2012 (12) TMI 192 - HC - Income Tax

Re-opening of Assessment - procedure - Notice u/s 148 - held that - in GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Ors. 2002 (11) TMI 7 - SUPREME COURT , the Supreme Court clarified that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. We are of the view that the procedure envisaged by the Supreme Court in the judgment cited supra should be adopted and followed in the present writ petitions as the judgment is based on fairness and transparency in the action of the assessing authority in reopening the assessment. We therefore, issue the following directions The assessing officer shall furnish the reasons recorded for reopening the assessment in WP(C) 6310/2000 and 6320/2000. This shall be done within three weeks from today. On receipt of the reasons recorded, the petitioner shall file its objections to the same within 15 days thereafter. In respect of WP(C) 6308/2010, the petitioner shall file its objections to the reasons for reopening the assessment within 15 days from today. All the objections filed by the petitioner in the four writ petitions shall be disposed of by the assessing officer on or before 31st January, 2013 by appropriate orders passed in writing and those orders shall be served on the petitioner within reasonable time thereafter.

Issues Involved:
1. Validity of reopening assessments under Section 148 of the Income Tax Act.
2. Alleged understatement of book profit due to depreciation claims.
3. Compliance with Section 115J of the Income Tax Act.
4. Adherence to the Companies Act in preparing profit and loss accounts.
5. Procedural fairness in providing reasons for reopening assessments.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessments under Section 148 of the Income Tax Act:
The primary issue revolves around the reopening of assessments for the years 1989-90 and 1990-91 for Super Cassettes Industries Ltd. and Tony Electronics Ltd. The Assessing Officer (AO) issued notices under Section 148 on the grounds that income chargeable to tax had escaped assessment. The petitioner contended that the original assessments were completed after full examination under Section 143(3) and that there was no failure to furnish full and true particulars. The court noted that the AO must provide reasons for reopening assessments, and the petitioner has the right to object to these reasons.

2. Alleged Understatement of Book Profit Due to Depreciation Claims:
The AO argued that the petitioner claimed higher depreciation under the Income Tax Rules instead of the Companies Act, leading to an understatement of book profit. The petitioner countered that the profit and loss account was prepared in accordance with Parts II and III of Schedule VI of the Companies Act, and the depreciation rates under both Acts were similar. The court emphasized that the AO must substantiate claims of understatement with specific details and not merely base them on a change of opinion.

3. Compliance with Section 115J of the Income Tax Act:
Section 115J mandates that book profit be computed based on profit and loss accounts prepared as per the Companies Act. The AO contended that the petitioner failed to comply by using depreciation rates from the Income Tax Rules. The petitioner argued that Section 205 of the Companies Act does not prescribe specific depreciation rates and that their accounts were duly audited. The court highlighted that any deviation must be clearly demonstrated by the AO.

4. Adherence to the Companies Act in Preparing Profit and Loss Accounts:
The AO's reasons for reopening included allegations that the petitioner did not adhere to the Companies Act in preparing its accounts, particularly concerning depreciation. The petitioner disputed this, stating that the Companies Act does not explicitly prescribe depreciation rates and that their accounts were prepared and audited as per statutory requirements. The court stressed that the AO must provide concrete evidence of non-compliance.

5. Procedural Fairness in Providing Reasons for Reopening Assessments:
The court referred to the Supreme Court's judgment in GKN Driveshafts (India) Ltd. v. Income Tax Officer, which mandates that reasons for reopening must be provided to the assessee, who then has the right to file objections. The court found that in some cases, reasons were not provided, and objections were not filed. The court directed the AO to furnish reasons within three weeks and allowed the petitioner to file objections within 15 days thereafter. The AO must dispose of these objections by January 31, 2013, ensuring transparency and procedural fairness.

Conclusion:
The court disposed of the writ petitions with specific directions to the AO to provide reasons for reopening assessments and to address the petitioner's objections in a timely manner. The court did not express any opinion on the merits of the case, emphasizing procedural compliance and fairness.

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