2004 (2) TMI 750 - HC - Income Tax

Petition Dismissed, File Preliminary Objections with Assessing Officer for Speaking Order

The court dismissed the petition, instructing the petitioner to file preliminary objections before the Assessing Officer, who must issue a speaking order ... Reason to believe - failure to disclose fully and truly all material facts - reopening of assessment / reassessment jurisdiction under section 147 - adequacy of alternative remedy and writ jurisdiction under Article 226 - deeming fiction of excessive depreciation (Explanation 2 to section 147)Adequacy of alternative remedy and writ jurisdiction under Article 226 - reason to believe - Whether the writ petition challenging the notice under section 148 was premature and whether the petitioner must first avail the statutory course of filing return and raising preliminary objections before the Assessing Officer - HELD THAT: - The Division Bench majority applied the Supreme Court's decision in GKN Driveshafts to hold that when a notice under section 148 is issued the proper course ordinarily is for the noticee to file a return, seek reasons and, on receipt of reasons, to raise objections to issuance of the notice before the Assessing Officer who must dispose of them by a speaking order. The court emphasised that Article 226 jurisdiction is discretionary and that availability of an efficacious alternative remedy is a relevant restriction; relief by writ will be exceptional where the notice is prima facie shown to be without jurisdiction or fonnerly founded on mala fides. Given that the petitioner had filed return in response to the notice, obtained reasons and had not established exceptional circumstances warranting immediate interference, the majority considered the alternative remedy adequate and refused to entertain the petition on merits. The court nevertheless directed that any preliminary objections filed before the Assessing Officer be considered and decided by a speaking order and afforded the petitioner liberty to challenge an adverse speaking order by writ, with an undertaking that reassessment proceed only after observance of that process.Petition dismissed as premature; petitioner to file objections before the Assessing Officer who shall decide them by a speaking order before proceeding with reassessment; interim relief vacated.Failure to disclose fully and truly all material facts - reopening of assessment / reassessment jurisdiction under section 147 - deeming fiction of excessive depreciation (Explanation 2 to section 147) - Validity of the notice under section 148 insofar as it depends on the jurisdictional fact of failure to disclose and escapement of income by reason of excessive depreciation claimed - HELD THAT: - The court refrained from adjudicating the substantive question whether there was any failure to disclose fully and truly all material facts or whether excessive depreciation had in fact been allowed; the majority considered such enquiries fit for the Assessing Officer to decide in the reassessment proceedings after the noticee is afforded opportunity to raise objections. The minority view (dissent) pressed that the reasons did not disclose any prima facie failure to disclose and would quash the notice, but the majority declined to decide the merits to avoid prejudicing the Assessing Officer's adjudication. Consequently the question of whether the proviso to section 147 is attracted and whether the reopening is vitiated by mere change of opinion was left to be considered and decided by the Assessing Officer on the materials and objections produced during reassessment.Merits of jurisdictional contention (failure to disclose / escapement by excessive depreciation) remitted to the Assessing Officer for enquiry and speaking decision; court did not decide these questions.Final Conclusion: By majority the writ petition was dismissed and interim protection vacated on the ground that the petitioner has an adequate statutory remedy: the petitioner must file return and raise preliminary objections to the notice which the Assessing Officer shall decide by a speaking order; the substantive questions whether income escaped assessment or there was failure to disclose material facts (including the claim of higher depreciation) are left to be examined and determined by the Assessing Officer, and the petitioner may challenge any adverse speaking order by writ. 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.