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TMI Blog2011 (12) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregate value of ₹ 35,37,377/- included depreciation of ₹ 19,14,186/- on property rented out to Usha Martin Ltd. 3. Mr. Poddar submitted that the petitioner company had prepared its income tax return for the Assessment Year 2004-2005 strictly on the basis of the Tax Audit Report of M/s. S. Swarup Co., Chartered Accountants prepared under section 44AB of the I.T. Act. The claim of the petitioner company for depreciation, including depreciation on property rented out to Usha Martin Ltd. was, according to Mr. Poddar, based on the Tax Audit Report under Section 44AB of the I.T. Act. 4. The petitioners have annexed to the writ petition, the computation of total income filed by the assesses company along with its income tax returns. The last item under the heading Business Income is deduction in respect of Depreciation as per Income Tax Rule - as per Tax Audit Report (TAR) . The amount claimed towards depreciation is exactly the same amount that had been calculated by the Tax Auditor in the Tax Audit Report. 5. In course of original assessment proceedings statutory notices under section 142(1) of the I.T. Act were issued by the Assessing Officer requiring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer after examining the books of accounts, explanations, supporting evidences and computations of total income including the return of income filed by the assesses company. 12. Before issuing the impugned notice dated 25th March, 2011, under section 148/147 of the I.T. Act, the Assessing Officer recorded reasons. The reasons were set out in a letter dated 29th March, 2011 addressed to the assesses, a copy of which has been annexed to the writ petition. The perusal of the reasons recorded by the Assessing Officer clearly shows that the impugned reassessment proceedings had been initiated for the Assessment Year 2004-2005 on the sole ground that depreciation on the buildings at Kolkata had wrongly been claimed by the petitioner company, since the petitioner company had returned rental income from the said house property. 13. The original assessment proceedings for the Assessment Year 2004-2005 had admittedly been completed on December, 2006 when the regular assessment order was passed. It is a matter of record that the impugned reassessment proceedings have been initiated on 25th March, 2011, long after expiry of 4 years from the end of the relevant Assessment Year 2004-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner company had disclosed the fact that the petitioner company had claimed total depreciation of ₹ 35,37,376/- of which depreciation of ₹ 19,64,186/- in respect of Kolkata properties was part. According to Mr. Poddar, the Kolkata properties were let out and even the names of tenants and the rent received from each of them had been disclosed. 18. Mr. Poddar emphatically argued that there had been no failure whatsoever on the part of the petitioner company to disclose fully and truly all material facts necessary for assessment for the Assessment Year 2004-2005, which is one of the conditions mentioned in the proviso to section 147 of the I.T. Act. Even the reasons recorded by the Assessing Officer do not show any finding of failure on the part of the assesses to furnish its Income-tax return for the Assessment Year 2004-2005. 19. Mr. Poddar very rightly submitted that, where assessment has been completed and there is no failure to disclose the material facts fully and truly the Assessing Officer would lack jurisdiction to issue a notice for reassessment after expiry of 4 years from the end of the relevant assessment year. A notice initiating reassessment, after four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the failure on the part of the Assessing Officer to draw the correct inference in law, initiation of reassessment proceedings after expiry of 4 years from the end of the relevant assessment year cannot be justified, in view of the clear language appearing in proviso to section 147. This view finds support from the judgment of the Supreme Court in Gemini Leather Stores v. ITO reported in (1975) 100 ITR 1 (SC). 23. In Parashuran Pottery Works Co. Ltd. v. ITO reported in (1977) 106 ITR 1 (SC), the Supreme Court held that failure on the part of the Assessing Officer to allow correct depreciation to the assesses was not a valid ground for initiation of reassessment proceedings. The Supreme Court held that when on the basis of facts on record the Income Tax Officer determines the amount of depreciation allowable to the assesses erroneously, the responsibility for that mistake cannot be ascribed to be an omission or failure on the part of the assesses. The Supreme Court quashed the initiation of reassessment after expiry of 4 years from the end of the relevant assessment year. 24. In CIT v. Cholarnandalam Investment Finance Co. Ltd. reported in (2009) 309 ITR 110 (Mad.), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons were furnished. 30. Mr. Nizamuddin submitted that after getting the recorded reasons, the petitioners duly filed a detailed objection to the impugned notice relying on several judgments and also raising factual issues. 31. Mr. Nizamuddin referred to the reply of the petitioner company and in particular paragraph 33 where it is stated We say and submit that the issue of whether the rental income derived from a house property is assessable to tax as a business income or as income derived from house property or where it appears that in respect of a property from which assesses derived income is allowable or not are question of inferences to be drawn on the facts on record. 32. Mr. Nizamuddin submitted that on the face of the averments made by the petitioner company itself, the Assessing Officer would have to consider all facts and peruse records for adjudicating the issue of illegality or validity of the impugned notice. 33. Mr. Nizamuddin argued that the question involved in this writ petition is not a pure question of law which can be decided at the motion/Court application stage, without giving opportunity to the respondent to meet those factual allegations b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has to dispose of the objections if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years. 39. Mr. Nizamuddin argued that having submitted to the jurisdiction of the Assessing Officer, by submitting a reply, the petitioner company ought not to have filed this writ petition before the Assessing Officer, could get sufficient time to deal with its objection. The writ petition, according to Mr. Nizamuddin, is premature. 40. On the merits of the contention of the petitioners that the impugned notice was prompted by change of opinion, Mr. Nizamuddin submitted that the aforesaid question was not a pure question of law or jurisdiction but was a mixed question of facts and law. Mr. Nizamuddin argued that unless the facts which led to formation of the earlier opinion were looked into and compared with the information and material on the basis of which the Assessing Officer now formed his opinion that assessment should be reopened, it could not be said that the materials and facts forming the basis of the earlier opinion were the same as those forming the basis of the present opinion. 41. Mr. Nizamuddin s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his belief that income chargeable to tax has escaped assessment, or that it has been under assessed or assessed at too low a rate or has been made the subject of excessive relief. After April 1, 1989, the position is somewhat different. Section 147 with effect from April 1, 1989, provides that where the Assessing Officer has reason to believe that any income chargeable to tax escaped assessment for any assessment year, he may apply the provisions of sections 148 to 153 The conditions precedent for initiation of action under section 147(a) or 147(b) of the pre amended situation, is highlighted above. The amended provisions are contextual different and the cumulative conditions spelt out in clause (a) or (b) of section 147 prior to its amendment, are not present in the amended provision. The only condition for action is that the Assessing Officer should have reason to believe that income has escaped assessment, which belief can be reached in any manner and is not qualified by a pre-condition of faith and true disclosure of material fact by an assesses as contemplated in the pre amended section 147(a) of the Act. 44. In the aforesaid case, the Assessing Officer had recorded the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ascertainment of the amount of taxable income and of the tax payable thereon, then, in the absence of any error or mistake being discovered or found, the assessing officer could not have later on for the sake of giving a different opinion changed the earlier opinion. However, the judgment is distinguishable in that the proviso to Section 147 was not attracted. There was no question of limitation involved. 48. In Raymond Woolen Mills Ltd. v. Income-tax Officer reported in (1999) 236 ITR 34, the challenge was to the reopening of assessment. On examination of the recorded reasons, the Supreme Court found that it was the case of the Revenue that the assesses was charging to its Profit Loss Account fiscal duties paid during the year as well as labor charges, power, fuel, wages, chemicals etc. but while valuing its closing stock, the elements of fiscal duty and other direct manufacturing costs were not included. This resulted in under valuation of inventories and understatement of profits. The information was obtained by the Revenue in the course of assessment proceedings during a subsequent year. The Supreme Court observed that Supreme Court was not required to give a final dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f limitation or jurisdiction involved. 52. In Income Tax Officer v. Shree Bajrang Commercial Co. (Pvt.) Ltd. reported in (2004) 269 ITR 338, a Division Bench of this Court found on facts that the Assessing Officer prima facie had reason to believe that income had escaped assessment by reason of failure to the assesses to disclose truly and fully, material facts necessary for assessment. The Division Bench held that there being some prima facie reasons, the Court could not consider the sufficiency of the reasons. 53. In Commissioner of Income Tax v. Ess Ess Kay Engineering Co. Pvt. Ltd. reported in (1982) 137 ITR 446, there was no question of jurisdiction or limitation involved. The reassessment proceedings were initiated within 4 years. The Court found that though the assesses might have disclosed fully the facts at the time of original assessment, those were found to be untrue on the basis of materials discovered later on by the Assessing Authority. The assessment would thus be liable to be reopened, because in such a case it could be said that the assesses had failed to disclose truly all material facts necessary for the assessment and it would not merely be a case of chang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g claim in the rate of depreciation. The claim was based on what the assesses understood as livable, according to law. The material facts having been placed before the Assessing Officer, it was the duty of the officer to draw inference from those material facts disclosed. On his failure the burden could not be shifted to the assesses to hold that there was failure to disclose the material facts. The impugned notice was thus held to be illegal and the same was quashed. 58. Where assessment proceedings for any assessment year have been concluded, and an order of assessment passed, the Assessing Officer has no jurisdiction to initiate reassessment proceedings after expiry of four years from the relevant assessment year, except where the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment for such assessment year, by reason of failure on the part of the assesses to disclose fully and truly all material facts necessary for assessment for that assessment year. 59. Therefore, in a case like this, where an order of assessment for the assessment year in question has been passed, the condition precedent for exercise of jurisdiction to initiate p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to believe that income has escaped assessment in this year. 63. On the face of the reasons, the Assessing Officer has proceeded on the basis, that income had escaped assessment by reason of an erroneous claim for depreciation. It is not the case of the Assessing Officer that there has been any failure on the part of the petitioner company to disclose any material facts relevant for assessment truly or fully. 64. In Calcutta Discount Company Ltd. v. Income Tax Officer, Companies District I, Calcutta Anr. (supra) the Constitution Bench of the Supreme Court held: The scheme of the law clearly is that where the Income Tax Officer has reason to believe that an underassessment has resulted from nondisclosure he shall have jurisdiction to start proceedings for re assessment within a period of 8 years;......The argument that the Court ought not to investigate the existence of one of these conditions viz. that the Income Tax Officer has reason to believe that underassessment has resulted from non-disclosure of material facts cannot therefore be accepted. It is well settled however that though the writ of prohibition or certiorari will not issue against an executive authority, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961. This Court held that in order to be entitled to issue a notice under section 147(a) of the Income Tax Act, 1961. The Income Tax Officer issuing the notice must hold the belief that due to omission or failure on the part of the assesses to disclose fully or truly all material facts necessary for the assessment or to make the return, the income had escaped assessment. There would have to be materials or reasons for formation of the aforesaid belief and existence of the belief and existence of the materials for forming the belief could both be challenged in proper proceedings and in case of a challenge it was for the Income Tax authorities to satisfy the Court that the Income Tax Officer had held the belief and that there were reasons to hold such belief. 67. In B.K. Boylee v. Commissioner of Income Tax, West Bengal reported in 62 ITR 109, a Division Bench of this Court held that a notice under section 34 of the Income Tax Act, 1922, which is invalid vitiates the entire proceedings, and the illegality of the notice cannot be waived by filing a return in pursuance thereof. Section 34 of the Income Tax Act, 1922 corresponds to section 148 of the Income Tax Act, 1961. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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