GARDEN SILK MILLS LTD. VS DEPUTY COMMISSIONER OF INCOME-TAX (ASSESSMENT) (NO. 1)
1998 P T D 2350
[222 I T R 27]
[Gujarat High Court India]
Before B. C. Patel and S.M. Soni, JJ
GARDEN SILK MILLS LTD.
versus
DEPUTY COMMISSIONER OF INCOME-TAX (ASSESSMENT) (NO. 1)
Special Civil Application No.312 of 1995, decided on 20/06/1996.
Income-tax------
----Reassessment---Failure to disclose material facts necessary for assessment ---Assessee claiming depreciation on increase in cost of machinery due to fluctuation in rate of foreign exchange---Depreciation allowed by I.T.O. after considering matter and allowance upheld on revision by CIT-- Reassessment proceedings after four years on ground that excessive depreciation had been allowed---Not valid---Indian Income Tax Act, 1961, Ss. 147 & 148.
The assessee had purchased machinery from a foreign country. In respect of the foreign currency loan obtained to finance the machinery installed in the assessment year 1987-88, the liability repayment increased during the year by Rs.1, 83 , 88,188 on account of fluctuation in the exchange rate. The assessee claimed depreciation on Rs.1,83,88,188 and claimed additional investment allowance of Rs.45,97,047. The Assessing Officer allowed the claim of depreciation. This was upheld by the Commissioner of Income-tax on revision. Subsequently, in December, 1994, notice was issued for reassessment. On a writ petition to quash the notice:
Held, that the Assessing Officer was aware about the investment and fluctuations in the exchange rate. Depreciation had been allowed after considering the material on record. The notice was issued after four years and there was no failure on the part of the assessee to disclose material facts necessary for assessment. The notice of reassessment was not valid and was liable to be quashed.
J.P. Shah for the Petitioner.
M.J. Thakore for M.R. Bhatt & Co. for Respondent.
JUDGMENT
B.C. PATEL, J.---The petitioner, by referring this petition under Article 226 of the Constitution of India, has challenged the issuance of notice under section 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), at Annexure "J", which is, dated December 28, 1994. The Assessing Officer had reason to believe while assessing the case of the assessee for the assessment year 1989-90 that there is escapement and, therefore, the notice was issued and the assessee was called upon to answer the notice within a period of 30 days. The assessment order for the relevant year is Annexed at "D" and it appears that the assessee has been assessed under section 143(3) of the Act and the detailed order has been passed on March 31, 1992. While assessing, the Assessing Officer has referred to the investment allowance specifically in the assessment order at page 6. Mr. Shah has pointed out that the said order of assessment was called in question by the Commissioner of Income-tax, Surat, vide Annexure "E" dated January 31, 1994, by issuing a notice under section 263 of the Act and the order passed by the Commissioner of Income-tax under section 263 is annexed to the petition at Annexure "G". By the said order, the Commissioner had remanded the matter to the Assessing Officer with certain directions. It appears that thereafter the assessment order has been passed vide Annexure "I" by the Deputy Commissioner of Income-tax on April 21, 1994. After that order was passed, the impugned notice under section 148 has been issued on December 28, 1994, which is under challenge.
It appears that in respect of foreign currency loan obtained to finance machinery installed in 1987-88 assessment year, liability on repayment increased during the year by Rs.1,83,88,188 on account of fluctuation in exchange rate. The increase in liability, as averred by the assessee, relates back to the year of 1987-88 assessment year when machinery was acquired. Under the circumstances, as averred by the assessee, the aforementioned amount would form part of the "actual cost" and additional investment allowance of Rs.45,97,047 is allowable for the 1987-88 assessment year. The assessee claimed depreciation on Rs.1,83,88,188 and claimed additional investment allowance of Rs.45,97,047. The Assessing Officer allowed the claim of depreciation and with regard to investment allowance, raised a query vide letter, dated January 16, 1992. The Assessing Officer has dealt with the question of investment allowances under a separate heading and rejected the same. Thereafter, the Commissioner of Income-tax, as stated earlier, issued notice under section 263 and has specifically held as under:
"Thus, it is clear that for the purposes of allowance of depreciation. there is no pre-condition of actual repayment of foreign currency loan and on this count, the submissions raised on behalf of the assessee-company are entirely correct. For this reason, it can be said that the Assessing Officer had not erred in law in admitting the claim of the assessee, in relation to the dispute under consideration."
It appears that the Assessing Officer was called upon for checking up the arithmetical accuracy of the impact of foreign exchange rate fluctuation.
Mr. Shah, thus, pointed out from the record that the assessee has disclosed fully and truly all material facts necessary for its assessment for the relevant year and, therefore, there is no question of issuance of notice. He further submitted that reading the orders, which are placed on the record, it is impossible to allege against the assessee that it has not disclosed facts fully and truly necessary for the relevant assessment year. He further pointed out that even the Commissioner has not doubted the manner or method of disclosure by the assessee. He has contended that even in the absence of the Commissioner's order, section 147 notice is invalid and without jurisdiction. He further contended that it does not give power to the Assessing Officer to revive or review the decision of the Commissioner. He drew our attention to the proviso to section 147 of the Act, which reads as under;
"Provided that where an assessment under subsection (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year."
It is clear from the record that notice has been issued after period of four years. Therefore, without any whisper that the assessee has failed to disclose fully and truly all material facts necessary for assessment for the relevant year, the notice could not have been issued.
With the affidavit-in-reply, reasons dated December 19, 1994, passed by the Deputy Commissioner of Income-tax are placed on record. It is very clear from the reasons that four years have lapsed and, therefore, permission of the Commissioner is sought for issuance of notice under section 148 of the Act.
Without going into the aspect whether the Commissioner has given sanction for issuance of notice or not, the petition is required to be allowed on the short ground that reading the reasons which are placed on record with the affidavit-in-reply, there is not a whisper to indicate that the assessee has failed to disclose fully and truly all material facts necessary for assessment for the relevant year. Reading the reasons, it appears that the Assessing Officer was aware about the investment and fluctuations in the exchange rate. It is specifically mentioned that the position was in any case not verified on this point at the time of completing the assessment, but it is further stated that the assessee was allowed depreciation on such enhanced cost. From the reasons, it is very clear that the facts were stated. In the absence of material claiming depreciation, there was no question of allowing depreciation. Mr Thakore, learned counsel even after going through the record could not point out that there is failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment for the relevant year. In view of this, this petition is required to be allowed. The petition stands allowed accordingly. Notice at Annexure "J", dated December 28, 1994, is hereby quashed and set aside. There will be no order as to costs.
M.B.A./1507/FCPetition allowed.