Gujarat High Court
Garden Finance Ltd. vs Asstt. Commissioner Of Income Tax on 3 October, 2003
Author: D.H. Waghela
Bench: D.H. Waghela
JUDGMENT D.H. Waghela, J.
1. In this petition under Article 226 of the Constitution, notice for assessment under section 148 of the Income-tax Act, 1961 (for short 'the Act') is under challenge mainly on the ground of lack of jurisdiction.
2. The facts as far as they are relevant for the purpose of deciding the issues raised in this petition are simple and in a narrow compass. The petitioner, a public limited company, filed its return of income on 30.11.1996 for the assessment year 1996-97 and, inter alia, claimed depreciation @ 40% on written down value of vehicles on which such depreciation was allowed in assessment year 1995-96, and also claimed pro rata depreciation @ 20% on the additions during assessment year 1996-97. The assessing officer, by his letter dated 21.10.1998, asked the petitioner to furnish details regarding various points of which one was details of the vehicles on which depreciation @ 40% was claimed. In reply thereto, the petitioner stated that it was a finance company engaged in the business of leasing, the vehicles in question were given on lease and that the lessee had used the said vehicles in the business of running them on hire. It was also pointed out that there was no requirement in section 32 of the Act or in the Rules made thereunder that the owner of commercial vehicles has to use the vehicles himself for the business of hire. After such reply and hearing and disallowing several other claims, total income of Rs.5,00,35,628/- was assessed under section 143(3) of the Act as against the original return of income declaring taxable income as Rs.Nil.
2.1. Thereafter, a notice under section 147 of the Act is stated to have been issued in October, 2001 in respect of commission, bad debt and interest, which the assessing officer added, but the Commissioner of Income Tax deleted and the department's appeal preferred therefrom is stated to be pending.
2.2. The impugned notice dated 20.6.2002 under section 148 of the Act stated that the Assistant Commissioner of Income Tax, Surat had reason to believe that the petitioner's income for the assessment year 1996-97 had escaped assessment within the meaning of section 147 of the Act and, therefore, the petitioner was required to deliver within 30 days a return in the prescribed form. After the reasons recorded under section 148 of the Act were demanded and denied and the petitioner had submitted the same NIL return, the petitioner was requested to show cause why the excess depreciation allowed to the extent of Rs.1,70,00,000/- should not be disallowed. Accordingly, notice of hearing under section 143(2) of the Act was also issued and hearing was fixed on 11.12.2002 with a request to appear with necessary explanation. Even as the hearing was adjourned to 18.12.2002, the petitioner approached this Court on 19.12.2002 by way of this petition and obtained interim relief on 20.12.2002. The initial injunction granted on 20.12.2002 only against final assessment by way of ad-interim relief has been continued and confirmed, while admitting the petition on 24.2.2003, into an order to maintain status quo.
2.3. By filing an affidavit-in-reply, the respondent has stated that the contentions raised and the averments made in the petition could be raised before the Assessing Officer who would decide the same in due course. It is also contended that the depreciation claimed by the petitioner @ 40% on WDV cost of the commercial vehicles was granted by the Assessing Officer without discussing the issue in the assessment order and without looking to the provisions of the Act. It is, therefore, submitted that this was a clear case of claiming excess depreciation and was covered by the proviso to section 147 of the Act. The reasons recorded under section 148 of the Act are produced with the affidavit and the material part thereof reads as under:
"3. On verification of the depreciation statement attached with the return of income, it is noticed that depreciation of Rs.8,43,27,096 is inclusive of depreciation of Rs.3,40,00,000 on motor vehicles (commercial) claimed at the rate of 40% on WDV/Cost of Rs.8,50,00,000. As per Rule 5, the rate of depreciation on motor vehicle in the second column of the table in Appendix-1 are as under:
Block of assets Depreciation all-
owance as per
percentage of WDV
-----------------------------------------------------
III (IA) Motor cars other than
those used in a business of
running them on hire 20%
acquired or put to use
on or after the first
day of April, 1990.
(2) (ii) Motor buses, motor lorries
and motor taxis used in a
business of running them 40%
on hire.
-----------------------------------------------------
"4. The assessee is a leasing company. The assessee company has used the motor vehicles for lease and not for hiring. The assessee company is, therefore, entitled for depreciation at the normal rate of 20% on motor vehicles (commercial) and not at the higher rate of 40% as claimed and allowed while finalising the assessment. Excess depreciation on motor vehicles (commercial) has been allowed by Rs.1,70,00,000 while computing taxable income, which has escaped assessment to that extent.
"5. I have, therefore, reason to believe that income to the extent of Rs.1,70,00,000 has escaped assessment within the meaning of sub-clause (i) of Explanation 2 inserted to section 147 of the I.T.Act. The assessee company has failed to furnish full and true particulars of income."
3. The burden of the arguments of learned advocate Mr.J.P.Shah, appearing for the petitioner, was that, in the facts and circumstances, the respondent lacked the jurisdiction to reopen the assessment under section 147 of the Act and the alternative remedy of presenting the case before the assessing officer was neither an efficacious nor an adequate remedy apart from being lengthy, expensive and cumbersome. It was submitted that the assessment in the relevant year was made under sub-section (3) of section 143 and the reassessment proceedings were initiated admittedly after four years from the end of the relevant assessment year. That the petitioner had not failed to disclose fully and truly all the material facts necessary for its assessment and no income chargeable to tax had escaped assessment on that account. In fact, there was no escapement of income, according to the submission. Elaborating such submission, the learned counsel submitted that the then assessing officer had applied his mind to the claim of the petitioner and after considering the explanation tendered by him, allowed depreciation at the higher rate. Therefore, the respondent was acting on a mere change of opinion which could not vest the authority with the jurisdiction to initiate reassessment proceedings. In support of his submissions, he relied upon the judgment of the Supreme Court in CALCUTTA DISCOUNT CO. LTD. v. INCOME TAX OFFICER [ 41 ITR 1991 = AIR 1961 SC 372 ] as applied in WHIRLPOOL CORPORATION v. REGISTRAR OF TRADE MARKS [ (1998) 8 SCC 1 ] with special emphasis on the following observations:-
"The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party quick relief by a writ order prohibiting an authority acting without jurisdiction or from continuing such action. When the Constitution conferred on the High Courts the power to give relief, it became the duty of the Courts to give such relief in fit cases and the Courts would be failing to perform their duty if relief were refused without adequate reasons."
....................
"Where such action of an executive authority acting without jurisdiction subjects, or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts will issue appropriate orders or directions to prevent such consequences. Writ of certiorari or prohibition can issue against the Income Tax Officer acting without jurisdiction under section 34 of the Income-tax Act."
....................
"Much water has since flown under the bridge, but there has been no corrosive effect on these decisions which, though old, continue to hold the field with the result that law as to the jurisdiction of the High Court in entertaining a writ petition under Article 226 of the Constitution, in spite of alternative statutory remedies, is not affected, specially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation." (emhasis supplied) 3.1. The learned counsel also relied upon the judgment of the Supreme Court in COMMISSIONER OF INCOME TAX v. CORPORATION BANK LTD. [ (2002) 254 ITR 791 ], wherein the assessee had furnished particulars of the amount claimed as not recoverable and had also filed statements disclosing full details of the interest suspension account and it was held that there was no failure on the part of the assessee to disclose fully and truly the material facts necessary for the assessment and, therefore, section 147(a) was held to be not attracted. Similar was the fate in C.I.T. v. FORAMER FRANCE [ (2003) 129 TAXMAN 72 (SC) ] wherein admittedly there was no failure to disclose fully and truly all the material facts necessary for assessment.
4. The learned standing counsel Mr.B.B.Naik, appearing for the respondent, submitted that the petitioner had not only alternative remedy but it was availed also by the petitioner and that there was no reason to entertain any apprehension that all objections, including the objection regarding jurisdiction, shall not be entertained and legally adjudicated by the authority after affording the petitioner an opportunity of being heard. He, in effect, submitted that the respondent had reason to bona fide believe that the income chargeable to tax had escaped assessment, that such escapement was due to failure on the part of the petitioner to disclose fully and truly all the material facts and that excessive depreciation allowance was computed in the relevant assessment year. He further submitted that adequate safeguards against abuse of the powers under section 147 were provided in the express provisions of the Act. And, it would be improper and unfair for this Court to interject at this stage, particularly in view of the recent development of the law in this regard. He relied upon the judgment of the Supreme Court in GKN DRIVESHAFTS (INDIA) LTD. v. I.T.O. [ 259 ITR 19 ] and various other judgments to which reference will be made hereafter.
5. In order to appreciate the rival submissions, it would be appropriate to first refer to the relevant parts and clauses of the provisions of the Income-tax Act. Section 147 of the Act empowers the assessing officer, if he has reason to believe that any income chargeable to tax has escaped assessment, to assess or reassess such income or recompute the depreciation allowance. This power is subject to the provisions of sections 148 to 153 and the proviso that where an assessment under sub-section (3) of section 143, or section 147 has been made for the relevant assessment year, no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 2 says that, where an assessment has been made and excessive loss or depreciation allowance or any other allowance under the Act has been computed, it shall be deemed to be a case in which income chargeable to tax has escaped assessment. Section 147 of the Act expressly provides for reassessment not only of the income chargeable to tax which had escaped assessment but also of such other income which comes to notice subsequently during the course of assessment.
5.1. It is clear from plain reading of the relevant provisions that the first condition for assuming jurisdiction for initiating reassessment is that the assessing officer has to have reason to believe that any income chargeable to tax has escaped assessment. As elaborated by this Court in PRAFUL CHUNILAL PATEL v. M.J.MAKWANA, ASSISTANT COMMISSIONER OF INCOME TAX [(1999) 236 ITR 832 ], ".............The words 'reason to believe' cannot mean that the assessing officer should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes and, if he likes, from any information that he receives. If he discovers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he had reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings under section 147 may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such income has escaped assessment, the assessing officer is not required to base his belief on any final adjudication of the matter". And, "........His formation of belief is not a judicial decision but an administrative decision. It does not determine anything at the initial stage, but the assessing officer has a duty to proceed so as to obtain what the taxpayer was always bound to pay if the increase is justified at all. The decision to initiate the proceedings is not to be preceded by any judicial or quasi-judicial enquiry. His reasoning may be the result of official information or his own investigation or may come from any source that he considers reliable. His reason is not to be judged by a court by the standard of what the ideal man would think. He is the actual man trusted by the Legislature and charged with the duty of forming of a belief for the mere purposes of determining whether he should proceed to collect what is strictly due by law, and no other authority can substitute its standard of sufficient reason in the circumstances, or his opinion or belief for his. Unless the ground or material on which his belief is based, is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason, cannot be overridden. What is, therefore, to be ascertained is, whether the alleged reason really existed, and if it did, whether it was so irrational as to be outside the limits of his administrative discretion with which the assessing officer is invested so as to be really in disregard of the statutory condition..........." Evidently, the assessing officer purporting to exercise powers under section 147 of the Act is not a party who has to not only state but establish before anyone the so-called jurisdictional facts.
5.2. In the case of initiation of assessment proceedings under section 147 after four years, the alleged escapement has to be on account of failure of the assessee "to disclose fully and truly all material facts necessary for his assessment." Therefore, if all the facts that are material and necessary for assessment are fully and truly disclosed by the assessee, the power and jurisdiction under section 147 cannot be exercised. And the reply to the question whether all the material facts necessary for the assessment were fully and truly disclosed or not, would depend upon the facts of each case. As held by the Supreme Court in PARSURAM POTTERY WORKS LTD. v. I.T.O. [ (1977) 106 ITR 1 ], "........In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee require to know all the facts which help him in coming to the correct conclusion......"
5.3. Reply to the question whether any income chargeable to tax has escaped assessment or not is made easier by virtue of the explanation providing for a deeming fiction under which, where excessive depreciation allowance has been computed, income has to be deemed to have escaped assessment. The explanation providing for this deeming fiction has double impact - in supplying reason to believe that there was escapement of income and in justifying reassessment.
6. As early as in 1988, the Supreme Court had, in VXL INDIA LTD. v. I.T.O. [ (1988) 173 ITR 124 ], dismissed the S.L.P. of the assessee preferred from the Division Bench judgment in L.P.A. observing as under:
"Whether there was any material or information in possession of the I.T.O. which is sufficient to invoke the provisions of section 147 is to be decided under the provisions of the Act itself and that could not be decided under Article 226 of the Constitution. It has to be decided in the assessment proceeding after considering the objections raised by the assessee before the I.T.O., the appellate or other authorities. Accordingly, we dismiss this appeal with liberty to the appellant to raise all questions that are open to it under law before the assessing authorities, including the question of jurisdiction or of the conditions precedent for invoking the provisions made under section 147 of the Act."
6.1. Later on, the Supreme Court observed in SRI KRISHNA PVT. LTD. v. I.T.O. [ (1996) 221 ITR 538 ] that enquiry at the stage of validity of notice under section 148/147 is only to see whether there are reasonable grounds for the I.T.O. to believe and not whether the omission/failure and the escapement of income is established.
7. The relevant law and procedural aspects thereof with regard to the main issue stand practically amended and crystallised by virtue of the recent judgment of the Supreme Court in GKN DRIVESHAFTS (supra). In the facts of that case, the High Court had taken the view that the appellant could have taken all the objections in its reply to the notices issued under sections 148 and 143(2) of the Act and that the writ petition was premature. In the appeal preferred from that order, the Supreme Court found no justifiable reason to interfere. More importantly, it is further clarified that when a notice under section 148 of the Act was issued, the proper course of action for the noticee was to file a return, and if he so desires to seek reasons for issuing the notice. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. Thus, the Supreme Court has not only rejected the appeal against the order holding the petition to be premature, it has consciously prescribed the proper course of action for the noticee in all such cases. This prescription is the binding law under Article 141 of the Constitution of India.
7.1. In the facts of the present case, the petitioner being halfway through the process and now that reasons are revealed, what remains is filing of objections to issuance of notice and disposing of the same by a speaking order by the assessing officer. After specific prescription of the proper course of action exactly in the present context by the Supreme Court, it would be highly improper and presumptuous for the petitioner to submit and for this Court to hold that it is an alternative remedy which is not adequate, efficacious or appropriate. The petition is, therefore, liable to be dismissed only on that ground. In fact, after the initial injunction only against final assessment, the objections to notice under section 147 of the Act could have been submitted and decided even during pendency of the petition and the judgment of the Supreme Court could have easily been complied.
8. After recording the aforesaid conclusion and deciding to relegate the petitioner to original proceedings of reassessment, any discussion of the rival submissions regarding the objections of the petitioner to the impugned notice may influence the decision of the assessing officer and cause prejudice to a party. Therefore, it would not be proper to succumb to the temptation of examining at this stage whether, even after specific query in that regard, the reply of the petitioner that, "the lessee has used the said commercial vehicles for the business of running them on hire", was, in the facts and circumstances, full and true disclosure of all the material facts necessary for assessment. And, of course, the question as to whether in fact, excessive depreciation allowance was computed, would in any case be wide open before the assessing officer. However, the contention that there was mere change of opinion of the assessing officer with regard to the depreciation allowance has to be negatived in no uncertain terms since, pursuant to the query requiring details of vehicles on which depreciation @ 40% was claimed and reply thereto as aforesaid, there is no discussion or finding whatsoever on that aspect in the assessment order for the relevant assessment year. There obviously was no opinion formed with regard to the applicable rate of depreciation allowance. Again, as held by this Court in PRAFUL CHUNILAL PATEL (supra), "In cases where the assessing officer had over-looked something at the first assessment, there can, in our opinion, be no question of any change of opinion.......". And, "....... However, in cases where an error or mistake is detected, it can never be said that there is only a mere change of opinion. The mistake or error which is detected and which constituted a valid decision or cause to form a belief in the first assessment as a result of which the income has escaped assessment, would constitute a reason to believe that the income had escaped assessment and such cases where mistakes and errors are detected and which constitute a valid justification or cause to form a belief sought to be corrected, cannot be said to be cases of mere change of opinion."
9. The other contention of the petitioner that the respondent had already made up and revealed his mind on the issue and raising preliminary objection to the very assumption of jurisdiction and issuance of notice cannot serve any useful purpose, has to be stated to be rejected in view of the aforesaid discussion and the order made hereunder. The further argument, in substance, that, upon decision of the preliminary objection or framing of the assessment the petitioner would find itself on the path of statutory remedies and that virtually amounts to denial of relief through the constitutional remedy, is premature, presumptive and pre-emptive. There is before the petitioner the instance of its own case in respect of the same assessment year wherein additions by the assessing officer in reassessment under section 147 of the Act were deleted by the Commissioner, as stated earlier.
10. In view of the above discussion, well settled legal position and conclusions, the other judgments cited at the Bar are not required to be discussed. It is, however, clarified that, upon dismissal of this petition and vacation of the interim relief, when the process of reassessment is restarted and preliminary objections to the impugned notice are raised by the petitioner, they shall be considered and decided in accordance with law after affording to the petitioner sufficient opportunity of being heard.
Accordingly, the petition is dismissed. Rule is discharged and the interim relief is vacated with no order as to costs.
Sd/-
( D.H.Waghela,J.) Seen ( D.A. Mehta, J.) (KMG Thilake) D.A. Mehta, J.
I have gone through the judgement of my learned Senior Brother. For the reasons stated hereinafter, I record my dissenting opinion.
1. This petition under Article-226 of the Constitution of India challenges the notice under Section-148 of the Income Tax Act, 1961 (the Act) dated 20th June, 2002 for the Assessment Year 1996-97.
2. The petitioner is a public limited company. On 30th November, 1996, the petitioner filed its return of income for the Assessment Year 1996-97. The relevant accounting period is year ended on 31st March, 1996. Alongwith return of income, the petitioner had filed a statement of depreciation wherein depreciation @ 40% on the Written Down Value (WDV) of Rs.8,50,00,000=00 had been claimed on commercial vehicles. The petitioner had also claimed depreciation on commercial vehicles worth Rs.22,22,540=00 @ 20% because the petitioner had purchased the said commercial vehicles in the second half of the accounting period. On 21st October, 1998, the petitioner was served with a letter by the Assessing Officer calling for various details and at Serial No.19, the said letter stated -
"Details of vehicles on which depreciation at the rate of 40% is claimed."
The petitioner duly replied to the said letter on 22nd February, 1999. In relation to the aforesaid query, the petitioner stated that the commercial vehicles purchased by the petitioner had been given on lease and the lessee had used the said commercial vehicles for the business of running them on hire. The petitioner also invited the attention of the Assessing Officer to the fact that the provisions of Section-32 of the Act or the relevant Rules did not require that the owner of the commercial vehicles was bound to use the vehicle himself for the business of hire. In support of the aforesaid contention, the petitioner placed reliance upon various decisions of the Tribunal, which have been referred to in the reply dated 22nd February, 1999. On 24th March, 1999, the Assessing Officer passed the Assessment Order under Section 143(3) of the Act and though various additions and disallowances were made, in relation to the aforesaid item of depreciation no disallowance has been made.
On 20th June, 2002, the notice under Section-148 of the Act came to be issued. On 24th June, 2002, the petitioner called upon the Assessing Officer to supply a copy of the reasons recorded. On 20th August, 2002, the Assessing Officer communicated to the petitioner that there was no statutory requirement of providing a copy of the reasons recorded before filing of the Return of Income and hence, the petitioner was called upon to furnish the Return of Income in response to the notice issued under Section-148 of the Act. Thereafter, it appears that the petitioner filed the Return on 14th November, 2002, returning the same income. On 3rd December, 2002, the Assessing Officer issued a show cause notice fixing the hearing on 11th December, 2002. In the said show cause notice, it was stated that the petitioner was a leasing company and the motor vehicles had been used for leasing out and not for hiring and, therefore, excess depreciation on commercial vehicles had been allowed to the extent of Rs.1,70,00,000=00, because according to the Assessing Officer, the correct rate of depreciation ought to have been 20% and not the higher rate of 40%, as claimed and allowed while framing the assessment under Section-143(3) of the Act.
3. Alongwith the affidavit-in-reply, the reasons recorded by the respondent have been placed on record and the relevant portion thereof, reads as under :
"3. On verification of the depreciation statement attached with the return of income, it is noticed that depreciation of Rs.8,43,27,096 is inclusive of depreciation of Rs.3,40,00,000 on motor vehicles (commercial) claimed at the rate of 40% on WDV/Cost of Rs.8,50,00,000. As per Rule 5, the rate of depreciation on motor vehicle in the second column of the table in Appendix-I are as under:
Block of Assets Depreciation allowance
as per percentage of WDV
-------------------------- ------------------------
(1) (1A) Motor cars other than
those used 20%
in a business of running them
on hire, acquired or put to use
on or after the first day of
April, 1990.
(2) (ii) Motor buses, motor lorries and
motor taxis used in a business of 40%
running them on hire.
4. The assessee is a leasing company. The assessee company has used the motor vehicles for lease and not for hiring. The assessee company is, therefore, entitled for depreciation at the normal rate of 20% on motor vehicles (commercial) and not at the higher rate of 40% as claimed and allowed while finalizing the assessment. Excess depreciation on motor vehicles (commercial) has been allowed by Rs.1,70,00,000 while computing taxable income, which has escaped assessment to that extent.
5. I have, therefore, reason to believe that income to the extent of Rs.1,70,00,000 has escaped assessment within the meaning of sub-clause (i) of explanation 2 inserted to section 147 of the I.T.Act. The assessee company has failed to furnish full and true particulars of income."
4. Mr.J.P.Shah, learned Advocate appearing on behalf of the petitioner, submitted that where the action of the respondent-Authority was shown to be prima facie without jurisdiction, the Court must exercise its jurisdiction and powers under Article-226 of the Constitution of India and grant necessary consequential relief without subjecting the petitioner to lengthy proceedings by way of relegating the petitioner to avail of alternative remedy, resulting in harassment to the petitioner by way of incurring of substantial expenses as well as long drawn out litigation. It was contended that in the facts and circumstances of the case, taking into consideration the language employed by the Proviso to Section-147 of the Act, it was apparent that the impugned notice under Section-148 of the Act had been issued after expiry of four years from the end of the relevant Assessment Year and hence, it was upon the respondent-Authority to show that firstly, income chargeable to tax had escaped the assessment for such Assessment Year; secondly, such escapement had taken place either by reason of failure on the part of the assessee to make a Return; or, thirdly, such escapement had taken place by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that Assessment Year. That in the present case, the second contingency regarding non-filing of return did not exist and hence, the respondent-Authority had to show prima facie that there was any failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, which resulted in escapement of any income. That the petitioner had not only made full and true disclosure while filing the return of income, the then Assessing Officer had applied his mind to the claim of the petitioner, called for details and explanation, and after considering the explanation tendered by the petitioner granted depreciation at the rate claimed by the petitioner. That in these circumstances, the respondent-Authority was, thus, acting on a mere change of opinion only and the law was well settled that mere change of opinion after expiry of a period of four years from the end of the relevant Assessment Year cannot vest the authority with the jurisdiction to initiate reassessment proceedings. In support of the submissions, Mr.Shah placed reliance upon the decisions of the Supreme Court in the case of Commissioner of Income Tax vs. Corporation Bank Ltd., reported in 254 ITR 791, as well as in the case of Commissioner of Income Tax vs. Foramer France, reported in (2003) 129 Taxmann 72.
5. As against this, Mr.B.B.Naik, learned Standing Counsel appearing on behalf of the respondent-Authority, submitted that the petition should not be entertained because the petitioner was entitled to alternative remedy by way of appeal, etc., in case an adverse order was passed against the petitioner. That even otherwise, as stated by the Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. I.T.O., reported in 259 ITR 19, when a notice under Section-148 of the Act is issued, the noticee is required to file return and thereafter, seek reasons for issuance of notice. That the Assessing Officer is bound to furnish reasons within reasonable time and on receipt of reasons, the noticee is entitled to file objections and the Assessing Officer is bound to dispose of the said objections by passing a speaking order. It was, therefore, submitted that in the present case, the petitioner can raise its objections and the Assessing Officer was bound to deal with the same and dispose of the same.
6. At this stage, Mr.J.P.Shah on behalf of the petitioner joined issue and submitted that even assuming for the sake of argument that such a course of action could be adopted, in the present case, this Court had admitted the matter after hearing the other side on this very contention, and hence, the Court should not relegate the petitioner to such a course of action. It was further submitted that even otherwise, the respondent-Authority had already disclosed its reasons as well as given its view by way of the aforesaid show cause notice dated 3rd December, 2002 and hence, no fruitful purpose would be served by raising the same objections before the authority as the authority had already made up its mind.
7. Mr.Shah also invited the attention to the decisions of this Court in the case of Arvind Polycot Ltd. vs. Asst. Commissioner of Income Tax, reported in 222 ITR 280, and Gujarat Gas Co. Ltd. vs. Joint Commissioner of Income Tax (Assessment), reported in 245 ITR 84, to submit that the existence of alternative remedies such as appeals and reference is not always a sufficient reason for refusing a party quick relief by a writ or order prohibiting the authority from acting without jurisdiction or from continuing such action. That when the Constitution had conferred on the High Court the power to give relief, it was the duty of the Court to give such a relief in fit cases and the Court would be failing to perform its duty if relief were refused without adequate reasons.
8. Mr.Naik placed reliance upon various decisions of different High Courts in support of the contention that where alternative remedy prescribed by the statute is available, that should be availed of as a first remedy and the Court should be approached under Article-226 of the Constitution of India only as a last resort. That the petitioner should not entertain any apprehension to the effect that the objections regarding jurisdiction shall not be entertained by the authority or that appropriate opportunity shall not be given. It was also submitted that whether there was failure on the part of the petitioner-assessee or not, would always turn on facts of the case and sufficiency of material for recording of reasons was beyond the domain of jurisdiction of the Court. It was further submitted that it was not open to the Court while exercising jurisdiction under Article-226 of the Constitution of India to enter into reappreciation of evidence or facts for the purpose of determining as to whether the respondent-Authority had jurisdiction or not. The following decisions have been cited by Mr.Naik in support of the aforesaid contentions :
(i) In the case of Mahavir Spinning Mills Ltd. vs. Joint Commissioner of Income Tax;
(ii) In the case of Kureethadam Wines vs. Commissioner of Income Tax (Appeals) & Anr.;
(iii) [1991] 56 Taxman (J&K) 122 in the case of Dev Son (P.) Ltd. vs. Union of India;
(iv) 136 ITR 679 (Delhi) in the case of New Bank of India Ltd. vs. Income Tax Officer, Company Circle, New Delhi & Anr.;
(v) 250 ITR 393 (P&H) in the case of Bal Ram Jakhar vs. Commissioner of Income Tax & Ors.;
(vi) 77 ITR 661 (MP) in the case of Deepchand Daga vs. Income Tax Officer, C-Ward, Raipur & Anr.;
(vii) 64 ITR 249 (P&H) in the case of R.B. Seth Gujar Mal Modi & Ors. vs. Commissioner of Income Tax, Punjab & Anr.;
(viii) 173 ITR 124 (P&H) in the case of VXL India Ltd. vs. Income Tax Officer & Ors.; and,
(ix) 230 ITR 945 (SC) in the case of Commissioner of Income Tax vs. U.P. Forest Corporation.
(x) 236 ITR 832 (Guj.) in the case of Praful Chunilal Patel vs. M.J.Makwana/Assistant Commissioner of Income Tax.
(xi) 221 ITR 538 (SC) in the case of Sri Krishna Pvt.Ltd., etc. vs. Income-Tax Officer & Ors.
In light of the fact that both the sides made elaborate submissions in relation to existence of alternative remedy, and its effect, it is necessary to briefly recapitulate the law enunciated and reiterated by the Apex Court on this subject from time to time.
9. Over and above the aforesaid case laws, we have also taken into consideration two decisions of the Apex Court - one in the case of Calcutta Discount Co.Ltd. vs. Income Tax Officer, reported in 41 ITR 1991 = AIR 1961 SC 372, and another in the case of Whirlpool Corporation vs. Registrar of Trade Marks, reported in (1998) 8 SCC 1 for the purpose of deciding whether it would be proper to exercise jurisdiction under Article 226/227 of the Constitution of India in the present case. The Apex Court in the case of Calcutta Discount Co.Ltd. (supra) while dealing with the availability of alternative remedy has stated -
"The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction or from continuing such action. When the Constitution conferred on the High Courts the power to give relief it became the duty of the Courts to give such relief in fit cases and the Courts would be failing to perform their duty if relief were refused without adequate reasons."
10. This earlier decision in the case of Calcutta Discount Co.Ltd. (supra) has been approved by the Supreme Court in the later decision of Whirlpool Corporation (supra) wherein it has laid down that :
"14. The power to issue prerogative writs under Article-226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for "any other purpose".
15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. There is a plethora of case-law on this point but to cut down this circle of forensic whirlpool, we would rely on some old decisions of the evolutionary era of the constitutional law as they still hold the field.
16. Rashid Ahmed V. Municipal Board, Kairana laid down that existence of an adequate legal remedy was a factor to be taken into consideration in the matter of granting writs. This was followed by another Rashid case, namely, K.S.Rashid & Son v. Income Tax Investigation Commission which reiterated the above proposition and held that where alternative remedy existed, it would be a sound exercise of discretion to refuse to interfere in a petition under Article-226. This proposition was, however, qualified by the significant words, `unless there are good grounds therefor', which indicated that alternative remedy would not operate as an absolute bar and that writ petition under Article 226 could still be entertained in exceptional circumstances.
17. A specific and clear rule was laid down in State of U.P. v. Mohd. Nooh as under :
`But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather than a rule of law and instances are numerous where a writ of certiorari has been issued in spite of the fact that the aggrieved party had other adequate legal remedies'.
18. This proposition was considered by a Constitution Bench of this Court in A.V.Venkateswaran, Collector of Customs v. Ramchand Sobhraj Wadhwani and was affirmed and followed in the following words :
`The passages in the judgements of this Court we have extracted would indicate (1) that the two exceptions which the learned Solicitor General formulated to the normal rule as to the effect of the existence of an adequate alternative remedy were by no means exhaustive, and (2) that even beyond them a discretion vested in the High Court to have entertained the petition and granted the petitioner relief notwithstanding the existence of an alternative remedy. We need only add that the broad lines of the general principles on which the Court should act having been clearly laid down, their application to the facts of each particular case must necessarily be dependent on a variety of individual facts which must govern the proper exercise of the discretion of the Court, and that in a matter which is thus pre-eminently one of discretion, it is not possible or even if it were, it would not be desirable to lay down inflexible rules which should be applied with rigidity in every case which comes up before the Court'.
19. Another Constitution Bench decision in Calcutta Discount Co.Ltd. vs. ITO, Companies Distt. laid down :
`Though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts will issue appropriate orders or directions to prevent such consequences. Writ of certiorari and prohibition can issue against the Income Tax Officer acting without jurisdiction under Section 34, Income Tax Act.
20. Much water has since flown under the bridge, but there has been no corrosive effect on these decisions which though old, continue to hold the field with the result that law as to the jurisdiction of the High Court in entertaining a writ petition under Article 226 of the Constitution, in spite of the alternative statutory remedies, is not affected, specially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation".
11. On a careful consideration and analysis of the various decisions cited before us, we find that the following legal propositions emerge :
[i] The power to issue a prerogative writ is plenary in nature.
[ii] Such power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition or certiorari to ensure fundamental rights, but, also for "any other purpose".
[iii] The High Court, having regard to the facts of the case, has discretion to entertain or not to entertain the petition depending upon various facts and circumstances special to individual cases.
[iv] The High Court, having imposed upon itself certain restrictive fetters, one of which is availability of alternative and efficacious remedy, would not normally exercise jurisdiction.
[v] However, availability of alternative remedy per se does not operate as a bar in all contingencies.
[vi] Rule requiring exercise of alternative remedy is a rule of policy, convenience and discretion.
[vii] The Court should exercise jurisdiction under Article-226 taking note of legislative intent manifested by the provisions so as to be consistent with such provisions and not to frustrate them.
[viii] The Court should exercise jurisdiction under Article-226 where enforcement of any of the Fundamental Rights is sought OR where there is violation of principle of natural justice OR where order or proceedings are wholly without jurisdiction OR where vires of a provision are challenged.
[ix] The Court should exercise jurisdiction to effectuate the regime of law as the power under Article-226 is meant to serve the ends of law and not to transgress the same.
12. The Assessment Year is 1996-97 and the period of four years would expire on 1st March, 2001. Admittedly, the notice under Section-148 of the Act has been issued on 20th June, 2002, which is beyond the prescribed period of four years and hence, the present case shall have to be tested in light of the provisions of Section-147 of the Act with special reference to the proviso under the said Section.
13. The Income Tax Act, 1961 provides for the machinery in Chapter XIV under Sections 147 to 153 for the assessment of escaped income in certain circumstances. The fundamental underlying these provisions of the Act is to see that the entire income of an assessee assessable in respect of a particular assessment year is subjected to one single assessment for that particular year. Income which is assessable in one assessment year cannot be brought to tax in another assessment year for any reason. The Act does not contemplate piecemeal assessment; one assessment in relation to a portion of the income and another in respect of another portion. However, it is possible that no assessment for a particular year has been completed by the Assessing Officer on the assessee within the period of limitation resulting into escapement of income. Moreover, even where assessment has been made on an assessee, it is found that certain income has escaped assessment therefrom. In order to bring such escaped income to tax, the completed assessment is required to be reopened and it has to be redone in order to include the escaped income so that the income of that particular year is assessed accordingly.
Before the Assessing Officer can initiate any proceedings under Section-147 of the Act, he is required to establish existence of jurisdictional facts.
14. The Apex Court in the case of Parashuram Pottery Works Co.Ltd. vs. Income-Tax Officer, reported in [1977] 106 ITR 1, has analysed provisions of Section-147 of the Act in the following terms. It is pertinent to note that Section-147(a) of the Act, as it then stood, is now covered by Section-147 read with the Proviso thereto.
"According to section-148 of the Act of 1961, before making the assessment, reassessment or recomputation under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139; and the provisions of the Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. The Income-tax Officer has also, before issuing such notice, to record his reasons for doing so. Section 149 prescribes the time limit for the notice.
Clause (a) of section 147 of the Act of 1961 corresponds to clause (a) of sub-section (1) of section 34 of the Act of 1922. The language of clause (a) of section 147 read with sections 148 and 149 of the Act of 1961 as also the corresponding provisions of the Act of 1922 makes it plain that two conditions have to be satisfied before the Income-tax Officer acquires jurisdiction to issue notice under section 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., (i) the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (ii) 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 under section 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 to confer jurisdiction on the Income-tax Officer. It is also imperative for the Income-tax Officer to record his reasons before initiating proceedings as required by section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. 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 appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessments: See Income-tax Officer v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC).
The words "omission or failure to disclose fully and truly all material facts necessary for his assessment for that year" postulate a duty on the assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him 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 regards certain other facts; and ultimately from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable : See Calcutta Discount Co. v. Income-tax Officer [1961] 41 ITR 191, 201 (SC). As further observed in that case:
"Does the duty, however, extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else - far less the assessee -to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences - whether of facts or law - he would draw from the primary facts.""
The disclosure which is required to be made by the assessee should not only be full but also true. The conjunction "and" is an important one and has been interpreted as a strict prescription of law. In case of absence of one of the elements, either in part or in whole, it will grant jurisdiction to the officer.
15. There is one more aspect which requires consideration. As can be seen, Section-148 of the Act specifically requires the assessing officer to record reasons.
This Court in the case of P.V.Doshi v. CIT [1978] 113 ITR 22 stated (headnote) :
"The conditions precedent for initiating reassessment proceedings are: (i) reasonable belief reached by the Income-tax Officer under clause (a) or clause (b) of section 147; (ii) recording of reasons by the Income-tax Officer under section 148(2)(iii) sanction before issuing the notice of reassessment by the higher authorities under section 151. These three conditions have been introduced by way of safeguards in public interest so that the finally concluded proceedings, which at the time of the original assessment could be reopened through the initial procedure of appeal, revision or rectification before the assessment became final, could not be lightly reopened with the consequent hardship to the assessee and also unnecessary waste of public time and money in such proceedings. These conditions have, therefore, to be treated as being mandatory ..."
16. Apart from the factor of recording of reasons being mandatory, this aspect has been explained from a different perspective by this High Court in the case of Desai Brothers vs. Dy. CIT, [1999] 240 ITR 121, the necessity of recording reasons has been elaborately explained in the following terms (headnote):
"The requirement of recording of reasons before issuance of notice is to provide a safeguard against the arbitrary action that may be taken by reopening a completed assessment time and again on irrelevant considerations. Recording of reasons unfolds the process by which the Assessing Officer was led to the formation of his belief about escapement of income. If the action of the Assessing Officer is founded on some material or ground that has no nexus to the formation of reason to believe or is not founded on any existing material the same is liable to be interfered with. The correctness of his tentative opinion is not to be tested on the anvil of the final decision which may be reached after considering rival contentions and weighing them through the process of reasoning. But at the same time, if it appears from the reasoning which has been adopted by the Assessing Officer that no inference of escapement of income from assessment can at all be drawn therefrom, it must be held that the action is ultra vires the statute and does not confer jurisdiction on the Assessing Officer."
17. Thus, the summary of the settled legal position is :
(a) There must be material for the belief;
(b) Circumstances must exist and cannot be deemed to exist for arriving at an opinion;
(c) Reason to believe must be honest and not based on suspicion, gossip, rumour or conjecture;
(d) Reasons recorded must disclose the process of reasoning by which the Assessing Officer holds "reasons to believe" and change of opinion does not confer jurisdiction to reassess;
(e) There must be a nexus between the material on record and the belief held by the Assessing Officer; and,
(f) The reasons recorded must show application of mind by the Assessing Officer.
The validity of initiation of reassessment proceedings has to be judged with regard to the material available with the authority at the point of time of issuing of the notice under Section-148 of the Act and cannot be sought to be substantiated by reference to material that may have come to light subsequently during the course of reassessment proceedings in pursuance of the notice issued under Section-148 of the Act.
18. If the aforesaid principles are applied to the facts of the present case, it is amply clear that the impugned notice has been issued without jurisdiction and the Revenue having failed to establish the jurisdictional fact of there being any omission or failure on the part of the petitioner to disclose fully or truly all material facts necessary for the assessment of the Assessment Year under consideration cannot seek to exercise jurisdiction to reassess. As can be seen from the facts stated hereinbefore that the petitioner had, in the statement of depreciation annexed to the return of income, specifically claimed depreciation at the rate of 40% on the WDV of the commercial vehicles. The WDV is the figure which has been arrived at in the immediately preceding year, namely, Assessment Year 1995-96, after granting depreciation at the appropriate rate. It is not even the case of the Revenue that for the immediately preceding Assessment Year, namely, Assessment Year 1995-96, excess depreciation had been granted due to any omission or failure on the part of the petitioner to disclose fully or truly all material particulars necessary for the assessment of that Assessment Year. In fact, the said Assessment Year has not even been sought to be reopened. Apart from that, there is one more aspect. During the accounting period for the Assessment Year under consideration, the petitioner purchased commercial vehicles worth Rs.22,22,540=00 during the second half of the accounting year, leased out the vehicles and claimed depreciation at the rate of 20%, being 1/2 of the depreciation the petitioner would be entitled to, in light of the second Proviso under Section-32 of the Act. The said claim of depreciation has not been even sought to be disturbed, as could be seen from the reasons recorded. This belies the stand of the respondent.
19. In the petition, it is stated that sometime in October-2001, notice under Section-148 of the Act had already been issued in respect of commission, bad debt, and interest. The said items came to be added in the reassessment order and the petitioner succeeded before the CIT (Appeals) and the departmental appeal against the same is pending. This factual position is also a relevant factor. Though the Court should not be understood as laying down the proposition that successive notices under Section-148 of the Act cannot be issued, yet, once for the same Assessment Year, a notice under Section-148 of the Act has been issued, bearing in mind salutary principle that there should not be piecemeal assessment, successive notices under Section-148 of the Act should not, normally, be issued. It is necessary for the Revenue to ensure that there is complete application of mind as and when it seeks to issue a notice for the purpose of reassessment. Otherwise it may tantamount to change of opinion.
20. The petitioner had made complete disclosure, the Assessing Officer had called for various details and explanation, which were duly furnished by the petitioner, and thereafter, assessment under Section-143(3) of the Act had been framed. It is pertinent to note that alongwith the explanation tendered by the petitioner, the petitioner had relied upon various decisions of the Tribunal in support of its claim and hence, even on this count, it is apparent that not only no omission or failure could be ascribed to the petitioner, but, the case of the petitioner in making the claim was duly supported by the decisions of the Tribunal and thus, it cannot be even contended on behalf of the Revenue that the claim made by the petitioner was a false claim.
21. As can be seen from the reasons recorded, in paragraph-5 the respondent states that he has reason to believe that income has escaped assessment within the meaning of Sub-Clause-(i) of Explanation-2 inserted to Section-147 of the Act. It is further stated that the assessee-Company has failed to furnish full and true particulars of income. Thus, on a plain reading, it is stated that he seeks to reassess for the reason that income has escaped assessment because income chargeable to tax has been under assessed. Though the subsequent sentence states that the assessee-Company has failed to furnish full and true particulars of income, it is not even the case of the respondent, as per the reasons recorded, that income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that Assessment Year. On a plain reading of Explanation-2 below Section-147 of the Act, it is apparent that all that the said Explanation provides for is that the cases, which are mentioned in Clauses (a), (b) and (c), inclusive of Sub-Clause (i), (ii), (iii) and (iv) of Clause-(c), are where it will be deemed that income chargeable to tax has escaped assessment. The opening portion of Explanation-2 states that for the purposes of this section: meaning thereby, that for the purposes of Section-147 of the Act, income chargeable to tax has escaped assessment in the situations provided in the Explanation by deeming fiction. However, the requirement of discharging the onus cast on the Revenue by the Proviso to Section-147 of the Act is in no way, shifted or discharged by the Explanation. In fact, only after prima facie showing that there is escapement of any income that the applicability or otherwise of the Proviso to Section-147 of the Act would arise. Once the stipulated period of four years has expired from the end of the relevant assessment year, the Proviso stands attracted (other conditions being fulfilled), and the action of the authority will have to be tested at the anvil of the provisions of the Proviso.
22. The decision in the case of Praful Chunilal Patel vs. M.J.Makwana/Assistant Commissioner of Income Tax (supra) relied upon by the learned Counsel for the Revenue, instead of assisting the case of the Revenue, supports the contention raised on behalf of the petitioner. This Court has specifically dealt with two distinct situations: one arising within the period of four years and another arising beyond the period of four years in the following words :
"There is no dispute about the fact that the impugned notice under section 148 of the Act, has been issued within four years from the end of the relevant assessment year 1991-92. Under section 147 of the said Act, within four years from the end of the relevant assessment year, the Assessing Officer, where he had reason to believe that any income chargeable to tax has escaped assessment for any assessment year, may assess or reassess such income. However, after four years, the proviso would be attracted and no action can be taken under this section unless such income has escaped assessment by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice under section 142(1) or section 148 of the said Act, to disclose fully and truly all material facts for his assessment for that assessment year. Therefore, it is only when the case falls under the proviso that the question of non-disclosure of material facts would become relevant. In such cases, if the assessee has made full disclosure on record, then even if such income has escaped assessment, no action can be initiated by the Assessing Officer under the section. Where, however, the said period of four years has not expired, the conduct of the assessee regarding disclosure of material facts need not be the basis for initiating the proceedings and they can be commenced if the Assessing Officer has reason to believe that the income has escaped assessment notwithstanding that there was full disclosure of material facts on record. The assessee in such cases cannot defend the initiation of action on the ground that the facts were already placed on record and that the Assessing Officer must have or ought to have considered them. Explanation 1 to section 147 of the said Act has a bearing on the disclosure aspect and it applies to the proviso to the extent it allows initiation of the proceedings under section 147 on account of non-disclosure of material facts by the assessee."
23. In the present set of circumstances, it is apparent that, as per the reasons recorded, it is not even the case of the Revenue that income chargeable to tax has escaped assessment because of failure to furnish full and true particulars. In fact, the Revenue refers to the Proviso only as an additional factor. The Revenue has not discharged the onus of showing that there was any failure on the part of the petitioner.
24. In the affidavit-in-reply, it is stated on behalf of the respondent-Authority that the Assessing Officer granted depreciation, as claimed by the petitioner, "without discussing the issue in the assessment order and without looking to the provisions of the Act". The earlier part of this averment requires to be stated only to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the assessing officer, considering the work load that he carries and the period of limitation within which an order is required to be made; and, Secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with. The latter part of the statement is, to say the least, presumptuous. Every successor officer can make such a statement about his predecessor.
As far as absence of discussion in the assessment order is concerned, this is what has been laid down by this Court in the case of Rayon Silk Mills vs. Commissioner of Income Tax, reported at 221 I.T.R. 155:
"In the first instance it was contended by learned counsel for the assessee that the very premise on which order under section 263 was made against the assessee, namely, that the Income-tax Officer has not at all examined the goodwill account is not existent. According to him, it is apparent from the record that the goodwill account was thoroughly examined by the Income-tax Officer before making the assessment and after examining when he accepted the contention of the assessee its discussion did not find place in the assessment order, as no additions were going to be made or no modifications in the return filed by the assessee were required to be made in that regard.
This contention of the assessee appears to be well-founded. It is true that the assessment order does not speak about the examination of goodwill account as such. However, as we have noticed above, the assessee in his reply to the show-cause notice under section 263 had specifically mentioned that the entire matter was scrutinised and accepted while passing the assessment order. Our attention was also drawn to annexure "D". A submission made by the assessee to the Income-tax Officer, Surat, dated October 18, 1976, regarding the assessment year 1974-75 giving detailed chronological data of the constitution of the firm on November 11, 1968, induction of four more partners on November 7, 1972, the creation of goodwill in the books of account of the firm by debiting the goodwill account and crediting the old partners' capital accounts in their profit sharing ratio on that date, formation of a private limited company in the name of Rayon Silk Mills Private Limited, and its induction into the firm as partner by the deed of partnership dated October 27, 1973, and the dissolution of the partnership firm on February 23, 1974, leaving the private limited company as a sole proprietor thereof and the valuation of the business at the book value as on that date. After giving the chronological sequence of events, the assessee also contended in his submission before the Income-tax Officer that there was no actual transfer of any asset inasmuch as when a partner is admitted into the firm no transfer takes place. It was also contended that no cash transfer took place from person to person and the transfer and the dissolution of the firm also did not result in accrual of capital gains. In the face of this material on record, it is difficult to explain that the assessment order was made without making any enquiry into the goodwill account of Rs.10,75,000. ... ... ... ..."
Therefore, even if the aforesaid statement is accepted to be correct, it would go to show that the case of the Revenue is only as regards the so-called error committed by the Assessing Officer and there is no failure on the part of the petitioner. There is mere change of opinion by the successor assessing officer. The law does not permit initiation of reassessment on this count after expiry of a period of four years from the end of the assessment year and the respondent cannot claim to be vested with jurisdiction under Section-147 of the Act in the factual matrix available on record.
25. In the aforesaid decision in the case of Parashuram Pottery Works Co. Limited vs. Income-Tax Officer, Circle-I, Ward-A, Rajkot (supra), the Apex Court has also stated that when an officer relies upon his own records, for determining the amount of depreciation allowable to the assessee and makes a mistake in doing so, responsibility for that mistake cannot be ascribed to an omission or failure on the part of the assessee. The Apex Court concludes its judgement in the following terms:
"... ... It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as the income-tax assessment orders are concerned, they cannot be reopened on the score of income escaping assessment under section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. ... ..."
26. Though various averments have been made in the affidavit-in-reply in relation to the merits of the matter, it is not necessary for the Court to enter into discussion as regards merits of the claim inasmuch as the Court is only called upon to decide whether the respondent-Authority has jurisdiction to initiate reassessment proceedings or not. It is only for this limited purpose that the Court is required to ascertain as to whether the respondent-Authority has any material before it, to arrive at the belief that any income chargeable to tax has escaped assessment by virtue of failure on the part of the petitioner to disclose fully or truly all material facts necessary for the assessment of the Assessment Year in question.
27. The reliance by the Revenue on the decision of the Apex Court in the case of GKN Driveshafts (India) Ltd. vs. I.T.O. (supra) requires to be dealt with before concluding. It is apparent from the record that the Revenue placed reliance on the said decision before admission of the petition and this Court has admitted the petition after considering the aforesaid submission of the respondent. Though the position in law is well established that any decision of a Court has to be appreciated in the context of the controversy brought before the Court, the following observations by the Apex Court in the case of Commissioner of Income Tax vs. Sun Engineering Works P.Ltd., reported at 198 I.T.R. 297, may be usefully reproduced :
"... .... It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasonings. In Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India [1971] 3 SCR 9; AIR 1971 SC 530, this court cautioned (at page 578 of AIR 1971 SC) :
"It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment."
In the case of GKN Driveshafts (India) Ltd. vs. I.T.O. (supra), the Supreme Court was called upon to decide, whether the High Court had correctly rejected the petition, as being premature and that decision of the High Court has been upheld by the Supreme Court. Hence, what is stated in the said decision cannot be applied in each and every case as that would virtually tantamount to this Court abdicating its duty cast upon the Court by the Constitutional Bench of the Apex Court in the case of Calcutta Discount Co.Ltd. vs. Income Tax Officer (supra). In each and every case, the Court will have to decide, whether it should exercise jurisdiction under Article-226 of the Constitution of India and entertain a petition or not. The principles have already been set out hereinbefore and bear no repetition.
28. As can be seen from what is stated hereinbefore, the Revenue has not been able to prima facie show that there was any omission or failure on the part of the petitioner to disclose fully or truly all relevant particulars necessary for the assessment of the Assessment year in question. In these circumstances, this is a fit case wherein this Court is required to exercise its jurisdiction under Article-226 of the Constitution of India.
29. The impugned notice issued under Section-148 of the Act dated 20th June, 2002 is hereby quashed and set aside. All the consequential proceedings are also, as a corollary, quashed and set aside. The petition is allowed accordingly. Rule is made absolute. There shall be no order as to costs.