1995 (4) TMI 55 - HC - Income Tax

Assessment Notice, Assessment Proceedings, Carrying On Business, Factory Building, Failure To Disclose Material Facts, Let Out, Original Assessment, Reassessment Notice

Summary

Issues:
Initiation of proceedings under section 147 of the Income-tax Act, 1961 based on incorrect depreciation claims and alleged non-disclosure of material facts.

Analysis:
The court addressed the issue of reopening the assessment for the years 1980-81 to 1985-86 based on notices issued under section 148 of the Income-tax Act. The Income-tax Officer alleged that the assessee incorrectly claimed depreciation on buildings that were rented out without conducting any business activities in those buildings. The authority believed that the assessee failed to disclose material facts regarding the use of the properties, leading to the incorrect allowance of depreciation. This omission was considered as income escaping assessment under Explanation 1(c) of section 147 of the Act. The court noted that the notices were issued based on information obtained during the assessment for the year 1986-87, revealing that the buildings were rented out without any business operations. The Revenue supported the order relying on the reasons provided by the authority in a letter dated April 11, 1989.

The court considered the arguments presented by the assessee's counsel, who contended that full and true disclosure was made regarding the nature of the business, including the use of trade marks, licensing agreements, and letting out factory premises for business purposes. The counsel highlighted that the business activities were clearly stated in the income statements and returns filed by the assessee. It was emphasized that the nature of the business, including the letting out of factory buildings, was consistently disclosed and acknowledged by the assessing authority in subsequent years. Therefore, the court concluded that the condition precedent for invoking jurisdiction under section 147(a) of the Act, regarding the failure to disclose primary facts, was not satisfied in this case.

The court further analyzed that no new information was obtained by the assessing authority after the completion of the assessments, which could justify the initiation of proceedings under section 147 of the Act. It was established that the authority lacked the necessary grounds to reopen the assessments for the years 1980-81 to 1985-86. Consequently, the court held that the proceedings initiated without meeting the conditions precedent were void and ordered the quashing of the notices issued under section 147 of the Income-tax Act for the relevant assessment years. The petition was successful, and the rule was made absolute with no order as to costs.