Gujarat High Court
Hotel Appolo vs P.S. Rashtrapal, Income-Tax Officer on 2 December, 1994
Equivalent citations: [1995]213ITR762(GUJ)
Author: M.B. Shah
Bench: M.B. Shah, N.N. Mathur
JUDGMENT M.B. Shah, J.
1. These two petitions are filed by Hotel Appolo, Bhavnagar, challenging the notices issued under section 148 of the Income-tax Act. 1961 ("the Act", for short), for reopening the assessment orders for the assessment years 1978-79 and 1979-80.
2. Special Civil Application No. 5132 of 1983 :
It is contended by the petitioner that for the assessment year 1978-79, the petitioner had submitted its return of income on August 31, 1978, declaring its total income at Rs. 27,040. Thereafter, a notice was issued by the respondent under section 143(2) of the Act to verify the correctness and completeness of the return filed by the petitioner. By its letter dated January 7, 1981, the petitioner clarified certain queries raised by the respondent and, ultimately, by an order dated March 11, 1981, the respondent assessed the income of the petitioner at Rs. 59,926 under section 143(3) of the Act.
3. Being aggrieved by the said order, the petitioner filed an appeal before the appellate authority, During the pendency of the appeal, the respondent issued a notice under section 154/155 of the Act alleging that there was a mistake apparent on the record and, therefore, the assessment order is required to be amended. The petitioner gave a detailed explanation for various items sought to be raised by the respondent in the said notice. It is the contention of the petitioner that, thereafter, the respondent had not taken any steps under section 154 or section 155 of the Act and the respondent has not amended the original order of assessment.
4. Subsequently, the appellate authority, by its order dated March 3, 1983, partially allowed the appeal filed by the petitioner and the taxable income of the petitioner (sic) issued the impugned notice dated March 23, 1983 (annexure "A"), under section 148 of the Act to the petitioner. It is contended by the petitioner that the impugned notice is without jurisdiction as the condition precedent for issuing such a notice is not satisfied.
5. Special civil Application No. 2036 of 1984 :
In this petition, the petitioner challenges the notice dated February 27, 1984, issued under section 148 of the Act for the assessment year 1979-80. The petitioner had submitted its return of income at Rs. 59,800. The petitioner had received a notice under section 143(2) of the Act to verify the correctness and completeness of the return filed by the petitioner. By his letter dated September 17,1991, the respondent sought certain clarification from the petitioner. Ultimately, the respondent assessed the income of the petitioner that, it had received a notice dated February 27, 1984, issued by the respondent under section 148 of the Act proposing to reassess the income of the petitioner for the assessment year 1979-80. Hence, the said notice is challenged in this petition.
Contentions :
it is contended by the petitioner that, in both the cases, it had disclosed all the primary relevant facts to the Department. It had also replied promptly to the queries raised by the respondent in the proceedings under section 143(2) of the Act. After verification of reasons and materials on record, the respondent had passed an assessment order, yet without there being any reasons for reopening the assessment, the respondent had issued notices.
6. At the time of admission of these matters, the court had granted interim relief against further proceedings. The respondent had filed an affidavit-in-reply only in Special Civil Application No. 5132 of 1983. In that affidavit-in-reply, it is stated that the Income-tax Officer was in possession of information to believe that the income liable to tax has escaped assessment; the information was from the inspection note submitted by the Inspecting Assistant Commissioner, Bhavnagar Range. The original assessment order under section 143(3) of the Act was passed on March 11, 1981, whereas the inspection note was received on March 8. 1982. It is also stated that the following reasons for reopening of assessment have been recorded on March 25, 1983 :
"The provisions made for laundry expenses, electrical expenses, advertisement expenses, interest, electric consumption, etc., and unpaid other expenses are to be disallowed and added to the total income and In have reasons to believe that the income chargeable to tax has escaped assessment in this years."
Reasons :
In our opinion, from the aforesaid averment, it is apparent that, on the basis of the inspection note, the respondent intends to revise the assessment orders by disallowing the provisions made for laundry expenses, electrical expenses, advertisement expenses, interest, electric consumption, etc. No reasons are stated on what basis the said provisions made by the petitioner are required to be disallowed and are required to be added to the total income.
7. Apart from this aspect, from the assessment order, which is produced on record, it is clear that tall these aspects were considered by the assessing authority. The assessing authority has disallowed the following expenses, including interest :
Rs.Electric expenses 460 Advertisement expenses 391 The excess debit in profit and loss account 279
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1,130
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8. The assessing authority has also added certain other items as discussed in the assessment order. Further, as stated in the assessment order itself, income was assessed by considering the fact that the accounting method of the petitioner was the mercantile system. Once the mercantile system of accounting is maintained by the petitioner, there was no reason for the respondent, nor has any reason been shown by the respondent, for arriving at the conclusion that the provisions made for expenses are required to be disallowed. It is apparent that the respondent had merely changed the earlier opinion of the predecessor-in-office by taking into consideration the inspection note of the Inspecting Assistant Commissioner and this would not be a sufficient ground for issuance of notice under section 147(b) of the Act.
9. In Special Civil Application No. 2036 of 1984, the respondent has not produced on record the reasons recorded by him for reopening the assessment. In the present case also, the assessment order was passed under section 143(3) of the Act, after verification and making certain additions. As no affidavit-in-reply is filed despite the fact that rule is issued in the year 1984, we are required to hold that, before issuing the notice, the respondent has not recorded reasons issuing the notice. Further, as the assessment orders were passed after verification, no reason or ground is made out by the respondents for issuing the notices under section 148 of the Act.
10. In this view of the matter, in both the petitions, the impugned notices issued by the respondent (annexure "A") are required to be quashed and set aside.
11. Special Civil Application No. 5132 of 1983 :
In the result, this petition is allowed. The notice dated March 22, 1983 (annexure "A"), issued by the respondent for reopening the assessment order for the assessment year 1978-79, is quashed and set aside. The respondent is directed not to proceed further on the basis of the notice at annexure "A". Rule made absolute to the aforesaid extent with no order as to costs.
12. Special Civil Application No. 2036 of 1984 :
In the result, this petition is allowed. The notice dated February 27, 1984 (annexure "A"), issued by the respondent for reopening the assessment order for the assessment year 1979-80, is quashed and set aside. The respondent is directed not to proceed further on the basis of the notice at annexure "A". Rule made absolute to the aforesaid extent with no order as to costs.