TMI Blog2000 (3) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and machinery WDV Rs. 6,19,558-33-1/3 per cent. 2,06,549 (iii)On plant and machinery written down value Rs.14,25,190- 7,12,595 50 per cent. Total depreciation 10,14,837 Assessment was made under section 143(3) of the Act on July 31, 1991, by accepting the claim of deduction. Subsequently, an order of rectification under section 154 of the Act was passed on March 27, 1996, on the ground that the petitioner had claimed depreciation on certain items of plant and machinery at 50 per cent. while the correct rate applicable was 33-1/3 per cent. This resulted in enhancement of the total income from Rs. 17,30,000 to Rs. 19,67,530. In appeal, an order was passed annulling the order on the ground that there was failure of the principles of natural justice inasmuch as no opportunity was granted before the order was passed. Keeping the said order of the first appellate authority, in view, notice was given to the assessee to show cause as to why the mistake in respect of depreciation which was apparent from the records shall not be rectified. An objection was filed by the assessee. Thereafter, a notice under section 148 of the Act was issued to the assessee on the ground that income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he factual background. Sections 147 and 148 of the Act which deal with income escaping assessment and issue of notice where income has escaped assessment read as follows at the relevant time : "147. Income escaping assessment.---If--- (a) the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). Explanation 1.---For the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1922 (hereinafter referred to "the old Act"). There have been some points of departure from the old law, but it is not necessary to refer to them in detail for the purpose of the present case. Two conditions have to be satisfied before the Assessing Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years, but within a period of eight years from the end of the relevant year, i.e., (1) he must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (i) to make a return under- section 139 for the assessment- year to the Assessing Officer, or (ii) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist in order to confer jurisdiction on the Assessing Officer. The first important judgment which dealt with the matter is Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC). The following observations have become locus classicus as an exposition of the position in law : "The wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC)). As was observed in the aforesaid case the grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. In CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609 (SC) also, it was observed that mere production of the books of account or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the meaning of section 34(1) of the old Act, but where on the evidence and the materials produced the Income-tax Officer could have reached a conclusion other than the one which he has reached, a proceeding under section 34(1)(a) of the old Act will not lie merely on the ground that the Assessing Officer has raised an inference which he may later regard as erroneous. It was further observed that the assessee had disclosed his books of account and evidence from which material facts could be discovered ; it was under no obligation to inform the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts. The words used are "omission or failure to disclose fully and truly all material facts necessary for assessment for that year". It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case, as was observed in Indian Oil Corporation's case [1986] 159 ITR 956 (SC). The question, therefore, is as observed in Calcutta Discount Co. Ltd.'s case [1961] 41 ITR 191 (SC), does the duty extend beyond the full and truthful disclosure of all primary facts ? It is to be noted that the assessee does not discharge his duties to disclose fully and truly all material facts necessary for the assessment of the relevant year by merely producing the books of account or other evidence. He has to bring to the notice of the Assessing Officer particular items in the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en, subject to the other conditions, jurisdiction to reopen is attracted. The principles have been well settled and reiterated in numerous decisions of the apex court in Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638 (SC); ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 and IndoAden Salt Mfg and Trading Co. P. Ltd. v. CIT [1986] 159 ITR 624. With reference to Explanation 2 to section 147, more particularly clause (c) thereof, it is submitted that where an assessment has been made, but excessive loss or depreciation allowance has been computed for the purpose of section 147, the same shall be deemed to be a case where income chargeable to tax has escaped assessment. There is no quarrel with this proposition as the statute makes it very clear. But that is not determinative factor while considering the question in hand. The Explanation per se has nothing to do with the question whether there was foolproof disclosure of material facts. In the present case, it is to be noted that the rates of depreciation admissible are indicated in Appendix I to the Income-tax Rules, 1962 (in short "the Rules"), which were applicable from April 2, 1987, under item No. III rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof, there is no suggestion that the particulars disclosed in the requisite portion of the return were factually incorrect. Nor is it the case of the Revenue that the assessee failed to furnish the particulars required to be furnished. The dispute is the rate applicable. The stand of learned counsel for the Revenue is that the return filed cannot be treated as one under section 139 of the Act, as the correct rate of depreciation was not indicated. For the purpose of claiming depreciation, the correct rate at which depreciation is allowable has to be indicated, and otherwise, return cannot be treated as one under section 139 of the Act. This argument has to be noticed to be rejected. The proviso to section 147 of the Act provides that where 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 under section 139, consequences will follow. According to learned counsel for the Revenue, the return under section 139 has to be a return complete in all respects. This plea is clearly untenable. The return under section 139 has to be filed in the prescribed form and verified in the prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
