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Judgment
Meena, J.
This appeal is directed against the impugned judgment of a learned Single Judge dated 23-3-1988. The main grievance of the appellant before the learned Single Judge was that the Income Tax Officer had no jurisdiction to issue notice u/s 148 of the Income Tax Act, 1961 (hereinafter referred to as ''the Act''). The notice should be quashed. The petition of the appellant was dismissed by the learned Single Judge on two grounds. Firstly, the learned Judge was of the view that the writ petition is pre-mature and the assessee has alternate remedy. Therefore, no relief can be granted under article 226 of the Constitution.
The assessment year is 1984-85. The previous year ended on 31-12-1983. The assessment was made u/s 143(3) of the Act on 27-3-1986. The notice u/s 148 has been issued on 28-3-1995 for re-opening of the assessment, as that income had escaped assessment on 2 items, i.e., (1) Rs. 38,435 relating to alleged under-invoicing, and (2) Rs. 37,77,395 in respect of claim for depreciation on generators.
The assessee is a manufacturer of tyres and during the relevant year, two manufacturing units were under operation and the third unit which was under construction came into commercial operation only after the end of the relevant previous year, namely, 31-12-1993. It is also pertinent to note that the assessee did not claim any depreciation in respect of the third unit except on generators and the building in which such generators were installed.
Those generators were used in the business of the assessee during the previous year. In the original assessment, initial depreciation was allowed on the generators. Thereafter on an application u/s 154, the extra shift allowance was also allowed on these generators.
The notice u/s 148 was issued for re-opening of the assessment as income has escaped assessment. According to the Income Tax Officer, the assessee had not fully and truly disclosed the material facts and depreciation on the generators had wrongly been allowed.
The limited controversy, therefore, before us is whether the assessing officer has jurisdiction to issue notice u/s 148 for re-opening of the assessment. For re-opening of the assessment notice u/s 148, read with section 147(a) of the Act was issued. The condition precedent is that income chargeable to tax has escaped by reasons of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year.
Before we proceed further, we would like to refer to some observations of the Apex Court to the effect whether and in what cases the assessing officer has jurisdiction to issue notice u/s 148.
In Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, while considering the issue as to what are the conditions precedent for issue of notice u/s 148, their Lordships observed as under:
"It would appear from the perusal of the provision reproduced above that two conditions have to be satisfied before an Income Tax Officer acquires jurisdiction to issue notice u/s 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (1) the Income Tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return u/s 139 for the assessment year to the Income Tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist in order to confer jurisdiction on the Income Tax Officer. It is also imperative for the Income Tax Officer to record his reasons before initiating the proceedings as required by section 148(2)..."(p. 445)
Their Lordships further considered the fact, if on the material facts the Income Tax Officer has drawn some inference and subsequently if it appears that his inference was wrong, he cannot issue the notice on the change of opinion regarding inference. Their Lordships further observed to this effect as under:
"... We may add that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income Tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income Tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the Income Tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income Tax Officer with regard to the inference which he should draw from the primary facts. If an Income Tax Officer draws an inference which appear''s subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for re-opening assessment." (p. 445)
In Ganga Saran and Sons P. Ltd. Vs. Income Tax Officer and Others, their Lordships have observed as under:
"It is well-settled as a result of several decisions of this court that two distinct conditions must be satisfied before the Income Tax Officer can assume jurisdiction to issue notice u/s 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income Tax Officer would be without jurisdiction. The important words u/s 147(a) are `has reason to believe'' and these words are stronger than the words ''is satisfied''. The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or in other words, it must be based on reasons which are relevant and material"......(p. 11)
The same view has been taken by their Lordships in the case of Indian Oil Corporation Vs. Income Tax Officer, Calcutta and Others, and reiterated that these two conditions are precedent for issue of notice u/s 148. Their Lordships observed as under:
". . . Therefore, the obligation is to disclose facts; secondly, those facts should be material; thirdly, the disclosure must be full and, fourthly, true. What facts are material and necessary for assessment will differ from case to case. In every assessment proceedings, for computing or determining the proper tax due from the assessee, it is necessary to know all the facts which help the assessing authority 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 inference as to certain other facts. But, on the primary facts, it is for the taxing authority to draw inferences; it is not necessary for the assessee to draw inferences for him." (p. 959)
In the light of the above observations, we have to consider whether before issue of the notice u/s 148, the Income Tax Officer has satisfied these two conditions, for that we have to refer the material available to the Income Tax Officer at the time of original assessment u/s 143(3).
The admitted facts are that before the completion of the assessment order, the assessee filed the revised return on 24-11-1986 and in the revised return the assessee claimed the depreciation of Rs. 12,66,52,371 as per Annexure 10 to the computation filed along with the return in that said Annexure 10 under the heading ''Factory-III''. The assessee has also claimed depreciation of Rs. 13,820 on account of building where the generators in question were installed. The generators were used for business during the previous year and in Annexure ''B'' at page 56 of the W.P. under the heading ''Plant-III'' the details of the ''Plant-III'' have been shown under Annexure ''B''.
In Annexure V to the return the assessee has also claimed investment allowance in respect of the said generators which were installed in ''Factory-III''. It was explained in the director''s report. The director''s report was at page 82 of the W.P., which explained that due to shortage of power the generators in question were used for generation of power for Factory Nos. 1 and 2. Not only that, during the course of the assessment proceedings further details were asked for to allow the depreciation on the generators. The assessee in response to query has furnished details of capital work-in-progress and also shown the expenses in ''Factory-III, between Rs. 20,96,55,697 which includes the cost of the generators.
In Annexure II at page 37 of G.A. under the heading ''Factory-III'', the opening balance after calculating depreciation was shown at Rs. 1,24,382 for the building and Rs. 1,26,19,306 for plant and machinery and the total claim for depreciation on the various assets of ''Factory-III'' was shown at Rs. 8,63,60,776 vide Annexures D and E. At page 39 of the G.A. under Item 10 ''Power Supply & Distribution'' there is a reference regarding addition of further DG sets and other assets in respect of ''Factory,-III'' has been given. Section wise details have been given at pages 39 to 49 of GA. In the brief note submitted it was also clarified that ''Factory-III'' started production only in March 1984, that is, in the assessment year 1985-86. Therefore, the depreciation was claimed only in respect of the generators and on the building in which the generators were installed.
In the assessment made u/s 143(3), the Income Tax Officer has allowed only a normal depreciation but no extra shift allowance was allowed on the ground that in absence of requisite certificate from the appropriate authority no extra shift allowance can be allowed.
After assessment u/s 143(3), an application u/s 154 was moved annexing the certificate for extra shift allowance and on considering the details and the certificate issued by the G.M. (Manufacturing), the claim of the assessee regarding extra shift allowance was allowed, in order u/s 154 on 12-7-1990.
The aforesaid facts left no doubt that all the material facts in respect of the depreciation on generators in question were disclosed and after going through the details furnished, the claim of the assessee for depreciation was allowed, not only the claim for depreciation on generator sets but extra shift allowance was also allowed in order u/s 154.
The learned counsel for the revenue has not brought to our notice as to what more particulars or material facts should be furnished at the time of assessment or order u/s 154 which were furnished or disclosed by the assessee at the time of assessment u/s 143(3) and in order u/s 154.
When the assessee has disclosed all material facts for the allowance of depreciation on generators, in our considered opinion, there is no justification to issue the notice u/s 148, read with section 147.
The other item which has been made ground for notice is amount of Rs. 38,435.
The learned counsel for the assessee submits that the assessment was made on 27-3-1987 and in view of the provision of section 149(1)(a)(ii) of the Act which provides that notice u/s 148 can be issued for the relevant assessment year if not more than 7 years have elapsed from the end of the relevant assessment years and unless the income chargeable to tax which has escaped assessment is likely to amount of Rs. 50,000 or more in that year. Here, the income escaped in Item No. (1) is less than Rs. 50,000, i.e., Rs. 38,435 and admittedly the notice is issued dated 28-3-1995, that is, beyond 7 years from the end of relevant assessment years.
Considering the aforesaid facts and law referred to above found no justification in the action of the assessing officer to issue notice u/s 148. In the result, the impugned judgment of the learned Single Judge dated 23-3-1988 is set aside and we quash the notice dated 28-3-1995.
The appeal is allowed.