C/SCA/16680/2014 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 16680 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH Sd/- and HONOURABLE MR.JUSTICE S.H.VORA Sd/- ================================================================ 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder ? ================================================================ PALADIYA BROTHERS AND CO....Petitioner(s) Versus ASSISTANT COMMISSIONER OF INCOME TAX - CIRCLE - 9....Respondent(s) ================================================================ Appearance: MR. HARDIK V VORA, ADVOCATE for Petitioner(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for Respondent(s) No. 1 RULE SERVED for Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE S.H.VORA Date : 08/04/2015 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) Page 1 of 14 HC-NIC Page 1 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT 1.00. By way of this petition under Article 226 of Constitution of India, petitioner assessee has prayed for appropriate writ, order and/or direction to quash and set aside impugned notice dated 20/1/2014 issued under section 148 of Income Tax Act, 1961 for A.Y. 2007-2008, by which reassessment proceedings have been initiated to reopen assessment proceedings for A.Y. 2007-2008 beyond period of 4 years from relevant year. 2.00. Facts leading to present Special Civil Application in nutshell are as under :- 2.01. That petitioner filed its return of income for A.Y. 2007-2008 declaring total income at Rs.87,66,926/-. That petitioner assessee Company stated source of income from business of cutting and polishing of diamond. case was selected for scrutiny assessment by issuing notice under section 143(2) of Income Tax Act. That after making detailed inquiry, Assessing Officer assessed income at Rs.84,80,421/- after accepting rectification application of assessee for claim of deduction of respondents. 2.02. That thereafter petitioner has been served with impugned notice under section 148 of Income Tax Act dated 20/1/2014 for reassessment of income of petitioner for A.Y. 2007-2008. 2.03. That at request by petitioner, vide letter dated 8/3/2014, petitioner has been served with copy of reasons recorded for reopening of assessment for Page 2 of 14 HC-NIC Page 2 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT A.Y. 2007-2008 on 6/6/2014. 2.04. That thereafter petitioner submitted detailed objections vide communication dated 27/6/2014 objecting to reassessment proceedings. 2.05. That by order / communication dated 25/9/2014, assessing officer overlooked objections raised by petitioner against impugned reassessment proceedings and hence petitioner has preferred present Special Civil Application under Article 226 of Constitution of India challenging impugned reassessment proceedings which are initiated beyond period of 4 years of relevant assessment year. 3.00. Mr.Hardik Vora, learned advocate appearing on behalf of petitioner - assessee has vehemently submitted that ground for reopening of assessment is completely misconceived and baseless. It is submitted that in present case reassessment proceedings have been initiated after period of four years. It is submitted that therefore, escapement of income must also be occasioned by failure on part of assessee to disclose fully and truly all material facts. 3.01. Mr.Hardik Vora, learned advocate appearing on behalf of petitioner - assessee has further submitted that in present case, as such there is/ was no failure on part of assessee to disclose truly and fully material facts necessary for assessment. It is submitted that all details were duly provided as and when sought and/or required to Assessing Officer and same was scrutinized by Page 3 of 14 HC-NIC Page 3 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT Assessing Officer. It is submitted that therefore, now having allowed claim, it is not open to respondent Assessing Officer to reopen assessment, merely for re- computation taking different view on same material available with him. 3.02. Mr.Hardik Vora, learned advocate appearing on behalf of petitioner - assessee has further submitted that from reasons recorded for reopening assessment, it appears that reassessment proceedings have been initiated on ground that though additional depreciation was not available, additional depreciation was incorrectly claimed by assessee and therefore, claim of additional depreciation, contrary to provisions of Act had resulted into escapement of income to extent of Rs.14,77,669/-. It is submitted that on aforesaid ground, reassessment proceedings cannot be initiated beyond period of 4 years. It is submitted that when Assessing Officer passed assessment order and allowed claim of additional depreciation claimed by assessee, it cannot be said that there was any failure on part of assessee to disclose fully and truly all material facts necessary for assessment with respect to additional depreciation claimed. It is submitted that, therefore, reassessment proceedings, on reasons recorded, is absolutely illegal and without jurisdiction and more particularly as conditions for initiation of reassessment proceedings beyond period of 4 years, are not satisfied. 3.03. Mr.Hardik Vora, learned advocate appearing on behalf of petitioner - assessee has heavily relied upon Page 4 of 14 HC-NIC Page 4 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT decision of this Court in case of Niko Resources Ltd. Versus Assistant Director of Income Tax, reported in (2014) 51 Taxman.com 568 (Gujarat) in support of his request to quash and set aside impugned reassessment proceedings. 3.04. Mr.Hardik Vora, learned advocate appearing on behalf of petitioner - assessee has also heavily relied upon decision of Division Bench of this Court in Case of Gujarat Lease Financing Limited Versus Deputy Commissioner of Income Tax, Circle-IV, Ahmedabad dated 24/6/2013 passed in Special Civil Application No. 3048 in support of his submission that initiation of impugned reassessment proceedings are absolutely illegal and without jurisdiction. 4.00. Present petition is opposed by Mr.Sudhir Mehta, learned advocate appearing on behalf of revenue. 4.01 Affidavit-in-reply is filed on behalf of respondent justifying initiation of reassessment proceedings. It is submitted that as it was found that assessee claimed additional depreciation incorrectly, though additional depreciation was not allowable, as in view of decision of Hon'ble Supreme Court in case of Commissioner of Income Tax Versus Gem India Manufacturing Co., reported in (2001) 249 ITR 307 (SC), cutting and polishing of diamond cannot be considered as business of manufacture or production and therefore, assessee wrongly claimed additional depreciation of Rs.14,77,669/- and therefore, when it was found that Page 5 of 14 HC-NIC Page 5 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT aforesaid amount of Rs.14,77,669/- has been under-assessed and had escaped assessment, which was due to failure on part of assessee to disclose truly and fully all material facts necessary for assessment, initiation of reassessment proceedings is absolutely just and proper and does not required to be set aside by this Court at this stage. 4.02. Mr.Sudhir Mehta, learned counsel appearing on behalf of revenue has vehemently submitted that as such present petition is filed at premature stage, unless and until notice under section 148 read with section 147 of Income Tax Act has been issued. It is submitted that in event petitioner assessee is aggrieved by reassessment order, alternative efficacious remedy is available by way of appeal to CIT(A) and thereafter to learned tribunal as per provisions of Act. Therefore, it is requested not to entertain present petition. 4.03. On merits, Mr.Sudhir Mehta, learned counsel appearing on behalf of revenue has vehemently submitted that impugned reassessment proceedings are absolutely just and proper and in accordance with provisions of Act, more particularly section 147 read with section 148 of Income Tax Act. Submitting accordingly it is requested to dismiss present Special Civil Application. 5.00. Heard learned advocates appearing on behalf of respective parties at length. 5.01. At outset, it is required to be noted that what is Page 6 of 14 HC-NIC Page 6 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT challenged in present Special Civil Application by petitioner - assessee is reopening of assessment for A.Y. 2007-2008 and initiation of reassessment proceedings for A.Y. 2007-2008, in exercise of powers under section 147 read with section 148 of Income Tax Act. It is required to be noted that in present case initiation of reassessment proceedings is beyond 4 years from assessment year. Therefore, unless and until it is observed and found that income has escaped assessment due to failure on part of assessee to disclose truly and fully all material facts for assessment, Assessing Officer is not authorized to make reassessment even in event of his having reasonable belief that any income chargeable to tax has escaped assessment for any assessment year. As per first proviso to section 147, assessment can be reopened under section 147 after expiry of 4 years only if (1) assessee failed to make return under section 139 or in response to notice under section 142(1) or under section 148 and he failed to disclose truly and fully all material facts necessary for assessment. Once case of assessee is covered by first proviso to section 147, reassessment proceedings beyond period of four years from end of relevant assessment year would be without jurisdiction and bad in law. If all material facts are furnished by assessee and there remains no omission or failure on part of assessee to disclose truly and fully all material facts necessary for assessment with respect to additional depreciation claimed, initiation of reassessment proceedings beyond period of 4 years is not permission and shall be wholly without jurisdiction. Page 7 of 14 HC-NIC Page 7 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT 5.02. Now, in backdrop of above legal provision, challenge to impugned reassessment proceedings are required to be considered. 5.03. In present case, reassessment proceedings under section 147 of Act for A.Y. 2007-08 are initiated beyond period of four years. reasons recorded for reopening of assessment for A.Y. 2007-2008, which are communicated to petitioner assessee vide communication dated 6/6/2014 are as follows :- Reasons recorded under section 148(2) of Income Tax Act: Section 32(1) provides that in case of new machinery of plant (other ships and aircraft acquired and installed after 31-3-2005, by assessee engaged in business of manufacture or production of any article or thing, additional @ 20% of actual cost of such machinery or plant will be allowed as deduction u/s.31(1)(ii). assessee firm engaged in business of manufacturing, import and export of diamonds filed its return of income for A.Y. 2007-08 on 24/9/2007 declaring total income of Rs.87,66,926/-. Scrutiny of depreciation statement revealed that in respect of Laser machine, Lathe & Ghanti A/c. and plant and machinery depreciation worked out includes depreciation at 15% / 7.5% and additional depreciation at 20% / 10%. assessee was engaged in manufacturing of Page 8 of 14 HC-NIC Page 8 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT diamond cutting and polishing. cutting and polishing of diamond cannot be considered as business of manufacturing of production as held by Hon ble Supreme Court in case of CIT Vs. Gem India Mftg. Co. (2001) 249 ITR 307 (the Hon'ble Supreme Court ). Accordingly additional depreciation was not allowable but additional depreciation was incorrectly claimed by assessee. Total depreciation claimed as Rs.14,77,669/- as under :- Asset OB Additional Additional Depre- Depre- Excess 1st half 2nd half ciation ciation Depre- allowed allowable ciation claimed 1 2 3 4 5 6 Laser 4778650 1516700 3341805 1832458 2-716798 637520 Machine 3-227505 4-250635 1194838 Lathers 92312 ..... 819800 157312 2-13847 75980 & Ghanti 4-67485 81332 Plant & 5510710 2925786 1790122 2163903 15%- 764169 Machin- 826607 ery 3-438868 4-134259 1399734 TOTAL 4153673 2676004 1477669 claim of additional depreciation contrary to provisions of Act had resulted into escapement of income to extent of (Rs. 14,77,669/-) due to failure on part of assessee to disclose truly all material facts necessary for his assessment. Thus, from aforesaid, it appears that assessment Page 9 of 14 HC-NIC Page 9 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT for A.Y. 2007-2008 is sought to be reopened on ground that in view of decision of Hon'ble Supreme Court in case of Commissioner of Income Tax Versus Gem India Manufacturing Co., reported in (2001) 249 ITR 307 (SC), cutting and polishing of diamond cannot be considered as business of manufacture or production and therefore, additional depreciation claimed by assessee was not allowable and therefore, assessee claimed additional deprecation incorrectly and therefore, there is under- assessment of Rs.14,77,669/-. However, it is required to be noted and it appears from original assessment order that while submitting original return of income, assessee claimed depreciation at 20% / 10% in respect of Lesser Machine, Leth, Ghanti and Plant & Machinery which came to be considered and granted by A.O. Therefore, as such it cannot be said that there was any failure on part of assessee to disclose truly and fully all material facts necessary for assessment with respect to additional depreciation claimed. 5.04. reasons for reopening of assessment as mentioned in communication dated 6/6/2014 is nothing but change of opinion of A.O. and that too, without any new material, which is not permissible. 5.05. Considering aforesaid facts and circumstances of case it cannot be said that assessee did not disclose fully and truly all material facts necessary for assessment and therefore, income chargeable to tax has been escaped due to failure on part of assessee to disclose fully and truly all material facts with respect to Page 10 of 14 HC-NIC Page 10 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT additional depreciation claimed. Under circumstances, condition precedent for invoking powers under section 147 of Income Tax Act to initiate reassessment proceedings beyond period of 4 years are not at all satisfied. 5.06. Identical question came to be considered by Division Bench of this Court in case of Niko Resources Ltd. (supra) and while considering scope and ambit of powers to be exercised under section 147 of Income Tax Act by Assessing Officer, while reopening assessment beyond period of 4 years, Division Bench of this Court while considering its decisions in case of Gujarat Lease Financing Limited (supra), has observed and held in paragraph Nos.16, 17 and 27 as under :- 16. Assessing Officer is authorized to make reassessment in event of his having reasonable belief that any income chargeable to tax has escaped assessment for any assessment year. As per 1st proviso to section 147 of Act, assessment can be reopened under section I47 of Act after expiry of 4 years only if (1) assessee failed to make return under section I39 of Act or in response to notice issued under section 142(1) or under section 148 of Act, he failed to disclose truly and fully all material facts necessary for assessment. Once all primary facts are before assessing authority, no further assistance is required by way of disclosure. All inferences of facts and legal inference need to be drawn by Assessing Officer. It is not for any one to guide Assessing Officer in respect of inference "factual or legal", which requires to be drawn by him Page 11 of 14 HC-NIC Page 11 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT alone. 17. Once case of assessee is covered by 1st proviso to section 147 of Act, reassessment proceedings beyond period of 4 years from end of relevant assessment year would be without any jurisdiction and bad in law, if all material facts are furnished and there remained no omission or failure on part of assessee to disclose truly and fully all material facts. This Court, after extensively discussing law on issue in case of Gujarat Lease Financing Ltd. (supra), has held thus: "l0. It can be clearly noted from reasons recorded that there is no mention at all of assessee having not disclosed fully or truly material facts which were necessary for purpose of computing income of assessee. Assuming that in notice for reopening. such wordings are not specifically mentioned and they can be supplemented either while rejecting objections or by way of affidavit of Assessing Officer, then also, revenue has failed to point out as to in what manner there has been non-disclosure on part of assessee." 27. From ratio that can be culled out from all these decisions, it is amply clear that Assessing Officer, who is authorized to issue Page 12 of 14 HC-NIC Page 12 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT notice under section 148 of Act for reassessment. on his having reason to believe that income chargeable to tax had escaped assessment for any assessment year, can assess or reassess such income and also any such other income chargeable to tax, which has escaped assessment. However, no such action is permissible after lapse of 4 years from end of relevant assessment year unless income chargeable to tax has escaped assessment on account of failure on part of assessee to disclose fully and truly all material facts necessary for purpose of such assessment. onus is on assessee to reveal primary facts and to draw inferential facts would be responsibility of Assessing Officer. Once having revealed from record that assessee disclosed full and complete facts and on scrutiny, at time of original assessment all these details are examined, no change of opinion is permissible merely because there was some error earlier on part of Assessing Officer himself or because he choose not to opine on issue or even when he changes his mind and interprets material or law otherwise than what was done by him. 5.07. Applying decision of Division Bench of this Court in case of Niko Resources Ltd. (supra) as well as Gujarat Lease Financing Limited (supra), to facts of case on hand and as observed hereinabove, there does not appear to be failure on part of assessee to disclose truly and fully all material facts necessary for assessment with respect to additional depreciation claimed, initiation of impugned reassessment proceedings which are initiated Page 13 of 14 HC-NIC Page 13 of 14 Created On Mon Feb 15 12:44:34 IST 2016 C/SCA/16680/2014 JUDGMENT beyond period of four years, are not permissible and same cannot sustain and on that ground alone, impugned reassessment proceedings deserve to be quashed and set aside. 6.00. In view of above and for reasons stated above, present petition succeeds. impugned notice under section 148 of Income Tax Act for A.Y. 2007-2008 is hereby quashed and set aside and impugned reassessment proceedings of reopening assessment for A.Y. 2007-2008 are hereby terminated on aforesaid ground alone. Rule is made absolute accordingly. In facts and circumstances of case, there shall be no order as to costs. Sd/- (M.R.SHAH, J.) Sd/- (S.H.VORA, J.) Rafik. Page 14 of 14 HC-NIC Page 14 of 14 Created On Mon Feb 15 12:44:34 IST 2016 Paladiya Brothers And Co. v. Assistant Commissioner of Income-tax- Circle-9