1984 (12) TMI 55 - HC - Income Tax

Court quashes tax reassessment notices, allows inquiry on home office expenses. Appeal process available for challenge.

The court quashed the reassessment notices issued under Section 148 of the Income-tax Act concerning the deduction on account of loss on exchange due to ... Failure To Disclose Material Facts, Reassessment, Writ Issues Involved:1. Validity of reassessment notices under Section 148 of the Income-tax Act.2. Deduction of loss on exchange due to exchange rate fluctuation.3. Deduction of home office expenses and service charges exceeding the ceiling limits prescribed by the Government of India.4. Deduction of provision for gratuity payable to employees.Issue-wise Detailed Analysis:1. Validity of Reassessment Notices under Section 148:The reassessment notices were issued under Section 148 of the Income-tax Act for various assessment years, alleging that income had escaped assessment due to certain deductions claimed by the petitioner. The court examined whether the conditions precedent for issuing such notices were met, particularly focusing on whether there was any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. It was found that the petitioner had consistently followed a specific accounting method since 1958, which was known to the Income-tax Officer. Therefore, the reassessment notices, insofar as they sought to reopen the question of deduction on account of loss on exchange due to exchange rate fluctuation, were held to be without jurisdiction and quashed.2. Deduction of Loss on Exchange Due to Exchange Rate Fluctuation:The petitioner had claimed deductions for losses on exchange due to exchange rate fluctuations, which were initially disallowed by the Income-tax Officer but later allowed by the Appellate Assistant Commissioner and upheld by the Tribunal and the High Court. The court noted that the Income-tax Officer's attempt to reopen this issue through reassessment notices was impermissible, as it was not based on any new material facts but rather on a different interpretation of the same facts. Consequently, the reassessment notices on this ground were quashed.3. Deduction of Home Office Expenses and Service Charges Exceeding the Ceiling Limits:The reassessment notices also mentioned that the petitioner had claimed deductions for home office expenses and service charges in excess of the ceiling limits prescribed by the Government of India's letters dated May 4, 1973, and November 6, 1974. The court allowed the Income-tax Officer to make an inquiry into whether the deductions exceeded the permissible limits set by these letters. It was clarified that the inquiry should be limited to verifying compliance with the ceiling limits and not to reassess the merits of the expenses already accepted by the Income-tax Officer.4. Deduction of Provision for Gratuity Payable to Employees:For the assessment year 1970-71, the petitioner had claimed a deduction for the provision for gratuity payable to employees, which was later disallowed by the Income-tax Officer on the ground that it was not paid during the previous year nor was it out of an approved gratuity fund. The court noted that the petitioner had already filed an appeal against this disallowance, and therefore, it was not inclined to examine the legality of the reassessment notice issued in 1974 after a period of five years. The court dismissed the writ petition challenging the reassessment notice and the subsequent assessment order, as the petitioner had an alternative remedy available through the appeal process.Conclusion:The court quashed the reassessment notices issued under Section 148 of the Income-tax Act, insofar as they sought to reopen the deduction on account of loss on exchange due to exchange rate fluctuation, as these were without jurisdiction. However, it allowed the Income-tax Officer to inquire into the deductions for home office expenses and service charges exceeding the ceiling limits prescribed by the Government of India. The court dismissed the writ petitions challenging the reassessment notice and the subsequent assessment order related to the provision for gratuity payable to employees, as the petitioner had an alternative remedy through the appeal process.