(a) Income-tax---

----Reassessment--.Information that income has escaped assessment---Change of opinion of Assessing Officer is not a ground for reassessment---No reference to High Court decision in reasons recorded for reassessment-- Reference to High Court decision in the form of affidavit could not be taken into account---Assessee disclosing receipt of income---Assessment of such income---Reassessment based on change of opinion was not valid---Indian Income Tax Act, 1961, Ss. 147 & 148.

Before issuing notice under section 148 of the Income Tax Act, 1961,the officer should have reason to believe that income has escaped assessment. The reason to believe can never be the outcome of a change of opinion. The validity or otherwise of the reason should-.be gone into on the basis of the facts mentioned therein. It is not open to the authorities to justify the action on the basis of further reasons supplied in the form of affidavits.

Where the action of an executive authority is--without jurisdiction and is likely to subject one to lengthy proceedings and unnecessary harassments, the High Courts are to issue appropriate orders to prevent such consequences.

The assessees were partners of a firm B. The firm was dissolved on October 24, 1984, when a private limited company was incorporated specifically with the object of purchasing the business of the firm. Before the firm was dissolved, it had undertaken work of the Daman Ganga Project and completed the same on March 22, 1983. On November 5, 1984, the business of the firm was transferred to the private limited company except the right to receive pending claims in connection with the Daman Ganga Project. The arbitrator, who went into the claim passed an award for Rs.1,91,31,690 on November 6,1986, in favour of the firm. The partners applied to the Count for getting the amount directly. The payment was made on April 21, 1987, to the four partners of the erstwhile firm each getting Rs.47,82,922. The partners showed the receipt of the amount in their returns of income and claimed exemption as capital receipt. The Deputy Commissioner (Assessment), Special Range, where the firm was assessed, passed an order, making addition of Rs.1,91,31,690 and intimated the share of income to the respective Assessing Officers, where the partners were assessed, to be assessed in the hands of the partners. Consequently, an order under section 155 was passed on July 24, 1992, when the shares of award were assessed to tax after deduction of the firm's tax. The firm preferred an appeal before the Commissioner of Income-tax (Appeals),who confirmed the addition. Aggrieved by the order, the firm went in appeal to the Tribunal and the case was still pending. Meanwhile notice was issued to the partners under section 148 of the Act. On a writ petition to quash the notice:

Held, that the entire reasons recorded by the Income-tax Officer, to support his belief that income had escaped assessment did not make any reference to the decision in Banyan & Berry v. CIT (1996) 222 ITR 831. In the absence of mention of that case in the order, it was not open to the Officer to justify the order by reference to the said decision. The documents and assessment orders made it clear that the assessees had placed the entire facts before the Assessing Authority. The authority took note of all the income which accrued during the year 1988-89 and passed the orders of assessments. Since the entire facts relating to the income were made known to the Assessing Authority and no objective reason had been given for issuing a notice under section 148 the notices issued under section 148 were liable, to be quashed.

(b) Writ---

----Powers of High Court---High Court can issue writ when authorities act without jurisdiction---Constitution of India, Art.226.

Banyan & Berry v. CIT (1996)' 222 ITR 831 (Guj.); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) and CIT v. Ratanlal Lallubhai (1978) 112 ITR 985 (Guj.) ref.

J. P. Shah for Petitioner.

Manish R. Bhatt for Respondent No. 1.

JUDGMENT

K. SREEDHARAN, C.J.----Rule. With the consent of the parties, the petitions are taken up for final disposal.

The petitioners are assessees under the Income-tax Act for the last several years. They were partners of a firm-under the name and style of "Bharat Vijay Construction Company". They were assessed during the assessment year 1988-89 under section 143(1) of the Act. They were served with notice dated March 13,1997, issued under section 148 of the Income -tax Act, stating that income for the assessment year 1988-89 has "escaped assessment within the meaning of section 147 of the Income-tax Act. The validity of these notices is questioned in these petitions. The issues raised for quashing the notices are the same. So, we consider it advantageous to dispose of these petitions by a common judgment.

The facts alleged by the petitioners in these petitions are identical. They are as follows:

The petitioners filed a return for the assessment year 1988-89, enclosing therewith income and expenditure account, wherein it showed an amount of Rs.47,82,922.50 by way of receipt from the Daman Ganga Dam arbitration. How this amount was arrived at was also shown in an annexure to the return. An amount of Rs.1,91,31,690 received on account of the Daman Ganga Dam work was shown distributed to four partners in equal shares, each getting about Rs,47,82,922.50. Along with the return, the petitioners submitted Exh. "E" Note:

----In pursuance of arbitration award in connection with the claim of Bharat. Vijay Construction Co. (the business of which has been taken over and continued by a private limited company), the assessee as the erstwhile partner of a firm received sums during the year. Since this amount represents collection by the assessee of a right allotted to him and held by him on capital account, it is not liable to tax and hence not included in the returns of taxable income. Further also as the assessee is not carrying on any business, the question of considering this amount as business income does not arise and hence not included in the return of taxable income. . . "

The Assessing Officer passed the assessment order, dated March 9, 1990. Order under section 155 of the Income-tax Act was passed on July 24, 1992. A copy of that order is marked as Exh. "G". For the assessment year 1988-89,Bharat Vijay Construction Company was assessed taking into consideration that entire amount of Rs.1,91,31,690 received on account of the Daman Ganga Dam Construction. Thereafter, the petitioners have been issued with notice under section 148 requiring them to file the returns for the assessment year 1988-89.

The Assessing Officer filed a reply affidavit, dated July 30,1997.The contentions taken. therein are to the following effect:

Bharat Vijay Construction Company was dissolved on October 24, 1984, when Bharat Vijay Construction (Private) Limited was incorporated specifically with the object of purchasing the business of the firm. Before the firm was dissolved, they have undertaken work of the Daman Ganga Project and completed the same on March 22, 1983. On November 5,1984; the business of the firm was transferred to the private limited company except the right to receive pending claims in connection with the Daman Ganga Project. The arbitrator, who went into the claim, passed an award for Rs.1,91,31,690 on November 6, 1986 in favour of the firm. The partners applied to the Court for getting the amount directly. The payment was made on April 21,1987, to the four partners of the erstwhile firm, each getting Rs.47,82,922. The partners showed the receipt of the amount in their returns of income and claimed exemption as capital receipt. The Deputy Commissioner (Assessment), Special Range, where. the firm was assessed, passed an order, making addition of Rs.1,91,31,690, and intimated the share of income to the respective Assessing Officers, where the, partners were assessed, to be assessed in the hands of the partners. Consequently, an order under section 155 was passed on July 24, 1992, when the shares of award were assessed to tax after deduction of the firm's tax. The firm preferred an appeal before the Commissioner of Income-tax (Appeals), who confirmed the addition. Aggrieved by the order, the firm went in appeal to the Tribunal and the case is still pending. Meanwhile, this Court in Banyan & Berry v. CIT (1996) 222 ITR 831, took the view that persons, who would be assessed in a situation similar to the present case, are the partners, who actually received the amount. Notice under section 148 was issued after obtaining necessary approval from the Commissioner of Income-tax, Surat.

Along with the reply affidavit, the order passed by the Income-tax Officer on February 20,1997, giving the reason for the belief that income has escaped assessment, has been annexed. For a proper understanding of the reasons, we read the same:

"In pursuance of arbitration award in connection with the pending claim of Bharat. Vijay Construction Co the assessee as an erstwhile partner of a firm has received amount of award of Rs.47,82,922 (1 /4th share of total award of Rs.1,91,31,690) during the financial year relevant to the assessment year 1988-89. This amount of award should be assessed in the hands of the assessee as the same was actually received by him as an erstwhile partner of the firm. But, the amount of award received has not been included in the total taxable income by the assessee.

In, view of the above, I have reason to believe that for the year ending October 22, 1987 (Assessment year 1988-89). the income of the assessee chargeable to tax has escaped assessment and, therefore, notice under section 148 of the Act, is being issued.

Learned counsel representing the petitioners advanced an .argument that the reasons for the Income-tax Officer's belief that income has escaped assessment is only a change of opinion and that cannot be the basis for issuing a notice under section 148 of the Act. This argument has been sought to be replied by learned counsel representing the Revenue by stating that an authoritative judicial pronouncement can be information warranting the issue of the notice: According to the Revenue, this Court in CIT v. Ratanlal Lallubhai (1978) 112 ITR 985, took the view that a judicial decision by a competent Authority can be information supporting the issue of notice. The decision in Banyan and Berry's case (1996) 222 ITR 831, clearly provided that the entire amount covered by the arbitration award should have been assessed in the hands of the partners who received the same. In view of that information, it is contended that impugned notice is unassailable.

The entire reasons recorded by the Income-tax Officer, to support his belief that income has escaped assessment, quoted earlier in this judgment, did not make any reference to the decision of this Court in Banyan & Berry's case (1996) 222 ITR 831. In the absence of mention of that case in the order, it is not open to the Officer to justify the order by reference to the said decision. The validity or otherwise of the reason should be gone into on the basis of the facts mentioned therein. It is not open to the authorities to justify the action on the basis of further reasons to be supplied in the form of affidavits.

In the instant case, Bharat Vijay Construction Company, the partnership firm was assessed for the assessment year 1988-89. Rs.1,43,25,205 was found divisible in the said assessment order passed under section 143(3) of the Income-tax Act. Consequently, each sharer was found entitled to Rs.35,81,301. Aggrieved by that assessment order, the firm preferred appeal before the Appellate Commissioner. When the firm failed before that authority, they took up the matter before the Tribunal and the case is pending.

We would like to add that when confronted with the argument of Mr. Joshi for the Revenue that if, in the pending appeal filed by the firm, the assessment order passed against the firm is quashed on the basis of the decision in the case of Banyan & Berry (1996) 222 ITR 831 (Guj), the assessment made against the petitioner in respect of the income treated as received from the firm may also fail, Mr. Shah for the assessee fairly stated that, in that event the Income-tax Officer may be in a position to invoke the powers under sections 147 and 148, but not before any such eventuality arises. We are, therefore, proceeding on the basis of this concession.

The petitioners in their return for the assessment year 1988-89 showed the receipt of Rs 47,82,922.50 as one-third of the amount received from the Daman Ganga Project. In the order passed under section 155 of the Income-tax Act for the assessment year 1988-89, the officer observed:

"In view of the above, the assessee has not declared the share of profit from Bharat Vijay Construction Company as the award was pending. The assessment of Bharat Vijay Construction Company as well as Bharat Vijay Construction (Pvt.) Ltd. are done by the Deputy Commissioner. (Income-tax), Special Range-1,Surat. The assessment of the firm of Bharat Vijay Construction Company has been decided by the Deputy Commissioner of Income-tax, Special Range-I, Surat, on March 27, 1991. The Deputy Commissioner (Income-tax) Special Range-I, Surat, has been intimated the share income of the assessee from the firm of Bharat Vijay Construction Company for the assessment year 1988-89. Since the share income not assessed previously and submission made by the assessee is part of the return, was accepted under section 143(1)(a) (sic). The share income communicated by now requires to be taxed in the hands of the assessee. Since the return was accepted under section 143(1)(a) of the Act, the assessment requires to be rectified under the provisions of section 155 of the Act. "

The documents and assessment orders referred to earlier make it clear that the assessee placed the entire facts before the assessing authority. That authority took note of all the income accrued during the year 1988-89 and passed, the orders of assessments. Thereafter, the impugned notices have been issued. The short question is whether the issue of these notices is sustainable or not. Where the action of an executive authority is without jurisdiction and is likely to subject one to lengthy proceedings, and unnecessary harassments, it is well-settled, the High Courts are to issue appropriate orders to prevent such consequences (vide Calcutta Discount Company Ltd. v. ITO (1961) 41 ITR 191 (SC)). Before issuing notice under section 148 of the Income-tax Act, the officer should have reason to believe. The said reason to believe cannot be reason to suspect. 1t is settled law that reason to believe can never be the outcome of a change of opinion. It is essential that before any action is taken by the Officer, the Officer should substantiate his satisfaction. Reasons recorded in the instant case, which were quoted earlier, do not bring out any ground, making out an objective satisfaction arrived at by the officer. No reason other than those recorded by the officer therein can possibly be urged to-sustain his action either. Since the entire facts relating to the income were made known to .the assessing authority and no objective reason has been given for issuing a notice under section 148, we are constrained to quash the impugned notices issued to the applicants in these special civil applications.

In view of what has been stated above, the petitions are allowed and notices, dated March 13, 1997, issued to the applicants herein are quashed. Rule is made absolute accordingly. We make no order as to costs.

M.B.A./3204/FC Petitions allowed.