2004 (2) TMI 750 - HC - Income Tax

Notice for reassessment jurisdiction - In the facts of the present case mere production of the hire purchase agreement did not exonerate the assessee from the liability to point out the aforesaid clauses of the hire purchase agreement under which the vehicles were to be registered in the name of the hirers and the agreement also provided that it was the hirer which would be entitled to the benefit of depreciation and other allowances - at the stage of notice under section 147/148 the court is not to go into the merits of the controversy whether the particular income is taxable - this petition is dismissed with a clarification that if the assessee lodges its preliminary objections before the Assessing Officer with reference to the impugned notice u/s 148 and also in relation to the reasons as disclosed in the additional affidavit the AO shall consider and decide the preliminary objections by passing a speaking order.

Issues Involved:
1. Jurisdiction of the Assessing Officer to reopen the assessment under Section 147 of the Income-tax Act, 1961.
2. Whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
3. Validity of the alternative remedy argument in the context of reassessment notices.
4. The implications of the hire purchase agreement on the claim for depreciation.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer to Reopen the Assessment under Section 147 of the Income-tax Act, 1961:
The main contention was whether the Assessing Officer had the jurisdiction to issue a notice under Section 148 for reassessment. The petitioner argued that the notice was issued after four years from the end of the relevant assessment year, and there was no failure on their part to disclose fully and truly all material facts. The respondent contended that the depreciation claimed by the petitioner at 40% on the written down value (WDV) of commercial vehicles was allowed without proper discussion in the assessment order, leading to excess depreciation and escaped assessment.

2. Whether There Was a Failure on the Part of the Assessee to Disclose Fully and Truly All Material Facts Necessary for Assessment:
The petitioner argued that they had disclosed all necessary facts during the original assessment proceedings, including the details of vehicles on which depreciation was claimed. The respondent, however, maintained that the petitioner failed to disclose the material fact that the vehicles were used for leasing and not for hiring, which warranted a lower depreciation rate of 20%. The court noted that the petitioner had indeed responded to the Assessing Officer's queries during the original assessment, but there was no discussion or finding on the depreciation rate in the assessment order.

3. Validity of the Alternative Remedy Argument in the Context of Reassessment Notices:
The court considered the Supreme Court's decision in GKN Driveshafts (India) Ltd. v. ITO, which prescribed that upon receiving a notice under Section 148, the assessee should file a return and seek reasons for the notice. The Assessing Officer is then bound to furnish reasons and dispose of any objections by a speaking order. The court emphasized that this procedure should be followed, and the petitioner should lodge preliminary objections before the Assessing Officer, who is required to decide on these objections by a speaking order. This approach was seen as providing an adequate and efficacious remedy, making the writ petition premature.

4. The Implications of the Hire Purchase Agreement on the Claim for Depreciation:
The respondent's additional affidavit highlighted clauses in the hire purchase agreement, which indicated that the vehicles were registered in the name of the hirer and the hirer was entitled to claim depreciation. This raised the question of whether the petitioner was entitled to claim depreciation. The court noted that these clauses were not brought to the Assessing Officer's attention during the original assessment proceedings, and mere production of the agreement did not amount to full disclosure of material facts. The court held that the Assessing Officer had reasonable grounds to believe that income had escaped assessment due to the petitioner's failure to disclose these clauses.

Conclusion:
The court dismissed the petition, directing the petitioner to file preliminary objections before the Assessing Officer, who is required to pass a speaking order on these objections. If the order is adverse, the petitioner can challenge it by filing a writ petition. The court clarified that the reassessment process should not proceed until the preliminary objections are decided. The court emphasized that the procedure prescribed in GKN Driveshafts (India) Ltd. v. ITO should be followed to ensure an adequate and efficacious remedy for the petitioner.

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