Gujarat H.C : Where Assessing Officer had reopened assessment of assessee after a period of four years from end of relevant assessment year for reason that book profit was under assessed, since in reasons recorded there was no mention at all of assessee having not disclosed fully or truly material facts which were necessary for purpose of computing income, reopening of assessment lacked validity

High Court Of Gujarat

Gujarat Lease Financing Ltd. vs. DCIT, Circle -4, Ahmedabad

Assessment Year : 2005-06

Section : 115JB, 147

M.R. Shah And Ms. Sonia Gokani, Jj.

Special Civil Application No. 3048 Of 2013

June  24, 2013

Mrs. Sonia Gokani, J. – This writ petition, preferred under Article 226 of the Constitution of India, challenges a Notice dated 10th February 2012 issued by the respondent under Section 148 of the Income Tax Act, 1961 (“Act” for short) seeking to reopen the petitioner’s income-tax assessment for the A.Y 2005-06.

2. Brief facts necessary for adjudicating the issue raised in this petition are as follows :-

2.1 The petitioner is a limited company, which was originally engaged in the business of leasing and financing. Later on, however, company ceased its operation. The petitioner filed its return of income under section 139(1) of the Act on 28th October 2005 declaring the total income at Rs. NIL. On 18th October 2006, the notice under section 143(2) of the Act was issued. During the scrutiny assessment proceedings, a notice under section 142(1) of the Act was also issued accompanied by detailed questionnaire. The Assessing Officer also called for various explanations and clarifications which were furnished along with the supporting evidences by the assessee. On completing such scrutiny, the assessment came to be framed under section 143(3) of the Act on 28th November 2007.

2.2 The petitioner herein preferred appeal against such order before the Commissioner of Income-Tax (Appeals) at Ahmedabad, which decided the appeal vide order dated 24th March 2008 and allowed the appeal of assessee.

2.3 The Department, aggrieved by such order, challenged the same before the Income Tax Appellate Tribunal, Ahmedabad and cross objections were filed by the petitioner, which are pending as yet for adjudication.

2.4 In the meantime, the Assessing Officer reopened the assessment under section 147 of the Act, by issuing impugned notice under section 148 of the Act.

2.5 At the request of the petitioner, reasons recorded have been furnished to the petitioner, which read as under :—

“It is noticed that Book profit in the case of assessee was shown at Rs. 67,58,22,149/=. But taxable profit was shown at NIL as the assessee is having brought forward business loss of Rs. 67,58,00,284/= and Dividend of Rs. 21,865/=. These amounts are reduced from the Book profit.

As per provision of section 115JB of the Income tax Act, 1961, the amount of unabsorbed depreciation or unabsorbed business loss, whichever is lower is to be reduced from the book profit of the assessee. In the case of assessee, the unabsorbed depreciation is NIL. Therefore, no amount is to be taxed as book profit.

It is also noticed that due to agreement of settlement, which was approved by the Hon’ble High Court of Gujarat the assessee need not to pay amount of Rs. 9983.98 lac. This amount is also not added to the Book profit of the assessee. Therefore, Book profit of the assessee was also under assessed by Rs. 99,83,98,000/=.

Thus, Book profit of the assessee is under assessed by amount of Rs. 167,41,98,284/= [Rs.67,58,00,284 + 99,83,98,000]. In view of the above, I have reason to believe that the Book profit of the assessee is under assessed amount of Rs. 167,41,98,284/=.”

2.6 The petitioner raised objections vide its communication dated 5th February 2013. Such objections, however, came to be rejected by the respondent vide order dated 22nd February 2013. Aggrieved by such disposal of the objections against notice for reopening, the present petition is preferred challenging the same on various grounds.

3. We have heard learned counsel appearing for the parties for final disposal of this petition.

4. Learned senior counsel Shri S.N Soparkar appearing for the petitioner has fervently submitted that the impugned notice is given beyond the period of four years from the end of relevant assessment year as this concerns A.Y 2005-06 and the reasons furnished by the respondent indicate nowhere that there is any failure on the part of the assessee to disclose truly and fully all facts which were necessary to be disclosed. He emphasized that the reasons also indicate that from the very record available with the Assessing Officer, the information has been extracted and on the strength thereof, reopening of the assessment is sought for. He urged further that at the behest of the petitioner, the reasons have been furnished and neither of the reasons is indicative of the failure on the part of the assessee to disclose truly and fully any material fact and therefore, the very basis of impugned notice lacks validity. He further made a grievance that the decision of the Supreme Court rendered in case of GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19/[2002] 125 Taxman 963 was essentially with a view to act as a check-post to prevent arbitrary exercise of powers by the Assessing Officer and the Assessing Officer in the present case has failed to take note of the objections and he has mechanically disposed of the same without assigning the reasons as to why he holds a belief that there has been no true disclosure of all material facts. It is emphasized that after scrutiny assessment under section 143(3) of the Act, the assessment had been completed on 28th November 2007 and subsequently, the same had been challenged before the appellate forums as prescribed under the law, and therefore also, reopening of the assessment on the very same grounds is impermissible as it is nothing but a change of opinion. In this context, learned senior counsel sought to place reliance on the following decisions :—

(a) Patel Alloys Steel (P.) Ltd. v. Asstt. CIT [Special Civil Application No. 3047 of 2013 :: Decided on 7th May 2013]

(b) Kanak Fabrics v. ITO [Special Civil Application No. 335 of 2001 :: Decided on 3rd March 2011];

(c) Jivraj Tea & Industries Ltd. v. Asstt. CIT [Special Civil Application No. 2120 of 2013 :: Decided on 8th April 2013]

(d) Reckitt Benckiser Healthcare India Ltd. v. Asstt. CIT [Special Civil Application No. 3049 of 2013 :: Decided on 29th April 2013].

5. Per contra, learned senior advocate Shri M.R Bhatt appearing for the Revenue emphasized on Explanation 1 to Section 147 of the Income-tax Act, 1961. He urged that the case of the petitioner would fall under Explanation 1 of Section 147 as it is the subjective satisfaction of the Assessing Officer who holds a reason to believe that the income has escaped assessment and this would empower him to exercise his discretion for issuance of notice under section 148 of the Act. He urged that at this stage, when the impugned notices are under challenge, the belief of the Assessing Officer requires to be prevailed. According to learned counsel, the Supreme Court in case of GKN Driveshafts (India) Ltd. (supra) has created a stage which was not there in the provision of the Act, permitting raising of the objections by the assessee. However, while dealing with such objections, it is not expected of the Assessing Officer to carry out full-fledged re-assessment as that stage would come only after the objections are disposed of. He therefore urged the Court that the reasons recorded shall have to be considered at the stage at which such challenge is made to the impugned notice and the Court may not expect reassessment in case of petitioner as that may also give rise to the allegations of the Assessing Officer having pre-judged the entire issue. He further urged that the regular channel would be available to the petitioner, if in case he is aggrieved by the order of assessment and therefore also, at this stage of issuance of the notice, the Court may not interfere. On the scope of Article 226 of the Constitution also, particularly in a case for reopening of assessment, he at length addressed this Court. Learned counsel placed reliance on the following authorities, which are—

(a) Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC).

(b) GVK Gautami Power Ltd. v. Asstt. CIT [2011] 336 ITR 451/[2012] 20 taxmann.com 710 (AP.);

(c) Dishman Pharmaceuticals & Chemicals Ltd. v. Dy. CIT [2012] 346 ITR 228/[2013] 33 taxmann.com 638 (Guj.);

(d) Sun Pharmaceutical Industries Ltd. v. Dy. CIT [2013] 353 ITR 450/29 taxmann.com 262 (Guj.)

(e) Indi-Aden Salt Mfg. & Trading Co. Ltd. v. CIT [1986] 159 ITR 624/25 Taxman 356 (SC);

(f) Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456/69 Taxman 627 (SC)

5.1 Learned counsel also has further addressed this Court on larger issues to which we shall come at a later stage in this judgment. He had, in a rejoinder, sought to place reliance upon the following authorities :

(a) Calcutta Discount Co. Ltd. (supra)

(b) Ketan B Mehta v. Asstt. CIT [2012] 346 ITR 254/[2013] 33 taxmann.com 537 (Guj.)

(c) Parashuram Pottery Work Co. Ltd. v. ITO [1977] 106 ITR 1 (SC)

(d) GKN Driveshafts (India) Ltd. (supra).

6. Upon thus hearing both the sides and on extensive examination of the material on record, this petition is being decided. Before adverting to the facts in the matter on hand, the law on the subject requires scrutiny at this stage.

6.1 Section 147 of the Act reads as follow :—

“147.If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of Section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.”

6.2 This provision, when read with Section 148 of the Act, authorizes the Assessing Officer to make reassessment, if he is of the belief that any income chargeable to tax has escaped assessment for any assessment year. He can assess or reassess such income and also any other income chargeable to tax which has escaped the assessment; if it comes to his notice during the course of proceedings under this section. However, proviso provided that no action shall be taken after expiry of four years from the end of relevant assessment year unless income chargeable to tax has escaped assessment for such assessment year on account of failure on the part of the assessee to make a return under section 139 or in response to a notice under sub-section (1) of Section 142 or Section 148 or he has failed to disclose fully and truly all material facts necessary for such assessment.

6.3 This Court, while dealing with this issue of reopening of the assessment beyond the period of four years in case of Kanak Fabrics (supra) has held that when the assessment is framed under section 143 (3) of the Act, the same can be reopened beyond the period of four years, only if the income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to make a return under section 139 or in response to notice under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts, necessary for such assessment. Relevant observations made in para 7 of the decision are aptly produced hereunder :-

“7. Examining the facts of the present case in the light of the aforesaid legal position, a perusal of the reasons recorded shows that there is not even a whisper to the effect that income has escaped assessment on account of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. Even in the affidavit in reply filed by the respondent, there is no allegation of any such failure on the part of the petitioner. In the circumstances, it is apparent that the requirements of the proviso to section 147 of the Act are not satisfied. Consequently, in the absence of any satisfaction having been recorded by the Assessing Officer that income has escaped assessment by reason of failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 of the Act, is invalid. The impugned notice under section 148 of the Act, therefore, cannot be sustained.”

6.4 In case of Patel Alloy Steel (P.) Ltd. (supra), similar question was being examined. It was noticed that the Assessing Officer has based his reasonings on verification of the material already on the record during the original assessment. In the reasons recorded or the notice issued for reopening, it was not even alleged that there was any failure on the part of the assessee to disclose truly and fully all material facts. On such short ground, the Division Bench allowed the petition.

6.5 In case of Jivraj Tea & IndustriesLtd. (supra), while dealing with the notice for reopening beyond the period of four years, in absence of any failure on the part of the assessee to disclose truly and fully all material facts and when in the original assessment proceedings, the Assessing Officer had examined the claim in detail after raising queries which were duly answered by the assessee, this Court quashed the impugned notice by holding thus –

“9. Thus, the observations of the Assessing Officer found in the reasons recorded are based on the assessment records of the year under consideration. It is not even the case for the Revenue that full details pertaining to the assessee’s claim for deduction under section 80IA were not furnished. It is not in dispute that the petitioner along with the return filed statutory declarations including the audited accounts. The assessment records of the earlier year 2002-03 and 2004-05 were very much available to the Assessing Officer. It is not even the case of the Revenue that in such return necessary details were not supplied. Merely because while framing assessment for the subsequent year 2007-08, the Assessing Officer noticed certain irregularity in the claim by itself would not be sufficient to satisfy the requirements of the proviso to Section 147 of the Act.

10. In addition to above conclusions, that there was no failure on the part of the assessee to disclose truly and fully all material facts, we also find that during the original assessment proceedings, the Assessing Officer had examined the claim in detail. Various queries were raised which were duly answered by the petitioner-assessee. May be that the specific angle of the depreciation earlier claimed to be set off against the income of the current year of the eligible business may not have been in the mind of the Assessing Officer. Nevertheless, the entire claim of the assessee for deduction under Section 80IA of the Act was before the Assessing Officer and such claim was also processed.”

6.6 In the case of Reckitt Benckiser Healthcare India Ltd. (supra), the notice for reopening was quashed, when it was noticed that the first ground of reopening lacked validity. In the words of the Bench;

“7. From the above, it emerges that insofar as the first ground is concerned the petitioners case all throughout has been that the amount in question was never treated as revenue expenditure. Such ground, thus, lacks validity. Such contention raised in the objections raised by the petitioner was dismissed by the Assessing Officer merely observing that the assessee had not given any proof that while computing its return, it had correctly treated the said expenditure. We are afraid that on such basis the reopening would not be permissible. The petitioner has all throughout been contending that the expenditure was not claimed as revenue expenditure and the question of disallowing it as such would not arise. If the Assessing Officer had any doubt about such statement, he could have easily verified the correct facts from the return filed and other accompanying documents brought on record during the assessment proceedings. She simply could not have, in our opinion, brushed aside such a contention on the ground that such aspect was not examined by the Assessing Officer.”

6.7 In the case of Vodafone West Ltd. v. Asstt. CIT [2013] 33 taxmann.com 67 (Gujarat), the impugned notice of reopening was quashed by examining in detail various case laws and the material on record. All the grounds raised for reopening were held to have failed as nothing was pointed out to indicate that there was any failure on the part of the petitioner to disclose fully and truly all material facts. The Bench concluded thus;

“4. Having heard learned counsel for the parties, we notice that Assessing Officer had recorded three separate reasons for issuing the notice for reopening. First was that the petitioner had paid commission to various dealers on prepaid Sim-cards and recharge vouchers without deducting the tax at source. Second reason was that the petitioner had paid roaming charges to various telecom service providers without deducting tax at source. Third was that as per the amendment to section 115JB of the Act, vide Finance Act 2009 with retrospective effect on 1.4.2001, Explanation(1) to the said section had been inserted. According to such statutory change, the book profit under section 115JB had to be reworked.

5. To our mind, none of the reasons would permit the Assessing Officer to reopen the assessment beyond a period of four years.

6. In case of Calcutta Discount Co. Ltd. v. Income-Tax Officer reported in 41 ITR 191, the Constitution Bench of Supreme Court held and observed that to confer jurisdiction on assessee to issue notice of reopening of assessment beyond a period of four years, two conditions are required to be simultaneously satisfied. Such conditions are that the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have been under assessed and the second is that he must also have reason to believe that such underassessment has occurred by reason of either omission or failure on part of the assessee to make return of his income or omission or failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the taxing officer could have jurisdiction to issue notice for the assessment or reassessment beyond a period of four years. It was further observed that such duty would not extend beyond true and full disclosure of material facts. Once such primary facts are before the Assessing Officer, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for the assessee to tell the assessing authority what inferences, whether of facts or of law, should be drawn. It is not necessary to list the long line of decisions along this line. We may however, refer a recent decision of Division Bench in case of GVK Gautami Power Ltd. v. Assistant Commissioner of Income-tax(OSD) and another reported in 336 ITR 451, wherein referring to large number of authorities on the question of reopening the assessment, Division Bench culled out various principles, relevant of which read as under :

(xiv) The words failure to disclose fully and truly all material facts necessary for his assessment, in the first proviso to Section 147, postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. (Calcutta Discount Co. Ltd. (1961)41 ITR 191(SC).

(xv) Every disclosure is not, and cannot be treated to be, a true and full disclosure. A disclosure may be false or true. It may be a full disclosure or it may not. A partial disclosure may very often be misleading. What is required is a full and true disclosure of all material facts necessary for making assessment for that year (Sri Krishna Pvt. Ltd. (1996) 221 ITR 538(SC)

(xvii) The expression material facts refers only to primary facts which the assessee is duty bound to disclose. There is no duty cast on the assessee to indicate or draw the attention of the Income Tax Officer to the inferences which can be drawn from the primary facts disclosed. (Calcutta Discount Co. Ltd (1961) 41 ITR 191(SC) and Associated Stone Industries (Kotah) Ltd.(1997)224 t ITR 560(SC)

(xviii) What facts are material, and necessary for assessment, will differ from case to case. (Calcutta Discount Co. Ltd. (1961) 41 ITR 191(SC)

(xx) The assessee’s obligation, to disclose all material facts necessary for his assessment fully and truly, is in the context of the two requirements -called conditions precedent – which must be satisfied before the Income Tax Officer gets jurisdiction to re-open the assessment under Section 147/148. This obligation can neither be ignored nor watered down. (Sri Krishna Pvt. Ltd. (1996) 221 ITR 538(SC).

7. In the present case, with respect to requirement of deducting tax at source on prepaid SIM-cards and recharge voucher, petitioners case is two fold. Firstly, it is contended that in fact tax was deducted at source and duly deposited with the Government. In the objections raised opposing notice for reassessment, such contention was pointedly taken. The Assessing Officer however, while disposing of such objections did not dispute this averment of the petitioner. Further in the petition also on oath the petitioner has stated that on such payments, tax was deducted at source. This important averment has not been denied in the affidavit in reply filed by the respondent. Even before us during the course of oral submissions, counsel for the Revenue was unable to dispute this factual aspect.”

6.8 The Constitution Bench of Supreme Court in case of Calcutta Discount Co. Ltd. (supra) held that in case of reopening of assessment beyond a period of four years, what is essential is to fulfil two conditions, simultaneously, where the Income Tax Officer must have a reason to believe that the income, profits’ or gains chargeable to income-tax have been under assessed and such under assessment has occurred on account of omission or failure on the part of the assessee to make the return of his income, or to disclose fully and truly all material facts necessary for his assessment for that particular year. Once these conditions, held to be condition precedent are satisfied, jurisdiction is conferred upon the Assessing Officer for issuance of the notice under section 148 of the Act. The Court also held that every assessee has a duty to disclose all material facts necessary for the assessment and what are “material” and “primary” facts also have been explained, this wise :

“8. Before we proceed to consider the materials on record to see whether the appellant has succeeded, in showing that the Income-tax Officer could have no reason, on the materials before him, to believe that there had been any omission to disclose material facts, as mentioned in the section, it is necessary to examine the precise scope of disclosure which the section demands. The words used are “omission or failure to disclose fully and truly all material facts necessary for his assessment for that year “. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material, and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his Possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise-the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above., In view of the Explanation, it will not be open to the assessee to say, for example-“I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents”. His omission to bring to the assessing authority’s attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to “omission to disclose fully and truly all material facts necessary for his assessment.” Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee’s duty to disclose all of them-including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed.”

6.9 The Court has also observed that the duty of the assessee does not extend beyond disclosing true and full primary facts and once those primary facts are before the Assessing Officer, no further assistance is required to be rendered by way of any further disclosure on the part of the assessee. In other words, it is essential for the assessee to reveal the primary facts truly and fully but not the inferential facts as drawing the inferences would be the domain of Revenue.

6.10 The Apex Court, in case of Parshuram Pottery Works Co. Ltd. (supra), was dealing with re-assessment notice issued after expiry of four years from the end of relevant assessment year. The issue pertain to the higher amount of depreciation allowed by failure of Income Tax Officer to take into account initial depreciation. The question was whether that amounts to failure on the part of the assessee to disclose fully and truly all material facts, the Court held thus:-

‘…The words “omission or failure to disclose fully and truly all material facts necessary for his assessment for that year” postulate a duty on the assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise the assessing authority has to draw inference as regards certain other facts; and ultimately from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable see Calcutta Discount Co. v. Income-tax Officer (2) as further observed in that case:

“Does the duty, however, extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else far less the assessee to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences – whether of facts or law – he would draw from the primary facts.”

Keeping in view the principles enunciated above, we may deal with the contention advanced on behalf of the appellant that the present is not a case in which action could be taken under section 147(a) of the Act of 1961. This contention has been controverted (1) 103 I.T.R. 437. (2) 41 I.T.R. 191. By the learned counsel for the respondent, who has canvassed for the correctness of the view taken by the High Court in the judgment under appeal. It would appear from what has been’ discussed above that one of the essential requisites for proceeding under clause(a) of section 147of the Act of 1961 is that the income chargeable to tax should escape assessment because of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. The present is not a case where the assessee had omitted or failed to file the return. Question then arises as to what has been omission or failure on the part of the assessee to make a full and true disclosure. There is nothing before us to show that in the return filed by the assessee-appellant, the particulars given were not correct. Form C under rule 19 of the Indian Income-tax Rules, 1922 at the relevant time gives the form of return which had to be filed by the companies. Part V of that form deals with depreciation. The said part requires a number of columns to be filled in by the assessee. It has not been suggested that any of the information furnished of any of the particulars given in those columns by the appellant company were factually incorrect. Nor is it the case of the revenue that the appellant failed to furnish the particulars required to be inserted in those columns. Indeed, the copy of the return has not been filed and consequently no argument on that score could be or has been addressed before us. Part V of the form no doubt requires the assessee to state the written down value in column No. (2). Such written down value had to be specified without taking into account the initial depreciation because such depreciation in terms of clause (vi) of section 10(2) of the Act of 1922 could not be deducted in determining the written down value for the purpose of that clause. The case of the appellant is that in determining the amount of depreciation at the time of the original assessment for the two assessment years in question, the Income tax Officer relied upon the written down value of the various capital assets as obtaining in the records of the department. This stand has not been controverted. When an Income-tax officer relies upon his own records for determining the amount of depreciation and makes a mistake in doing so, we fail to understand as to how responsibility for that mistake can be ascribed to an omission or failure on the part of the assessee. It also cannot be disputed that initial depreciation in respect of items of capital assets in the shape of new machinery, plant and building installed or erected after the 31st day of March 1945 and before the 1st day of April 1956 is normally claimed and allowed. It seems that the Income-tax Officer in working ‘the figures of depreciation for certain items of capital assets lost sight of the fact that the aggregate of the depreciation, including the initial depreciation, allowed under different heads could not exceed the original cost to the assessee of those items of capital assets. The appellant cannot be held liable because of this remissness on the part of the Income-tax officer in not applying the law contained in clause (c) of the proviso to section 10(2)(vi) of the Act of 1922. As observed by Shah J. in Commissioner of Income-tax v. Bhanji Lavji, (1) section 34(1)(a) of the Act of 1922 (corresponding to section 147′(a) (1)79 I,T.R. 582. S.C. 101 of the Act of 1961) does not cast a duty upon the assessee to instruct the Income-tax Officer on questions of law.’

The Court has further held therein that,

“10. It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarize themselves with the relevant provisions and become well versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that state issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as income-tax assessment orders are concerned, they cannot be reopened on the scope of income escaping assessment under section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, ‘this cannot be said in the present case. The appeal is consequently allowed; the judgment of the High Court is set aside and the impugned notices are quashed. The parties in the circumstances shall bear their own costs throughout.”

6.11 The Supreme Court in case of Indi-Aden Salt Mfg. & Trading Co. (P.) Ltd. (supra) was dealing with the reassessment proceedings beyond the period of four years where it was found that the Income Tax Officer could have in the original assessment proceedings found out the correct position of the depreciation, allowed on entirety of the assets on the basis they consist of masonry work, by further probing. However, the Court held that that would not exonerate assessee from the duty to disclose truly and fully all material facts. It also further held that whether there was such non-disclosure of primary facts as had caused escapement of income from assessment was basically a question of fact. It held thus :

“It is well settled that the obligation of the assessee is to disclose only primary facts and not inferential facts. If some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts – the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted.”

6.12 The Court noted that the assessee did not disclose either by its valuation report or by a statement before the Income Tax authority as to what portion of the assets consist of earth work and that of masonry work. This was held to be a material fact for the purpose of calculating depreciation. Excess depreciation had been allowed considering the entire work to be masonry work and the income tax thus was had to be under-assessed, the Apex Court held that the I.T.O had a reasonable belief and sufficient material to hold that there was no true and full disclosure. In the words of the Apex Court :

“… The assessee’s contention is that the I.T.O. could have found out the position by further probing. That, however, does not exonerate the assessee to make full disclosure truly. The Explanation 2 to section 147 of the Act makes the position abundantly clear. The principles have also been well-settled and reiterated in numerous decisions of this Court. See Hazi Amir Moh. Mir Ahmed v. Commissioner of Income-tax, Amritsar, 110 I.T.R. 630 and Income-Tax Officer I Ward, Distt. VI Calcutta & Others v. Lakhmani Mewal Das, 103 I.T.R. 437. Hidayatullah, J. as the learned Chief Justice then was, observed in Calcutta Discount’s case (supra) that mere production of evidence before the Income- tax Officer was not enough, that there may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the revenue could have uncovered but did not, then, it is the duty of the assessee to bring it to the notice of the assessing authority. Assessee knows all the material and relevant facts – the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That was immaterial. But if there is omission to disclose material facts, then, subject to the other conditions, jurisdiction to re-open is attracted. It is sufficient to refer to the decision of this Court in Calcutta Discount’s case (supra) where it had been held that if there are some primary facts from which reasonable belief could be formed that there was some non- disclosure or failure to disclose fully and truly all material facts, the I.T.O. has jurisdiction to reopen the assessment. This position was again reiterated by this Court in Malegaon Electricity Co. P. Ltd. v. Commissioner of Income-Tax, Bombay, 78 I.T.R. 466.”

6.13 Division Bench of this Court in case of Sun Pharmaceutical Industries Ltd. (supra) was examining the validity of notice for reassessment. The Court held that the validity requires to be decided on the basis of recorded reasons and reasons other than those on the basis of which notice, if is issued, cannot be considered. In a matter before the Division Bench, the notice was issued after four years of the relevant assessment year with an allegation of failure on the part of the assessee to disclose material facts necessary for assessment truly and fully. The question concerned receipt of interest from the sister concern at the rate higher than the relevant market rate in order to inflate profits for the purpose of Section 80IA (10) of the Act. The facts since were found not to be ascertainable by the Assessing Officer, although necessary details and documents were available with him, the Court held that the petitioner though gave total figure of interest receipt, it was not discernible after due diligence to discover the vital facts that it did receive interest higher than the market rate. The Court on extensively examining various case laws upheld the notice of reassessment. Relevant findings are necessary to be produced hereunder :—

“34. Under the circumstances, from the material on record, it was not possible for the Assessing Officer to make adjustment under section 80IA(10) even if it was required. It may be that the petitioner did give the total figure of interest received. However, from such figures, it was not possible for the Assessing Officer to ascertain these vital facts. Section 147 of the Act, Explanation 1 provides that “production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of foregoing proviso”. In the present case, even from the account books and other evidence which the assessee had produced, even after due diligence, it was not possible for the Assessing Officer to discover these three vital facts.

35. In the case of Sri Krishna Pvt. Ltd. (supra), the Apex Court observed that obligation of the assessee is to disclose all material facts necessary for his assessment for that year fully and truly. It was further observed that the idea is to save the assessee from harassment resulting from mechanical reopening of reassessment. This protection avails only to those assessees who disclose all material facts truly and fully.”

6.14 Andhra Pradesh High Court in case of GVK Gautami Power Ltd. (supra) (assessment proceedings) extensively examined the entire case laws on this very subject. It would be worthwhile to reproduce some of the relevant principles deduced governing exercise of jurisdiction to reopen the assessment and the scope of Sections 147to 149 of the Act.

“32. The principles, culled out from the aforementioned judicial pronouncements of the Supreme Court, and on a literal construction of Sections 147 to 149 of the Act, are as under:

(i) In Section 147 of the Act, with effect from 1st April, 1989, the twin conditions of the pre-amended Section 147 were given a go-by, and only one condition remained viz., where the Assessing Officer had reason to believe that income has escaped assessment. (Kelvinator of India Ltd). (ii) Post 1st April, 1989, the power to re-open assessment under Section 147 is much wider. The scope and effect of Section 147 as substituted with effect from 1-4-1989, and Sections 148 to 152, are substantially different from the provisions as they stood prior to such substitution. (Rajesh Jhaveri). (iii) The assessing officer has the power under Section 147 to re-open assessment provided there is & quot; tangible material & quot; to come to the conclusion that there is escapement of income from assessment. (Kelvinator of India Ltd. 22). (iv). However the conditions stipulated in Section 147 of the Income-tax Act, 1961 as it originally stood, viz the assessing officer has reason to believe that, by reason of (i) omission or failure on the part of the assessee to make a return under Section 139 for any assessment year, or (ii) the assessee’s failure to disclose fully and truly all material facts necessary for his assessment, income has escaped assessment, must be fulfilled if the case falls within the ambit of the first proviso to Section 147. (Rajesh Jhaveri). (v). The first proviso to Section 147 is attracted only in cases where an assessment, under Section 143(3) or Section 147, has been made for the relevant assessment year.

(vi) Section 148(2) of the Act requires the assessing officer, before issuing notice under Section 148(1), to record his reasons. If reasons are recorded, before the notice under Section 148(1) is issued, the requirement of Section 148(2) must be held to have been complied with.

(vii) The limitation for issuing a notice under Section 148, in cases where the income which has escaped assessment is more than one lakh rupees, is six years under Section 149(1)(b) of the Act.

(viii) The assessing officer has no power to review. He has the power only to re-assess. The concept of & quot; change of opinion & quot; must be treated as an in-built test to check abuse of power by the assessing officer. (Kelvinator of India Ltd).

(ix) The ITO acquires jurisdiction to reopen assessment under Section 147 read with Section 148 of the Act only if, on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reason, which he must record, to believe that any part of the assessee’s income has escaped assessment.

(x) The words “has reason to believe” in Section 147 are stronger than the words & quot; is satisfied & quot;. (S. Ganga Saran & Sons (P) Ltd4).

(xi) These words suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds. The ITO may act on direct or circumstantial evidence, but not on mere suspicion, gossip or rumour. The ITO would be acting without jurisdiction if the reason for his belief, that the conditions are satisfied, do not exist or is not material or relevant to the belief required by the Section. (Sheo Nath Singh v Chhugamal Rajpal)

(xii) The belief entertained by the ITO must not be arbitrary or irrational. (Sri Krishna Pvt. Ltd.).

(xiii) The expression & quot; reason to believe & quot; cannot be read to mean that the assessing officer should have finally ascertained the fact of escapement of income by legal evidence or conclusion. (Central Provinces Manganese Ore Co. Ltd.; Rajesh Jhaver).

(xiv) The words failure to disclose & quot; fully and truly all material facts necessary for his assessment & quot;, in the first proviso to Section 147, postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. (Calcutta Discount Co. Ltd.).

(xv) Every disclosure is not, and cannot be treated to be, a true and full disclosure. A disclosure may be false or true. It may be a full disclosure or it may not. A partial disclosure may very often be misleading. What is required is a full and true disclosure of all material facts necessary for making assessment for that year. (Sri Krishna Pvt. Ltd.).

(xvi) The disclosure must not only be true but must be full & quot; Fully and truly & quot;. A false assertion, or statement, of material fact attracts the jurisdiction of the ITO under Section 147. (Sri Krishna Pvt. Ltd. 19).

(xvii) The expression & quot; material facts & quot; refers only to primary facts which the assessee is duty bound to disclose. There is no duty cast on the assessee to indicate or draw the attention of the ITO to the inferences which can be drawn from the primary facts disclosed. (Calculated Discount Co. Ltd.1; Associated Stone Industries (Kotah) Ltd.).

(xviii) What facts are material, and necessary for assessment, will differ from case to case. (Calcutta Discount Co. Ltd.).

(xix) The duty of disclosing all primary facts, relevant to the decision on the question before the assessing authority, lies on the assessee. It is the assessee’s duty to disclose all primary facts which could have been discovered by the assessing authority from the documents and other evidence disclosed. (Calcutta Discount Co. Ltd.).

(xx) The assessee’s obligation, to disclose all material facts necessary for his assessment fully and truly, is in the context of the two requirements -called conditions precedent – which must be satisfied before the ITO gets jurisdiction to re-open the assessment under Section 147/148. This obligation can neither be ignored nor watered down. (Sri Krishna Pvt. Ltd.).

(xxi) Finality of proceedings is certainly a consideration but that avails one who has fully and truly disclosed all material facts necessary for his assessment for that year – and not to others. (Sri Krishna Pvt. Ltd.).

(xxii) All that is necessary to give special jurisdiction is that the ITO had, when he assumed jurisdiction, some prima facie grounds for believing that there had been some non-disclosure of material facts. Whether these grounds are adequate or not, for arriving at the conclusion that there was non-disclosure of material facts, would not be open for the court’s investigation. (Calcutta Discount Co. Ltd.).

(xxiii) All the requirements stipulated by Section 147 must be given due and equal weight. (Sri Krishna Pvt. Ltd.).

(xxiv) While sending his report, to the Commissioner, the ITO might not fully set out what he thought amounted to reasons as it is conceivable that the report may not be drawn up carefully, and may not contain a reference to all the reasons that operated on his mind. (Calcutta Discount Co. Ltd.).

(xxv) It is the duty of the assessee, who wants the court to hold that jurisdiction was lacking, to establish that the ITO had no material at all before him for believing that there had been escapement of income. (Calcutta Discount Co. Ltd.).

(xxvi) It is for the assessee to establish that there existed no belief or that the belief was not at all bona fide or was based on vague, irrelevant and non- specific information. (Phool Chand Bajrang Lal).

(xxvii) At the stage of examining the validity of the notice under Section 148/147, the enquiry is only to see whether there are reasonable grounds for the ITO to believe, and not whether the omission/failure and the escapement of income is established. (Sri Krishna Pvt. Ltd.19).

(xxviii) Whether the material would conclusively prove the escapement is not of concern at the initiation stage. (Selected Dalurband Coal Co. (P) Ltd; Raymond Woollen Mills Ltd.; Central Provinces Manganese Ore Co. Ltd.; Rajesh Jhaveri).

(xxix) The Court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by him, and further whether that material had any rational connection or a live link for the formation of the requisite belief. (Phool Chand Bajrang Lal).

(xxx) The Court can examine whether the reasons are relevant, and have a bearing on matters in regard to which the ITO is required to entertain the belief before he can issue notice under Section 147. If there is no rational and intelligible nexus between the reasons and the belief so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped assessment. (S. Ganga Saran & Sons (P) Ltd.).

(xxxi) As the formation of belief by the ITO is essentially within his subjective satisfaction, (Selected Dalurband Coal Co. Pvt. Ltd.18), at the initiation stage the Court has only to see whether there was some prima facie material on the basis of which the Department could reopen the case. (Raymond Woollen Mills Ltd.).

(xxxii) Since the belief is that of the ITO the adequacy or sufficiency of reasons for forming the belief is not for the Court to investigate or judge. (Phool Chand Bajrang Lal; S. Ganga Saran & Sons (P) Ltd.).

(xxxiii) Even if the reasons furnished by the ITO to the assessee does not, ex- facie, disclose his satisfaction of the basic facts essential for the exercise of jurisdiction under Section 147 of the Act, the Court can look into the records, produced before it, to ascertain whether there was relevant material which led the ITO to arrive at his satisfaction that income has escaped assessment. (Biju Patnaik)

(xxxiv) Even if nothing relevant is disclosed an opportunity may be given to the Revenue to produce the records to find out whether the ITO had any reason to believe that income had escaped assessment. (Calcutta Discount Co. Ltd.; Sheo Nath Singh3; Chhugamal Rajpal).

(xxxv) Material gathered by other agencies can be relied upon by the ITO as material forming the basis for his reason to believe that there has been escapement of income. (Central Provinces Manganese Ore Co. Ltd.).

(xxxvi) There is no single rule of universal application to determine whether the material before the ITO is sufficient for his being satisfied that there has been escapement of income. This aspect would depend on the facts and circumstances of each case. (Raymond Woollen Mills Ltd.).

(xxxvii) The limitation prescribed under Section 149(1)(b) of the Act is merely for issuance of notice under Section 148(1), and not for passing the order of re-assessment.

(xxxviii) The period of limitation prescribed in Section 149(1)(b) of six years is to be reckoned from the end of the relevant assessment till the date on which the notice under Section 148(1) is issued, and not till the date on which reasons are furnished by the assessing officer at the assessee’s request.”

6.15 Division Bench of this Court in case of Dishman Pharmaceuticals & Chemicals Ltd. (supra) was considering the challenge to the notice of reassessment after a period of four years from the end of relevant assessment year.

6.16 In the matter before the Division Bench, it was the case of the Revenue that for the assessment year in question i.e., A.Y 2003-04, the Company called M/s. Schutz Dishman Biotech Limited (“SDBL” for short) had given an amount of Rs. 2.3 Crores (rounded off) to the assessee by way of loan. While framing the assessment for the assessment year 2003-04, the Assessing Officer learnt that the SDBL had also given loan in the assessment year 2006-07. When asked to produce the accounts for the earlier year, it was revealed that the assessee was holding 22.3% of the shareholding of M/s. Schutz Dishman Biotech Limited and therefore, the Assessing Officer was of the opinion that the amount of Rs. 2.3 Crores ought to be treated as “deemed dividend” as per the provision of Section 2 (22)(e) of the Income Tax Act, and therefore according to him, the income chargeable to tax for the concerned assessment year as escaped assessment. The Court held that from the return filed and the documents annexed with the return, nowhere could it be assessed what is holding of the assessee in the SDBL. By simply stating that the assessee is holding certain shares in SDBL, its duty to truly and fully disclose all material facts necessary for assessment of income was not discharged.

7. Prior to adverting to the facts, one vital issue that requires a specific mention at this stage is the power under Article 226 of the Constitution and whether the writ jurisdiction is required to be exercised in view of availability of alternative channel under the statute. The issue had been long ago settled by the Apex Court in case of Calcutta Discount Co. Ltd. (supra). It was argued before the Supreme Court that the question whether Income-tax Officer has a reason to believe that by a reason of non-disclosure of material facts an under-assessment had occurred, need not be investigated by the Courts under Article 226 of the Constitution in as much as the moment he has such a reason to believe, he has jurisdiction to initiate proceedings by issuing the notice. The Apex Court answered it in the following manner :-

“26… It is wholly incorrect however to suppose that this is a question of limitation only not touching the question of jurisdiction. The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an under assessment has resulted from non-disclosure, he shall have jurisdiction to start proceedings for re-assessment within a period of 8 years; and where he has reason to believe that an under assessment has resulted from other causes, he shall have jurisdiction to start proceedings for re-assessment within 4 years. Both the conditions, (i) the Income-tax Officer having reason to believe that there has been under assessment and (ii) his having reason to believe that such under assessment has resulted from non-disclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of four years. The argument that the Court ought not to investigate the existence of one of these conditions viz., that the Income-tax Officer has reason to believe that under assessment has resulted from non-disclosure of material facts cannot therefore be accepted.

27. Mr. Sastri next pointed out that at the stage when the Income-tax Officer issued the notices he was not acting judicially or quasi-judicially and so a writ of certiorari or prohibition cannot issue. It is well settled however that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled, will issue appropriate orders or directions to prevent such consequences.

28. Mr. Sastri mentioned more than once the fact that the company would have sufficient opportunity to raise this question viz., whether the Income-tax Officer had reason to believe that under assessment had resulted from non-disclosure of material facts, before the Income-tax Officer himself in the assessment proceedings and if unsuccessful there before the appellate officer or the appellate tribunal or in the High Court under section 66 (2) of the Indian Income Tax Act. The existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action.”

7.1 It is thus the discretion of the High Court to entertain the writ petition and grant relief by appropriate order or direction in appropriate cases under Article 226 where the revenue authority acts without jurisdiction and such action of executing authority when jeopardizes seriously the interest of the subjects and tantamount to harassment to them by an elongated procedures.

8. In the instant case, therefore, both the conditions for assuming the jurisdiction shall need to be fulfilled – as to whether there has been under assessment as per the belief of the Assessing Officer and whether such belief is formed on the basis of non-disclosure of the material facts on the part of the assessee. Once both these conditions co-exist, then only the Assessing Officer would have jurisdiction to initiate proceedings beyond the period of four years from the end of relevant assessment year.

9. In the case on hand, reasons reflect two grounds for forming such a belief. The first ground pertains to the book profit shown by the assessee, being the sum of Rs. 67,58,22,149/=. However, the taxable profit was shown to be “NIL” as the brought forward loss is shown at Rs. 67,58,00,284/= and the dividend is of Rs. 21,865/=. It further mentions that as per section 115JB of the Act, the amount of unabsorbed depreciation or unabsorbed business loss is to be reduced from the book profit. The unabsorbed depreciation having been shown NIL, no amount requires to be reduced from the taxable book profit and therefore, the amount of Rs. 67,58,00,284/= shown as brought forward business loss; according to the Assessing Officer, requires to be taxed as book-profit. In other words, according to the Assessing Officer, the unabsorbed business loss though shown to be Rs. 67,58,00,284/=, the unabsorbed depreciation being “nil” and as the lower of the two i.e., unabsorbed depreciation or unabsorbed business loss, requires to be reduced from the book profit of the assessee, this sum of Rs. 67,58,00,284/= which has been reduced from the book profit has wrongly been made.

10. It can be clearly noted from the reasons recorded that there is no mention at all of the assessee having not disclosed fully or truly material facts which were necessary for the purpose of computing the income of the assessee. Assuming that in the notice for reopening, such wordings are not specifically mentioned and they can be supplemented either while rejecting the objections or by way of affidavit of the Assessing Officer, then also, the revenue has failed to point out as to in what manner there has been non-disclosure on the part of the assessee.

11. It needs to be emphasized that reiteratively queries were put to the respondents during the course of hearing as to on what basis and on which of the materials, such belief has been formed by the Assessing Officer leading him to believe that the income chargeable to tax has been under assessed. It is amply clear that the details mentioned in the reasons recorded on 11th January 2013 is the only material available with the Department and therefore, this is nothing but a different angle from which the Assessing Officer has examined the issue. It is argued emphatically and rightly on the petitioner’s side that the very factual basis is misconceived and incorrect. It would be interesting to note how in the objections raised against the reopening of assessment, this aspect is explained by the assessee.

“Without prejudice to the above, on the merits and on the cost of repetition, the assessee company here by submits the detailed working as to show how the said adjustment is justified for or unabsorbed loss or unabsorbed depreciation, whichever is less as per books of account A.Y 2005-06:—

AY Loss/Profit Amount transf-

erred from General Reserve

Loss/ (Profit) before adjustment against General Reserve Depreciation Loss excluding Depreciation/(Profit) Loss or Deprec-

iation whichever is lower

1 2 3 4=2+3 5 6=4+5 7
1999-2000 5843.55 2247.84 8091.39 6386.41 1704.98 1704.98
2000-20001 18851.35 100 18951.35 9315.85 9635.5 9315.85
Total quantum available for unabsorbed loss or depreciation whichever is lower adjustment A. 11020.83
Less : Adjustment made in computation of book profit for following A., Y B
Adjustment made in A.Y 2002-03 Book profit Computation [389.5]
Adjustment made in A.Y 2004-05 Book profit Computation [263.36]
Total balance quantum available for A.Y. 2005-2006 for unabsorbed Loss or Depreciation whichever is lower adjustment A-B 10367.97

From the aforesaid working your honour will appreciate the fact that assessee company is eligible for adjustment upto 10367.97 lacs and accordingly for the relevant year under consideration i.e., for A.Y 2005-06 assessee company is justified in making adjustment for 6758 lacs and there is nothing which can purports that the unabsorbed depreciation as per books of account is NIL. And hence, there is no escapement of income which is questioned by your honour in disguise of review”

12. The stand take by the Revenue is that as per sub-section (5) of Section 115JB of the Act, these provisions apply to every assessee, being a company, the assessee has not correctly calculated the book profit which amounts to deemed concealment on the part of the assessee and the same has resulted in escapement on account of failure on the part of the assessee in fully and truly disclosing all material facts is not finding favour with us. We are of the firm opinion that twin conditions necessary for reopening the assessment beyond the period of four years do not co-exist on record. Unless there is a failure on the part of the assessee to disclose truly and fully all necessary facts for his assessment, the re-assessment under section 147 of the Act and the issuance of notice under Section 148 of the Act cannot be held to be valid.

13. As can be seen from the record that the book profit of the assessee was shown at Rs. 67.58 Crores. However, after setting off the brought forward loss and further reducing the dividend income of Rs. 21,865/=, the taxable profit was shown at NIL. The Revenue has not been able to point out as to how amount was required to be reduced from the taxable book profit under section 115JB of the Act and secondly, when complete details were available with the Revenue at the time of original assessment and when the petitioner had made claim, as indicated in the aforementioned chart and he was eligible for adjustment of unabsorbed depreciation allowance, we fail to endorse the belief of the Assessing Officer that the income chargeable to tax has escaped assessment on account of non-disclosure of material facts fully and truly by the assessee.

14. Assuming that there is a different angle that needed to be examined by the Assessing Officer from the material which was already existing on the record, as held in case of Jivraj Tea & Industries Ltd. (supra), here also we find that specific angle of depreciation earlier claimed; if was not in the mind of the Assessing Officer, nevertheless, when entire details were already made available at the time of original assessment, this ground cannot be validated.

15. As far as second ground raised in the reassessment notice, this concerns waiver of interest amount of Rs. 9938.98 lakhs, this very issue was examined at the time of original assessment that the amount of Rs. 9938.98 lakhs being interest waived by various banks should not be included in the computation of book profit under section 115JB of the Act. It needs to be reiterated at this stage that the original assessment had been concluded after scrutiny assessment under section 143 (3) of the Act on 28th November 2007. In the original assessment, the issue was dealt with in the following manner :—

“3. Brief History of the Company : The Company was originally engaged in the business of leasing and financing Since last five years the company has ceased its operation. During the year under consideration, the significant event was, “Sanction of scheme of compromise and arrangement under section 391 of the Companies Act” to discharge the liability of the banks by Hon’ble Gujarat High Court. As reported in Enclosure 8 to auditors report there occurred Remission of liability of Interest on borrowings due to the consortium of 16 banks of Rs. 9983.98 lacs for which the company had claimed deduction in the earlier years even as the same had not been accounted for in its books of account. The assessee company released the payment as per the Court order and is in the process of assigning the charged assets in favour of the banks. The company has now become a debt free company. Though not routed through profit and loss account, the assessee company has offered an amount of Rs. 98,70,14,000/= being the interest waived by the banks on account of final settlement Scheme of compromise and arrangement between GLFL and a consortium of 16 banks on 27th July 2004 under section 391 of the Companies Act, 1956.”

16. It is to be noted that the assessee had already furnished explanation and detailed submissions were made as to why the amount of Rs. 9938.98 lakhs should not be included in the computation of book profit under section 115JB of the Act in its submissions made on 19th June 2007. At this stage, it appears that the said issue of interest waiver by the Banks alleged to have escaped assessment by not adding it to the book profit cannot be sustained as a good ground for reopening. Such reason to believe does not arise from the evidence other than those which were already on record. Moreover, this very issue has been thoroughly examined in the original assessment; after due scrutiny, and therefore, this should amount to only a change of opinion. Therefore, it needs to be concluded that not only there is absence of such averment in the notice under section 148 of the Act but in fact, there is complete absence of any material to satisfy the requirement that there was any failure on the part of the assessee to disclose truly and fully material facts leading the income escaping the assessment and thus when both the conditions necessary for reopening of assessment beyond the period of four years do not get satisfied, re-assessment proceedings on the jurisdictional power of the Assessing Officer can be quashed.

17. As a parting note, we need to specifically make a mention of certain submissions made during the course of hearing. One vital ground raised by the petitioner was that in response to the notice issued for re-assessment, pursuant to the ratio laid down in GKN Driveshafts (India) Ltd. (supra), the Assessing Officer failed to deal with the objections raised by the petitioner and mechanically disposed of the same. According to the Revenue, re-assessment order is not desired at that stage and he is expected to only dispose of the objections and not to write the order of re-assessment. Without further dilating the issue, suffice to state that the stage of raising objections against reopening proceedings contemplated by the decision of GNK Driveshaft (India) Limited (Supra) is neither an empty formality nor an ordeal to be completed, but, an effective safeguard to check the jurisdictional error. Second aspect that was argued was that even if it is assumed that the assessee had made certain claims by way of assertions which had not been sustained, would not amount to not revealing the true and fully facts. According to the Revenue, there is a thin line between the assertions not sustained and incorrect assertions made amounting to non-disclosure of material facts truly and fully. On both these grounds, we have chosen note to address the larger causes, as otherwise, on the discussion held hereinabove, we are convinced in the instant case on examination of factual matrix that the assessee had disclosed fully and truly all material facts which were necessary for determining the tax liability at the time of original assessment. No new material has come on the record nor is the case made out by the Revenue to indicate that those facts revealed before the Assessing Officer were not primary or material facts and therefore, the assessee had failed in discharging its obligation nor it is the case of the Revenue that the details necessary for arriving at correct computation during the original the assessment were/trucked in somewhere in the plethora of evidences impossible to be dug out by the Assessing Officer. Moreover, in the scrutiny assessment when the very issue has been examined thoroughly, the notice for reopening lacks validity and therefore on jurisdictional issue, this petition deserves to be allowed.

18. Accordingly, this writ petition succeeds with no order as to costs. Impugned notice for reopening the assessment is quashed together with subsequent proceedings.

[Citation : 360 ITR 496]

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