Rajath Leasing and Finance Ltd. vs Assistant Commissioner of Income Tax

C.K. Thakker, J.—Rule. Mr. B.J. Shelat, the learned advocate for R.P. Bhatt & Co. waives the service of rule on behalf of the respondent. On the facts and in the circumstances of the case, both the petitions have been taken for final hearing today. Both these petitions are filed against notices of reassessment for the assessment years 1986-87 and 1987-88 issued on 11-1-1995 u/s 148 of the income tax Act, 1961 (''the Act''). By the impugned notices, the petitioner was informed that the Assistant Commissioner Circle Rajkot, (respondent herein) has reason to believe that the income chargeable to tax for the assessment year 1986-87 as well as 1987-88 escaped assessment within the meaning of section 147 of the Act. Hence, the respondent proposed to reassess the income for those two assessment years. The petitioner was, therefore, called upon to show cause as to why the proceedings should not be initiated against him and the income should not be made taxable. The petitioner has challenged the legality of those notices by filing these petitions.

This Court issued notice on 22-6-1995 by making it returnable on 3-7-1995. Ad interim relief was also granted. Mr. B.J. Shelat, the learned counsel for the respondent placed on record so-called reasons recorded by the respondent for re-opening of the proceedings. The said order reads as under:-

Rajesh Leasing & Finance Ltd. Rajkot. Assessment year 1987-88 :

The assessee is a leasing company, doing leasing of Industrial Equipments, assessment on 24-3-1993, and depreciation was allowed to the extent of Rs. 15,29,350. The Revenue Audit Party has raised audit objection that the assessee-company being lessor is not entitled for depreciation on the plant and machinery.

The CIT, Rajkot vide his letter No. CIT R/Jud./Aud/68/RA (6) /1994-95, dated 10-1-1995 has approved action u/s 147 of the IT Act, 1961 as most appropriate remedial action in this case.

I have, therefore, reason to believe that an amount of Rs. 15,29,350 being depreciation allowed, has escaped assessment for assessment year 1987-88.

Issue notice u/s 148.

Mr. J.P. Shah, the learned counsel appearing for the petitioner strenuously urged that the show-cause notices issued by the respondent are without jurisdiction and are required to be quashed. He submitted that the petitioner had made full and true disclosure of all the material facts. In fact, the petitioner filed returns for the assessment year 1986-87 as early as on 30-6-1986. Likewise, he submitted returns for the year 1987-88 on 29-6-1988. Assessment, orders in accordance with law were passed on 20-1-1989. Notice issued u/s 263 of the Act by the Commissioner was also replied by the petitioner on 1-2-1991 and the order was passed on 28-2-1991. Fresh assessment order was passed on 24-3-1993, and depreciation was granted. The Assessing Officer rectified the assessment in accordance with section 143(3) of the Act by passing an order u/s 154 of the Act, and depreciation to the extent of 30 per cent was allowed. Thereafter, present notices were issued. Mr. Shah also submitted that the petitioner filed a reply and contended that there was no failure on his part in making full and true disclosure of all the relevant and material facts, and notices could not have been issued because of change of opinion. Mr. Shah also contended that from bare reading of the so-called reasons recorded by the respondent, it is clearly proved that he has not applied his mind at all and that he has formed his opinion on the basis of the audit report and is also acting under dictation.

In our opinion, the submission of Mr. Shah is well founded and the petitions are required to be allowed. From the order, it becomes clear that it is not even the case of the respondent that there was no true and full disclosure of all material facts by the petitioner and on that ground, the proceedings were required to be reopened. On the contrary, looking to the reasons, it becomes amply clear that the Revenue Audit Party had raised audit objection that the assessing company being lessor-company was not entitled for depreciation on the plant and machinery that the proceedings were sought to be re-opened. Similarly, it is also apparent from the reasons that Commissioner Rajkot had approved the action of re-opening of proceedings, and, therefore, the respondent had reason to reopen the proceedings.

Thus, it is not that material facts have been suppressed by the petitioner and on that ground, notices of reopening the proceedings were issued but it was because the Revenue Audit Party had raised some audit objection that such notices were issued. No notices u/s 148 can be issued on the basis of audit report and, hence, they cannot be held to be legal and valid. Mr. Shah appears to be right in submitting that had the Revenue Audit Party not raised an objection, in all probability, notices would not have been issued to the petitioner. Be that it may. Since, there is no ground and/or reason that there was suppression of material facts by the petitioner for which reopening of the proceedings were felt necessary, issuance of notices u/s 148 was contrary to law. There was no satisfaction on the part of the competent authority which is reflected in reasons that he had reason to believe that such reopening of proceedings was necessary.

Mr. Shah is also right in contending that the respondent was acting under dictation. This is clearly proved from the reasons recorded by the respondent wherein it was stated that, Commissioner, Rajkot had approved the action of reopening of proceedings. In fact, notices were issued on the basis of audit report and Commissioner''s approval without there being satisfaction and application of mind on the part of the respondent. Such action cannot be upheld by a Court of law and the notices must be quashed by allowing the petitions. For the aforesaid reasons, both the petitions are required to be allowed and they are accordingly allowed. Rule is made absolute. Notices dated 11-1-1995 Annexure-I are hereby quashed and set aside. On the facts and in the circumstances of the case, there is no order as to costs.