1980 (1) TMI 54 - HC - Income Tax

Summary

Issues Involved:
1. Validity of notices issued under Section 148 of the Income Tax Act for reopening assessments for the years 1965-66 to 1970-71.
2. Claim of extra shift allowance on electrical machinery.
3. Deduction of sale price of machinery from the written down value and the resultant capital gains and balancing charge under Section 41(2).

Detailed Analysis:

Issue 1: Validity of Notices under Section 148
The petitioner challenged the notices issued under Section 148 of the Income Tax Act, which sought to reopen assessments for the years 1965-66 to 1970-71. The court examined whether there was any failure or omission on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. The court found that all primary facts were disclosed by the petitioner, and any mistake in the original assessment was due to the Income Tax Officer (ITO) not applying the law correctly. The court held that the conditions under Section 147(a) were not satisfied, as there was no omission or failure on the part of the petitioner.

Issue 2: Claim of Extra Shift Allowance on Electrical Machinery
The ITO objected to the petitioner's claim of extra shift allowance on the entire amount of Rs. 7,00,000 for electrical machinery, asserting that it should only be allowed on Rs. 2,49,100, the cost of electric motors. The court noted that the ITO had accepted the petitioner's figures in the original assessments and that any error in allowing the extra shift allowance was due to the ITO's oversight. The court cited the Supreme Court's decision in Parashuram Pottery Works Co. Ltd. v. ITO, emphasizing that the responsibility for calculating depreciation correctly lies with the ITO. Since the petitioner had disclosed all primary facts, the court ruled that the reopening of assessments on this ground was not justified.

Issue 3: Deduction of Sale Price of Machinery and Resultant Capital Gains and Balancing Charge
The ITO sought to reopen assessments on the ground that the petitioner had deducted the sale price of machinery from the written down value, leading to escaped income under Section 41(2) and capital gains. The court pointed out that the concept of balancing charge under Section 41(2) is intrinsically linked to depreciation allowance. The court held that any mistake in calculating the written down value and balancing charge was due to the ITO's failure to ascertain the correct cost from his own records. The petitioner had stated "cost not ascertained" in the returns, which the ITO had accepted. Therefore, the court concluded that the reopening of assessments on this ground was also not permissible.

Conclusion
The court quashed the notices issued under Section 148 for reopening the assessments for the years 1965-66 to 1970-71. It held that the conditions precedent for exercising jurisdiction under Section 147(a) were not satisfied, as there was no omission or failure on the part of the petitioner to disclose fully and truly all material facts. The court made the rule absolute and ordered the respondents to pay the costs of the petition to the petitioner.