9911796707
TMI Blog2004 (9) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... suance of a writ in the nature of certiorari or any other appropriate writ, order or direction quashing the impugned notice/proceedings dated May 10, 2001, issued by the Assessing Officer under section 148 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), a copy of which is produced on record at annexure A. The petitioner, a non-resident foreign company, is engaged in the business of producing television programmes primarily relating to sports activities. For the assessment year 1997-98 a return of income under section 139(1) of the Act was filed on May 29, 1998, declaring an income of Rs. 95,59,750 wherein a claim was made for depreciation at the rate of 25 per cent, amounting to Rs. 1,36,00,682 on plant and machinery valued at Rs. 5,44,02,729. The return of income was processed on May 31, 1999, under section 143(1)(a) of the Act. Various notices were issued and queries were raised during the course of assessment proceedings. According to the petitioner all the material facts necessary for assessment were disclosed fully and truly. All the queries were answered and necessary information called for was furnished for the purpose of determining the total income. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, a table indicating the manner in which the depreciation was claimed and for what period and at what rate. For machinery not us for more than 180 days, depreciation is to be calculated in such case at t rate of 50 per cent, which has been specifically indicated and for plant and machinery used for more than 180 days, the depreciation is to be claim at the rate admissible has been specifically indicated. Likewise for furniture and fixtures, figures are indicated to claim depreciation at the rate of 10 percent. and 5 per cent. There is an auditor's report dated April 29,1998. It was specifically pointed out by learned counsel for the petitioner that the table indicating the depreciation and the use of plant and machinery for number of days was placed before the Assessing Officer. Under the head "Block A. it is specifically pointed out which plant and machinery was used for less than 180 days and which, for more than 180 days. In the footnote, it was pointed out that the plant and machinery includes use of trucks valued Rs. 16,94,880 purchased by the head office and used by the branch in India for business purpose. The value of the trucks has not been capitalised in the books of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as duly claimed on this amount. Further deduction of hire purchase interest of Rs. 4,225,172 was claimed in accordance with the provisions of section 40(a)(i) of the Act as the company had deducted and deposited the tax on the hire purchase interest within the prescribed time." The Assessing Officer was also supplied with a copy of the contract with Ravi Shastri vide annexure F. Along with the letter details of production income were submitted. According to the assessee, the plant and machinery, namely, OB van was used at Calcutta for the Calcutta Football League (Match) from May, 1996 to September, 1996 and production income is indicated as Rs. 1,20,62,125 and the total production income comes to Rs. 1,80,447,467. Before the Assessing Officer, sample bill for post production expenses was also produced. The said bill has been issued by Indebo Travels Pvt Ltd. to the assessee to show the transactions till July 28, 1996 only for the events completed. The rest were not included. This refer to 7 matches at Calcutta. There is another bill referring to Calcutta Football (Match). There are other bills covering the period. According to the assessee when all these materials were taken int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d excessive depreciation, for rectification of the same, it is essential to reopen the case. Hence, notice under section 148 is being issued." Reading the reasons recorded by the Assessing Officer, it is clear that relying on the audit objection, notice under section 148 of the Act has been issued. The Assessing Officer himself has not applied his mind as to how the income has escaped assessment. What was the reason for stating that "for rectification of the same" notice is required to be issued is another question? The purported basis for the notice is not the actual use of machinery, but, that the permission to open office was granted subsequently. The apex court in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 had an occasion to consider the question of basing a notice on an audit report. For the purpose of imposing a check over the arithmetical accuracy of the computation of income and the determination of tax, internal audit organisation was set up. From 1960 onwards the audit was entrusted to the Comptroller and Auditor General of India. The nature and scope of receipt audit are defined by section 16 of the Comptroller and Auditor General's (Dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated October 18, 1996. The assessee therefore, according to the Revenue, was entitled to only 50 per cent, of depreciation. It may be noted that the proceedings have been initiated only on the ground that the Reserve Bank of India granted permission only on October 18, 1996 and not on the basis that the van was not actually put in use for the period indicated by the assessee on the material which was placed before the Assessing Officer. Merely because the permission was granted on October 18, 1996 for establishing a branch office, it cannot be said that the plant and machinery were not used prior to October 18, 1996. The relevant question is whether the plant and machinery was actually put to use. It is not relevant for the purposes of the Act that the permission of the Reserve Bank of India came at a subsequent date. In fact, the Assessing Officer being satisfied on the question of actual use allowed the depreciation. If on all the material placed on record the Assessing Officer has allowed the depreciation, as claimed by the assessee, then on the same material how can the assessee be sought to be reassessed. Merely because the permission to establish a branch office was grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions are raised. While dealing with such a situation, the court referred to and applied the ratio of the Supreme Court decision in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 and emphasized: 'More importantly, the court said: ... in every case, the Income-tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income-tax Officer.' After extracting the relevant portion from the apex court decision, this court has referred to the facts in detail. Thereafter, the court went on to deal with the Central Board of Direct Taxes instructions as under: 'Notwithstanding this clear position of law emerging from the decision of the Supreme Court, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not used for more than 180 days. Reading the original report of the audit party, it is clear that it has proceeded on the assumption that the plant and machinery could have been used only after the Reserve Bank of India granted permission to open a branch office on January 18, 1996. The Revenue has overlooked the material aspect that the assessee had placed material on record to show that the approval for project office was granted for a period from April 17, 1996 to March 31, 1997 and that it had in fact used the plant and machinery for more than 180 days. Merely because subsequently permission for branch office was given, it cannot be said that the plant and machinery was not used for more than 180 days. When sufficient material is placed on record and the Assessing Officer had arrived at a conclusion that the assessee is entitled to get depreciation then on the same material a different view cannot be taken. It amounts to change of opinion. It was submitted by learned counsel for the petitioner and rightly so that even if, for the sake of argument, the plant and machinery is used without approval of the Reserve Bank of India, it may amount to breach of the provisions contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer exercises his jurisdiction for initiating a proceeding reassessment only upon a mere change of opinion, the same may held to be unconstitutional. We are therefore of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion. We, however, may hasten to add that if 'reason to believe' of the Assessing Officer is founded on an information which might he been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived the material which had been supplied by the assessee himsel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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