counsel for the revenue contended that as there was only an intimation and no assessment based on the facts and particulars furnished in the returns was made, the decision for reassessment did not tantamount to any change of opinion as alleged. Learned counsel, however, was candid in admitting that the impugned notices did not disclose any material to suggest either failure to submit the return or to disclose fully and truly, material facts envisaged in the proviso to section 147 and, therefore, the bar of limitation was insurmountable for the revenue in W. P. (C) No. 1163 of 2003 and W. P. (C) No. 1258 of 2003. He, however, contended that in a given fact situation, a change of opinion is permissible even after a regular assessment provided sufficient grounds exist therefor. According to him, the writ petitions are premature having been filed against the notices of reassessment contending that any objection thereto could have been taken in the course of the assessment proceedings. He further assailed the maintainability of the writ proceedings citing the bar of alternative efficacious remedy. Mr. Bhuyan placed reliance on the following authorities. Joint CIT (Assessment) v. George Williamson (Assam) Ltd. (2002) 258 ITR 126 (Cauhati) ; Hindustan Lever Ltd. v. R. B. Wadkar, Asst. CIT (No. 1) (2004) 268 ITR 332 (Bom) ; Jorehaut Group Ltd. v. Agrl. Income Tax Officer (1997) 226 ITR 622 (Gauhati). I have carefully reflected on the competing arguments. The impugned notices addressed to the two groups of petitioners though marginally differently worded, the common ground for the issuance thereof is that this court having held in Jorehaut Group Ltd. (1997) 226 r1R 622, that an assessee is entitled to the deduction of cess on green leaves only from 60 per cent. of the composite agricultural income, allowance of the deduction of such cess in determining 100 per cent. composite income under rule 8 of the Rules had resulted in escapement of income as contemplated under section 147 of the Act. As the rival contentions are built up around the provisions relating to the definition of 'agricultural income', the computation thereof and the true purport of the aforementioned decision of this court, it would be expedient to initiate the adjudicatory exercise with the legal framework pertinent to the concept and computation of the agriculture income. Under article 366(1) of the Constitution of India, agricultural income is one as defined for the purposes of the enactments relating to Indian income-tax. In view of the dichotomy of legislative powers as aligned in article 246, Parliament is exclusively competent to legislate on taxes on income other than agricultural income in terms of entry 82 of List I of the Seventh Schedule. The State Legislature, however, enjoys supreme powers to make laws on tax on agricultural income as contemplated in entry 46 of List II. Section 2(1A) of the Act defines agricultural income. The marked distinction between an income under the Act and the agricultural income is discernible in section 10 of the Act which deals with incomes computing the total income. It provides that in computing the total income of a previous year of any person, agricultural income amongst others shall not be included. Part II of the Rules designs the determination of income under the Act. Rule 8 prescribes for computation of income derived from the sale of tea grown and manufactured by the seller in India. Such income thereunder is to be computed as if it was one income derived from business and 40 per cent. thereof is to be deemed to be income liable to tax under the Act. The legal fiction comprehended therein is that the income derived from the integrated activities of growing, manufacturing and selling of tea is to be construed and computed as income derived from business, 40 per cent. whereof is liable to be taxed following such computation under the Act. As the income contemplated is earned from the combined exercise of growing, manufacturing and selling of tea, 40 per cent. of the income so computed is the taxable income under the Act being the non-agricultural component of the composite income leaving the balance 60 per cent. thereof to be the agricultural income. This accords with the fictional classification between the two types of incomes derivable from the joint activities involved and recognised by law. It is thus axiomatic that the composite income being conceived of and computed as the income derived from business, all permissible deductions allowable for such computation under the Act have to be extended to work out the composite income. Sections 37 and 43B of the Act deserve reference at this juncture. While under the former, any expenditure, not being one of the nature described in sections 30 to 36 and in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively for the purposes of the business or profession is allowable in computing the income chargeable under the head 'profits and gains of business or profession', the latter comprehends deductions under the heads enumerated therein only on actual payment. Clause (a) of section 43B pertains to any sum payable by the assessee by way of tax/cess or fee by whatever name called and under any law for the time being in force. In other words, the deductions contemplated in section 43B would be permissible while computing the business income only if the payment of the dues outlined therein has been actually made. There is no wrangle at the Bar that the cess on green leaves is in reality a tax under the 1990 Act on the annual productivity of 'specified lands' defined therein and is thus within the sweep of clause (a) of section 43B of the Act. There is no dispute either that the primary fact of payment of such tax had been mentioned in the returns and had been taken note of and deduction on that count had been allowed by the Central authority while computing the composite income. The agricultural income component that is 60 per cent. of the composite income was thereafter worked out. Section 2(a) of the Assam Agricultural Income Tax Act, 1939 (hereafter referred to as 'the 1939 Act'), defines agricultural income, inter alia, to mean any income derived by agriculture from land used for agricultural purposes and is either assessed to land revenue in Assam or subject to a local rate assessed and collected by the officers of the Government as such. In the accompanying Explanation, agricultural income derived from such land by the cultivation of tea has been clarified to mean that portion of the income derived from cultivation, manufacture and sale of tea as is defined to be agricultural income for the purposes of the enactments relating to the Indian income-tax. Section 8 of the 1939 Act, lays down the manner of determination of agricultural income mentioned in section 2(a)(2), i.e., one derived, inter alia, by agriculture. In determining the net amount of agricultural income, the deductions as enumerated in section 8(2) are allowable. Clause (e) of section 8(2) permits deduction of any tax or rate paid under any enactment in force in Assam on the cultivation or sale of the crop from which such agricultural income is derived. The second proviso appearing under clause (h) of section 8(2) makes it explicit that in the case of agricultural income from cultivation and manufacture of tea, the agricultural income for the purposes of the 1939 Act is deemed to be that portion of income from cultivation, manufacture and sale, which is agricultural income within the meaning of the Indian Income Tax Act ascertainable by computing the income from the cultivation, manufacture and sale of tea as computed for Indian Income Tax Act from which would be deducted any allowance authorised by the 1939 Act in so far as the same had not been allowed in the computation for the Income Tax Act. This proviso thus make it abundantly evident that while calculating the net agricultural income from the gross agricultural income 60 per cent. of the composite income computed under rule 8(1) only those deductions permissible under the 1939 Act would be authorised wherefor no allowances had been made in computing the composite income under the Indian Income Tax Act. This is understandably to obviate the incidence of double deductions under the same head while assessing the net agricultural income. As a corollary, an assessee would be entitled to the benefit of the deductions allowable under the 1939 Act for computation of the net agricultural income if allowances therefor have not been permitted while working out the composite income under rule 8(1). In the present case, however, there is no dispute that the tax under the 1990 Act comprehended in clause (e) of section 8(2) of the 1939 Act had in fact been paid in the relevant years and deduction on that count was permitted while computing the 100 per cent. composite income under the Central Act. In that view of the matter, as the above legislative scheme indicates the petitioners are not entitled to any further deduction on account of payment of the cess on green leaves while calculating the net agricultural income under the 1939 Act. That the 60 per cent. of the composite business income conceived of in rule 8(1) is the gross agricultural income to be assessed subject to the State legislation is manifest as well from section 20D of the 1939 Act. It envisages a situation where as a consequence of any revision in the computation of income under the Central Act, there is an enhancement or reduction of the agricultural income. In such an event, the assessee is required to submit a return or a revised return of his agricultural income, as the case may be, before the concerned agricultural income-tax authorities disclosing the enhancement or reduction thereof. The schematic layout discernible from the constitutional as well as the statutory provisions noticed hereinabove unmistakably proclaim that the law makers in their wisdom have construed the income derived from cultivation, manufacture and sale of tea to be a business income under the Central Act following the computation whereof, 40 per cent. of the arrived figure would be the income taxable under the Act and the remaining 60 per cent. would be the gross agricultural income available to be assessed and taxed in terms of the individual State legislations. This computation of the two types of income is, however, not liable to be reopened by the authorities under the State legislation to vary and/or alter the amount or percentage of the agricultural income. In other words, while assessing the agricultural income so computed under rule 8(1), it would not be open for the State machinery to redo the computation for working out the agricultural income by superseding the exercise already made under rule 8(1). As this aspect of the controversy had already been noticed by the apex court on various occasions and reliance on a few of the related pronouncements has been made, it would now be discreet to make a reference thereto. The issue, inter alia, before the apex court in Assam Co. Ltd. (2001)248 ITR 567, was whether the Agricultural Income Tax Officer of the State of Assam, in view of the constitutional definition of agricultural income under article 366(1) of the Constitution was bound by the computation of the agricultural income made under the Central Act. On an exhaustive and elucidative analysis of the various provisions of the Act and the 1939 Act in the background of the relevant constitutional provisions, it was held that the computation of the agricultural income flowing from the determination of the composite income made under rule 8(1) of the Rules, even for the purpose of the State enactment will have to be that which is made under the provisions of the Income Tax Act and the Rules made there under. On the aspect of the power of the State Officers under the 1939 Act to re-compute the agricultural income already made under the Central Act, the Apex Court, while referring to section 49 of the 1939 Act held that the said provision did not per se contemplate such a power and to the contrary, the intent of the State Legislature was advisedly to keep its legislation within the ambit of the definition of agricultural income under article 366(1) of the Constitution. It was ruled that the definition of agricultural income as provided by the Constitution of India was to ensure a similarity in computation of agricultural income throughout the Union of India and also to avoid any conflict in the computation of such income made by the Central and State Officers, more so, with reference to the agricultural produces whose income is treated as a composite income both for the purpose of income tax as under the Central as also the State Act. Acting on the determination that the object and scheme of the 1939 Act did not contemplate the State authorities to be empowered to recompute the agricultural income contrary to the computation made by the Central Officers, the apex court struck down rule 5 of the Agricultural Income-tax Rules, 1939 (hereafter referred to as 'the 1939 Rules'), to the extent it sought to empower the State Officers to recompute the agricultural income already worked out under the Act. In Tata Tea Ltd. (1988) 173 ITR 18, the Apex Court dwelling on the import of the computation of business income and the apportionment thereof vis-a-vis the concept of agricultural income, constitutionally recognised, held in the following terms (page 33) : 'A perusal of the aforesaid rule 8(1) makes it clear that under the said rule, income from the sale of tea grown and manufactured by a seller in India has to be computed as if it were income derived from business which would imply that the deductions allowable under the Act of 1961 in respect of income derived from business would be allowable in the case of income derived from the sale of tea grown and manufactured by a seller and further allowance would be granted as set out in rule 8(2) and 40 per cent. of the income so computed would be deemed to be income liable to the levy of income-tax and the balance of the income would be liable to tax as agricultural income subject to such further deductions as the law pertaining to the levy of agricultural income-tax might allow. The question is whether rule 24 of the Income-tax Rules, 1922, and rule 8 of the Income-tax Rules, 1962, can be said to form part of the definition of the term 'agricultural income' under the Act of 1922 and the Act of 1961, respectively . . . A reading of article 245 of the Constitution with entry 82 of List I, and entry 46 of List II in the Seventh Schedule makes it clear that the State Legislature has exclusive jurisdiction to legislate in respect of taxes on agricultural income; and in respect of taxes on other income, it is Parliament alone which can legislate. The term 'agricultural income' used in that entry has to be construed in accordance with the definition of the said terms in article 366(1) of the Constitution of India and that sub-article states that agricultural income means 'agricultural income' as defined for the purposes of the enactments relating to Indian income-tax. An analysis of the said decisions shows that this court has taken the view that, in the case of income from the sale of tea grown and manufactured by an assessee, rule 24 of the Indian Income-tax Rules, 1922, and rule 8 of the Income-tax Rules, 1962, although at first glance they appear to be rules of apportionment and computation, must be treated as incorporated in the definition of the term 'agricultural income' in the Act of 1922 and the Act of 1961, respectively ... What article 366(1) provides is that the term 'agricultural income' has the same meaning as attributed to it for the purposes of enactments relating to Indian income-tax and, in our view, it is quite clear that rule 8 of the Income-tax Rules, 1962, as well as rule 24 of the Income-tax Rules, 1922, pertain to and are bound up with the definition of the term 'agricultural income' for the purposes of laws or enactments pertaining to Indian Income-tax and hence the provisions of those Rules have to be taken into account in considering the meaning of the term 'agricultural income' under sub-article (1) of article 366 of the Constitution.' A Division Bench of this court in Bazaloni Group Ltd. (2005) 272 ITR 11, while dealing with the question as to the stage for effecting deduction under section 80HHC in respect of profits derived from export of tea qua the computation of business income under rule 8(1) and the apportionment of non- agricultural income and agricultural income profitably took note, inter alia, of the above observations in Tata Tea Ltd. (1988) 173 ITR 18 (SC), in order to fathom the purport essence of the legislative intention contained in the above provision of the Rules. It concluded that rule 8 of the Rules applies after the business income is arrived at permitting the deduction allowable under the Central Act and of the income so computed, 40 per cent. would be treated as income liable to income-tax and the remaining 60 per cent. would be agricultural income. It is in this backdrop that the decision of this court in Jorehaut Group Ltd. (1997) 226 ITR 622, has to be viewed to test the validity of the reasons cited to sustain the impugned reassessment proceedings. The question paraphrased to be answered in the above case was whether cess to be paid by the petitioner therein under the 1990 Act was to be deducted from 60 per cent. of the computed income of tea. The petitioner, a public limited company carrying on the business of cultivation, manufacture and sale of tea paid cess of Rs. 17,70,096 on the green leaves under the 1990 Act for the assessment year 1993-94. As the deduction claimed by it for the aforementioned amount from 60 per cent. of the income was refused, the writ jurisdiction of this court was invoked. Though no counter was filed by the revenue the refusal to permit the deduction was sought to be justified as the claim was disputed. It was submitted on behalf of the petitioner with reference to rule 8 of the Rules and section 8(2)(e) of the 1939 Act that as the cess paid was a tax, the petitioner was entitled to the benefit of deduction from 60 per cent. of the composite income determined in terms of rule 8(1). This court principally relying on the decision of the apex court in Orissa Cement Ltd. v. State of Orissa (1991) Supp 1 SCC 430 held that the cess paid was a tax and, therefore, in view of section 8(2)(e) of the 1939 Act, the petitioner was entitled to be extended the benefit of deduction of the tax paid from 60 per cent. of the composite agricultural income. From the recital of facts available in the reported decision, it is not clear as to whether while computing the composite income under rule 8(1), deduction on account of cess paid was allowed. Such a question also did not figure to be determined by this court. No finding was also recorded therein that the cess paid was not an allowable deduction in the process of making the computation under rule 8(1) or that the deduction on that count was permissible only from the agricultural income component of the composite income worked out under the said provision of the Rules. There is no quibble that deduction, even if allowed, for the cess paid in computing the composite income, the said amount was not further deductible from the resultant agricultural income in terms of section 8(2)(e) of the 1939 Act. This court by holding that the cess paid was tax, ruled that the petitioner was entitled to the deduction thereof from 60 per cent. of the composite income. Reading between the lines of the decision and having regard to the legislative scheme as alluded to hereinabove, it is not possible to deduce the ratio of the above decision to be one permitting deduction of the cess paid only from 60 per cent. of the composite income, that is the gross agricultural income comprehended in rule 8(1) of the Rules in terms of section 8(2)(e) of the 1939 Act. The interpretation as is sought to be provided to the decision by the revenue if accepted, would render the same per incuriam in the teeth of the legislative scheme and the consistent judicial dicta on the issue. On a reading of the judgment in my considered opinion, it was neither so decided nor is the above view the ratio decidendi of the decision. The determination contained therein turns on its own facts and cannot be construed to be militating against the ordained provisions of the law and the preponderant judicial opinion on the issue. What then is the outcome of the above conclusion on the impugned notices ? A plain reading of section 147 of the Act demonstrate that the assessing officer acquires jurisdiction to act thereunder only if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The proviso thereto places an embargo on the invocation of power under the above provision of the Act on the expiry of four years from the end of the relevant assessment year in which any income chargeable to tax has escaped assessment for such assessment year except for reasons of 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 the assessment, for that assessment year. The reason to believe that any taxable income has escaped assessment is, therefore, a sine qua non for invoking the power under the above section of law. In other words, in the absence of such a reason, any action purported to be taken under section 147 of the Act would obviously be without any sanction of law. The codified legal mandate is unequivocal and clear. Existence of reasons leading to a genuine belief that any income chargeable to tax has escaped assessment is the condition precedent for valid exercise of power under the above provision of the Act. Absence of reason or irrelevance thereof or want of any perceptible nexus between the reason and the belief per se would render the exercise illegal and without jurisdiction. The expression 'reason to believe' came to be considered in a number of decisions, a few may be referred to. In Sheo Nath Singh (1971) 82 ITR 147, the apex court held as under (page 153) : 'There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court.' The same view was expressed in Income-tax Officer v. Lakhmani Mewal Das (1976)103 ITR 437 (SC), where it was held that the expression 'reason to believe' did not signify a purely subjective satisfaction on the part of the Income Tax Officer and that the reason must be held in good faith. It was open to the court to examine whether the reason for the formation of the belief had a rational nexus or relevance bearing on the formation of the belief and was not extraneous or irrelevant. The apex court in Ganga Saran and Sons P. Ltd. (1981) 130 ITR 1 (SC), while holding that though the court cannot investigate into the adequacy or sufficiency of the reasons, ruled that the reasons have to be relevant and material and the belief based thereon ought not to be arbitrary or irrational. If there is no rational nexus between the reasons and belief so much so that no one appropriately instructed on facts and law could reasonably entertain the belief, the action under section 147 of the Act cannot be countenanced. This court in Joint CIT (Assessment), v. George Williamson (Assam) Ltd. (2002) 258 ITR 126, expressed itself in similar lines. It was held that the reasons cited by the assessing authority for initiating proceedings for reassessment under section 147 and section 148 of the Act are justifiable to the extent to test whether the reasons recorded have a rational connection with or relevance for formation of the belief regarding the escaped income. The litmus test as is decipherable from the consistent judicial pronouncements on this facet of the lis, therefore, is the existence, relevance and rationale of the reason on which the assessing officer proceeds to act under section 147 and the bearing it has on the process of formation of the belief that income has escaped assessment. If either of these two essentials is absent, the proposed action would be ex facie unauthorised. Not only the reason has to be one, which is relevant and recognised in law, the same has to have a rational and logical link with the belief that there has been an escapement of taxable income. The belief has to have its roots in the reasons and obviously has to be genuine and bona fide and not merely a pretence. The subjective satisfaction metamorphing into the belief has to be guided by objectivity based on existing relevant reasons acknowledged and recognised by law. A tangible and bona fide legal necessity to scuttle tax avoidance is the essence of the power and no roving enquiry on vague hunches or indeterminate and impertinent consideration is envisaged. The purported interpretation of the decision of this court in Jorehaut Group Ltd. (1997)226 ITR 622, cited as the reason for invocation of power under section 147 of the Act in view of the above determination is plainly unsustainable. Consequently, the reason recorded in the impugned notices has to be construed as non est in law. It not having been held by this court in Jorehaut Group Ltd. (1997)226 ITR 622, that the assessee is entitled to deduction on the cess on green leaves only from 60 per cent. of the composite agricultural income, the very foundation of the reason for the impugned action is missing. Not only has the concerned authority misread the reported decision, there appears to have been a total non-application of mind to the relevant legal provisions. The present thus is not only a case where no reason exists for invoking the power under section 147 of the Act but also is one where the so called belief is not a bona fide one being patently imaginary in the accompanying facts and circumstances of the case. The notices impugned in the above premises, therefore, cannot be sustained in law and on facts and are hereby quashed. As noticed hereinabove, except in W. P. (C) No. 1163 and W. P. (C) No. 1258 of 2003, the impugned notices had been issued before the expiry of four years from the end of the relevant assessment year. The attempt made on the part of the respondents to contend that the omission on the part of the assessees to mention in their return that the cess on green tea leaves was paid under the 1990 Act amounts to failure to make full and true disclosure of all material facts necessary for assessments has to be mentioned only to be rejected. There is no dispute that at the time of assessment, the assessees were permitted deduction on the above count and the composite income under rule 8(1) was accordingly computed. At no point of time was any reservation expressed by the respondent authorities as to the nature of the payment or the entitlement of the assessees to be extended the benefit of deduction thereof on the basis of the disclosure made in the returns. The respondent authorities thus have to be firmly held only to the reasons and/ or the grounds narrated in the impugned notices. Not only is this stand absent in the impugned notices, the same do not indicate as well as to what material facts had not been fully and truly disclosed by the assessees. The apex court while dwelling on the scope- of the requirement to disclose fully and truly all material facts as comprehended in the proviso to section 147 held in Parashuram Pottery Works Co. Ltd. (1977) 106 ITR 1 (SC), that the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts and it is not its responsibility to advise the assessing officer with regard to the inference which he should draw therefrom. If such officer draws any inference which appears to be subsequently erroneous, a mere change of opinion would not justify initiation of action for reopening the assessment, it held. The same view was expressed in Associated Stone Industries (1997)224 ITR 560 (SC). The Bombay High Court on the same issue in Hindustan Lever Ltd. (2004) 268 ITR 332, held that the reasons in support of the proposed action under section 147 of the Act must necessarily reveal all facts or materials that had not been disclosed by the assessee fully and truly necessary for assessment so as to establish the link between the reasons and evidence. It was further held that the reasons so recorded cannot be supplemented by any affidavit or oral submissions as otherwise the reasons which were lacking in the material particulars would receive supplementation by the time those are subjected to court's scrutiny. The notices admittedly do not exhibit as to what material facts were not truly and fully disclosed by the assessees necessary for assessment for the assessment years in question. The returns admittedly mention about the cess on green leaves paid and deductions as permissible were allowed. In view of the exposition of law on the point mentioned hereinabove, the inescapable conclusion is that the impugned notices in W. P. (C) No. 1163 of 2003 and W. P. (C) No. 1258 of 2003 are also not sustainable being barred by time. In view of the conclusions reached hereinabove, which by themselves are determinative of the invalidity of the impugned notices, any dilation on the rival contentions bearing on the change of opinion of the concerned authority is unwarranted. The upshot of the above narration is that the impugned notices being illegal and without jurisdiction are quashed. The petitions succeed and are allowed. The parties would bear their own costs. OPEN SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 1473 (Gau-HC) : (2005) 006 (I) ITCL 0061 : (2005) 275 ITR 0609 : (2005) 197 CTR 0659 : (2006) 150 TAXMAN 0571

Assam Co. Ltd. v. UOI (Gauhati) ()

INCOME TAX

--Reassessment----NOTICE UNDER SECTION 148Assessee disclosed primary facts truly and fully and notice issued misreading High Court judgment--Assessee-company was engaged in the business of cultivation, manufacture and sale of tea. It submitted its return disclosing inter alia that cess was paid by it under Agricultural Act and deduction for cess so paid was claimed while computing income. The AO allowed the deduction as asked for by the assessee. However, subsequently the notices under section 148 were issued stating that in claiming deduction of the amount of cess paid on green leaves for determining the composite income under rule 8 of the Income Tax Rules, 1962, it was not mentioned in the returns that the cess was the tax paid under the Assam Taxation (On Specified Land) Act, 1990 and thereby the assessees had failed to make full and true disclosure of all material facts with regard to such payment. The revenue maintained that in Jorehaut Group Ltd. v. Agrl. ITO (1997) 226 ITR 622 (Gau), cess paid had been held to be a tax, and the assessees were entitled to a deduction thereof only from 60 per cent. of the composite agricultural income, they could not be allowed the said benefit in determining the 100 per cent. composite income under the Income Tax Act as otherwise it would result in double deduction for the same payment. The assessee argued that it had made a full and true disclosure of all material facts necessary for assessment in their returns mentioning, inter alia, therein the amount debited on account of cess on green leaves. Therefore, it was entitled to the deduction in determining the 100 per cent. composite income and the AO on a scrutiny of all relevant materials having allowed the deduction in completing the assessment under section 143(3) of the Act, it could not be construed to be a case of income escaping assessment within the meaning of section 147 of the Act. Held: Notices to be quashed as the decision cited in Jorehaut case (supra) did not reflect the view as stated by the revenue, therefore, there was no question of escapement of income. Further, the true and full facts had been disclosed by the assessee in computation of income, the audited statements of the account and the tax audit report, etc.

Income Tax Act, 1961 s.148

Assam Agrl. IT Act, 1939 s.8

Assam Co. Ltd. v. Union of India (Gauhati)

In the Gauhati High Court Amitava Roy, J. 11 March 2005

Counsel : U. Bhuyan for the respondents.

JUDGMENT

Amitava Roy J.

This batch of petitions register a challenge to the notices issued under section 148 of the Income Tax Act, 1961 (hereafter referred to as 'the Act'), purportedly initiating a proceeding/action under section 147 thereof on the ground that the income of the assessees/writ petitioners as computed therein had escaped assessment for the different assessment years mentioned therein. The notices though are differently dated and relatable to varying assessment years, a substantial homogeneity in the contextual background being evident and common questions of law having been raised, the petitions deserve to be disposed of by this common judgment and order.

I have heard Mr. R. P. Agarwalla, senior advocate assisted by Mr. R. L. Jain, advocate, for the petitioners in W. P. (C) No. 1163 of 2003, W. P. (C) No. 1258 of 2003, W. P. (C) No. 1259 of 2003, W. P. (C) No. 1260 of 2003 and W. P. (C) No. 6630 of 2003 and Mr. G. K. Joshi, senior advocate assisted by Mr. R. K. Joshi and Ms. U. Chakrabarty advocates for the petitioners in W. P. (C) No. 4102 of 2003, W. P. (C) No. 4103 of 2003 and W. P. (C) No. 4111 of 2003. Mr. U. Bhuyan, learned standing counsel, Income-tax department represented the revenue.

The pleaded facts in W. P. (C) No. 1163 of 2003 would be adequately illustrative of the factual premises. The petitioner-company is engaged in the business of cultivation, manufacture and sale of tea and is regularly assessed under the Act. It submitted its return for the assessment year 1995-96 on 29-11-1995, and paid all the taxes due as per the return. It submitted along with its return, all relevant documents such as computation of income, audited statements of accounts, tax audit report, etc. The jurisdictional assessing officer on completion of the assessment for the year in question determined the total taxable income at Rs. 3,45,05,704, which was subsequently revised. The petitioner/assessee duly paid all taxes as assessed. It was thereafter that the impugned notice dated 27-3-2002, by the Assistant Commissioner of Income-tax (Circle 2), Dibrugarh, was issued notifying the petitioner that the said authority had reason to believe that its income chargeable to tax for the assessment year in question had escaped assessment within the meaning of section 147 of the Act requiring reassessment of its income for the said assessment year. In reply thereto the petitioner while requesting the authority to treat its original return to be the one submitted in compliance with the notice sought for a copy of the reasons required to be recorded under section 148(2) of the Act for issuance of such reassessment notice. By communication dated 17-4-2002, respondent No. 3 furnished the reasons in reply whereto the petitioner submitted a representation detailing its stand in response to the notice with a request to drop the reassessment proceedings. As the revenue persisted with the proceedings in spite of the objection raised, the instant petition was filed seeking to invoke the writ jurisdiction of this court.

The present bunch of petitions has two petitioners, Assam Company Ltd. and M/s. Bajaloni Group Ltd. They are similarly situated inasmuch as though the dates of the impugned notices and the assessment years are different, there is a community of grievances inasmuch as they are one in contending on identical grounds that the impugned action of the respondents in invoking sections 147 and 148 of the Act in the prevailing facts and circumstances is per se illegal and without any authority of law. The individual facts of all the petitions have, therefore, been avoided in the interest of brevity.

In the counter filed in W. P. (C) No. 1163 of 2003, W. P. (C) No. 1258 of 2003, W. P. (C) No. 1259 of 2003 and W. P. (C) No. 1260 of 2003, the revenue's plea in essence is that in claiming deduction of the amount of cess paid on green leaves for determining the composite income under rule 8 of the Income-tax Rules, 1962 (hereafter referred to as 'the Rules'), it was not mentioned in the returns that the cess was the tax paid under the Assam Taxation (On Specified Land) Act, 1990 (hereafter referred to as 'the 1990 Act'), and thereby the assessees had failed to make full and true disclosure of all material facts with regard to such payment. The revenue maintained that as decided by this court in Jorehaut Group Ltd. v. Agrl. Income Tax Officer (1997)226 ITR 622, cess payable on green leaves under the 1990 Act is to be deducted only from 60 per cent. of the composite income and as the above judicial determination is binding on all authorities, the reassessment proceedings had been initiated. As the cess paid has been held to be a tax, in the above reported decision and the assessees are entitled to a deduction thereof only from 60 per cent. of the composite agricultural income, they cannot be allowed the said benefit in determining the 100 per cent. composite income under the Act as otherwise it would result in double deduction for the same payment.

Before adverting to the rival arguments, it would be advantageous to notice the recorded reasons in support of the impugned decision as communicated to the petitioners. It transpires from the communications to the above effect that the concerned respondent authority was of the view that in terms of the decision of this court in Jorehaut Group Ltd. (1997) 226 ITR 622, the assessees were entitled to deduction of cess on green leaves only from 60 per cent. of the composite agricultural income and, therefore, 40 per cent. of the cess amount allowed as deduction in determining the composite income under rule 8(2) of the Rules, was an income which had escaped assessment within the meaning of section 147 of the Act.

Mr. Agarwalla has assertively urged that as the assessees had made a full and true disclosure of all material facts necessary for assessment in their returns mentioning, inter alia, therein the amount debited on account of cess on green leaves they were entitled to the deduction in determining the 100 per cent. composite income and the assessing officer on a scrutiny of all relevant materials having allowed the deduction in completing the assessment under section 143(3) of the Act, it could not be construed to be a case of income escaping assessment within the meaning of section 147 of the Act. According to learned senior counsel, the respondent authority had thoroughly misinterpreted and misread the decision of this court in Jorehaut Group Ltd. (1997) 226 ITR 622, and had misapplied the same rendering the very basis of the impugned reassessment proceeding nonexistent. He maintained that this court not having held in the said decision that the cess paid on green leaves was not an admissible deduction in working out the composite income, the purported reason for issuing the impugned notices is imaginary and they are thus liable to be adjudged non est in law. Contending that the cess involved is in fact a payment under the 1990 Act, for which obviously deduction is allowable in computing the 100 per cent. composite income under rule 8 of the Rules, Mr. Agarwalla underlined that the impugned decision of the respondent- authority being on a total misreading of the decision of this court in Jorehaut Group Ltd. (1997) 226 ITR 622, is an abuse of the process of law warranting interference of this court.

It was argued that as the 100 per cent. composite income under rule 8(1) of the Rules was computed by allowing the deduction of the cess amount paid under the 1990 Act and the taxable income under the Act and the agricultural income was calculable there from, the respondent authority had no jurisdiction to reopen the computation so made in face of the catena of decisions of the apex court to the above effect. It not being the case of any of the parties that the cess paid though a tax under the 1990 Act was not allowable as a permissible deduction under the Act while computing the composite income under rule 8(1) of the Rules, the impugned reassessment proceeding which has the effect of reopening the computation already made is without jurisdiction. Mr. Agarwalla further contended that as the assessment of the tax payable on the basis of the return submitted by the petitioner had been made under section 143(3) of the Act permitting the deduction of the cess amount mentioned in the return, the decision to initiate reassessment proceeding amounts to a change in the opinion of the assessing authority in favour of withdrawing the deduction earlier permitted on a non-existent ground.

Inviting the attention of this court to sections 147 and 148 of the Act learned senior counsel emphasised that the essential preconditions for invocation of power thereunder being conspicuously absent in the instant case, the impugned notices are on the face of the records illegal, unauthorised and unsustainable in law and are liable to be quashed. There being no legally acceptable reason to believe that any income chargeable to tax had escaped assessment in any of the assessment years involved, the impugned action being per se opposed to the mandate of the above provisions of the Act is liable to be adjudged illegal and unconstitutional. The petitioners having admittedly submitted its return, in W. P. (C) No. 1163 of 2003 and W. P. (C) No. 1258 of 2003 pertaining to the assessment years 1995/1996 and 1996/1997, disclosing fully and truly all material facts necessary for assessment, Mr. Agarwalla urged that the impugned notices relating to these assessment years having been issued after the expiry of four years from the end of the relevant assessment year, those were barred by time as well and on that count alone are non est in law.

Referring to the stand taken in the respondents' counter that the impugned notices were issued as the petitioners had failed to disclose in their return that the cess paid was tax under the 1990 Act, Mr. Agarwalla, contended that the same besides being obviously untenable is also liable to be ignored as the same was not incorporated in the reasons set out in the impugned notices. The reason in support of the reassessment proceeding having spelt out in the notices, it was not open for the respondent authority to supplement the same by fresh grounds in its affidavit, he asserted. He contended that the ratio decidendi in Jorehaut Group Ltd. (1997) 226 ITR 622, is that the cess paid is a tax and the determination recorded in the said decision is nothing beyond that. It was contended that the facts of the reported case though not clear, it is inferable that no deduction for the cess amount paid had been allowed under the Act justifying the deduction while computing the taxable agricultural income under section 8(2)(e) of the Assam Agricultural Income Tax Act, 1939. He contended that intimation under section 143 (1) (a) of the Act was also an assessment and that the present was a case of change of opinion of the assessing authority for no acceptable reason recognised in law. There being no conceivable reason to believe in the facts and circumstances of the case that any taxable income has escaped assessment, learned senior counsel argued that the impugned action of the respondent authorities is palpably illegal and without jurisdiction and thus the impugned notices are liable to be set aside and quashed.

In support of his contentions, Mr. Agarwalla placed reliance on the following authorities. Jorehaut Group Ltd. v. Agrl. Income Tax Officer (1997) 226 ITR 622 (Gauhati) ; CIT v. Sun Engineering Works P. Ltd. (1992) 198 ITR 297 (SC) ; Assam Co. Ltd. v. State of Assam (2001)248 ITR 567 (SC) ; Tata Tea Ltd. v. State of West Bengal (1988)173 ITR 18 (SC) ; Bazaloni Group Ltd. v. CIT (2005)272 ITR 11 (Gauhati) ; Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax (1971) 82 ITR 147 (SC) ; Income Tax Officer v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) ; Ganga Saran and Sons Pvt. Ltd. v. Income Tax Officer (1981) 130 ITR 1 (SC) ; Parashuram Pottery Works Co. Ltd. v. Income Tax Officer (1977)106 ITR 1 (SC) ; Associated Stone Industries (Kotah) Ltd. v. CIT (1997) 224 ITR 560 (SC) ; Joint CIT (Assessment) v. George Williamson (Assam) Ltd. (2002) 258 ITR 126 (Gauhati) ; Hindustan Lever Ltd. v. R. B. Wadkar, Asst. CIT (No. 1) (2004) 268 ITR 332 (Bom).

Mr. Joshi, learned senior counsel, while endorsing the above assertions urged that under the constitutional scheme read with the relevant provisions of the Act, the taxable income under the Act and the gross agricultural income are computable from the calculations made to work out the composite income in terms of rule 8 of the Rules. He contended with reference to articles 246, 366(1), as well as entry 82 of List I and entry 46 of List II of the Seventh Schedule to the Constitution of India that the computation of the composite income made under rule 8 is final and absolute not liable to be reopened or reassessed to vary the apportionments for identifying the business income and the agricultural income as has been consistently held by the apex court. The effect of the impugned notices being not only to interfere with such computation but also to raise the percentage of taxable income under the Act, the same is patently unsustainable being in contravention of the constitutional scheme, he pleaded.

Referring to the returns submitted by the petitioners, he emphatically contended that all material facts necessary for assessment were disclosed fully and truly, inter alia, mentioning the amount of cess paid and allowable as permissible deduction while computing the composite income. As no additional allowance against 60 per cent. agricultural income was claimed by the petitioner on that count, the very basis of the impugned notices being non-existent, the impugned decision was ex facie illegal and non est, in law. He reiterated that as the reported decision in Jorehaut Group Ltd. (1997) 226 ITR 622 (Gauhati), is not an authority on the point that the cess paid under the 1990 Act was not allowable as permissible deduction while computing the composite income under rule 8, the respondent authorities having proceeded on a clear misconception of law, the impugned notices are liable to be quashed.

He further argued that assuming that this court in Jorehaut Group Ltd. (1997) 226 ITR 622, had held that permissible deduction of the cess paid under the 1990 Act was limited only in respect of the 60 per cent. of the composite income, such a determination in face of the Apex Court decision to the contrary would be per incuriam and thus cannot be acted upon in law.

Mr. Bhuyan in reply has argued that the reasons in support of the impugned action being based wholly on the understanding of the ratio of this court's decision in Jorehaut Group Ltd. (1997) 226 ITR 622 etc., those could not by any means be dubbed as irrelevant, inadequate or non-existent. Referring to the three petitions, W. P. (C) No. 6630 of 2003, W. P. (C) No. 4111 of 2003 and W. P. (C) No. 4103 of 2003 pertaining to the assessment years 1999-2000 and 2001-02, learned counsel for the revenue contended that as there was only an intimation and no assessment based on the facts and particulars furnished in the returns was made, the decision for reassessment did not tantamount to any change of opinion as alleged. Learned counsel, however, was candid in admitting that the impugned notices did not disclose any material to suggest either failure to submit the return or to disclose fully and truly, material facts envisaged in the proviso to section 147 and, therefore, the bar of limitation was insurmountable for the revenue in W. P. (C) No. 1163 of 2003 and W. P. (C) No. 1258 of 2003. He, however, contended that in a given fact situation, a change of opinion is permissible even after a regular assessment provided sufficient grounds exist therefor. According to him, the writ petitions are premature having been filed against the notices of reassessment contending that any objection thereto could have been taken in the course of the assessment proceedings. He further assailed the maintainability of the writ proceedings citing the bar of alternative efficacious remedy. Mr. Bhuyan placed reliance on the following authorities. Joint CIT (Assessment) v. George Williamson (Assam) Ltd. (2002) 258 ITR 126 (Cauhati) ; Hindustan Lever Ltd. v. R. B. Wadkar, Asst. CIT (No. 1) (2004) 268 ITR 332 (Bom) ; Jorehaut Group Ltd. v. Agrl. Income Tax Officer (1997) 226 ITR 622 (Gauhati).

I have carefully reflected on the competing arguments. The impugned notices addressed to the two groups of petitioners though marginally differently worded, the common ground for the issuance thereof is that this court having held in Jorehaut Group Ltd. (1997) 226 r1R 622, that an assessee is entitled to the deduction of cess on green leaves only from 60 per cent. of the composite agricultural income, allowance of the deduction of such cess in determining 100 per cent. composite income under rule 8 of the Rules had resulted in escapement of income as contemplated under section 147 of the Act. As the rival contentions are built up around the provisions relating to the definition of 'agricultural income', the computation thereof and the true purport of the aforementioned decision of this court, it would be expedient to initiate the adjudicatory exercise with the legal framework pertinent to the concept and computation of the agriculture income.

Under article 366(1) of the Constitution of India, agricultural income is one as defined for the purposes of the enactments relating to Indian income-tax. In view of the dichotomy of legislative powers as aligned in article 246, Parliament is exclusively competent to legislate on taxes on income other than agricultural income in terms of entry 82 of List I of the Seventh Schedule. The State Legislature, however, enjoys supreme powers to make laws on tax on agricultural income as contemplated in entry 46 of List II. Section 2(1A) of the Act defines agricultural income. The marked distinction between an income under the Act and the agricultural income is discernible in section 10 of the Act which deals with incomes computing the total income. It provides that in computing the total income of a previous year of any person, agricultural income amongst others shall not be included.

Part II of the Rules designs the determination of income under the Act. Rule 8 prescribes for computation of income derived from the sale of tea grown and manufactured by the seller in India. Such income thereunder is to be computed as if it was one income derived from business and 40 per cent. thereof is to be deemed to be income liable to tax under the Act. The legal fiction comprehended therein is that the income derived from the integrated activities of growing, manufacturing and selling of tea is to be construed and computed as income derived from business, 40 per cent. whereof is liable to be taxed following such computation under the Act. As the income contemplated is earned from the combined exercise of growing, manufacturing and selling of tea, 40 per cent. of the income so computed is the taxable income under the Act being the non-agricultural component of the composite income leaving the balance 60 per cent. thereof to be the agricultural income. This accords with the fictional classification between the two types of incomes derivable from the joint activities involved and recognised by law. It is thus axiomatic that the composite income being conceived of and computed as the income derived from business, all permissible deductions allowable for such computation under the Act have to be extended to work out the composite income.

Sections 37 and 43B of the Act deserve reference at this juncture. While under the former, any expenditure, not being one of the nature described in sections 30 to 36 and in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly or exclusively for the purposes of the business or profession is allowable in computing the income chargeable under the head 'profits and gains of business or profession', the latter comprehends deductions under the heads enumerated therein only on actual payment. Clause (a) of section 43B pertains to any sum payable by the assessee by way of tax/cess or fee by whatever name called and under any law for the time being in force. In other words, the deductions contemplated in section 43B would be permissible while computing the business income only if the payment of the dues outlined therein has been actually made.

There is no wrangle at the Bar that the cess on green leaves is in reality a tax under the 1990 Act on the annual productivity of 'specified lands' defined therein and is thus within the sweep of clause (a) of section 43B of the Act. There is no dispute either that the primary fact of payment of such tax had been mentioned in the returns and had been taken note of and deduction on that count had been allowed by the Central authority while computing the composite income. The agricultural income component that is 60 per cent. of the composite income was thereafter worked out.

Section 2(a) of the Assam Agricultural Income Tax Act, 1939 (hereafter referred to as 'the 1939 Act'), defines agricultural income, inter alia, to mean any income derived by agriculture from land used for agricultural purposes and is either assessed to land revenue in Assam or subject to a local rate assessed and collected by the officers of the Government as such. In the accompanying Explanation, agricultural income derived from such land by the cultivation of tea has been clarified to mean that portion of the income derived from cultivation, manufacture and sale of tea as is defined to be agricultural income for the purposes of the enactments relating to the Indian income-tax.

Section 8 of the 1939 Act, lays down the manner of determination of agricultural income mentioned in section 2(a)(2), i.e., one derived, inter alia, by agriculture. In determining the net amount of agricultural income, the deductions as enumerated in section 8(2) are allowable. Clause (e) of section 8(2) permits deduction of any tax or rate paid under any enactment in force in Assam on the cultivation or sale of the crop from which such agricultural income is derived. The second proviso appearing under clause (h) of section 8(2) makes it explicit that in the case of agricultural income from cultivation and manufacture of tea, the agricultural income for the purposes of the 1939 Act is deemed to be that portion of income from cultivation, manufacture and sale, which is agricultural income within the meaning of the Indian Income Tax Act ascertainable by computing the income from the cultivation, manufacture and sale of tea as computed for Indian Income Tax Act from which would be deducted any allowance authorised by the 1939 Act in so far as the same had not been allowed in the computation for the Income Tax Act. This proviso thus make it abundantly evident that while calculating the net agricultural income from the gross agricultural income 60 per cent. of the composite income computed under rule 8(1) only those deductions permissible under the 1939 Act would be authorised wherefor no allowances had been made in computing the composite income under the Indian Income Tax Act.

This is understandably to obviate the incidence of double deductions under the same head while assessing the net agricultural income. As a corollary, an assessee would be entitled to the benefit of the deductions allowable under the 1939 Act for computation of the net agricultural income if allowances therefor have not been permitted while working out the composite income under rule 8(1).

In the present case, however, there is no dispute that the tax under the 1990 Act comprehended in clause (e) of section 8(2) of the 1939 Act had in fact been paid in the relevant years and deduction on that count was permitted while computing the 100 per cent. composite income under the Central Act. In that view of the matter, as the above legislative scheme indicates the petitioners are not entitled to any further deduction on account of payment of the cess on green leaves while calculating the net agricultural income under the 1939 Act.

That the 60 per cent. of the composite business income conceived of in rule 8(1) is the gross agricultural income to be assessed subject to the State legislation is manifest as well from section 20D of the 1939 Act. It envisages a situation where as a consequence of any revision in the computation of income under the Central Act, there is an enhancement or reduction of the agricultural income. In such an event, the assessee is required to submit a return or a revised return of his agricultural income, as the case may be, before the concerned agricultural income-tax authorities disclosing the enhancement or reduction thereof.

The schematic layout discernible from the constitutional as well as the statutory provisions noticed hereinabove unmistakably proclaim that the law makers in their wisdom have construed the income derived from cultivation, manufacture and sale of tea to be a business income under the Central Act following the computation whereof, 40 per cent. of the arrived figure would be the income taxable under the Act and the remaining 60 per cent. would be the gross agricultural income available to be assessed and taxed in terms of the individual State legislations.

This computation of the two types of income is, however, not liable to be reopened by the authorities under the State legislation to vary and/or alter the amount or percentage of the agricultural income. In other words, while assessing the agricultural income so computed under rule 8(1), it would not be open for the State machinery to redo the computation for working out the agricultural income by superseding the exercise already made under rule 8(1).

As this aspect of the controversy had already been noticed by the apex court on various occasions and reliance on a few of the related pronouncements has been made, it would now be discreet to make a reference thereto.

The issue, inter alia, before the apex court in Assam Co. Ltd. (2001)248 ITR 567, was whether the Agricultural Income Tax Officer of the State of Assam, in view of the constitutional definition of agricultural income under article 366(1) of the Constitution was bound by the computation of the agricultural income made under the Central Act. On an exhaustive and elucidative analysis of the various provisions of the Act and the 1939 Act in the background of the relevant constitutional provisions, it was held that the computation of the agricultural income flowing from the determination of the composite income made under rule 8(1) of the Rules, even for the purpose of the State enactment will have to be that which is made under the provisions of the Income Tax Act and the Rules made there under. On the aspect of the power of the State Officers under the 1939 Act to re-compute the agricultural income already made under the Central Act, the Apex Court, while referring to section 49 of the 1939 Act held that the said provision did not per se contemplate such a power and to the contrary, the intent of the State Legislature was advisedly to keep its legislation within the ambit of the definition of agricultural income under article 366(1) of the Constitution. It was ruled that the definition of agricultural income as provided by the Constitution of India was to ensure a similarity in computation of agricultural income throughout the Union of India and also to avoid any conflict in the computation of such income made by the Central and State Officers, more so, with reference to the agricultural produces whose income is treated as a composite income both for the purpose of income tax as under the Central as also the State Act. Acting on the determination that the object and scheme of the 1939 Act did not contemplate the State authorities to be empowered to recompute the agricultural income contrary to the computation made by the Central Officers, the apex court struck down rule 5 of the Agricultural Income-tax Rules, 1939 (hereafter referred to as 'the 1939 Rules'), to the extent it sought to empower the State Officers to recompute the agricultural income already worked out under the Act.

In Tata Tea Ltd. (1988) 173 ITR 18, the Apex Court dwelling on the import of the computation of business income and the apportionment thereof vis-a-vis the concept of agricultural income, constitutionally recognised, held in the following terms (page 33) :

'A perusal of the aforesaid rule 8(1) makes it clear that under the said rule, income from the sale of tea grown and manufactured by a seller in India has to be computed as if it were income derived from business which would imply that the deductions allowable under the Act of 1961 in respect of income derived from business would be allowable in the case of income derived from the sale of tea grown and manufactured by a seller and further allowance would be granted as set out in rule 8(2) and 40 per cent. of the income so computed would be deemed to be income liable to the levy of income-tax and the balance of the income would be liable to tax as agricultural income subject to such further deductions as the law pertaining to the levy of agricultural income-tax might allow. The question is whether rule 24 of the Income-tax Rules, 1922, and rule 8 of the Income-tax Rules, 1962, can be said to form part of the definition of the term 'agricultural income' under the Act of 1922 and the Act of 1961, respectively . . .

A reading of article 245 of the Constitution with entry 82 of List I, and entry 46 of List II in the Seventh Schedule makes it clear that the State Legislature has exclusive jurisdiction to legislate in respect of taxes on agricultural income; and in respect of taxes on other income, it is Parliament alone which can legislate. The term 'agricultural income' used in that entry has to be construed in accordance with the definition of the said terms in article 366(1) of the Constitution of India and that sub-article states that agricultural income means 'agricultural income' as defined for the purposes of the enactments relating to Indian income-tax.

An analysis of the said decisions shows that this court has taken the view that, in the case of income from the sale of tea grown and manufactured by an assessee, rule 24 of the Indian Income-tax Rules, 1922, and rule 8 of the Income-tax Rules, 1962, although at first glance they appear to be rules of apportionment and computation, must be treated as incorporated in the definition of the term 'agricultural income' in the Act of 1922 and the Act of 1961, respectively ...

What article 366(1) provides is that the term 'agricultural income' has the same meaning as attributed to it for the purposes of enactments relating to Indian income-tax and, in our view, it is quite clear that rule 8 of the Income-tax Rules, 1962, as well as rule 24 of the Income-tax Rules, 1922, pertain to and are bound up with the definition of the term 'agricultural income' for the purposes of laws or enactments pertaining to Indian Income-tax and hence the provisions of those Rules have to be taken into account in considering the meaning of the term 'agricultural income' under sub-article (1) of article 366 of the Constitution.'

A Division Bench of this court in Bazaloni Group Ltd. (2005) 272 ITR 11, while dealing with the question as to the stage for effecting deduction under section 80HHC in respect of profits derived from export of tea qua the computation of business income under rule 8(1) and the apportionment of non- agricultural income and agricultural income profitably took note, inter alia, of the above observations in Tata Tea Ltd. (1988) 173 ITR 18 (SC), in order to fathom the purport essence of the legislative intention contained in the above provision of the Rules. It concluded that rule 8 of the Rules applies after the business income is arrived at permitting the deduction allowable under the Central Act and of the income so computed, 40 per cent. would be treated as income liable to income-tax and the remaining 60 per cent. would be agricultural income.

It is in this backdrop that the decision of this court in Jorehaut Group Ltd. (1997) 226 ITR 622, has to be viewed to test the validity of the reasons cited to sustain the impugned reassessment proceedings.

The question paraphrased to be answered in the above case was whether cess to be paid by the petitioner therein under the 1990 Act was to be deducted from 60 per cent. of the computed income of tea. The petitioner, a public limited company carrying on the business of cultivation, manufacture and sale of tea paid cess of Rs. 17,70,096 on the green leaves under the 1990 Act for the assessment year 1993-94. As the deduction claimed by it for the aforementioned amount from 60 per cent. of the income was refused, the writ jurisdiction of this court was invoked. Though no counter was filed by the revenue the refusal to permit the deduction was sought to be justified as the claim was disputed. It was submitted on behalf of the petitioner with reference to rule 8 of the Rules and section 8(2)(e) of the 1939 Act that as the cess paid was a tax, the petitioner was entitled to the benefit of deduction from 60 per cent. of the composite income determined in terms of rule 8(1). This court principally relying on the decision of the apex court in Orissa Cement Ltd. v. State of Orissa (1991) Supp 1 SCC 430 held that the cess paid was a tax and, therefore, in view of section 8(2)(e) of the 1939 Act, the petitioner was entitled to be extended the benefit of deduction of the tax paid from 60 per cent. of the composite agricultural income.

From the recital of facts available in the reported decision, it is not clear as to whether while computing the composite income under rule 8(1), deduction on account of cess paid was allowed. Such a question also did not figure to be determined by this court. No finding was also recorded therein that the cess paid was not an allowable deduction in the process of making the computation under rule 8(1) or that the deduction on that count was permissible only from the agricultural income component of the composite income worked out under the said provision of the Rules. There is no quibble that deduction, even if allowed, for the cess paid in computing the composite income, the said amount was not further deductible from the resultant agricultural income in terms of section 8(2)(e) of the 1939 Act. This court by holding that the cess paid was tax, ruled that the petitioner was entitled to the deduction thereof from 60 per cent. of the composite income. Reading between the lines of the decision and having regard to the legislative scheme as alluded to hereinabove, it is not possible to deduce the ratio of the above decision to be one permitting deduction of the cess paid only from 60 per cent. of the composite income, that is the gross agricultural income comprehended in rule 8(1) of the Rules in terms of section 8(2)(e) of the 1939 Act. The interpretation as is sought to be provided to the decision by the revenue if accepted, would render the same per incuriam in the teeth of the legislative scheme and the consistent judicial dicta on the issue. On a reading of the judgment in my considered opinion, it was neither so decided nor is the above view the ratio decidendi of the decision. The determination contained therein turns on its own facts and cannot be construed to be militating against the ordained provisions of the law and the preponderant judicial opinion on the issue.

What then is the outcome of the above conclusion on the impugned notices ? A plain reading of section 147 of the Act demonstrate that the assessing officer acquires jurisdiction to act thereunder only if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. The proviso thereto places an embargo on the invocation of power under the above provision of the Act on the expiry of four years from the end of the relevant assessment year in which any income chargeable to tax has escaped assessment for such assessment year except for reasons of 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 the assessment, for that assessment year.

The reason to believe that any taxable income has escaped assessment is, therefore, a sine qua non for invoking the power under the above section of law. In other words, in the absence of such a reason, any action purported to be taken under section 147 of the Act would obviously be without any sanction of law. The codified legal mandate is unequivocal and clear. Existence of reasons leading to a genuine belief that any income chargeable to tax has escaped assessment is the condition precedent for valid exercise of power under the above provision of the Act. Absence of reason or irrelevance thereof or want of any perceptible nexus between the reason and the belief per se would render the exercise illegal and without jurisdiction.

The expression 'reason to believe' came to be considered in a number of decisions, a few may be referred to. In Sheo Nath Singh (1971) 82 ITR 147, the apex court held as under (page 153) :

'There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court.'

The same view was expressed in Income-tax Officer v. Lakhmani Mewal Das (1976)103 ITR 437 (SC), where it was held that the expression 'reason to believe' did not signify a purely subjective satisfaction on the part of the Income Tax Officer and that the reason must be held in good faith. It was open to the court to examine whether the reason for the formation of the belief had a rational nexus or relevance bearing on the formation of the belief and was not extraneous or irrelevant.

The apex court in Ganga Saran and Sons P. Ltd. (1981) 130 ITR 1 (SC), while holding that though the court cannot investigate into the adequacy or sufficiency of the reasons, ruled that the reasons have to be relevant and material and the belief based thereon ought not to be arbitrary or irrational. If there is no rational nexus between the reasons and belief so much so that no one appropriately instructed on facts and law could reasonably entertain the belief, the action under section 147 of the Act cannot be countenanced.

This court in Joint CIT (Assessment), v. George Williamson (Assam) Ltd. (2002) 258 ITR 126, expressed itself in similar lines. It was held that the reasons cited by the assessing authority for initiating proceedings for reassessment under section 147 and section 148 of the Act are justifiable to the extent to test whether the reasons recorded have a rational connection with or relevance for formation of the belief regarding the escaped income.

The litmus test as is decipherable from the consistent judicial pronouncements on this facet of the lis, therefore, is the existence, relevance and rationale of the reason on which the assessing officer proceeds to act under section 147 and the bearing it has on the process of formation of the belief that income has escaped assessment. If either of these two essentials is absent, the proposed action would be ex facie unauthorised. Not only the reason has to be one, which is relevant and recognised in law, the same has to have a rational and logical link with the belief that there has been an escapement of taxable income. The belief has to have its roots in the reasons and obviously has to be genuine and bona fide and not merely a pretence. The subjective satisfaction metamorphing into the belief has to be guided by objectivity based on existing relevant reasons acknowledged and recognised by law. A tangible and bona fide legal necessity to scuttle tax avoidance is the essence of the power and no roving enquiry on vague hunches or indeterminate and impertinent consideration is envisaged.

The purported interpretation of the decision of this court in Jorehaut Group Ltd. (1997)226 ITR 622, cited as the reason for invocation of power under section 147 of the Act in view of the above determination is plainly unsustainable. Consequently, the reason recorded in the impugned notices has to be construed as non est in law. It not having been held by this court in Jorehaut Group Ltd. (1997)226 ITR 622, that the assessee is entitled to deduction on the cess on green leaves only from 60 per cent. of the composite agricultural income, the very foundation of the reason for the impugned action is missing. Not only has the concerned authority misread the reported decision, there appears to have been a total non-application of mind to the relevant legal provisions. The present thus is not only a case where no reason exists for invoking the power under section 147 of the Act but also is one where the so called belief is not a bona fide one being patently imaginary in the accompanying facts and circumstances of the case. The notices impugned in the above premises, therefore, cannot be sustained in law and on facts and are hereby quashed.

As noticed hereinabove, except in W. P. (C) No. 1163 and W. P. (C) No. 1258 of 2003, the impugned notices had been issued before the expiry of four years from the end of the relevant assessment year. The attempt made on the part of the respondents to contend that the omission on the part of the assessees to mention in their return that the cess on green tea leaves was paid under the 1990 Act amounts to failure to make full and true disclosure of all material facts necessary for assessments has to be mentioned only to be rejected. There is no dispute that at the time of assessment, the assessees were permitted deduction on the above count and the composite income under rule 8(1) was accordingly computed. At no point of time was any reservation expressed by the respondent authorities as to the nature of the payment or the entitlement of the assessees to be extended the benefit of deduction thereof on the basis of the disclosure made in the returns. The respondent authorities thus have to be firmly held only to the reasons and/ or the grounds narrated in the impugned notices. Not only is this stand absent in the impugned notices, the same do not indicate as well as to what material facts had not been fully and truly disclosed by the assessees.

The apex court while dwelling on the scope- of the requirement to disclose fully and truly all material facts as comprehended in the proviso to section 147 held in Parashuram Pottery Works Co. Ltd. (1977) 106 ITR 1 (SC), that the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts and it is not its responsibility to advise the assessing officer with regard to the inference which he should draw therefrom. If such officer draws any inference which appears to be subsequently erroneous, a mere change of opinion would not justify initiation of action for reopening the assessment, it held.

The same view was expressed in Associated Stone Industries (1997)224 ITR 560 (SC). The Bombay High Court on the same issue in Hindustan Lever Ltd. (2004) 268 ITR 332, held that the reasons in support of the proposed action under section 147 of the Act must necessarily reveal all facts or materials that had not been disclosed by the assessee fully and truly necessary for assessment so as to establish the link between the reasons and evidence. It was further held that the reasons so recorded cannot be supplemented by any affidavit or oral submissions as otherwise the reasons which were lacking in the material particulars would receive supplementation by the time those are subjected to court's scrutiny.

The notices admittedly do not exhibit as to what material facts were not truly and fully disclosed by the assessees necessary for assessment for the assessment years in question. The returns admittedly mention about the cess on green leaves paid and deductions as permissible were allowed. In view of the exposition of law on the point mentioned hereinabove, the inescapable conclusion is that the impugned notices in W. P. (C) No. 1163 of 2003 and W. P. (C) No. 1258 of 2003 are also not sustainable being barred by time.

In view of the conclusions reached hereinabove, which by themselves are determinative of the invalidity of the impugned notices, any dilation on the rival contentions bearing on the change of opinion of the concerned authority is unwarranted.

The upshot of the above narration is that the impugned notices being illegal and without jurisdiction are quashed. The petitions succeed and are allowed. The parties would bear their own costs.

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