1982 (7) TMI 22 - HC - Income Tax

Balancing Charge, Claim For Depreciation, Developement Rebate, Priority Industry, Reassessment

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act for reassessment.
2. Non-disclosure of material facts by the assessee.
3. Review or change of opinion by the Income Tax Officer (ITO).
4. Aggregation of profits and losses under Section 80-I.
5. Claim of excessive depreciation.
6. Valuation of closing stock.

Issue-wise Detailed Analysis:

1. Validity of the notice under Section 148 of the Income Tax Act for reassessment:
The court examined the validity of the notices issued under Section 148 for reassessment. The notices were challenged on the grounds that the ITO failed to record reasons as required by Section 148(2), and the approval accorded by the Commissioner was mechanical and without application of mind. The court emphasized that the reasons recorded by the ITO must state the alleged non-disclosure by the assessee and that such non-disclosure led to the escapement of assessable income. The court found that the reasons recorded by the ITO in some instances were inadequate and did not contain the factual data necessary for the Commissioner to form the requisite satisfaction.

2. Non-disclosure of material facts by the assessee:
The court scrutinized whether the assessee failed to disclose material facts fully and truly, leading to income escaping assessment. For example, the court found no non-disclosure of material facts regarding the sale of machinery and the profit arising therefrom. The assessee had disclosed the sale price and the profit, albeit calculated differently. Similarly, for the claim under Section 80-I, the court found that the assessee had disclosed the loss from the Central Workshop Unit and the profit from Ramakrishna Cements, thus there was no non-disclosure.

3. Review or change of opinion by the Income Tax Officer (ITO):
The court held that a mere change of opinion by the ITO is not a sufficient ground for the issuance of a notice under Section 148. For instance, the court noted that the ITO's different interpretation of the aggregation of profits and losses under Section 80-I was a change of opinion and not a case of non-disclosure of material facts.

4. Aggregation of profits and losses under Section 80-I:
The court examined whether the assessee was required to aggregate the profits and losses of all priority industries for claiming benefits under Section 80-I. The court found that the law was not clear on this requirement and noted that the assessee had disclosed the relevant figures for both the loss-making and profit-making units. Therefore, the court concluded that there was no non-disclosure of material facts.

5. Claim of excessive depreciation:
The court analyzed the claim of excessive depreciation where the assessee had allegedly claimed depreciation after the written down value (WDV) of certain machinery had been fully depreciated. The court held that the non-disclosure of the initial depreciation availed of by the assessee constituted a failure to disclose material facts necessary for assessment. The court emphasized that the assessee, being a large company, was expected to know the law regarding the ceiling on depreciation claims.

6. Valuation of closing stock:
The court addressed the issue of the valuation of closing stock, where the Department alleged that the assessee had undervalued the closing stock of sugar. The court found that the assessee had disclosed the rates and dates used for valuing the closing stock, and there was no non-disclosure of material facts. The court held that any error by the ITO in not questioning the valuation at the time of the initial assessment could not be rectified by issuing a notice under Section 148.

Judgment Summary:
- W.P. No. 6247 of 1979: The court quashed the notice under Section 148 for items (1) and (3) but allowed the ITO to proceed with item (2) regarding the excessive depreciation claim.
- W.P. No. 6276 of 1979: The court dismissed the writ petition, noting that the pro forma of the return had been amended to require disclosure of initial depreciation.
- W.P. No. 6248 of 1979: The court dismissed the writ petition, allowing reassessment for items (2) and (3) as the assessee had conceded the Department's claims. The notice for item (1) was upheld for further enquiry.
- W.P. No. 6275 of 1979: The court allowed the writ petition, quashing the notice under Section 148 for both items regarding the development rebate and valuation of closing stock.

Overall, the judgment emphasized the necessity for the ITO to record adequate reasons for reopening assessments and the requirement for the Commissioner to form a genuine satisfaction based on those reasons. The court also highlighted that non-disclosure must pertain to material facts necessary for assessment, and a mere change of opinion does not justify reassessment.

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