9911796707
TMI Blog2004 (2) TMI 750X X X X Extracts X X X X X X X X Extracts X X X X ..... s regarding various points of which one was details of the vehicles on which depreciation at 40 per cent, was claimed. In reply thereto, the petitioner stated that it was a finance company engaged in the business of leasing, the vehicles in question were given on lease and that the lessee had used the said vehicles in the business of running them on hire. It was also pointed out that there was no requirement in section 32 of the Act or in the Rules made thereunder that the owner of commercial vehicles has to use the vehicles himself for the business of hire. After such reply and hearing and disallowing several other claims, total income of Rs. 5,00,35,628 was assessed under section 143(3) of the Act as against the original return of income declaring taxable income as rupees nil. Thereafter, a notice under section 147 of the Act is stated to have been issued in October, 2001, in respect of commission, bad debt and interest, which the Assessing Officer added, but the Commissioner of Income-tax deleted and the Department's appeal preferred therefrom is stated to be pending. The impugned notice dated June 20, 2002, under section 148 of the Act stated that the Assistant Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than those used in a business of running them on hire, acquired or put to use on or after first day of April, 1990 20% (2) (ii) Motor buses, motor lorries and motor taxis used in a business of running them on hire 40% 4. The assessee is a leasing company. The assessee-company has used the motor vehicles for lease and not for hiring. The assessee-company is, therefore, entitled for depreciation at the normal rate of 20 per cent, on motor vehicles (commercial) and not at the higher rate of 40 per cent, as claimed and allowed while finalising the assessment. Excess depredation on motor vehicles (commercial) has been allowed by Rs. 1,70,00,000 while computing taxable income, which has escaped assessment to that extent. 5. I have, therefore, reason to believe that income to the extent of Rs. 1,70,00,000 has escaped assessment within the meaning of sub-clause (i) of Explanation 2 inserted to section 147 of the Income-tax Act. The assessee-company has failed to furnish full and true particulars of income." The burden of the arguments of the learned advocate Mr. J.P. Shah, appearing for the petitioner, was that, in the facts and circumstances, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but there has been no corrosive effect on these decisions which, though old, continue to hold the field with the result that law as to the jurisdiction of the High Court in entertaining a writ petition under article 226 of the Constitution, in spite of alternative statutory remedies, is not affected, specially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation." Learned counsel also relied upon the judgment of the Supreme Court in CIT v. Corporation Bank Ltd. [2002] 254 ITR 791, wherein the assessee had furnished particulars of the amount claimed as not recoverable and had also filed statements disclosing full details of the interest suspense account and it was held that there was no failure on the part of the assessee to disclose fully and truly the material facts necessary for the assessment and, therefore, section 147(a) was held to be not attracted. Similar was the fate in CIT v. Foramer France [2003] 264 ITR 566 (SC), wherein admittedly there was no failure to disclose fully and truly all the material facts necessary for assessment. Learned standing counsel Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expressly provides for reassessment not only of the income chargeable to tax which had escaped assessment but also of such other income which comes to notice subsequently during the course of assessment. It is clear from the plain reading of the relevant provisions that the first condition for assuming jurisdiction for initiating reassessment is that the Assessing Officer has to have reason to believe that any income chargeable to tax has escaped assessment. As elaborated by this court in Praful Chunilal Patel v. M.J. Makwana/Asst. CIT [1999] 236 ITR 832 (Guj):"...The words 'reason to believe' cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes and, if he likes, from any information that he receives. If he discovers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he had reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, the power and jurisdiction under section 147 cannot be exercised. And the reply to the question whether all the material facts necessary for the assessment were fully and truly disclosed or not, would depend upon the facts of each case. As held by the Supreme Court in Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1:"...In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion..." Reply to the question whether any income chargeable to tax has escaped assessment or not is made easier by virtue of the Explanation providing for a deeming fiction under which, where excessive depreciation allowance has been computed, income has to be deemed to have escaped assessment. The Explanation providing for this deeming fiction has double impact in supplying reason to believe that there was escapement of income and in justifying reassessment. As early as in 1988, the Supreme Court had, in VXL India Ltd. v. ITO [1988] 173 ITR 124 (P&H) dismissed the S.L.P. of the assessee preferred from the Division Bench jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution of India. In the facts of the present case, the petitioner being halfway through the process and now that reasons are revealed, what remains is filing of objections to issuance of notice and disposing of the same by a speaking order by the Assessing Officer. After specific prescription of the proper course of action exactly in the present context by the Supreme Court, it would be highly improper and presumptuous for the petitioner to submit and for this court to hold that it is an alternative remedy which is not adequate, efficacious or appropriate. The petition is, therefore, liable to be dismissed only on that ground. In fact, after the initial injunction only against the final assessment, the objections to notice under section 147 of the Act could have been submitted and decided even during the pendency of the petition and the judgment of the Supreme Court could have easily been complied. After recording the aforesaid conclusion and deciding to relegate the petitioner to original proceedings of reassessment, any discussion of the rival submissions regarding the objections of the petitioner to the impugned notice may influence the decision of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner would find itself on the path of statutory remedies and that virtually amounts to denial of relief through the constitutional remedy, is premature, presumptive and pre-emptive. There is before the petitioner, the instance of its own case in respect of the same assessment year wherein additions by the Assessing Officer in reassessment under section 147 of the Act were deleted by the Commissioner of Income-tax, as stated earlier. In view of the above discussion, well settled legal position and conclusions, the other judgments cited at the Bar are not required to be discussed. It is, however, clarified that, upon dismissal of this petition and vacation of the interim relief, when the process of reassessment is restarted and preliminary objections to the impugned notice are raised by the petitioner, they shall be considered and decided in accordance with law after affording to the petitioner sufficient opportunity of being heard. Accordingly, the petition is dismissed. Rule is discharged and the interim relief is vacated with no order as to costs. D.A. Mehta J.-I have gone through the judgment of my learned senior Brother. For the reasons stated hereinafter, I record my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viding a copy of the reasons recorded before filing of the return of income and hence, the petitioner was called upon to furnish the return of income in response to the notice issued under section 148 of the Act. Thereafter, it appears that the petitioner filed the return on November 14, 2002, returning the same income. On December 3, 2002, the Assessing Officer issued a show cause notice fixing the hearing on December 11, 2002. In the said show cause notice, it was stated that the petitioner was a leasing company and the motor vehicles had been used for leasing out and not for hiring and, therefore, excess depreciation on commercial vehicles had been allowed to the extent of Rs. 1,70,00,000, because according to the Assessing Officer, the correct rate of depreciation ought to have been 20 per cent, and not the higher rate of 40 per cent., as claimed and allowed while framing the assessment under section 143(3) of the Act. Along with the affidavit-in-reply, the reasons recorded by the respondent have been placed on record and the relevant portion thereof, reads as under: "3. On verification of the depreciation statement attached with the return of income, it is noticed that depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax had escaped assessment for such assessment year; secondly, such escapement had taken place either by reason of failure on the part of the assessee to make are turn ; or, thirdly, such escapement had taken place by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. That, in the present case, the second contingency regarding non-filing of return did not exist and, hence, the respondent-authority had to show prima facie that there was failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, which resulted in escapement of any income. That the petitioner had not only made full and true disclosure while filing the return of income, the then Assessing Officer had applied his mind to the claim of the petitioner, called for details and explanation, and after considering the explanation tendered by the petitioner, granted depreciation at the rate claimed by the petitioner. That, in these circumstances, the respondent-authority was, thus, acting on a mere change of opinion only and the law was well settled that mere change of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is not always a sufficient reason for refusing a party quick relief by a writ or order prohibiting the authority from acting without jurisdiction or from continuing such action. That, when the Constitution had conferred on the High Court the power to give relief, it was the duty of the court to give such a relief in fit cases and the court would be failing to perform its duty if relief were refused without adequate reasons. Mr. Naik placed reliance upon the various decisions of different High Courts in support of the contention that where alternative remedy prescribed by the statute is available, that should be availed of as a first remedy and the court should be approached under article 226 of the Constitution of India only as a last resort. That the petitioner should not entertain any apprehension to the effect that the objections regarding jurisdiction shall not be entertained by the authority or that appropriate opportunity shall not be given. It was also submitted that whether there was failure on the part of the petitioner-assessee or not, would always turn on facts of the case and sufficiency of material for recording of reasons was beyond the domain of jurisdiction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution conferred on the High Courts the power to give relief it became the duty of the courts to give such relief in fit cases and the courts would be failing to perform their duty if relief were refused without adequate reasons." This earlier decision in the case of Calcutta Discount Co. Ltd. [1961] 41 ITR 191 (SC) has been approved by the Supreme Court in the later decision of Whirlpool Corporation [1998] 8 SCC 1 wherein it has laid down that: "14. The power to issue prerogative writs under article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the fundamental rights contained in Part III of the Constitution but also for 'any other purpose.' 15. Under article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect of the existence of an adequate alternative remedy were by no means exhaustive, and (2) that even beyond them a discretion vested in the High Court to have entertained the petition and granted the petitioner relief notwithstanding the existence of an alternative remedy. We need only add that the broad lines of the general principles on which the court should act having been clearly laid down, their application to the facts of each particular case must necessarily be dependent on a variety of individual facts which must govern the proper exercise of the discretion of the court, and that in a matter which is thus pre-eminently one of discretion, it is not possible or even if it were, it would not be desirable to lay down inflexible rules which should be applied with rigidity in every case which comes up before the court.' 19. Another Constitution Bench decision in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191; AIR 1961 SC 372, laid down: "Though, the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a provision are challenged. (ix) The court should exercise jurisdiction to effectuate the regime of law as the power under article 226 is meant to serve the ends of law and not to transgress the same. The assessment year is 1996-97 and the period of four years would expire on March 31, 2001. Admittedly, the notice under section 148 of the Act has been issued on June 20, 2002, which is beyond the prescribed period of four years and hence, the present case shall have to be tested in the light of the provisions of section 147 of the Act with special reference to the proviso under the said section. The Income-tax Act, 1961, provides for the machinery in Chapter XIV under sections 147 to 153 for the assessment of escaped income in certain circumstances. The fundamental underlying these provisions of the Act is to see that the entire income of an assessee assessable in respect of a particular assessment year is subjected to one single assessment for that particular year. Income which is assessable in one assessment year cannot be brought to tax in another assessment year for any reason. The Act does not contemplate piece-meal assessment; one assessment in relation to a portion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omission or failure on the part of the assessee, (a) to make a return under section 139 for the assessment year to the Income-tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist to confer jurisdiction on the Income-tax Officer. It is also imperative for the Income-tax Officer to record his reasons before initiating proceedings as required by section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rences-whether of facts or law-he would draw from the primary facts'." The disclosure which is required to be made by the assessee should not only be full but also true. The conjunction "and" is an important one and has been interpreted as a strict prescription of law. In the case of absence of one of the elements, either in part or in whole, it will grant jurisdiction to the Officer. There is one more aspect which requires consideration. As can be seen, section 148 of the Act specifically requires the Assessing Officer to record reasons. This court in the case of P.V. Doshi v. CIT [1978] 113 ITR 22 stated: "The conditions precedent for initiating reassessment proceedings are: (i) reasonable belief reached by the Income-tax Officer under clause (a) or clause (b) of section 147; (ii) recording of reasons by the Income-tax Officer under section 148(2); (iii) sanction before issuing the notice of reassessment by the higher authorities under section 151. These three conditions have been introduced by way of safeguards in public interest so that the finally concluded proceedings, which at the time of the original assessment could be reopened through the initial procedure of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged with regard to the material available with the authority at the point of time of issuing of the notice under section 148 of the Act and cannot be sought to be substantiated by reference to material that may have come to light subsequently during the course of reassessment proceedings in pursuance of the notice issued under section 148 of the Act. If the aforesaid principles are applied to the facts of the present case, it is amply clear that the impugned notice has been issued without jurisdiction and the Revenue having failed to establish the jurisdictional fact of there being any omission or failure on the part of the petitioner to disclose fully or truly all material facts necessary for the assessment of the assessment year under consideration cannot seek to exercise jurisdiction to reassess. As can be seen from the facts stated hereinbefore, the petitioner had, in the statement of depreciation annexed to the return of income, specifically claimed depreciation at the rate of 40 per cent, on the WDV of the commercial vehicles. The WDV is the figure which has been arrived at in the immediately preceding year, namely, assessment year 1995-96, after granting depreciation at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various decisions of the Tribunal in support of its claim and hence, even on this count, it is apparent that not only no omission or failure could be ascribed to the petitioner, but, the case of the petitioner in making the claim was duly supported by the decisions of the Tribunal and thus, it cannot be even contended on behalf of the Revenue that the claim made by the petitioner was a false claim. As can be seen from the reasons recorded, in para. 5 the respondent states that he has reason to believe that income has escaped assessment within the meaning of sub-clause (i) of Explanation 2 inserted in section 147 of the Act. It is further stated that the assessee-company has failed to furnish full and true particulars of income. Thus, on a plain reading, it is stated that he seeks to reassess for the reason that income has escaped assessment because income chargeable to tax has been under assessed. Though the subsequent sentence states that the assessee-company has failed to furnish full and true particulars of income, it is not even the case of the respondent, as per the reasons recorded, that income chargeable to tax has escaped assessment by reason of the failure on the part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee to make a return under section 139 or in response to a notice under section 142(1) or section 148 of the said Act, to disclose fully and truly all material facts for his assessment for that assessment year. Therefore, it is only when the case falls under the proviso that the question of non-disclosure of material facts would become relevant. In such cases, if the assessee has made full disclosure on record, then even if such income has escaped assessment, no action can be initiated by the Assessing Officer under the section. Where, however, the said period of four years has not expired, the conduct of the assessee regarding disclosure of material facts need not be the basis for initiating the proceedings and they can be commenced if the Assessing Officer has reason to believe that the income has escaped assessment notwithstanding that there was full disclosure of material facts on record. The assessee in such cases cannot defend the initiation of action on the ground that the facts were already placed on record and that the Assessing Officer must have or ought to have considered them. Explanation 1 to section 147 of the said Act has a bearing on the disclosure aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return filed by the assessee were required to be made in that regard. This contention of the assessee appears to be well-founded. It is true that the assessment order does not speak about the examination of good-will account as such. However, as we have noticed above, the assessee in his reply to the show cause notice under section 263 had specifically mentioned that the entire matter was scrutinised and accepted while passing the assessment order. Our attention was also drawn to annexure 'D'. A submission made by the assessee to the Income-tax Officer, Surat, dated October 18, 1976, regarding the assessment year 1974-75 giving detailed chronological data of the constitution of the firm on November 11, 1968, induction of four more partners on November 7, 1972, the creation of goodwill in the books of account of the firm by debiting the goodwill account and crediting the old partners' capital accounts in their profit sharing ratio on that date, formation of a private limited company in the name of Rayon Silk Mills Private Limited, and its induction into the firm as partner by the deed of partnership dated October 27, 1973, and the dissolution of the partnership fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as the income-tax assessment orders are concerned, they cannot be reopened on the score of income escaping assessment under section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment." Though various averments have been made in the affidavit-in-reply in relation to the merits of the matter, it is not necessary for the court to enter into discussion as regards merits of the claim inasmuch as the court is only called upon to decide whether the respondent-authority has jurisdiction to initiate reassessment proceedings or not. It is only for this limited purpose that the court is required to ascertain as to whether the respondent-authority has any material before it, to arrive at the belief that any income chargeable to tax has escaped assessment by virtue of failure on the part of the petitioner to disclose fully or truly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating its duty cast upon the court by the Constitutional Bench of the apex court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191. In each and every case, the court will have to decide whether it should exercise jurisdiction under article 226 of the Constitution of India and entertain a petition or not. The principles have already been set out hereinbefore and bear no repetition. As can be seen from what is stated hereinbefore, the Revenue has not been able to prima facie show that there was any omission or failure on the part of the petitioner to disclose fully or truly all relevant particulars necessary for the assessment of the assessment year in question. In these circumstances, this is a fit case wherein this court is required to exercise its jurisdiction under article 226 of the Constitution of India. The impugned notice issued under section 148 of the Act dated June 20, 2002 is hereby quashed and set aside. All the consequential proceedings are also, as a corollary, quashed and set aside. The petition is allowed accordingly. Rule is made absolute. There shall be no order as to costs. By the court : As there is difference of opinion in our decision, the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 148 read with section 147. After recording the aforesaid conclusion and deciding to relegate the petitioner to the original proceedings of reassessment, the said learned judge did not enter into any further discussion of the rival submissions regarding the petitioner's objections to the impugned notice lest it should influence the decision of the Assessing Officer, but the said learned judge did negative the petitioner's contention that there was a mere change of opinion of the Assessing Officer with regard to the depreciation allowance because the Assessing Officer had not formed any opinion with regard to the applicable rate of the depreciation allowance in the assessment order for the relevant assessment year. The learned judge relied on the decision of this court in Praful Chunilal Patel v. M.J. Makwana [1999] 236 ITR 832 to the effect that in cases where an error or mistake is detected, it can never be said that there is a mere change of opinion. The hon'ble Mr. Justice Waghela, therefore, was of the view that the petition be dismissed and rule be discharged and interim relief be vacated with a clarification that when the process of reassessment is resta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed depreciation on commercial vehicles worth Rs. 22,22,540 at 20 per cent, because the petitioner had purchased the said commercial vehicles in the second half of the accounting period. On October 21, 1998, the petitioner was served with a letter by the Assessing Officer calling for various details and at Sr. No. 19, the said letter required: "Details of vehicles on which depreciation at the rate of 40 per cent, is claimed." The petitioner replied to the said letter on February 22, 1999. In relation to the aforesaid query, the petitioner stated that the commercial vehicles purchased by the petitioner had been given on lease and the lessee had used the said commercial vehicles for the business of running them on hire. The petitioner also invited the attention of the Assessing Officer to the fact that the provisions of section 32 of the Act or the relevant rules did not require that the owner of the commercial vehicles was bound to use the vehicles himself for the business of hire. In support of the aforesaid contention, the petitioner placed reliance upon various decisions of the Tribunal, which have been referred to in the said reply. On March 24, 1999, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used the motor vehicles for lease and not for hiring. The assessee-company is, therefore, entitled for depreciation at the normal rate of 20 per cent, on motor vehicles (commercial) and not at the higher rate of 40 per cent, as claimed and allowed while finalizing the assessment. Excess depreciation on motor vehicles (commercial) has been allowed by Rs. 1.70 crores while computing taxable income, which has escaped assessment to the extent. 5. I have, therefore, reason to believe that income to the extent of Rs. 1.70 crores has escaped assessment within the meaning of sub-clause (i) of Explanation 2 inserted to section 147 of the Income-tax Act. The assessee-company has failed to furnish full and true particulars of income." While the Assistant Commissioner of Income-tax, Circle-1(1), Surat, had earlier filed affidavit-in-reply dated February 19, 2003, at the admission stage during pendency of the petition before me, additional affidavit-in-reply dated February 10, 2004 has been filed by Mr. N.M. Darji, Assistant Commissioner of Income-tax, Circle-1(1), Surat, stating that the assessee is giving vehicles On hire purchase to various persons all over the State of Gujarat and for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also been placed on the decisions in CIT v. Foramer France [2003] 264 ITR 566 (SC); CESC Ltd, v. Deputy CIT (No. 2) [2003] 263 ITR 402 (Cal); Mahalaxmi Motors Ltd. v. Deputy CIT [2004] 265 ITR 53 (AP); Oil and Natural Gas Corporation Ltd. v. Deputy CIT [2003] 262 ITR 648 (Uttaranchal); Mohinder Singh Malik v. Chief CIT [2004] 267 ITR 716 (P & H) and Ajanta Pharma Ltd. v. Asst. CIT [2004] 267 ITR 200 (Bom) in support of the submission that even after GKN case [2003] 259 ITR 19, the Supreme Court and various High Courts have continued to interfere with the reassessment notices in writ jurisdiction. GKN case [2003] 259 ITR 19 (SC) was already relied upon by the Revenue in their affidavit-in-reply at the admission stage and the same was considered and still the Division Bench thought it fit on March 24, 2003, to admit the matter and to continue the status-quo and, therefore, also the petition may not be thrown out on the ground of alternative remedy which was duly considered at the stage of admission of the petition. In the previous assessment year, the facts were similar and the assessee had given on lease certain commercial vehicles and claimed 40 per cent, depreciation thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the depreciation at the rate of 40 per cent, on commercial vehicles." It is submitted that in view of such disclosure made by the petitioner during the course of the original assessment proceedings under section 143(3) on February 22, 1999, there is no scope for alleging against the petitioner any failure to disclose fully and truly all material facts. In any view of the matter, even on the merits of the controversy whether the petitioner was entitled to claim depreciation at the rate of 40 per cent., a large number of High Courts have taken the view that for claiming depreciation at the rate of 40 per cent, it is not necessary that the owner of the vehicle should himself be engaged in the business of giving vehicles on hire and that it is sufficient that the vehicles are actually used in the business of hire even if such business is run by the lessee or the hire-purchaser of the vehicles. Strong reliance has been placed in this behalf on the following decisions: (i) CIT v. MGF Ltd., 172 Taxation 550 (Delhi); (ii) CIT v. A.M. Constructions [1999] 238 ITR 775 (AP); (iii) A.B.C. India Ltd. v. CIT [1997] 226 ITR 914 (Gauhati); (iv) Income-tax Commissioner v. Anupchand and Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the above submission. On the merits of the notice for reopening the assessment for the year 1996-97, it is submitted that apart from the reasons contained in the notice dated February 24, 2002 (annexure "E"), the Assistant Commissioner of Income-tax, Surat, has found from the hire purchase agreement (annexure I to the affidavit dated February 10, 2004) which the assessee-company had entered into and that apart from that clause 9(vi) of the agreement providing that the vehicle shall be registered in the name of the hirer with an endorsement of the company's name for the purpose of the Motor Vehicles Act. Clause 14 provides that the hirer shall be entitled to claim any benefits by way of depreciation as also any other eligible allowances with respect to the vehicle which may be available to the hirer under the Income-tax Act, 1961, as applicable from time to time. In view of this specific agreement between the petitioner-company and the hirer, the petitioner is disentitled from claiming any depreciation on such commercial vehicles which are given on hire under the hire purchase agreement, a specimen copy of which is produced with the additional affidavit dated February 10, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion challenging the notices. By judgment reported in GKN Driveshafts (India) Ltd. v. ITO [2002] 257 ITR 702 (Delhi), the High Court dismissed the writ petitions holding that the petitions were premature and the assessee could raise its objections to the notices by filing reply to the notices before the Assessing Officer. The assessee preferred appeals and the Supreme Court dismissed the appeals and observed that since the reasons for reopening the assessments under section 148 had been disclosed, the Assessing Officer had to dispose of the objections, if filed, by passing a speaking order before proceeding with the reassessments for the years in question. While passing such order, the apex court made the following pertinent observations: "We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid decisions, it appears to me that prior to GKN case [2003] 259 ITR 19 (SC), the courts would entertain the petition challenging notice under section 148 and permit the assessee to satisfy the court that there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment. Upon reaching such satisfaction the court would quash the notice for reassessment. The question is why did the court not require the assessee to appear before the Assessing Officer. Earlier when the court required the assessee to appear before the Assessing Officer, the Assessing Officer would not pass any separate order dealing with the preliminary objections and much less any speaking order, and the Assessing Officer would deal with all the objections at the time of reassessment. Hence, if the assessee was not permitted to challenge the reassessment notice under section 148 at the initial stage, the assessee would thereafter have to challenge the reassessment itself entailing the cumbersome liability of paying taxes during pendency of the appeal before the Commissioner (Appeals), the second appeal before the Income-tax Appellate Tribunal and then reference/tax appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, (ii) challenging the speaking order of the Assessing Officer under section 148 of the Act. May be in a given case, the exercise of the powers under section 148 may be so arbitrary or mala fide that the court may entertain the petition without requiring the assessee to approach the Assessing Officer but such cases would be few and far between. For instance, in Mohinder Singh Malik v. Chief CIT [2004] 267 ITR 716, the Punjab and Haryana High Court was concerned with the challenge to the notice under section 148 of the Act where the grievance of the petitioner was that the notice was issued with an ulterior motive and that the Assessing Officer had been demanding illegal gratification from the assessee, failing which the Assessing Officer was threatening that the assessment would be reopened and that it was because of non-compliance with such demand that the impugned notice came to be issued. It was in the context of such facts that, although the court did not record any positive finding against the Assessing Officer, looking to the reasons recorded and the circumstances in which the notice was issued, the court raised its eyebrows and looked into the merits of the matter a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Seem, Deputy CIT [2004] 266 ITR 566, the Bombay High Court, after referring to GKN's case [2003] 259 ITR 19 (SC), in the peculiar facts and circumstances of the case, undertook the inquiry whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The court also found that the reasons did not disclose a finding that the petitioner had failed to disclose fully and truly all material facts necessary in the matter and the court found ex-facie that the Assessing Officer had sought to re-open the assessment on certain erroneous assumptions. The upshot of the above discussion is that while the GKN case [2003] 259 ITR 19 (SC) does not purport to divest the court of its constitutional power to issue a writ of prohibition or any other appropriate writ in a fit case to restrain the assessing authority from proceeding with the notice under section 148,GKN case [2003] 259 ITR 19 (SC) does lay down that ordinarily the procedure to be followed would be as indicated in GKN case [2003] 259 ITR 19 (SC), that is, after receiving reasons, the assessee shall lodge his preliminary objections before the Assessing Officer against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation as also any other eligible allowances with respect of the vehicle which may be available to the hirer under the Income-tax Act, 1961, as applicable from time to time." The record of the assessment proceedings does not indicate that the assessee had brought the aforesaid clauses to the notice of the Assessing Officer during the course of the assessment proceedings. In Indo-Aden Salt Manufacturing and Trading Co. P. Ltd. v. CIT [1986] 159 ITR 624, the apex court has held that the mere fact that the Assessing Officer could have in the original assessment proceedings found out the correct position by further probing did not exonerate the assessee from the duty to make a full and true disclosure of material facts. It is true that the obligation of the assessee is to disclose only primary facts and not inferential facts. If some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority The assessee knows all the material and relevant facts-the assessing authority might not. In respect of the failure to disclose, the omission to disclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is necessary to reiterate that we are now at the stage of the validity of the notice under section 148/147. The enquiry at this stage is only to see whether there are reasonable grounds for the Income-tax Officer to believe and not whether the omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind". Moreover the above submission of the assessee proceeds on the factual assumption that none of the hirers have taken depreciation on the vehicles in question for which there is no assertion from the petitioner on oath. Hence, it is for the Assessing Officer to consider such factual aspects. If the hirers have not taken depreciation, then only it would be open to the petitioners to urge before the Assessing Officer that 40 per cent, depreciation was rightly allowed to them, notwithstanding the fact that the petitioner-company itself is not engaged in the business of running the vehicles on hire. As regards reliance placed by learned counsel for the petitioner on various decisions in respect of the question whether depreciation is admissible at the rate of 40 per cent, when the owner himself does not carry on the business of givin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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