Sayaji Industries Ltd. vs Joint Commissioner of Income Tax (Assessment)

Harsha Devani, J.—By this petition under article 226 of the Constitution of India, the Petitioner has challenged the notice dated March 8, 2001 issued u/s 148 of the income tax Act, 1961 (the Act) reopening the Petitioner''s assessment for the assessment year 1994-95.

The Petitioner is a public limited company. The facts of the case as appearing in the petition are that the Petitioner has been using boilers for the last several years and claimed 100 per cent, depreciation in respect thereof in the year in which the Petitioner for the first time installed and used the same. In the assessment year 1994-95, the Petitioner claimed total deprecation of an amount of Rs. 68,82,360 in respect of the boilers as per the statement of depreciation which was annexed along with the return filed on November 30,1994. During the course of assessment proceedings, by letter dated January 22, 1997, the Petitioner supplied break-up of the total additions of machinery during the assessment year 1994-95 amounting to Rs. 3,55,02,968 including therein the additions of two boilers of Rs. 32,52,975 and Rs. 37,70,701, making a total of Rs. 70,23,676 and also gave a statement indicating the party-wise and item-wise purchase in regard to the said two boilers. The Petitioner also supplied a boiler inspection report for the boiler installed on March 25, 1994, and xerox copies of bills of additions to fixed assets in excess of Rs. 1 lakh. Subsequently, certain other queries were raised by the Assessing Officer, whereafter the Assessing Officer passed the assessment order dated March 31, 1997 allowing total depreciation of Rs. 2,54,75,511. However, since the Assessing Officer had accepted the claim in toto, he did not discuss the same in the assessment order. According to the Petitioner, the usual practice is to discuss in the assessment order those claims which the Assessing officer disallows in part or in full. Vide letter dated December 7,1998, the Assessing Officer informed the Petitioner that a mistake apparent had been committed in the assessment order, inter alia, in respect of allowing depreciation of Rs. 68,82,360 on boilers. The Petitioner gave its reply thereto. Subsequently, after a period of about two years, the Assessing Officer issued another notice u/s 154 of the Act, inter alia, stating that excess depreciation of Rs. 35,93,976 in respect of other machinery parts and boilers was required to be withdrawn. The Petitioner gave its reply to the said notice. Thereafter, vide the impugned notice, the assessment of the Petitioner is sought to be reopened for the year 1994-95.

Mr. J.P. Shah, learned advocate appearing on behalf of the Petitioner submitted that the assessment year under consideration is 1994-95, whereas the notice u/s 148 of the Act has been issued on March 8, 2001, which is clearly beyond the period of four years from the end of the relevant assessment year and as such, the proviso to Section 147 of the Act would be applicable. It was submitted that in the circumstances, for the purpose of invoking jurisdiction u/s 147 of the Act, two requirements are required to be satisfied. Firstly, that income has escaped assessment and secondly, that such escapement is by reason of failure on the part of the Assessee (i) to make a return u/s 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148; or (ii) to disclose fully and truly all material facts necessary for its assessment for the assessment year. It was submitted that in the present case, the first condition admittedly does not exist. In the circumstances, for the purpose of invoking valid jurisdiction u/s 147 of the Act, there has to be failure on the part of the Petitioner to disclose fully and truly all material facts necessary for its assessment. Inviting attention to the reasons recorded, it was submitted that in the body of the reasons, there is nothing to indicate any omission on the part of the Petitioner. That, however, in the concluding paragraph of the reasons recorded, it has been stated that due to the omission on the part of the Assessee to furnish true and correct affairs of the company within the meaning of the provisions of Section 147 of the Act, the income chargeable to tax has escaped assessment for the assessment year 1994-95. It was submitted that though in the concluding paragraph, the Assessing Officer has recorded that there is omission on the part of the Petitioner to disclose fully and truly all material facts necessary for its assessment, it does not spell out any omission. Referring to the reasons, it was submitted that the Assessing Officer has picked up everything from the record and has merely on disagreement with the predecessor, come to the conclusion that the predecessor has committed a mistake which has resulted in an underassessment. It was submitted that in the absence of any failure on the part of the Petitioner to disclose fully and truly all material facts necessary for its assessment, the assumption of jurisdiction on the part of the Assessing Officer is invalid and as such, the impugned notice u/s 148 of the Act is required to be quashed and set aside.

Mr. M.R. Bhatt, learned senior advocate appearing on behalf of the Respondent vehemently opposed the petition. Inviting attention to the reasons recorded, it was submitted that the reasons recorded are three-fold. Firstly, that the Petitioner had availed of depreciation in respect of the main boilers as well as the accessories at the rate of 100 per cent., whereas in respect of the accessories, the Petitioner was not entitled to depreciation at 100 per cent, and thus, the income has clearly escaped assessment. Inviting attention to the averments made in the affidavit-in-reply, more particularly to the contents of sub-para. (3) of paragraph 3D, it was pointed out that the Assessee itself on page No. 3 of its letter dated November 27, 2000 has stated that only the bills of main boilers were asked for and furnished. Regarding other accessories and spare parts on which deduction has been claimed by the Petitioner as part of the boiler only details were produced in summary form and no bills, vouchers were produced. The Assessee has also not produced any drawing of boilers which can certify that various parts and accessories which are claimed to be part of the boiler are really part of the boiler. It was submitted that the Assessee had produced nothing to prove that the parts and accessories are integral part of the boilers and thereby eligible for 100 per cent, depreciation. It was urged that the Assessee has, therefore, not fully and truly disclosed the material details regarding claiming 100 per cent, depreciation on parts and accessories of boiler and therefore, the assessment was reopened only in connection with the allowability of 100 per cent, depreciation on parts and accessories of the boilers and not relevant to allowability of depreciation on boilers for which there is no dispute.

Referring to the decision of the Supreme Court in the case of Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, it was submitted that the court has held that the omission on the part of the Assessee to bring to the assessing authority''s attention those particular items in the account books or the particular portion of the documents which are relevant, will amount to "omission to disclose fully and truly all material facts necessary for its assessment". That it is the Assessee''s duty to disclose all primary facts- 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. It was submitted that in the facts of the present case, the Petitioner had claimed depreciation on the main boilers including the accessories and spare parts without drawing the attention of the Assessing Officer to the fact that the claim for depreciation in respect of the boilers includes the claim for accessories and spare parts also. It was submitted that in the circumstances, the Petitioner having not disclosed the primary facts to the Assessing Officer, it is apparent that the Petitioner has failed to disclose fully and truly all material facts necessary for its assessment year under consideration and as such, the assumption of jurisdiction by the Assessing Officer is legal and valid. Hence, no intervention is warranted at the hands of this Court.

The fact regarding the assessment having been reopened after the expiry of a period of four years from the end of the relevant assessment year, viz., 1994-95, is not in dispute. In the circumstances, for the purpose of invoking jurisdiction u/s 147 of the Act, the requirements of the proviso thereto are required to be satisfied. For the purpose of reopening the assessment, the Assessing Officer is, therefore, required to record satisfaction firstly to the effect that there is escapement of income and secondly, that such escapement is by reason of the failure on the part of the petitioner to file a return u/s 139 or in response to a notice u/s 148, or (ii) to disclose fully and truly all material facts necessary for its assessment for that assessment year. In the present case, the first condition admittedly does not exist. In the circumstances, for the purpose of assumption of jurisdiction, the Assessing Officer is required to record satisfaction that the income chargeable to tax has escaped assessment by 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.

Examining the facts of the present case, in the light of the aforesaid statutory requirement, a perusal of the reasons recorded indicates that the Assessing Officer has recorded as many as three grounds in relation to which he has recorded the belief that the income has escaped assessment. In so far as the satisfaction regarding failure to disclose fully and truly all material facts necessary for the assessment is concerned, in the concluding paragraph of the reasons recorded, the Assessing Officer has merely recorded that, "In view of the above facts, I have reason to believe that the income chargeable to tax has escaped assessment for the assessment year 1994-95 due to the omission on the part of the Assessee to furnish the true and correct affairs of the company within the meaning of the provisions of Section 147 of the income tax Act". However, though in the concluding paragraph, it has been recorded that there is omission on the part of the Assessee to furnish the true and correct affairs of the company, in the preceding paragraphs wherein the Assessing Officer has extensively recorded reasons as regards his belief that the income has escaped assessment, there is nothing whatsoever to indicate any omission on the part of the Petitioner to disclose fully and truly all material facts. Thus, from the reasons recorded, it appears that in effect and substance, no satisfaction has been recorded by the Assessing Officer as regards failure on the part of the Petitioner to disclose fully and truly all material facts. What is recorded in the concluding paragraph of the reasons as regards omission on the part of the Petitioner to furnish true and correct affairs of the company, does not find any support in the preceding paragraphs. Thus, except for the bald statement that there is omission on the part of the Petitioner to furnish true and correct affairs of the company, there is nothing whatsoever in the reasons recorded to indicate the nature of the omission and as to which facts had not been truly and fully disclosed. Hence, on a plain reading of the reasons recorded, it is apparent that there is no material on record on the basis of which the Assessing Officer could have recorded the satisfaction as regards income having escaped assessment by reason of failure on the part of the Petitioner to furnish true and correct affairs of the company.

On behalf of the Respondent, reliance has been placed upon the affidavit in reply filed in response to the petition wherein various facts have been stated regarding the failure on the part of the Petitioner to disclose fully and truly all material facts.

This Court in the case of Aayojan Developers Vs. ITO, has held that unless the substratum is laid in the reasons, clearly demonstrating the twin belief, that is, the belief that income has escaped assessment and the belief that such escapement is by reason of failure on the part of the Assessee, filing an affidavit and stating the same before the court for the first time would amount to bringing on record material which did not form the basis of formation of such belief. The belief that income has escaped assessment by reason of failure on the part of the Assessee to disclose fully and truly all material facts has to be recorded in the reasons, though the same may be elaborated by filing an affidavit. But in the absence of formation of any such belief being recorded in the reasons, it is not open for the Assessing Officer to express formation of such belief for the first time by way of affidavit-in-reply filed in the court.

In the circumstances, in the absence of any foundation having been laid in the reasons recorded to indicate any omission on the part of the Petitioner in disclosing fully and truly all material facts, the assumption of jurisdiction u/s 147 of the Act by issuing notice u/s 148 of the Act, is without jurisdiction and as such, the impugned notice cannot be sustained.

For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned notice dated March 8, 2001, issued u/s 148 of the Act (exhibit M to the petition) is hereby quashed and set aside. Rule is made absolute accordingly, with no order as to costs.