B.C. Patel, C.J.@mdashThe petitioner has approached this Court by filing this writ petition under Article 226 of the Constitution of India, inter alia, requesting for issuance of a writ in the nature of certiorari or any other appropriate writ, order or direction quashing the impugned notice/proceedings dated 10.5.2001 issued by the Assessing Officer u/s 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), a copy of which is produced on record at Annexure-A.
2. The petitioner, a Non-Resident Foreign Company, is engaged in the business of producing television programmes primarily relating to sport activities. For the assessment year 1997-98 a return of income u/s 139(1) of the Act was filed on 29.5.1998 declaring an income of Rs.95,59,750/- wherein a claim was made for depreciation at the rate of 25% amounting to Rs1,36,00,682/- on plant and machinery valued at Rs.5,44,02,729/-. The return of income was processed on 31.5.1999 u/s 143(1)(a) of the Act. Various notices were issued and queries were raised during the course of assessment proceedings. According to the petitioner all the material facts necessary for assessment were disclosed fully and truly. All the queries were answered and necessary information called upon were furnished for the purpose of determining the total income. According to the petitioner after making necessary queries, which were answered for computation of true and correct income, the Assessing Officer made an order u/s 143(3) of the Act, after application of mind and determined the total income of the assessed at Rs.99,83,740/- vide his assessment order dated 29.3.2000.
3. It is contended by the petitioner that the Assessing Officer issued notice u/s 148 of the Act on 10.5.2001 on the basis of a purported audit objection. The petitioner was called upon to file its return of income. The notice was issued on the ground that the Assessing Officer had reason to believe that the income of the petitioner company had escaped assessment. The petitioner also produced a Tax Depreciation Schedule, which was also filed during the course of assessment proceedings showing details of depreciation claimed and allowed at Rs.1,32,71,321/-, the copy of which is produced on record at Annexure-E. Despite repeated demand, the petitioner was not supplied a copy of reasons recorded for exercise of the powers. However, at a later stage on 17.12.2002, the same was supplied, a copy of which is produced on record at Annexure-K, which reads as under:-
"As per audit objection raised, income to the tune of Rs.68,00,341 has escaped assessment. Since the assessed has been allowed excessive depreciation, for rectification of the same, it is essential to reopen the case. Hence, notice u/s 148 is being issued."
4. The petitioner thereafter filed detailed objections on 23.12.2002, 3.1.2003 and 6.1.2003, copies of which are produced on record and are marked as Annexure-L collectively.
5. The petitioner submitted that in view of various decisions of the Apex Court as well as of various High Courts the decision recorded does not disclose the process of reasoning for believing that the income has escaped assessment. Apprehending, the Assessing Officer is likely to frame a high pitched assessment which would result into multiplicity of proceedings as well as undue financial harassment, hence this petition.
6. During the course of hearing, the petitioner has taken us through various documents placed on record, which were also placed before the Assessing Officer before the assessment was made. Learned counsel for the petitioner drew our attention to the statement showing production of net taxable income, a table indicating the manner in which the depreciation was claimed and for what period and at what rate. The machinery not used for more than 180 days, the depreciation is to be calculated in such case at the rate of 50% which has been specifically indicated and for plant and machinery used for more than 180 days, the depreciation is to be claimed at the rate admissible has been specifically indicated. Likewise for furniture and fixtures, figures are indicated to claim depreciation at the rate of 10% and 5%. There is an Auditor''s report dated 29.4.1998. It was specifically pointed out by learned counsel for the petitioner that the table indicating the depreciation and the use of plant and machinery for number of days was placed before Assessing Officer. Under the head "Block A", it is specifically pointed out which plant and machinery was used for less than 180 days and which, for more than 180 days. In the foot note, it is pointed out that the plant and machinery includes use of trucks valued at Rs.16,94,880/-. purchased by the head office and used by the branch in India for business purpose. The value of the trucks has not been capitalised in the books of the assessed maintained for the office in India. However, since the asset was used in India, the depreciation was claimed in the tax return. Thus plant and machinery included the trucks and one OB Van.
7. It was pointed out to the Assessing Officer vide letter dated 9.9.1999 that the company was carrying on its operations in India and during the year the company was engaged in the business of producing television programmes primarily relating to sport activities. Hire Purchase Agreement dated 17.4.1996 for OB Van Equipment was also produced before the Assessing Officer. The same was executed between the assessed and Champion TV Ltd. (C.T.V.), England. In the agreement delivery date is indicated and it reads "means the date of the OB Van Equipment Receipt (i.e. April 17, 1996)". The net purchase price of the OB Van Equipment is indicated in the document as Pounds Sterling 1,046,985. About the delivery and delivery date and location, in the agreement it is specifically stated that "the OB Van Equipment shall be delivered by CTV to TWI on April 17, 1996 at 268, Masjid Moth, Uday Park, New Delhi-110049, India." The Hire Purchase Agreement for the OB Van Equipment was for the period 17.4.1996 to 31.3.1999. The assessed also pointed out to the Assessing Officer vide letter dated 9.9.1999 (Annexure-D) that the details for plant and machinery of Rs.54,989,313/- appearing in the depreciation schedule for income tax purposes were enclosed with Annexure-D. Further the copy of the Hire Purchase Agreement in the case of OB Van Equipment produced before Assessing Officer is enclosed at Annexure-E. The Assessing Officer was specifically informed vide letter dated 16.3.2000, (the copy of which is placed on record at page 72), as under:-
"as to why depreciation should be allowed on the OB Van Equipment taken on hire purchase from Champion T.V. In this regard, we would like to draw your reference to Circular No. 9 dated 23rd March, 1943. A copy of circular is enclosed in Annexure-A."
8. At page 73 of the said letter, it is further pointed out as under:-
"In the above mentioned year, TWI had taken an OB Van Equipment on hire purchase from Champion T.V. The principal component of Pound 897,718 was converted into Indian Rupees using an exchange rate of 1 Pound = Rs.57.91. Hence an amount of Rs.51,986,850/- was capitalized in the books towards the cost of the OB Van equipment and depreciation was duly claimed on this amount. Further deduction of hire purchase interest of Rs.4,225,172 was claimed in accordance with the provisions of Section 40(a)(i) of the Act as the company had deducted and deposited the tax on the hire purchase interest within the prescribed time."
9. The Assessing Officer was also supplied with a copy of the contract with Ravi Shastri vide Annexure-F. Along with the letter details of production income were submitted. According to the assessed, the plant and machinery, namely, OB Van was used at Calcutta for the Calcutta Football League (Match) from May 96 to September, 96 and production income is indicated as Rs.1,20,62,125/- and the total production income comes to Rs.1,80,447,467/-. Before the Assessing Officer, sample bill for post production expenses was also produced. The said bill has been issued by INDEBO TRAVELS PVT LTD. to the assessed to show the transactions till 28.7.1996 only for the events completed. The rest were not included. This refers to 7 matches at Calcutta. There is another bill referring to Calcutta Football (Match). There are other bills covering the period. According to the assessed when all these materials were taken into consideration by the Assessing Officer while making an order of assessment, it was clear in the mind of the Assessing Officer and the depreciation was allowed on the plant and machinery, as claimed. However, as the Assessing Officer was of the opinion that depreciation on trucks of Rs.4,23,720/- is not to be allowed by making specific reference has not allowed the same.
10. On behalf of the Revenue, it was submitted that in view of the provisions contained in Section 147 of the Act, despite the fact that the assessed has disclosed fully and truly all material facts necessary for assessment, still it is open to make the assessment u/s 147/148 of the Act. It was submitted by learned counsel for the Revenue that sub-clause (iv) of clause (c) of Explanation II to Section 147 makes it clear that when excessive depreciation allowance is granted or computed, it is the case of escapement of income chargeable to tax and, Therefore, as the Assessing Officer has allowed excessive depreciation allowance, it is open for the Assessing Officer to exercise the powers to issue notice, as contemplated u/s 148 of the Act. According to learned counsel for the Revenue, the Reserve Bank granted permission to the petitioner for opening of a branch office at Delhi vide its letter dated 18.10.1996, Therefore, the assessed was entitled to only 50% of the depreciation. Our attention was drawn by learned counsel for the Revenue to the Auditor''s report wherein relevant portion reads as under:-
"However, permission for opening of branch office at Delhi and execution of business was granted by Reserve Bank of India vide letter dated 18.10.1996. Since there was no permission to run business prior to October, 1996, the assessed was entitled only 50% of the depreciation as laid down u/s 32 of the Income Tax Act, against full depreciation as claimed by the assessed."
11. It is in view of this, the Senior Audit Officer came to the conclusion that the mistake has resulted into excess claim for depreciation. Relying on the Auditor''s report, the Assessing Officer issued notice and recorded his reasons, which are indicated in the earlier part of the judgment, but for the sake of convenience the same are again reproduced:-
"As per audit objection raised, income to the tune of Rs.68,00,341 has escaped assessment. Since the assessed has been allowed excessive depreciation, for rectification of the same, it is essential to reopen the case. Hence, notice u/s 148 is being issued."
12. Reading the reasons recorded by the Assessing Officer, it is clear that relying on the audit objection, notice u/s 148 of the Act has been issued. The Assessing Officer himself has not applied his mind as to how the income has escaped assessment. What was the reason for stating that "for rectification of the same" notice is required to be issued is another question? The purported basis for the notice is not the actual use of machinery, but, that the permission to open office was granted subsequently. The Apex Court in the case of
"Audit does not consider it any part of its duty to pass in review the judgment exercised or the decision taken in individual cases by officers entrusted with those duties, but it must be recognized that an examination of such cases may be an important factor in judging the effectiveness of assessment procedure? It is, however, to forming a general judgment rather than to, the detection of individual errors of assessment etc., that the audit enquiries should be directed. The detection of individual errors is an incident rather than the object of audit."
13. The Court also pointed out that the other provisions stress that the primary function of audit in relation to assessments and refunds is the consideration whether the internal procedures are adequate and sufficient. It is not intended that the purpose of audit should go any further. The Court further pointed out that whether it is the internal audit party of the income tax department or an audit party of the Comptroller and Auditor General, they perform essentially administrative or executive functions and cannot be attributed the powers of judicial supervision over the quasi judicial acts of income tax authorities. The Income Tax Act does not contemplate such power in any internal audit organisation of the income tax department; it recognizes in those authorities only which are specifically authorised to exercise adjudicatory functions.
14. It is not the case of the Revenue that the Senior Audit Officer pointed out that record reveals that the van was not, in fact, used, as claimed by the assessed, but the report only suggests that the permission for opening branch office at Delhi and execution of business was granted by the Reserve Bank of India vide letter dated 18.10.1996. The assessed Therefore, according to revenue, was entitled to only 50% of depreciation.
15. It may be noted that the proceedings have been initiated only on the ground that the Reserve Bank of India granted permission only on 18.10.1996 and not on the basis that the van was not actually put in use for the period indicated by the assessed on the material which was placed before the Assessing Officer. Merely because the permission was granted on 18.10.1996 for establishing a branch office, it cannot be said that the plant and machinery were not used prior to 18.10.1996. The relevant question is whether the plant and machinery was actually put to use. It is not relevant for purposes of the Act that the permission of RBI came at a subsequent date.
16. In fact, the Assessing Officer being satisfied on the question of actual use allowed the depreciation. If on all the material placed on record the Assessing Officer has allowed the depreciation, as claimed by the assessed, then on the same material how can the assessed be sought to be re-assessed. Merely because permission to establish a branch office was granted on 18.10.1996 is no ground to say that the assessed has not actually used the plant and machinery for more than 180 days, in view of the material indicated hereinabove. If on the material placed by the assessed the Assessing Officer had taken a decision vide his assessment order, any different view is to be taken afterwards on the same material, it would amount to change of opinion on the same material already considered.
17. The revenue contends that that it is open to do so, and on that basis to reopen the assessment u/s 147(b) of the Act. Reliance is placed on
"Where a Bench of two learned judges of this court observed that a case where income had escaped assessment due to the "oversight, inadvertence or mistake" of the ITO must fall within Section 34(1)(b) of the Indian I.T. Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the ITO discovers that he has committed an error in consequence of which income has escaped assessment, it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in
18. In Sheth Brothers v. Joint Commissioner of Income Tax reported in (2000) 251 ITR 270 the Division Bench pointed out:-
"On a reading of a recent decision of this court in the case of
"More importantly, the court said (headnote):
? in every case, the Income Tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer."
After extracting the relevant portion from the apex court decision, this court has referred to the facts in detail. Thereafter, the court went on to deal with the Central Board of Direct Taxes instructions as under (page 231):
"Notwithstanding this clear position of law emerging from the decision of the Supreme Court, the instructions of the Board still persisted that as soon as audit objections are raised, prompt remedial action in the nature of reassessment should be taken even if objection is not accepted by the Income Tax Officer. The instructions are being taken for remedial action, viz., remedial action should invariably be initiated as a precautionary measure in respect of audit objections, even if the objection is not accepted by the Income Tax Officer or without the assessing authority applying his mind to such information for reaching his own conclusion. Once the remedial action is initiated, it can be dropped with the approval of the Commissioner of Income Tax if the objection raised is one of facts and the facts stated to the audit are found to be incorrect.
Thus, contrary to the decision of the Supreme Court, the instruction of the Board directs that merely on raising of audit objection remedial action by initiating proceedings of reassessment be taken, notwithstanding that the authority vested with power to exercise jurisdiction for issuing notice is not satisfied about existence of such circumstances which may warrant exercise of such power. To say the least, such ultra virus instructions cannot be pressed into service to save the initiation of proceedings u/s 147, in the absence of holding of any belief by the Assessing Officer, by arrogating the power to itself by the Board by issuing such directions contrary to the provisions of law at the pain of subjecting the officer to pain of exposing him to charge of insubordination."
19. While the respondent submitted that the Assessing Officer had completely overlooked and had not examined and gone into the question whether the assessed had used depreciable asset for a period of more than 180 days or not, this version is an afterthought. In the reasons what is recorded is only that the permission to open branch office was given in October 1996 and not that the plant and machinery was not used for more than 180 days. The respondent could not point out from the record that the assessed has not used the depreciable asset in question for a period of more than 180 days.
20. Factual information can come from various sources including an audit objection. In an affidavit filed on behalf of the respondent it is nowhere stated that factual information was supplied by the audit party that plant and machinery was not used for more than 180 days. Reading the original report of the audit party, it is clear that it has proceeded on assumption that the plant and machinery could have been used only after the Reserve Bank of India granted permission to open a branch office on 18.10.1996. The revenue has over looked the material aspect that the assessed had placed material on record to show that the approval for project office was granted for a period from 17.4.1996 to 31.3.1997 and that it had in fact used the plant & machinery for more than 180 days. Merely because subsequently permission for branch office was given, it cannot be said that the plant and machinery was not used for more than 180 days. When sufficient material is placed on record and the Assessing Officer had arrived at a conclusion that the assessed is entitled to get depreciation then on the same material a different view cannot be taken. It amounts to change of opinion.
21. It was submitted by the learned counsel for the petitioner and rightly so that even if, for the sake of argument, the plant and machinery is used without approval of the Reserve Bank of India, it may amount to breach of the provisions contained in other laws, so far as the factum of use of the plant and machinery is concerned, that stands established.
22.A Division Bench of this Court in the case of
"It is a well settled principle of interpretation of statutes that the entire statute should be read as a whole and the same has to be considered thereafter chapter by chapter and then section by section and ultimately word by word.
It is not in dispute that the Assessing Officer does not have any jurisdiction to review his own order. His jurisdiction is confined only to rectification of mistakes as contained in section 154 of the Income Tax Act, 1961. The power of rectification of mistake conferred upon the Income Tax Officer is circumscribed by the provisions of section 154 of the Act. The said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. The Income Tax Appellate Tribunal has limited jurisdiction u/s 254(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income Tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the Revenue is not without remedy. Section 263 of the Act empowers the Commissioner to review an order which is prejudicial to the Revenue."
23. The Court pointed out at page 19 in the case of Kelvinator of India Ltd.''s case (supra) as under:-
"Another aspect of the matter also cannot be lost sight of. A statute conferring an arbitrary power may be held to be ultra virus article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favored.
In the event it is held that by reason of section 147 if the Income Tax Officer exercises his jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held to be unconstitutional. We are Therefore of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion.
We, however, may hasten to add that if "reason to believe" of the Assessing Officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power u/s 147 read with section 148 of the Act.
We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessed. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income Tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessed himself."
24. It is required to be noted, as pointed out by learned counsel for the assessed, that there was no fresh information supplied to the Assessing Officer by any one including the audit party. In a case like this, the duty of the Assessing Officer is that he himself should examine the material placed on record and should arrive at a prima facie belief in this behalf. He must record a conclusion that there is escapement on account of excessive depreciation allowance and is required to give reasons in this behalf. He has to justify the exercise of reassessment. In the instant case, the Assessing Officer while recording the reasons has not done any exercise. Where an assessment has been made and there is purported excessive depreciation, its allowance would require examination of facts and that must be reflected in a well reasoned document before issuance of notice for reassessment. In the instant case, that exercise has not been done. Section 148 of the Act specifically requires the Assessing Officer to record reasons. The validity of initiation of reassessment proceedings has to be judged with regard to the material available with authority at the point of time of issuing the notice u/s 148 of the Act. When the assessed has disclosed fully and truly all material facts necessary for the assessment and on the basis of which the assessment is made, then exercise of powers u/s 148 of the Act contemplates that: (a) there must be material for the belief; (b) circumstances must exist and cannot be deemed to exist for arriving at an opinion; (c) reasons to believe must be honest and not based on suspicion, gossip, rumour or conjecture; (d) reasons referred to must disclose the process of reasoning by which the Assessing Officer holds "reasons to believe" and change of opinion does not confer jurisdiction to reassess; (e) there must be nexus between material and belief; and (f) reasons recorded must show application of mind by the Assessing Officer (See: Sheth Brother''s supra).
25. In the instant case, we find that the Assessing Officer himself has not examined the matter keeping in mind the above principles and merely relying on the audit objection has issued the notice. That is contrary to the requirement of law. It is not the case of the Revenue that the income chargeable to tax has escaped assessment because of failure to furnish full and true particulars. It is the bounden duty of the Revenue to discharge the onus of showing that there was any failure on the part of the petitioner. In the instant case, the Assessing Officer was informed about the use of machinery, permission granted by the Reserve Bank of India to operate the project office and subsequently the branch office. When the assessed has placed on record sufficient material to show that machinery was used, then in that case there is no failure on the part of the petitioner.
26. In our opinion, on the same material a different view is sought to be taken and this is nothing but a mere change of opinion and that would not amount to escapement of income. Mere change of opinion would not confer jurisdiction upon the Assessing Officer to initiate proceedings u/s 147 of the Act. The learned counsel for the assessed has relied upon various other judgments but we need not refer to them.
27. Consequently, the petition is allowed with cost and the impugned notice (Annexure-A) and subsequent proceedings are hereby quashed and set aside.
