TMI Blog2004 (7) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... d by M.S. Shah J. - This petition under article 226 of the Constitution challenges the notice dated March 31, 1994, issued by the Income-tax Officer (annexure A) under section 148 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), read with section 147 thereof proposing to reopen the assessment of Denish Syntex (P) Ltd. for the assessment year 1983-84 on the ground that on account of the insertion of Explanation 8 to section 43(1) as introduced by the Finance Act, 1986, with retrospective effect from April 1, 1974, the assessee was not entitled to claim depreciation or investment allowance on the capitalisation of interest paid after the date on which the machinery was first installed and put to use. The facts leading to filing of the present petition are as under: For the assessment year 1983-84, Denish Syntex (P) Ltd. (DSPL) which was subsequently amalgamated with the petitioner-company filed its return of income claiming loss of Rs. 55,82,920. In the said return, DSPL had stated that DSPL had calculated investment allowance and depreciation on capitalization of interest payable on Rs. 33,87,725 over contracted periods on term loans received from the GIIC a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latable to any period after such asset is first put to use shall not be included, and shall be deemed never to have been included in the actual cost of such asset. It is submitted that with the introduction of the Explanation, the controversy as regards interest, vis-a-vis the actual cost was set at rest. As per the Explanation, any amount which is paid or payable as interest in connection with the acquisition of the asset, so much or such amount as is relatable to any period after such asset put to use shall not be included and shall be deemed never to have been included in the actual cost of such asset. In the present case, the petitioner-company had capitalised the interest relevant to the entire contracted period as a result of which the cost of assets is overstated to the extent of Rs. 33,87,725. Because of this overstatement of actual cost, excess depreciation and investment allowance has been allowed to the petitioner-company. In view of these reasons, after obtaining prior approval, I have issued the notice under section 148 which is legal and valid." At the hearing of the petition, Mr. Tushar Hemani, the learned advocate for the petitioner, has submitted that the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court. It is submitted that since the law declared by the Supreme Court also relates back to the date on which the relevant provision was enacted, retrospective effect given by the statutory amendment will also operate on the same principle and, therefore, notice for reopening of assessment under section 147 or 148 cannot be issued beyond the period of four years on the ground of failure to disclose material facts. On the other hand, Mr. M.R. Bhatt, learned standing counsel for the Department, has submitted that since Explanation 8 was inserted with effect from April 1, 1974, the said statutory amendment must apply and operate with full force and vigour and that if the assessee's contention were to be accepted, it would amount to giving only prospective effect to the legislative amendment. Having heard learned counsel for the parties, we are of the view that there is considerable substance in the submissions made on behalf of the petitioner. Sections 147 and 149 of the Act at the relevant time read as under: "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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiction is to operate within the field for which it is meant. Hence, if the proceedings were pending on April 1, 1986, when the statutory amendment was made, whether assessment proceedings or proceedings by way of appeal or revision or reference, Explanation 8 would have certainly operated. However, on the question whether the assessee had failed to disclose fully and truly all material facts necessary for assessment, it is obvious that when the assessee had filed its return in 1983 it could not have assumed that such a legislative amendment was going to be made in the year 1986 with retrospective effect from the year 1974. In the facts of the present case, it could never be said by any stretch of imagination that in the year 1983 when the assessee filed the return claiming investment allowance on the capitalisation of interest paid after the date on which the machinery was first installed and put to use, the assessee had failed to disclose all material facts. On the contrary, the assessee would have got the benefit of the entire interest amount for the post-installation period as revenue expenditure which would have been much higher than the amount of investment allowance and depr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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