Gujarat High Court
Vxl India Ltd. vs Assistant Commissioner Of Income-Tax on 26 April, 1995
Equivalent citations: [1995]215ITR295(GUJ)
JUDGMENT Rajesh Balia, J.
1. This petition is directed to quash the notice dated March 18, 1994, issued to the petitioner under section 148 of the Income-tax Act, 1961, for the assessment year 1989-90.
2. The brief facts leading to the present petition are that the assessment for the assessment year 1989-90, in case of the petitioner was made on January 20, 1993, by the Assessing Officer computing the total income before deduction of investment allowance at Rs. 4,20,35,725 and after adjusting investment allowance and depreciation, net taxable income was determined at Rs. 2,51,66,676. The petitioner got certain reliefs from the appellate authority which attracted the applicability of the provisions of section 115J of the Act. Consequent on the said order for the assessment year 1989-90, the respondent passed an order dated January 20, 1993, giving effect to the said appellate order wherein the respondent computed the total income of the petitioner after taking into account the relief given by the Commissioner of Income-tax (Appeals) at Rs. 2,14,79,040. He computed the investment allowance available to the petitioner at Rs. 1,86,97,140. After arriving at the total income of Rs. 2,14,79,043, he restricted the deduction in respect of investment allowance to Rs. 52,03,102 instead of granting the entire investment allowance, so as to bring the total income to Rs. 1,62,75,938 which was 30 per cent. of the book profit and which was deemed to be the total income under the provisions of section 115J. For the purpose of setting off investment allowance, the respondent carried forward the balance of the investment allowance of Rs. 1,34,94,038 to the next year. Thereafter, the Assessing Officer issued the impugned notice dated March 18, 1994, under section 148 for the assessment year 1989-90 calling upon the petitioner to submit his return within 30 days from the date of service of this notice.
3. In response to the issuance of rule by this court, the respondent has filed an affidavit-in-reply and also furnished the reasons recorded by the Assistant Commissioner of Income-tax as required under section 148(2) of the Act. The reasons recorded by the Assessing Officer read as under :
"The assessee declared a total income of Rs. 1,62,75,938 ..... normal provisions.
It is noticed that certain items could not be considered while working out the book profit under section 115J. These items are to be added to the book profit, in view of the mention under the Explanation to section 115J(1A) of the Income-tax Act. These are depreciation of Rs. 27.21 lakhs on the revalued cost of assets included in the depreciation charged to profit and loss account, depreciation of Rs. 11.52 lakhs on the cost of assets increased due to exchange rate fluctuation and incorrect set off of investment allowance.
I have, therefore, reason to believe that income has escaped assessment to the extent mentioned in the aforesaid para. The assessment was completed under section 143(3) and, therefore, it is covered under the proviso to section 147. Accordingly, I issue notice under section 148 of the Income-tax Act, 1961."
4. The essential requirement for initiating proceedings under section 148 of the Act is that the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Explanation 2 to section 147 of the Act as appended to newly substituted section 147 makes certain provisions where, in certain circumstances, the income is deemed to have escaped assessment giving jurisdiction to the Assessing Officer to act under the said provision. Another requirement which is necessary for assuming jurisdiction is that the Assessing Officer shall record his reasons for issuing notice. This requirement necessarily postulates that before the Assessing Officer is satisfied to act under the aforesaid provisions, he must put in writing as to why in his opinion or why he holds the belief that income has escaped assessment. "Why" for holding such belief must be reflected from the record of reasons made by the Assessing Officer. In a case where the Assessing Officer holds the opinion that because of excessive loss or depreciation allowance the income has escaped assessment, the reasons recorded by the Assessing Officer must disclose by what process of reasoning he holds such belief that excessive loss or depreciation allowance has been computed in the original assessment. Merely saying that excessive loss or depreciation allowance has been computed without disclosing reasons which led the assessing authority to hold such belief, in our opinion, does not confer jurisdiction on the Assessing Officer to take action under sections 147 and 148 of the Act. We are also of the opinion that, howsoever wide the scope of taking action under section 148 of the Act, it does not confer jurisdiction on change of opinion on the interpretation of a particular provision earlier adopted by the assessing authority. For coming to the conclusion whether there has been excessive loss or depreciation allowance or there has been underassessment or assessment at a lower rate or for applying other provisions of Explanation 2, it must be material and it should have nexus for holding such opinion contrary to what has been expressed earlier. The scope of section 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier. If in the light of the aforesaid principles, we read the reasons recorded by the Assessing Officer, it is plain to us that they fall short of the requirement for conferring jurisdiction on the Assessing Officer to act under sections 147 and 148 of the Act. In fact, the order even does not say that the basis of valuation adopted by passing order dated January 20, 1993 was incorrect. It also does not disclose any reason as to why the Assessing Officer considers that taking into consideration the fluctuation of exchange for the purpose of valuing cost of assets in the present case is erroneous. In the absence of any such disclosure in the reasons recorded by the Assessing Officer, one is unable to understand as to on what basis the Assessing Officer came to the conclusion that income has escaped assessment because of the increased cost of assets due to fluctuation of exchange. In fact, a reading of the order only leads one to conclude that either the Assessing Officer wants to make an inquiry, whether the formula of valuing cost of assets applied by him in earlier assessment is incorrect or merely wants to change the basis of valuing cost of assets for the purpose of reducing the amount of deduction without specifying any reasons why the basis of valuing of assets earlier is considered by him to be erroneous.
5. In our opinion, necessary conditions for issuing notice under section 148 read with section 147 of the Act have not been satisfied. Hence, notice dated March 18, 1994, cannot be sustained and is hereby quashed. Rule is made absolute. There shall be no order as to costs.