Bombay High Court
Samir Diamonds Exports Pvt. Ltd vs A.K. Gautam, Income-Tax Officer, And ... on 16 March, 1990
Equivalent citations: [1991]189ITR410(BOM)
JUDGMENT
T.D. Sugla J.
1. The petitioner is a limited company. By this petition under article 226 of the Constitution of India, it has challenged the validity of the notice issued under section 148 of the Income-tax Act, 1961, on March 30, 1985, for the assessment year 1980-81. Briefly stated, the relevant facts are that the petitioner had filed its return of income originally on June 26, 1980 declaring an income of Rs. 5,30,454. The assessment was completed on September 1, 1982, computing the petitioner's total income at Rs. 10,92,977. On March 30, 1985, the Income-tax Officer issued the impugned notice under section 148 of the Act requiring the petitioner to file its return of income for the assessment year 1980-81. The return was filed on April 30, 1985. Thereafter, the petitioner wrote to the Income-tax Officer three letters by means of which it requested the Income-tax Officef to furnish it with the reasons for the issue of notice and the provision under which the notice was issued. No information having been furnished by the Income-tax Officer as required by the petitioner, the petitioner filed the present petition. The petition was admitted on December 13, 1985, when rule was issued and interim relief in terms of prayer (d) was granted.
2. It is submitted by Shri Sonde, learned counsel for the petitioner, that the Department not having filed an affidavit in reply, it was not possible for him to challenge the formation of belief as such which is the condition precedent for assumption of jurisdiction under section 148 of the Act. Placing then reliance on the two Supreme Court decisions in the cases of Madhya Pradesh Industries Ltd. v. ITO [1970] 77 ITR 268 and Union of Indian v. Rai Singh Deb Singh Bist [1973] 88 ITR 200, it was pointed out that, in cases where no affidavit-in-reply was filed and assessment records were not produced, the Supreme Court had held that the notice issued under section 148 of the Act must be quashed. This court, it was pointed out, had also taken the view in the cases of Siesta Steel Construction P. Ltd. v. K. K. Shirkare [1985] 154 ITR 547 and Morarjee Goculdas Spg. and Wvg. Co., Ltd. v. M. M. Das, IAC [1991] 189 ITR 406, that where an affidavit-in-reply was not filed, it must be assumed that there were no good reasons for the assumption of jurisdiction under section 148 and such a notice must be quashed. Reliance was also placed on a Division Bench decision in reference proceedings of this court in the case of S. P. Divekar and A.P. Divekar v. CIT [1986] 157 ITR 629, where a similar view was stated to have been taken.
3. Dr. Balasubramaian, learned counsel for the Income-tax Department, indicated the difficulties faced by the Department in this regard. It was stated that the assessment records of the Department were kept in such a manner that it was not possible to produce them all at a time. Referring to the fact that, in the month of March, the Income-tax Officers are busy in completing time-barring assessments, it was not possible for them to spare time to file an affidavit-in-reply. However, he was happy to say that, in this case, he had with him the assessment records for this year which indicated the reasons for reopening the assessment. Reading out the reasons, Dr. Balasubramanian said that, at least on the ground of depreciation, formation of belief of the Income-tax Officer that the assessee's income chargeable to tax had escaped assessment would be justified.
4. Despite the objection from counsel for the petitioner that the assessment records for the year 1980-81 should not be looked into as he was not in a position to meet the case that may be spelt out from the records in the absence of prior information, it was considered desirable to look into the records, in view of the two Supreme Court decisions relied upon by learned counsel for the petitioner himself in which stress was laid on two facts, viz., non-filing of affidavit-in-reply and non-production of assessment records. Under the circumstances, it may be reasonably taken that if the assessment records are produced, it was desirable that the court should look into the same.
5. On going through the assessment records, it is found that the Income-tax Officer has kept a note in the file which is dated March 25, 1985. The note reads as under :
"The Internal Audit Party had raised the following audit objections :
(a) depreciation on the tools and implements has been allowed at Rs. 7,301 against the admissible amount of depreciation of Rs. 2,885.
(b) export development allowance has been allowed on ECGC amount of Rs. 21,309. Special Bench decision of the Income-tax Appellate Tribunal, Bombay, in the case of J. Hemchand and Co., has not been accepted and special leave petition has been filed in the Supreme Court in the case of CIT v. Orient Goa P. Ltd.
A perusal of the case records shows that the depreciation has been excessively claimed by the assessee-company at the rate of 30% as against 10% allowable. This fact is clear from the claim of depreciation by the assessee-company in the subsequent years where the assessee-company had itself depreciation at the rate of 10%.
In view of the above, I have, therefore, reason to believe that on account of the failure on the part of the assesse to disclose fully and truly all the material facts required for its assessment, the assessee's income has escaped assessment within the provisions of section 147(b) of the Income-tax Act, 1961.
Issue notice under section 148 for default under section 147(b) of the Income-tax Act".
6. So far as the objection of the Internal Audit Party as regards export markets development allowance is concerned, the objection is stated only to be rejected for the simple reason that the Internal Audit Party has expressed an opinion on a legal question which it is not entitled to do. Accordingly, in view of the Supreme Court decision in the case of Indian and Eastern Newspaper Society v. CIT , the assessment could not have been reopened on the basis of that objection of the Internal Audit Party. The other two objections relate to depreciation. But the objections do not refer to the items of machinery on which depreciation was claimed and allowed. In other words, it is not clear from the note whether the objection as regards excessive allowance is based on the interpretation by the Internal Audit Party or on the factual part of it. In my judgment, those two objections also do not provide a sound basis for the formation of the belief that the assessee's income chargeable to tax had escaped assessment. That apart, it may not be out of place to mention that the assessee's total income for the assessment year 1980-81 was computed at Rs. 10,92,977. Total depreciation was allowed at Rs. 12,366. Taking into account all these aspects, it is held that the condition precedent for reopening the assessment under section 147(b) of the Act is not present in this case, the notice, is accordingly, quashed.
7. In the result, rule is made absolute in terms of prayer clause (a) and (b). No order as to costs.