TMI Blog2006 (3) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the Income-tax Appellate Tribunal, Madras "B" Bench, dated December 12, 2002 in I.T.A. Nos. 355 and 356/Mds/2002. These appeals came up before this court and this court admitted the appeals on October 17, 2003, and formulated the following substantial question of law: "Whether, on the facts and circumstances of the case, the Tribunal was right in treating the reassessment under section 147, as time barred?" The facts leading to the above question of law are as follows: The assessee is a company engaged in the business of finance and leasing. The return filed by the assessee-company for the assessment year 1992-93 was initially processed under section 143(1)(a) on November 11, 1993. Thereafter, it was converted into a scrutiny assessment and the said assessment was completed under section 143(3) by the order of assessment dated March 7, 1994. Later the assessment was rectified under section 154 by a subsequent order dated April 15, 1996. In respect of the assessment year 1993-94, the original assessment under section 143(3) was completed on March 25, 1996, and the said assessment order also was later rectified under section 154 by order dated March 18, 1997. While the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In the original assessment, depreciation was granted at the rate of 100 per cent, under the proviso to section 32 on the ground that the cost of individual item was less than Rs. 5,000. In the revised assessment, the Assessing Officer found that the assessee had leased out those items as a bulk unit and all those items are functionally inter-related and did not have any independent status or identity as plant and machinery and therefore those items need to be considered in bulk, instead of being considered as individual item. When those items listed are considered in bulk, obviously the cost of the bulk exceeds Rs. 5,000 and the Assessing Officer restricted the depreciation to the normal rate. Aggrieved by the order, the assessee filed an appeal, to the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) agreed with the Assessing Officer and confirmed the action of the Assessing Officer in restricting the depreciation to the normal rate. Aggrieved, the assessee filed an appeal before the Income-tax Appellate Tribunal and also raised additional grounds for the said assessment year, which reads as follows: "The Commissioner of Income-tax (Appeals) sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under 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." In addition to the time-limits provided for under section 149, the law has provided another limitation of four years under the proviso to section 147. As far as the above proviso to section 147 is concerned, the law prescribes a period of four years to initiate reassessment proceedings, unless the income alleged to have escaped assessment was made out as a result of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In the present case, the question is whether the assessee-company had disclosed fully and truly all the material facts necessary for the assessments and with particular reference to computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee. Failure to do so would vitiate the notice and the entire proceedings. The relevant words in the proviso are, '... unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee ... ' Mere escape of income is insufficient to justify the initiation of action after the expiry of four years from the end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment. Whenever a notice is issued by the Assessing Officer beyond a period of four years from the end of the relevant assessment year, such notice being issued without recording the reasons for his belief that income escaped assessment, it cannot be presumed in law that there is also a failure on the part of the assessee to file the returns referred to in the proviso or a failure to fully and truly disclose the ..... 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