ASIAN TUBES PVT. LTD. vs. DY. COMMISSIONER OF INCOME TAX CIRCLE (1)(1)

Rule returnable   forthwith.   Mrs.Mauna   Bhatt, learned Standing Counsel waives service of notice of rule for and on behalf of the respondent no.1. 2. Having regard to the controversy involved in the present   case   which   lies   in   a   very   narrow   compass, with   the   consent   of   the   learned   advocates   for   the respective parties, the matter is taken up for final hearing.

By   this   petition   under   Article   226   of   the Constitution of India, the petitioner has prayed for the following relief(s):­ “8(A) Your Lordships may be pleased to admit and allow this petition. (B) Your Lordships may be pleased to issue a writ of certiorari or a writ in the nature of certiorari   or   any   other   appropriate   writ, order or direction for quashing and setting aside   the   impugned   notice   dated   29.03.2018 u/s.   148   of   the   Income   Tax   Act,   1961   at Annexure­A   and   the   order   dated   07.08.2018 disposing the objections at Annexure­H. (C) Your Lordships may be pleased to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction asking the respondent not to proceed further in purusance of impugned notice   dated   29.03.2018   u/s.   148   of   the Income Tax Act, 1961 at Annexure­A and the order   dated   07.08.2018   disposing   the objections at Annexure­H. (D) Pending  admission,   hearing   and   final disposal of the present petition, be pleased to   stay   the   implementation,   operation   and execution   of   the   impugned   notice   dated 29.03.2018   u/s   148   of   the   Income   Tax   Act, 1961   at   Annexure­A   and   the   order   dated 07.08.2018   disposing   the   objections   at Annexure­H. (E) Your Lordships may be pleased to grant any   other   and   further   relief   which   may   be deemed   fit   and   proper   in   the   interest   of justice.”

The   petitioner   is   a   Private   Limited   Company incorporated   under   the   provisions   of   the   Companies Act, 1956. The petitioner is engaged in the business of   manufacturing   of   M.S.   &   G.I.Tubes   &   Pipes.   The petitioner filed its return of income on 30.09.2011 declaring total income of Rs.18,60,90,480/­.

1 The Assessing Officer passed an assessment order under Section 143(3) of the Income Tax Act­1961 (for short the “Act”) after considering the replies filed by   the   petitioner   pursuant   to   the   various   notices issued under Sections 142(1) and 143(2) of the Act.

2 It appears from the record that the respondent issued   notice   under   Section   148   of   the   Act   dated 29.03.2018. On request of the petitioner, reasons for reopening   of   the   assessment   were   furnished   on 24.05.2018 to the petitioner. The reasons recorded by the respondent reads as under:­ “2.Brief

1 During the course of examination of case records for the year under consideration, it is   further   noticed   that   the   assessee   has debited a sum of Rs.1,64,109/­ on account of import   expenses   to   M/s.   Damini   Shipping Pvt.Ltd. This expenditure was in addition to the agency charges debited by the assessee on which   the   assessee   has   deducted   TDS. Therefore,   it   is   evident   that   the   assessee was   also   required   to   deduct   TDS   on   the payment of Rs.1,64,109/­ made to   M/s Damani Shipping   Pvt.Ltd   Deduction   of   TDS   on   the payment made to   M/s Damani Shipping Pvt.Ltd on   account   of   agency   charges   substantiates that TDS is required to be deducted also on the  payment  of  Import  expenses.  However,   no TDS   was   deducted   on   the   same   though   the assessee was required to deduct TDS thereon. Thus,   it   is   evident   that   the   assessee   has failed   to   comply   the   provision   of   chapter XVII­B   of   the   IT   Act   on   the   payment   of Rs.1,64,109/­   and   therefore   in   view   of   the Section   40(a)(ia)   of   the   Actm   the   impugned expenditure is not allowable.

2 It is also seen that the assessee company has debited a sum of Rs.97,593/­ payable to Gujarat   Energy   Transmission   Commission   for Operation   and   Maintenance   of   its   Windmills (O&M charges for transmission lines). On this payment   TDS   was   required   to   be   deducted   by the assessee however, the assessee has failed to   deduct   TDS   thereon.   Thus,   it   is   evident that   the   assessee   has   failed   to   comply   the provision of chapter XVII­B of the IT Act on the  payment  of  Rs.97,593/­  and  therefore   in view   of   section   40(a)(ia)   of   the   Act,   the impugned expenditure is not allowable.

3 During the course of examination of case records  for  the  year   under  consideration   it is noticed that the assessee company, despite earning   huge   profit,   has   not   declared   any dividend. It is also observed that the three directors  of  promoter  family,  also  own  over 99.3%   of   share   holding   of   the   assessee company  have   received  Bonus.   The  details   of the same is tabulated below:­ Sr.No. Name Percentage shareholding Bonus   paid   in Rs. 1 B.L.Agrawal 52.16% 7,70,000/­ 2 Laxmidevi Agawal 32.21% 2,10,000/­ 3 Nirmaladevi Agarwal 13.97% 2,10,000/­ Total 99.34% 14,90,000/­ As per the section 36(1)(ii) of the Act, any sum   paid   to   the   employee   as   bonus   or commission for services rendered, where such sum   would   not   have   been   payable   to   him   as profits or dividend if it had not been paid as bonus or commission is deductible. One of the condition is that the amount payable to employees   as   bonus   or   commission   is deductible. One of the condition is that the amount   payable   to   employees   as   bonus   or commission   should   not   otherwise   have   been payable   to   them   as   profit   or   dividend.   The plain reading if this clause means that the profit of a business will not be allowed to be dwindled by merely describing the payment as bonus or commission, if the payment is in lieu   of   dividend   or   profit.   In   the   instant case, the assessee has earned huge profit and the   same   could   have   been   distributed   as dividend;   however,   the   decision   of   the shareholder directors to pay bonus instead of declaring   dividend   was   obviously   with   the intention   to   reduce   profit   for   avoiding payment of taxes as the assessee company had derived   tax   advantage.   In   light   of   these facts, it is ample clear that he bonus paid by   the   assessee   company   was   in   lieu   of dividend   or   profit   and   therefore   cannot   be allowed   as   deduction   u/s   36(1)(ii)   of   the Act. 3.Analysis

1 In   so   far   as   bonus   amounting   to Rs.14,90,000/­   paid   three   directors   is concerned, the same is not allowable in view of   Section   36(1)(ii)   of   the   Act.   As   per section   36(1)(ii)   of   the   Act,   Bonus   or Commission paid to the employee for services rendered   allowable   subject   to   the   condition that   the   payment   is   not   made   in   lieu   of dividend.   It   is   well   settled   facts   that   if the   bonus   or   commission   is   paid   to   the shareholders   in   lieu   of   profit   or   dividend then   the   impugned   bonus/commission   will   not be allowed as deduction within the meaning of section   36(1)(ii)   of   the   Act.   In   present case, the assessee company has paid bonus to the employee directors (as mentioned supra), who   owned   almost   all   of   the   shares   of   the assessee   company   and   also   are   the   decision making   authorities   of   the   assessee   company. During   the   year   under   consideration,   the assessee   company   has   earned   substantial profits however it has not declared dividend. Instead   of   declaring/distributing   dividend, the substantial shareholder directors decided to pay bonus to the above mentioned persons in   order   to   avoid   tax   payments   by   reducing its profit. In light of the facts mentioned above, it is ample clear that the payment of bonus  is   in  lieu   of  dividend   or  profit   and thus cannot be allowed as dedution. 4.Enquiries   made   by   the   AO   as   sequel   to information   collected/received: The   facts enumerated   above   have   been   found   out   on examination   on   the   case   records   of   the assessee and are self­explanatory. Therefore, no further enquiry is required in this case. On the basis of the same there are reasons to believe that the income chargeable to tax has escaped assessment.

Findings of the AO:­ While examination of the case records, it is noticed that the assessee   was   required   to   deduct   TDS   on   the payment made to the tune of Rs.8,48,189/­ (as discussed   supra).   However,   the   assessee   has not deducted TDS thereon and therfore it is ample   clear   that   the   assessee   has   violated the provision laid down in Chapter­XVII­B of the   I   T   Act.   In   such   circumstances,   the expenditure   claimed   by   the   assessee   to   the extent  of  Rs.8,48,189/­  is  not  allowable   in view of Section 40(a)(ia) of the Act. Section 40(a)(ia) of the Act evidently emphasis that failure to comply wit the provisions of TDS on   the   sum   covered   of   Profit   and   Gains   of Business or Profession. In view of the facts narrated above and considering the provision of   Section   40(a)(ia)   of   the   Act   it   can explicitly be concluded that the deduction on account   of   impugned   expenditure   cannot   be allowed.

1 With   respect   to   the   bonus   paid   by   the assessee   company   to   the   employee   directors, owning   almost   all   of   the   shares   of   the assessee   company,   it   has   already   been established  in  the  preceding   paras  that  the bonus paid by the assessee company is in lieu of   dividend   or   profit.   It   is   settled   legal position   that  any  expenditure  on  account   of payment

Basis of forming reason to believe and details of escapement of income:­ During the course of examination of the case records of the   assessee   company   for   the   year   under consideration the above enumerated facts and issues have been found. While examination of the   case   records,   it   is   noticed   that   the assessee   was   required   to   deduct   TDS   on   the payment   made   to   the   tune   of   Rs.8,48,189/­. However,   the   assessee   has   not   deducted   TDS thereon and therefore it is ample clear that the assessee has violated the provision laid down in Chapter XVIII­B of the I T Act. In such   circumstances,   the   expenditure   claimed by   the   assessee   to   the   extent   of Rs.8,48,189/­   is   not   allowable   in   view   of section 40(a)(ia) of the Act. Further, with respect to the bonus paid by the   assessee   company   to   the   employee directors, owing almost all the shares of the assessee   company,   it   has   been   established that   the   bonus   was   paid   is   in   lieu   of dividend   or   profit   with   an   intention   to diminish the profit. The employee directors, to whom the impugned bonus was paid, are the decision making authority and the decision of the   shareholder   directors   to   pay   the   bonus instead   of   dividend   was   obviously   with   the intention   to   reduce   profit   for   avoiding payment of taxes as the assessee company had derived   tax   advantage   and   therefore,   cannot be   allowed   as   deduction   in   view   of   Section 36(1)(ii) of the Act. The facts

3   The   petitioner   filed   objection   before   the respondent   on   22.06.2018   with   a   request   to   drop reopening   proceedings   contending   that   there   was   no failure   on   the   part   of   the   petitioner   to   disclose truly and fully all material facts and the reasons refer to the material already on record.

However, objections raised by the petitioner were rejected by the Assessing Officer Vide order dated 07.08.2018. 6. Learned advocate for the petitioner Mr. Sudhir Mehta,   submitted   that   the   impugned   notice   under Section 148 of the Act was issued by the respondent only on the basis of information received from audit party.   It   was   pointed   out   that   the   respondent, without   considering   the   material   on   record,   issued the impugned notice by recording reasons with regard to the issues which are already considered during the course of regular assessment proceedings and as such there was no failure on part of the petitioner to disclose truly and fully all material facts.

1  Learned advocate for the petitioner, thereafter, pointed out that for each of the reasons recorded by the   respondent,   there   was   inquiry   made   by   the Assessing   Officer   during   the   regular   assessment proceedings.

2  Attention of this Court was invited with regard to particulars called for by the Assessing Officer in notices dated 10.10.2012 and 26.10.2012 issued under Section   142(1)   of   the   Act   to   point   out   that   the details of TDS and income related  which was credited in the profit and loss account and names, addresses etc. of Directors and relatives of the Directors to whom remuneration/salary was paid along with details of service rendered by them was called for.

3   It was pointed out from the materials on record that   as   per   Point   No.19   of   the   notice   dated 26.10.2012 copy of TDS return in Form­26Q was also called for. The petitioner provided such information on 22.10.2012 and 02.08.2013. On 17.02.2014, copies of bills of wind mill maintenance were also provided by the petitioner. The petitioner also explained in the letter dated 17.02.2014 with regard to the TDS not deducted on the amount of Rs.5,86,487/­ paid for the wharfage expenses. The petitioner also tendered justification for remuneration paid to the directors in the said letter. Therefore, it was submitted that the   petitioner   has   disclosed   truly   and   fully   all material facts during the course of assessment and the   Assessing   Officer,   after   considering   the explanation   tendered   by   the   petitioner,   passed assessment order under Section 143(3) of the Act.

4   Learned   advocate   for   the   petitioner   further submitted that the reasons recorded are on perusal of the   assessment   record   for   the   year   under consideration,   and   therefore,   there   is   change   of opinion on the part of the respondent for reopening of the reassessment which is not permissible in view of the settled legal position.

5   It was submitted that the notice for reopening is issued beyond a period of 4 years on the basis of the verification of the material available during the scrutiny   assessment   and   there   is   no   allegation against the petitioner of failure to disclose truly and   fully   all   material   facts,   and   therefore,   the impugned   notice   is   required   to   be   quashed   and   set aside.

6 Learned advocate for the petitioner, in support of   his   submissions,   relied   upon   the   following decisions :­ B. Commissioner of Income­tax, Delhi Vs. Kelvinator Commissioner of Income Tax (OSD) Circle­5, Ahmedabad reported in (2013) 35 taxmann.com 353 (Gujarat) D.   Commissioner   of   Income   Tax­1   Vs.   Convertech of   Income­Tax   reported   in   (2016)   69   taxmann.com 245(Gujarat)

On   the   other   hand,   learned   counsel   Mrs.   Mauna Bhatt for the respondent relied upon the following averments   made   in   the   affidavit­in­reply   and submitted that the notice for reopening is just and valid:­ “5. At   the   outset,   I   humbly   submit   that   the impugned   notice   has   been   issued   on   four   grounds. The   first   ground   of   reopening   is   that   the petitioner   failed   to   deduct   TDS   on   Wharf   age expenses   of   Rs.5,86,487/­   paid   to   M/s.   Damani Shipping Pvt. Ltd. and therfore the said amount was not allowable in view of Section 40(a)(ia) of the Act. The   second   ground   of   reopening   is   that   the petitioner   had   not   deducted   TDS   on   payment   of import expenses of Rs.1,64,109/­ to M/s to Damani Shipping   Pvt   Ltd,   and   therefore,   the   said   amount was not allowable in view of Section 40(a)(ia) of the Act. The   third   ground   of   reopening   is   that   the petitioner debited a sum of Rs.97,593/­ payable to Gujarat   Energy   Transmission   Commission   for Operation and Maintenance of its Windmills (O & M charges   for   transmission   lines).   However,   the petitioner did not deduct TDS, and therefore, the said   expenditure   was   not   allowable   under   Section 40(a)(ia) of the Act. The   fourth   ground   of   reopening   is   that   the petitioner   paid   bonus   amounting   to   Rs.14,90,000/­ to   the   three   directors   having   99.3%   shareholding instead of declaring dividend despite earning huge profits.   The   bonus   paid   to   the   directors   was   in lieu of dividend, and therefore, cannot be allowed as   deduction   u/s   36(1)(ii)   of   the   Act.   I   submit that   the   assessment   is   reopened   after   recording reasons   to   believe   that   income   chargeable   to   tax has  escaped  assessment   due to failure  on part  of the   petitioner   to   disclose   fully   and   truly   all material facts necessary for assessment.”

Having   heard   the   learned   advocates   for   the respective   parties   and   having   gone   through   the material   on   record,   it   appears   that   the   impugned notice under Section 148 of the Act for reopening of the   assessment   for   the   Assessment   Year   2011­12   is admittedly issued beyond a period of four years from the end of relevant  assessment year.  Therefore,  the only   short   question   which   arises   for   consideration   is whether income chargeable to tax has escaped assessment for the failure on part of the assessee to disclose fully and   truly   all   material   facts,   is   emerging   from   the reasons recorded?

For   each   reason   recorded   by   the   respondent   in Paragraph No.2, expression used “on perusal of the assessment

Thus, the respondent has recorded reasons on verification of the material already on record during the original assessment proceedings. Moreover, it is not alleged in the reasons recorded that there was failure   on   the   part   of   the   petitioner   to   disclose truly   and   fully   all   material   facts.   It   is   noticed that during the original assessment proceedings, the petitioner   had   furnished   the   requisite   details pertaining   to   the   payment   of   Rs.5,86,487/­   towards wharfage   expenses.   Therefore,   the   reasons   recorded with regard to applicability of Section 40(a)(ia) of the   Act   was   already   considered   by   the   Assessing Officer during the course of assessment proceedings.

Similarly, details of bonus and remuneration paid   to   the   directors   and   details   with   regard   to payment of dividend and profit etc. to the directors of   the   petitioner   were   also   furnished   during   the course of the assessment, and therefore, issue with regard   to   propose   disallowance   in   view   of   Section 36(1)(ii) of the Act would not arise.

With respect to the issue of TDS, the respondent has   recorded   reason   that   while   examination   of   the case   record,   it   is   noticed   that   the   assessee   was required to deduct TDS on payment made to the tune of Rs.8,48,189/­.   However,   it   was   pointed   out   by   the learned advocate for the petitioner that the details of TDS were furnished during the course of assessment proceedings.

With regard to similar question of reopening of assessment   ,the   Delhi   High   Court   in   the   case   of Eicher Ltd (supra) has held as under:­ “16. Applying the principles laid down by the Full Bench of this Court as well as the observations of the Punjab and Haryana High Court, we find that if the   entire   material   had   been   placed   by   the assessed before the Assessing Officer at the time when   the   original   assessment   was   made   and   the Assessing   Officer   applied   his   mind   to   that material   and   accepted   the   view   canvassed   by   the assessed, then merely because he did express this in the assessment order, that by itself would not give   him   a   ground   to   conclude   that   income   has escaped assessment and, thereforee, the assessment needed to be reopened. On the other hand, if the Assessing   Officer   did   not   apply   his   mind   and committed   a   lapse,   there   is   no   reason   why   the assessed should be made to suffer the consequences of that lapse.

In so far as the present appeal is concerned, we   find   that   the   assessed   had   placed   all   the material   before   the   Assessing   Officer   and   where there was a doubt, even that was clarified by the assessed in its letter dated 8th November, 1995. If   the   Assessing   Officer,   while   passing   the original assessment order, chose not to give any finding in this regard, that cannot give him or his   successor   in   office   a   reason   to   reopen   the assessment   of   the   assessed   or   to   contend   that because   the   facts   were   not   considered   in   the assessment order, a full and true disclosure was not   made.   Since   the   facts   were   before   the Assessing   Officer   at   the   time   of   framing   the original   assessment,   and   later   a   different   view was   taken   by   him   or   his   successor   on   the   same facts, it clearly amounts to a change of opinion. This   cannot   form   the   basis   for   permitting   the Assessing Officer or his successor to reopen the assessment of the assessee.

The Supreme Court in the case of Kelvinator of India Ltd (supra) has held as under:­ “4. On   going   through   the   changes,   quoted   above, made to Section 147 of the Act, we find that, prior to   Direct   Tax   Laws   (Amendment)   Act,   1987,   re­ opening could be done under above two conditions and   fulfillment   of   the   said   conditions   alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go­by and only one condition has remained, viz., that  where   the   Assessing   Officer   has   reason   to believe   that   income   has   escaped   assessment, confers  jurisdiction   to re­ open  the  assessment. Therefore, post­1st April, 1989, power to re­open is   much   wider.   However,   one   needs   to   give   a schematic  interpretation   to the words  "reason  to believe" failing which, we are afraid, Section 147 would   give   arbitrary   powers   to   the   Assessing Officer   to   re­open   assessments   on   the   basis   of "mere change of opinion", which cannot be per se reason to re­open. We must also keep in mind the conceptual difference between power to review and power to re­assess. The Assessing Officer has no power  to  review;  he has  the power  to  re­assess. But re­assessment has to be based on fulfillment of   certain   pre­condition   and   if   the   concept   of "change   of   opinion"   is   removed,   as   contended   on behalf of the Department, then, in the garb of re­ opening  the assessment,  review  would  take  place. One must treat the concept of "change of opinion" as an in­built test to check abuse of power by the Assessing  Officer.  Hence,  after  1st  April,  1989, Assessing  Officer  has power  to  re­open,  provided there   is   "tangible   material"   to   come   to   the

For the afore­stated reasons, we see no merit in   these   civil   appeals   filed   by   the   Department, hence, dismissed with no order as to costs.”

This Court in the case of Patel Alloy Steel (P) Ltd (supra)has held as under:­ “7. The impugned notice has been issued beyond the period   of   4   years   from   the   end   of   the   relevant Assessment Year. Question of income chargeable to tax   escaping   assessment   for   the   failure   of   the assessee to disclose truly and fully all material facts, would therefore, assume significance.

In all four reasons recorded by us herein above, the   Assessing   Officer   starts   with   an   expression that on verification of record. Thus, the Assessing Officer  has based  his  reasons  on verification  of the material already on record during the original assessment. In the reasons recorded, or the notice issued for reopening it is not even alleged that there was failure on the part of the assessee to disclose   truly   and   fully   all   material   facts.   On this   short   ground,   we   are   inclined   to   allow   the petition.

Additionally,   we   notice   that   during   the assessment proceedings, the assessee had brought to the pointed  notice  of the  Assessing  Officer  that the   assessee   had   paid   interest   of   amount   of Rs.12,80,617/­ to IDBI. Along with such answer in the correspondence, copy of the ledger account of the interest paid was already enclosed. Thus full details of the borrowing, interest paid, etc. were part of the assessment proceedings.

With respect to disallowance of expenditure relatable to tax free income in terms of section 14A of the Act, it is undoubtedly true that rule 8D of the Income Tax Rules, 1962 was not in operation at that time. The determination, therefore, could not   have   been   based   on   such   formula.   This   is, however,   not   to   suggest   that   there   could   be   no disallowance at all under section 14A of the Act if it   was   found   that   expenditure   was   incurred   for earning tax free income. However, in this case also the crucial question is, did the assessee withhold true and full facts during the course of assessment leading to escapement of income chargeable to tax? Answer has to be in the negative.

With   respect   to   the   question   of   TDS,   the Assessing Officer himself has recorded that the tax was   deducted   and   return   was   duly   filed.   He   only required to reconcile the expenditure and the tax deducted   at   source   which   may   lead   to   a   possible disallowance   under   section   40(a)(ia)   of   the   Act. Surely,   for   such   a   fishing   inquiry   reopening   of assessment   could   not   be   permissible   that   too assessment beyond the period of four years from the end of the relevant assessment year when it is not even the case of the Department that the assessee had   not   disclosed   truly   and   fully   all   material facts.”

The Delhi High Court in the case of Convertech Equipments (P) Ltd (supra) has held as under:­ “7. This Court is of the opinion that in view of the fact that no fresh circumstances have come to notice   to   take   a   different   view,   no   substantial question   of   law   arises   on   the   point   of   the disallowance under section 36(1)(ii). The decisions of the income tax authorities involved concurrent findings   on   pure   questions   of   fact.   Moreover,   a Division Bench of this Court in Metplast Pvt. Ltd. v. DCIT, (2012) 341 ITR 563, after referring to the judgment of the Bombay High Court in  Loyal Motors Services   Company   Ltd.   v.   CIT,   (1946)   14   ITR   647 opined that the commission, if found to be paid for services rendered by the director as per the terms of   the   appointment,   cannot   be   said   to   be distribution of dividend or profits in the guise of commission.   It   was   noticed   that   while   commission was   paid   as   a   form   of   remuneration   for   actual services   rendered,   dividend   is   a   return   of investment   and   is   paid   to   all   its   shareholders equally. It was thus held that if the commission is paid   for   actual   services   rendered,  section   36(1) (ii) will not apply. This decision was followed by this   Court   in  CIT   v.   Career   Launcher   India   Ltd. (2012) 250 CTR 240 (Del). These decisions apply to the present case. The substantial question of law in   ITA   No.669/2012   is   answered   in   favour   of   the assessee.”

This   Court   in   the   case   of   Shree   Sayan   Vighag Sahkari  (supra)has held as under:­ “7. In the facts of the present case, the impugned notice under section 148 of the Act has been issued on   25.03.2015   for   reopening   the   assessment   for assessment year 2008­09, which is clearly beyond a period of four years from the end of the relevant assessment year. Under the circumstances, in view of the first proviso to section 147 of the Act, the Assessing   Officer   is   required   to   record   twin satisfaction, viz., that income chargeable to tax has escaped assessment and that such escapement is by reason of failure on the part of the petitioner to   disclose   fully   and   truly   all   material   facts necessary   for   its   assessment   for   the   year   under consideration. On a perusal of the reasons recorded it   is   amply   clear   that   there   is   nothing   stated therein to the effect that there was any failure on the part of the petitioner to disclose fully and truly   all   material   facts.   Thus,   the   second condition   precedent   for   exercise   of   powers   under section 147 of the Act is clearly not satisfied. Moreover,   even   as   regards   the   first   condition, namely,   that   the   Assessing   Officer   should   record satisfaction that income chargeable to tax should have   escaped   assessment,   in   the   light   of   the reasons recorded by this court in the case of Shri Chalthan Vibhag Khand Udhyog Sahakari Mandali Ltd. v. Deputy Commissioner of Income Tax (supra), it cannot   be   said   that   on   the   reasons   recorded   for reopening   the   assessment,   the   Assessing   Officer could have formed the belief that income chargeable to tax has escaped assessment. Therefore, even the first   condition   precedent   for   exercise   of   powers under   section   147   of   the   Act,   is   not   satisfied. Under the circumstances, the impugned notice issued under section 148 of the Act cannot be sustained.”

In view of above settled legal proposition and in the   facts   of   the   case,   when   the   impugned   notice issued under Section 148 of the Act is clearly beyond the period of four years from the end of relevant assessment   year,   in   view   of   the   first   proviso   to Section 147 of the Act, the respondent has to record the reason as to whether the income chargeable to tax has escaped assessment for the failure on part of the assessee   to   disclose   truly   and   fully   all   material facts   for   its   assessment   for   the   year   under consideration.

On perusal of the reasons recorded as well as material on record, it is evident that there was no failure   on   the   part   of   the   petitioner   to   disclose truly   and   fully   all   material   facts.   It   is   settled proposition   of   law   that   for   fishing   inquiry, reopening of assessment is not permissible, that too, reopening beyond the period of four years from the end of the relevant assessment year when it is not even   the   case   of   the   respondent   that   there   is   a failure   on   the   part   of   the   petitioner   to   disclose truly and fully all material facts.

In view of the aforesaid fact situation, there is no tangible material for the respondent to come to the conclusion that there is escapment of income from assessment.   Moreover,   there   is   no   live   link   for formation of such belief while recording the reasons for reopening the assessment. In such circumstances, when   the   entire   material   had   been   placed   by   the petitioner before the Assessing Officer, who accepted the   view   canvassed   by   the   assessee   then   merely because   he   did   not   record   such   acceptance   in assessment order would not be a ground to conclude that   income   has   escaped   the   assessment,   and therefore, the assessment is required to be reopened.

For the foregoing reasons, the petition succeeds and is   accordingly   allowed.   The   impugned   notice   dated 29.03.2018 issued by the respondent under Section 148 of the Income Tax Act­1961 is hereby quashed and set aside. Rule is made absolute. No order as to cost. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) GIRISH