Garden Finance Ltd Vs Assistant Commissioner of Income Tax - Citation 737087 - Court Judgment

Judgment:

D.H. Waghela, J.

1. In this petition under Art. 226 of Constitution, notice for assessment, under Section 148 of the Income-tax Act, 1961 (for short 'the Act'), is under challenge mainly on the ground of lack of jurisdiction.

2. The facts as far as they are relevant for the purpose of deciding the issues raised in this petition are simple and in a narrow compass. The petitioner, a public limited company, filed its return of income on 30th Nov., 1996, for the asst. yr. 1996-97 and, inter alia, claimed depreciation @ 40 per cent on written down value of vehicles on which such depreciation was allowed in asst. yr. 1995-96, and also claimed pro rata depreciation @ 20 per cent on the additions during asst. yr. 1996-97. The AO, by his letter dt. 21st Oct., 1998, asked the petitioner to furnish details regarding various points of which one was details of the vehicles on which depreciation @ 40 per cent was claimed. In reply thereto, the petitioner stated that it was a finance company engaged in the business of leasing, the vehicles in question were given on lease and that the lessee had used the said vehicles in the business of running them on hire. It was also pointed out that there was no requirement in Section 32 of the Act or in the Rules made thereunder that the owner of commercial vehicles has to use the vehicles himself for the business of hire. After such reply and hearing and disallowing several other claims, total income of Rs. 5,00,35,628 was assessed under Section 143(3) of the Act as against the original return of income declaring taxable income as Rs. nil.

2.1 Thereafter, a notice under Section 147 of the Act is stated to have been issued in October, 2001 in respect of commission, bad debt and interest, which the AO added, but the CIT deleted and the Department's appeal preferred therefrom is stated to be pending.

2.2 The impugned notice dt. 20th June, 2002 under Section 148 of the Act stated that the Asstt. CIT, Surat, had reason to believe that the petitioner's income for the asst. yr. 1996-97 had escaped assessment within the meaning of Section 147 of the Act and, therefore, the petitioner was required to deliver within 30 days a return in the prescribed form. After the reasons recorded under Section 148 of the Act were demanded and denied and the petitioner had submitted the same nil return, the petitioner was requested to show-cause why the excess depreciation allowed to the extent of Rs. 1,70,00,000 should not be disallowed, Accordingly, notice of hearing under Section 143(2) of the Act was also issued and hearing was fixed on 11th Dec., 2002 with a request to appear with necessary explanation. Even as the hearing was adjourned to 18th Dec., 2002, the petitioner approached this Court on 19th Dec., 2002 by way of this petition and obtained interim relief on 20th Dec., 2002. The initial injunction granted on 20th Dec., 2002, only against final assessment by way of ad interim relief has been continued and confirmed, while admitting the petition on 24th Feb., 2003, into an order to maintain status quo.

2.3 By filing an affidavit-in-reply, the respondent has stated that the contentions raised and the averments made in the petition could be raised before the AO who would decide the same in due course. It is also contended that the depreciation claimed by the petitioner @ 40 per cent on WDV cost of the commercial vehicles was granted by the AO without discussing the issue in the assessment order and without looking to the provisions of the Act. It is, therefore, submitted that this was a clear case of claiming excess depreciation and was covered by the proviso to Section 147 of the Act. The reasons recorded under Section 148 of the Act are produced with the affidavit and the material part thereof reads as under;

'3. On verification of the depreciation statement attached with the return of income, it is noticed that depreciation of Rs. 8,43,27,096 is inclusive of depreciation of Rs. 3,40,00,000 on motor vehicles (commercial) claimed at the rate of 40 per cent on WDV/cost of Rs. 8,50,00,000. As per Rule 5, the rate of depreciation on motor vehicle in the second column of the table in Appen. 1 are as under:

Block of assetsDepreciation

allowance as per

percentage of WDViii (IA) Motor cars other than those used in

a business of running them on hire

acquired or put to use on or after the first

day of April, 199020%(2) (ii) Motor buses, motor lorries and motor

taxis used in a business of running them

on hire40%

4. The assessee is a leasing company. The assessee-company has used the motor vehicles for lease and not for hiring. The assessee-company is, therefore, entitled for depreciation at the normal rate of 20 per cent on motor vehicles (commercial) and not at the higher rate of 40 per cent as claimed and allowed while finalising the assessment. Excess depreciation on motor vehicles (commercial) has been allowed by Rs. 1,70,00,000 while computing taxable income, which has escaped assessment to that extent.

5. I have, therefore, reason to believe that income to the extent of Rs. 1,70,00,000 has escaped assessment within the meaning of Sub-clause (i) of Expln. 2 inserted to Section 147 of the IT Act. The assessee-company has failed to furnish full and true particulars of income.'

3. The burden of the arguments of learned advocate Mr. J.P. Shah, appearing for the petitioner, was that, in the facts and circumstances, the respondent lacked the jurisdiction to reopen the assessment under Section 147 of the Act and the alternative remedy of presenting the case before the AO was neither an efficacious nor an adequate remedy apart from being lengthy, expensive and cumbersome. It was submitted that the assessment in the relevant year was made under Sub-section (3) of Section 143 and the reassessment proceedings were initiated admittedly after four years from the end of the relevant assessment year. That the petitioner had not failed to disclose fully and truly all the material facts necessary for its assessment and no income chargeable to tax had escaped assessment on that account. In fact, there was no escapement of income, according to the submission, Elaborating such submission, the learned counsel submitted that the then AO had applied his mind to the claim of the petitioner and after considering the explanation tendered by him, allowed depreciation at the higher rate. Therefore, the respondent was acting on a mere change of opinion which could not vest the authority with the jurisdiction to initiate reassessment proceedings. In support of his submissions, he relied upon the judgment of the Supreme Court in Calcutta Discount Co. Ltd v. ITO : [1961]41ITR191(SC) as applied in Whirlpool Corporation v. Registrar of Trade Marks : AIR1999SC22 with special emphasis on the following observations;

'The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party quick relief by a writ order prohibiting an authority acting without jurisdiction or from continuing such, action. When the Constitution conferred on the. High Courts the power to give relief, it became the duty of the Courts to give such relief in fit cases and the Courts would be failing to perform their duty if relief were refused without adequate reasons.'.....................

'Where such action of an executive authority acting without jurisdiction subjects, or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts will issue appropriate orders of directions to prevent such consequences. Writ of certiorari or prohibition can issue against the ITO acting without jurisdiction under Section 34 of the IT Act.'......

'Much water has since flown under the bridge, but there has been no corrosive effect on these decisions which, though old, continue to hold the field with the result that law as to the jurisdiction of the High Court in entertaining a writ petition under Article 226 of the Constitution, in spite of alternative statutory remedies, is not affected, specially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation.'

(emphasis, italicized in print, supplied)

3.1 The learned counsel also relied upon the judgment of the Supreme Court in CIT v. Corporation Bank Ltd. : [2002]254ITR791(SC) wherein the assessee had furnished particulars of the amount claimed as not recoverable and had also filed statements disclosing full details of the interest suspense account and it was held that there was no failure on the part of the assessee to disclose fully and truly the material facts necessary for the assessment and, therefore, Section 147(a) was held to be not attracted. Similar was the fate in CIT v. Foramer France (2003) 129 Taxman 72 (SC)wherein admittedly there was no failure' to disclose fully and truly all the material facts necessary for assessment.

4. The learned standing counsel Mr. B.B. Naik appearing for the respondent, submitted that the petitioner had not only alternative remedy but it was availed also by the petitioner and that there was no reason to entertain any apprehension that all objections, including the objection regarding jurisdiction, shall not be entertained and legally adjudicated by the authority after affording the petitioner an opportunity of being heard. He, in effect, submitted that the respondent had reason to bona fide believe that the income chargeable to tax had escaped assessment, that such escapement was due to failure on the part of the petitioner to disclose fully and truly all the material facts and that excessive depreciation allowance was computed in the relevant assessment year. He further submitted that adequate safeguards against abuse of the powers under Section 147 were provided in the express provisions of the Act. And, it would be improper and unfair for this Court to interject at this stage, particularly in view of the recent development of the law in this regard. He relied upon the judgment of the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 and various other judgments to which reference will be made hereafter.

5. In order to appreciate the rival submissions, it would be appropriate to first refer to the relevant parts and clauses of the provisions of the IT Act. Sec. 147 of the Act empowers the AO, if he has reason to believe that any income chargeable to tax has escaped assessment, to assess or reassess such income or recompute the depreciation allowance. This power is subject to the provisions of Sections 148 to 153 and the proviso that where an assessment under Sub-section (3) of Section 143, or Section 147 has been made for the relevant assessment year, no action can be taken under Section 147 after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Expln. 2 says that, where an assessment has been made and excessive loss or depreciation allowance or any other allowance under the Act has been computed, it shall be deemed to be a case in which income chargeable to tax has escaped assessment, Sec. 147 of the Act expressly provides for reassessment not only of the income chargeable to tax which had escaped assessment but also of such other income which comes to notice subsequently during the course of assessment.

5.1 It is clear the from plain reading of the relevant provisions that the first condition for assuming jurisdiction for initiating reassessment is that the AO has to have reason to believe that any income chargeable to tax has escaped assessment. As elaborated by this Court in Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT : [1999]236ITR832(Guj) '.............The words 'reason to believe' cannot mean that the AO should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes and, if he likes, from any information that he receives. If he discovers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he had reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings under Section 147 may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where he finds a cause or justification to believe that such income has escaped assessment, the AO is not required to base his belief on any final adjudication of the matter'. And, '.....His formation of belief is not a judicial decision but an administrative decision. It does not determine anything at the initial stage, but the AO has a duty to proceed so as to obtain, what the taxpayer was always bound to pay if the increase is justified at all. The decision to initiate the proceedings is not to be preceded by any judicial or quasi-judicial enquiry. His reasoning may be the result of official information or his own investigation or may come from any source that he considers reliable. His reason is not to be judged by a Court by the standard of what the ideal man would think. He is the actual man trusted by the legislature and charged with the duty of forming of a belief for the mere purposes of determining whether he should proceed to collect what is strictly due by law, and no other authority can substitute, its standard of sufficient reason in the circumstances, or his opinion or belief for his. Unless the ground or material on which his belief is based, is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason, cannot be overridden. What is, therefore, to be ascertained is, whether the alleged reason really existed, and if it did, whether it was so irrational as to be outside the limits of his administrative discretion with which the AO is invested so as to be really in disregard of the statutory condition.......' Evidently, the AO purporting to exercise powers under Section 147 of the Act, is not a party who has to not only state but establish before anyone the so-called jurisdictional facts.

5.2 In the case of initiation of assessment proceedings under Section 147 after four years, the alleged escapement has to be on account of failure of the assessee 'to disclose fully and truly all material facts necessary for his assessment'. Therefore, if all the facts that are material and necessary for assessment are fully and truly disclosed by the assessee, the power and jurisdiction under Section 147 cannot be exercised. And the reply to the question whether all the material facts necessary for the assessment were fully and truly disclosed or not, would depend upon the facts of each case. As held by the Supreme Court in Parsuram Pottery Works Ltd. v. ITO : [1977]106ITR1(SC) '........In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee require to know all the facts which help him in coming to the correct conclusion......'

5.3 Reply to the question whether any income chargeable to tax has escaped assessment or not is made easier by virtue of the Explanation providing for a deeming fiction under which, where excessive depreciation allowance has been computed, income has to be deemed to have escaped assessment. The Explanation providing for this deeming fiction has double impact in supplying reason to believe that there was escapement of income and in justifying reassessment.

6. As early as in 1988, the Supreme Court had, in VXL India Ltd. v. ITO dismissed the SLP of the assessee preferred from the Division Bench judgment in LPA observing as under:

'Whether there was any material or information in possession of the ITO which is sufficient to invoke the provisions of Section 147 is to be decided under the provisions of the Act itself and that could not be decided under Article 226 of the Constitution. It has to be decided in the assessment proceeding after considering the objections raised by the assessee before the ITO, the appellate or other authorities. Accordingly, we dismiss this appeal with liberty to the appellant to raise all questions that are open to it under law before the assessing authorities, including the question of jurisdiction or of the conditions precedent for invoking the provisions made under Section 147 of the Act.'

6.1 Later on, the Supreme Court observed in Sri Krishna (P) Ltd. v. ITO : [1996]221ITR538(SC) that enquiry at the stage of validity of notice under Section 148/147 is only to see whether there are reasonable grounds for the ITO to believe and not whether the omission/failure and the escapement of income is established.

7. The relevant law and procedural aspects thereof with regard to the main issue stand practically amended and crystallised by virtue of the recent judgment of the Supreme Court in GKN Driveshafts (supra). In the facts of that case, the High Court had taken the view that the appellant could have taken all the objections in its reply to the notices issued under Sections 148 and 143(2) of the Act and that the writ petition was premature. In the appeal preferred from that order, the Supreme Court found no justifiable reason to interfere. More importantly, it is further clarified that when a notice under Section 148 of the Act was issued, the proper course of action for the notice was to file a return, and if he so desires to seek reasons for issuing the notice. The AO is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. Thus, the Supreme Court has not only rejected the appeal against the order holding the petition to be premature, it has consciously prescribed the proper course of action for the noticee in all such cases. This prescription is the binding law under Article 141 of the Constitution of India.

7.1 In the facts of the present case, the petitioner being halfway through the process and now that reasons are revealed, what remains is filing of objections to issuance of notice and disposing of the same by a speaking order by the AO. After specific prescription of the proper course of action exactly in the present context by the Supreme Court, it would be highly improper and presumptuous for the petitioner to submit and for this Court to hold that it is an alternative remedy which is not adequate, efficacious or appropriate. The petition is, therefore, liable to be dismissed only on that ground. In fact, after the initial injunction only against final assessment, the objections to notice under Section 147 of the Act could have been submitted and decided even during pendency of the petition and the judgment of the Supreme Court could have easily been complied.

8. After recording the aforesaid conclusion and deciding to relegate the petitioner to original proceedings of reassessment, any discussion of the rival submissions regarding the objections of the petitioner to the impugned notice may influence the decision of the AO and cause prejudice to a party. Therefore, it would not be proper to succumb to the temptation of examining at this stage whether, even after specific query in that regard, the reply of the petitioner that, 'the lessee has used the said commercial vehicles for the business of running them on hire', was in the facts and circumstances, full and true disclosure of all the material facts necessary for assessment. And, of course, the question as to whether in fact, excessive depreciation allowance was computed, would in any case be wide open before the AO. However, the contention that there was mere change of opinion of the AO with regard to the depreciation allowance has to be negatived in no uncertain terms since, pursuance to the query requiring details of vehicles on which depreciation @ 40 per cent was claimed and reply thereto as aforesaid, there is no discussion or finding whatsoever on that aspect in the assessment order for the relevant assessment year. There obviously was no opinion formed with regard to the applicable rate of depreciation allowance. Again, as held by this Court in Praful Chunilal Patel (supra), 'In cases where the AO had overlooked something at the first assessment, there can, in our opinion, be no question of any change of opinion....'. And, '......However, in cases where an error or mistake is detected, it can never be said that there is only a mere change of opinion. The mistake or error which is detected and which constituted a valid decision or cause to form a belief in the first assessment as a result of which the income has escaped assessment, would constitute a reason to believe that the income had escaped assessment and such cases where mistakes and errors are detected and which constitute a valid justification or cause to form a belief sought to be corrected, cannot be said to be cases of mere change of opinion.'

9. The other contention of the petitioner that the respondent had already made up and revealed his mind on the issue and raising preliminary objection to the very assumption of jurisdiction and issuance of notice cannot serve any useful purpose, has to be stated to be rejected in view of the aforesaid discussion and the order made hereunder. The further argument, in substance, that, upon decision of the preliminary objection or framing of the assessment the petitioner would find itself on the path of statutory remedies and that virtually amounts to denial of relief through the constitutional remedy, is premature, presumptive and pre-emptive. There is, before the petitioner, the instance of its own case in respect of the same assessment year wherein additions by the AO in reassessment under Section 147 of the Act were deleted by the CIT, as stated earlier.

10. In view of the above discussion, well settled legal position and conclusions, the other judgments cited at the Bar are not required to be discussed. It is, however, clarified that, upon dismissal of this petition and vacation of the interim relief, when the process of reassessment is restarted and preliminary objections to the impugned notice are raised by the petitioner, they shall be considered and decided in accordance with law after affording to the petitioner sufficient opportunity of being heard.

Accordingly, the petition is dismissed. Rule is discharged and the interim relief is vacated with no order as to costs.

D.A. Mehta, J.

1. I have gone through the judgment of my learned senior brother. For the reasons stated hereinafter, I record my dissenting opinion.

This petition under Article 226 of the Constitution of India challenges the notice under Section 148 of the IT Act, 1961 (the Act), dt. 20th June, 2002, for the asst. yr. 1996-97.

2. The petitioner is a public limited company. On 30th Nov., 1996, the petitioner filed its return of income for the asst. yr. 1996-97. The relevant accounting period is year ended on 31st March, 1996. Along with return of income, the petitioner had filed a statement of depreciation wherein depreciation @ 40 per cent on the written down value (WDV) of Rs. 8,50,00,000 had been claimed on commercial vehicles. The petitioner had also claimed depreciation on commercial vehicles worth Rs. 22,22,540 @ 20 per cent because the petitioner had purchased the said commercial vehicles in the second half of the accounting period. On 21st Oct., 1998, the petitioner was served with a letter by the AO calling for various details and at serial No. 19, the said letter stated--

'Details of vehicles on which depreciation at the rate of 40 per cent is claimed.'

The petitioner duly replied to the said letter on 22nd Feb., 1999. In relation to the aforesaid query, the petitioner stated that the commercial vehicles purchased by the petitioner had been given on lease and the lessee had used the said commercial vehicles for the business of running them on hire. The petitioner also invited the attention of the AO to the fact that the provisions of Section 32 of the Act or the relevant Rules did not require that the owner of the commercial vehicles was bound to use the vehicle himself for the business of hire. In support of the aforesaid contention, the petitioner placed reliance upon various decisions of the Tribunal, which have been referred to in the reply dt. 22nd Feb., 1999. On 24th March, 1999, the AO passed the assessment order under Section 143(3) of the Act and though various additions and disallowances were made, in relation to the aforesaid item of depreciation no disallowance has been made.

On 20th June, 2002, the notice under Section 148 of the Act, came to be issued. On 24th June, 2002, the petitioner called upon the, AO to supply a copy of the reasons recorded. On 20th Aug., 2002, the AO communicated to the petitioner that there was no statutory requirement of providing a copy of the reasons recorded before filing of the return of income and hence, the petitioner was called upon to furnish the return of income in response to the notice issued under Section 148 of the Act. Thereafter, it appears that the petitioner filed the return on 14th Nov., 2002, returning the same income. On 3rd Dec., 2002, the AO issued a show-cause notice fixing the hearing on 11th Dec., 2002. In the said show-cause notice, it was stated that the petitioner was a leasing company and the motor vehicles had been used for leasing out and not for hiring and, therefore, excess depreciation on commercial vehicles had been allowed to the extent of Rs. 1,70,00,000, because according to the AO, the correct rate of depreciation ought to have been 20 per cent and not the higher rate of 40 per cent, as claimed and allowed while framing the assessment under Section 143(3) of the Act.

3. Along with the affidavit-in-reply, the reasons recorded by the respondent have been placed on record and the relevant portion thereof, reads as under:

Block of assetsDepreciation

allowance as per

percentage of WDV(1) (IA) Motor cars other than those used in

a business of running them on hire

acquired or put to use on or after the first

day of April, 199020%(2) (ii) Motor buses, motor lorries and motor

taxis used in a business of running them

on hire40%

5. I have, therefore, reason to believe that income to the extent of. Rs. 1,70,00,000 has escaped assessment within the meaning of Sub-clause. (i) of Expln. 2 inserted to Section 147 of the IT Act. The assessee-company has failed to furnish full and true particulars of income.'

4. Mr. J.P. Shah, learned advocate appearing on behalf of the petitioner, submitted that where the action of the respondent-authority was shown to be prima facie without jurisdiction, the Court must exercise its jurisdiction and powers under Article 226 of the Constitution of India and grant necessary consequential relief without subjecting the petitioner to lengthy proceedings by way of relegating the petitioner to avail of alternative remedy, resulting in harassment to the petitioner by way of incurring of substantial expenses as well as long-drawn-out litigation. It was contended that in the facts and circumstances of the case, taking into consideration the language employed by the proviso to Section 147 of the Act, it was apparent that the impugned notice under Section 148 of the Act had been issued after expiry of four years from the end of the relevant assessment year and hence, it was upon the respondent-authority to show that firstly, income chargeable to tax had escaped assessment for such assessment year; secondly, such escapement had taken place either by reason of failure on the part of the assessee to make a return; or, thirdly, such escapement had taken place by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. That in the present case, the second contingency regarding non-filing of return did not exist and hence, the respondent-authority had to show prima facie that there was any failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, which resulted in escapement of any income. That the petitioner had not only made full and true disclosure while filing the return of income, the then AO had applied his mind to the claim of the petitioner, called for details and explanation, and after considering the explanation tendered by the petitioner, granted depreciation at the rate claimed by the petitioner. That, in these circumstances, the respondent-authority was, thus, acting on a mere change of opinion only and the law was well settled that mere change of opinion after expiry of a period of four years, from the end of the relevant assessment year cannot vest the authority with the jurisdiction to initiate reassessment proceedings. In support of the submissions, Mr. Shah placed reliance upon the decisions of the Supreme Court in the case of CIT v. Corporation Bank Ltd. : [2002]254ITR791(SC) as well as in the case of CIT v. Foramer France (2003) 129 Taxman 72 (SC).

5. As against this, Mr. B.B. Naik, learned standing counsel appearing on behalf of the respondent-authority, submitted that the petitioner should not be entertained because the petitioner was entitled to alternative remedy by way of appeal, etc., in case an adverse order was passed against the petitioner. That even otherwise, as stated by the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 when a notice under Section 148 of the Act is issued, the noticee is required to file return and thereafter, seek reasons for issuance of notice. That the AO is bound to furnish reasons within reasonable time and on receipt of reasons, the noticee is entitled to file objections and the AO is bound to dispose of the said objections by passing a speaking order. It was, therefore, submitted that in the present case, the petitioner can raise its objections and the AO was bound to deal with the same and dispose of the same.

6. At this stage, Mr. J.P. Shah on behalf of the petitioner, joined issue and submitted that even assuming for the sake of argument that such a course of action could be adopted, in the present case, this Court had admitted the matter after hearing the other side on this very contention, and hence, the Court should not relegate the petitioner to such a course of action. It was further submitted that even otherwise, the respondent-authority had already disclosed its reasons as well as given its view by way of the aforesaid show-cause notice dt. 3rd Dec., 2002 and hence, no fruitful purpose would be served by raising the same objections before the authority as the authority had already made up its mind.

7. Mr. Shah also invited the attention to the decisions of this Court in the case of Arvind Polycot Ltd. v. Asstt. CIT (1996) 222 ITR 280 and Gujarat Gas Co. Ltd. v. Jt. CIT : [2000]245ITR84(Guj) to submit that the existence of alternative remedies such as appeals and reference is not always a sufficient reason for refusing a party quick relief by a writ or order prohibiting the authority from acting without jurisdiction or from continuing such action. That, when the constitution had conferred on the High Court the power to give relief, it was the duty of the Court to give such relief in fit cases and the Court would be failing to perform its duty if relief were refused without adequate reasons.

8. Mr. Naik placed reliance upon various decisions of different High Courts in support of the contention that where alternative remedy prescribed by the statute is available, that should be availed of as a first remedy and the Court should be approached under Article 226 of the Constitution of India only as a last resort. That the petitioner should not entertain any apprehension to the effect that the objections regarding jurisdiction shall not be entertained by the authority or that appropriate opportunity shall not be given. It was also submitted that whether there was failure on the part of the petitioner-assessee or not, would always turn on facts of the case and sufficiency of material for recording of reasons was beyond the domain of jurisdiction of the Court. It was further submitted that it was not open to the Court while exercising jurisdiction under Article 226 of the Constitution of India to enter into re-appreciation of evidence or facts for the purpose of determining as to whether the respondent-authority had jurisdiction or not. The following decisions have been cited by Mr. Naik in support of the aforesaid contentions:

(i) Mahavir Spinning Mills Ltd. v. Jt. CIT

(ii) Kureethadam Wines v. CIT

(iii) Dev Son (P) Ltd. v. Union of India (1991) 56 Taxman 122 (J&K;)

(iv) New Bank of India Ltd. v. ITO and Anr. : [1982]136ITR679(Delhi)

(v) Bal Ram Jakhar v. CIT and Ors.

(vi) Deepchand Daga v. ITO and Anr. : [1970]77ITR661(MP)

(vii) R.B. Seth Gujar Mal Modi and Ors. v. CIT and Anr.

(viii) VXL India Ltd. v. ITO and Ors.

(ix) CIT v. U.P. Forest Corporation : [1998]230ITR945(SC)

(x) Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT : [1999]236ITR832(Guj)

(xi) Sri Krishna (P) Ltd. v. ITO and Ors. : [1996]221ITR538(SC) .

In the light of the fact that both the sides made elaborate submissions in relation to existence of alternative remedy, and its effect, it is necessary to briefly recapitulate the law enunciated and reiterated by the apex Court on this subject from time to time.

9. Over and above the aforesaid case laws, we have also taken into consideration two decisions of the apex Court one in the case of Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) and another in the case of Whirlpool Corporation v. Registrar of Trade Marks : AIR1999SC22 for the purpose of deciding whether it would be proper to exercise jurisdiction under Article 226/227 of the Constitution of India in the present case. The apex Court in the case of Calcutta Discount Co. Ltd. (supra) while dealing with the availability of alternative remedy has stated--

'The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction or from continuing such action. When the Constitution conferred on the High Courts the power to give relief, it became the duty of the Courts to give such relief in fit cases and the Courts would be failing to perform their duty if relief were refused without adequate reasons.' 10. This earlier decision in the case of Calcutta Discount Co. Ltd. (supra) has been approved by the Supreme Court in the later decision of Whirlpool Corporation (supra) wherein it has laid down that:

'14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, prohibition, quo warranto and certiorari for the enforcement of any of the fundamental rights contained in Part III of the Constitution but also for 'any other purpose.'

15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the fundamental rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. There is a plethora of case-law on this point but to cut down this circle of forensic whirlpool, we would rely on some old decisions of the evolutionary era of the constitutional law as they still hold the field.

16. Rashid Ahmed v. Municipal Board, Kairana laid down that existence of an adequate legal remedy was a factor to be taken into consideration in the matter of granting writs. This was followed by another Rashid case, namely, K.S. Rashid & Son v. Income-tax Investigation Commission which reiterated the above proposition and held that where alternative remedy existed, it would be a sound exercise of discretion to refuse to interfere in a petition under Article 226. This proposition was, however, qualified by the significant words, 'unless there are good grounds therefor', which indicated that alternative remedy would not operate as an absolute bar and that writ petition under Article 226 could still be entertained in exceptional circumstances.

17. A specific and clear rule was laid down in State of UP v. Mohd. Nooh as under :

'But this rule requiring the exhaustion of statutory remedies before the writ will be granted as a rule of policy, convenience and discretion rather than a rule of law and instances are numerous where a writ of certiorari has been issued in spite of the fact that the aggrieved party had other adequate legal remedies'. 18. This proposition was considered by a Constitution Bench of this Court in A.V. Venkateswaran, Collector of Customs v. Ramchand Sobhraj Wadhwani and was affirmed and followed in the following words:

The passages in the judgments of this Court we have extracted would indicate (1) that the two exceptions which the learned Solicitor General formulated to the normal rule as to the effect of the existence of an adequate alternative remedy were by no means exhaustive, and (2) that even beyond them a discretion vested in the High Court to have entertained the petition and granted the petitioner relief notwithstanding the existence of an alternative remedy. We need only add that the broad lines of the general principles on which the Court should act having been clearly laid down, their application to the facts of each particular case must necessarily be dependent on a variety of individual facts which must govern the proper exercise of the discretion of the Court, and that in a matter which is thus pre-eminently one of discretion, it is not possible or even if it were, it would not be desirable to lay down inflexible rules which should be applied with rigidity in every case which comes up before the Court.' 19. Another Constitution Bench decision in Calcutta Discount Co. Ltd. v. ITO, laid down :

Though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts will issue appropriate orders or directions to prevent such consequences. Writ of certiorari and prohibition can issue against the ITO acting without jurisdiction under Section 34, IT Act.' 20. Much water has since flown under the bridge, but there has been no corrosive effect on these decisions which though old, continue to hold the field with the result that law as to the jurisdiction of the High Court in entertaining a writ petition under Article 226 of the Constitution, in spite of the alternative statutory remedies, is not affected, specially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation'.

11. On a careful consideration and analysis of the various decisions cited before us, we find that the following legal propositions emerge:

(i) The power to issue a prerogative writ is plenary in nature.

(ii) Such power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition or certiorari to ensure fundamental rights, but, also for 'any other purpose'.

(iii) The High Court, having regard to the facts of the case, has discretion to entertain or not to entertain the petition depending upon various facts and circumstances special to individual cases.

(iv) The High Court, having imposed upon itself certain restrictive fetters, one of which is availability of alternative and efficacious remedy, would not normally exercise jurisdiction.

(v) However, availability of alternative remedy per se does not operate as a bar in all contingencies.

(vi) Rule requiring exercise of alternative remedy is a rule of policy, convenience and discretion.

(vii) The Court should exercise jurisdiction under Article 226 taking note of legislative intent manifested by the provisions so as to be consistent with such provisions and not to frustrate them.

(viii) The Court should exercise jurisdiction under Article 226 where enforcement of any of the fundamental rights is sought or where there is violation of principle of natural justice or where order or proceedings are wholly without jurisdiction or where vires of a provision are challenged.

(ix) The Court should exercise jurisdiction to effectuate the regime of law as the power under Article 226 is meant to serve the ends of law and not to transgress the same.

12. The assessment year is 1996-97 and the period of four years would expire on 1st March, 2001. Admittedly, the notice under Section 148 of the Act has been issued on 20th June, 2002, which is beyond the prescribed period of four years and hence, the present case shall have to be tested in the light of the provisions of Section 147 of the Act with special reference to the proviso under the said section.

13. The IT Act, 1961, provides for the machinery in Chapter XIV under Sections 147 to 153 for the assessment of escaped income in certain circumstances. The fundamentals underlying these provisions of the Act is to see that the entire income of an assessee assessable in respect of a particular assessment year is subjected to one single assessment for that particular year. Income which is assessable in one assessment year cannot be brought to tax in another assessment year for any reason. The Act does not contemplate piecemeal assessment; one assessment in relation to a portion of the income and another in respect of another portion. However, it is possible that no assessment for a particular year has been completed by the AO on the assessee within the period of limitation resulting into escapement of income. Moreover, even where assessment has been made on an assessee, it is found that certain income has escaped assessment therefrom. In order to bring such escaped income to tax, the completed assessment is required to be reopened and it has to be redone in order to include the escaped income so that the income of that particular year is assessed accordingly.

Before the AO can initiate any proceedings under Section 147 of the Act, he is required to establish existence of jurisdictional facts.

14. The apex Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO : [1977]106ITR1(SC) has analysed provisions of Section 147 of the Act in the following terms. It is pertinent to note that Section 147(a) of the Act, as it then stood, is now covered by Section 147 r/w the proviso thereto.

'According to Section 148 of the Act of 1961, before making the assessment, reassessment or recomputation under Section 147, the ITO shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139; and the provisions of the Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. The ITO has also, before issuing such notice, to record his reasons for doing so. Section 149 prescribes the time-limit for the notice.

Clause (a) of Section 147 of the Act of 1961 corresponds to Clause (a) of Sub-section (1) of Section 34 of the Act of 1922. The language of Clause (a) of Section 147 r/w Sections 148 and 149 of the Act of 1961 as also the corresponding provisions of the Act of 1922 makes it plain that two conditions have to be satisfied before the ITO acquires jurisdiction to issue notice under Section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz., (i) the ITO must have reason to believe that income chargeable to tax has escaped assessment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under Section 139 for the assessment year to the ITO, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist to confer jurisdiction on the ITO. It is also imperative for the ITO to record his reasons before initiating proceedings as required by Section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the CIT should be satisfied on the reasons recorded by the ITO that it is a fit case for the issue of such notice. The duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the ITO of the account books or other evidence from which material evidence could with due diligence have been discovered by the ITO will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the ITO to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the ITO with regard to the inference which he should draw from the primary facts. If an ITO draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessments: See ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) .

The words 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year' postulate a duty on the assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inference as regards certain other facts; and ultimately from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable--See Calcutta Discount Co. v. ITO : [1961]41ITR191(SC) . As further observed in that case:

'Does the duty, however, extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else--far less the assessee--to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences--whether of facts or law--he would draw from the primary facts.' The disclosure which is required to be made by the assessee should not only be full but also true. The conjunction 'and' is an important one and has been interpreted as a strict prescription of law. In case of absence of one of the elements, either in part or in whole, it will grant jurisdiction to the officer.

15. There is one more aspect which requires consideration. As can be seen, Section 148 of the Act specifically requires the AO to record reasons.

This Court in the case of P.V. Doshi v. CIT : [1978]113ITR22(Guj) stated (headnote):

'The conditions precedent for initiating reassessment proceedings are: (i) reasonable belief reached by the ITO under Clause (a) or Clause (b) of Section 147; (ii) recording of reasons by the ITO under Section 148(2); (iii) sanction before issuing the notice of reassessment by the higher authorities under Section 151. These three conditions have been introduced by way of safeguards in public interest so that the finally concluded proceedings, which at the time of the original assessment could be reopened through the initial procedure of appeal, revision or rectification before the assessment became final, could not be lightly reopened with the consequent hardship to the assessee and also unnecessary waste of public time and money in such proceedings. These conditions have, therefore, to be treated as being mandatory....' 16. Apart from the factor of recording of reasons being mandatory, this aspect has been explained from a different perspective by this High Court in the case of Desai Brothers v. Dy. CIT : [1999]240ITR121(Guj) the necessity of recording reasons has been elaborately explained in the following terms (headnote):

'The requirement of recording of reasons before issuance of notice is to provide a safeguard against the arbitrary action that may be taken by reopening a completed assessment time and again on irrelevant considerations. Recording of reasons unfolds the process by which the AO was led to the formation of his belief about escapement of income. If the action of the AO is founded on some material or ground that has no nexus to the formation of reason to believe or is not founded on any existing material the same is liable to be interfered with. The correctness of his tentative opinion is not to be tested on the anvil of the final decision which may be reached after considering rival contentions and weighing them through the process of reasoning. But at the same time, if it appears from the reasoning which has been adopted by the AO that no inference of escapement of income from assessment can at all be drawn therefrom, it must be held that the action is ultra vires the statute and does not confer jurisdiction on the AO.' 17. Thus, the summary of the settled legal position is:

(a) There must be material for the belief;

(b) Circumstances must exist and cannot be deemed to exist for arriving at an opinion;

(d) Reasons recorded must disclose the process of reasoning by which the AO holds 'reasons to believe' and change of opinion does not confer jurisdiction to reassess;

(e) There must be a nexus between the material on record and the belief held by the AO; and,

(f) The reasons recorded must show application of mind by the AO.

The validity of initiation of reassessment proceedings has to be judged with regard to the material available with the authority at the point of time of issuing of the notice under Section 148 of the Act and cannot be sought to be substantiated by reference to material that may have come to light subsequently during the course of reassessment proceedings in pursuance of the notice issued under Section 148 of the Act.

18. If the aforesaid principles are applied to the facts of the present case, it is amply clear that the impugned notice has been issued without jurisdiction and the Revenue having failed to establish the jurisdictional fact of there being any omission or failure on the part of the petitioner to disclose fully or truly all material facts necessary for the assessment of the assessment year under consideration cannot seek to exercise jurisdiction to reassess. As can be seen from the facts stated hereinbefore that the petitioner had, in the statement of depreciation annexed to the return of income, specifically claimed depreciation at the rate of 40 per cent on the WDV of the commercial vehicles. The WDV is the figure which has been arrived at in the immediately preceding year, namely, asst. yr. 1995-96, after granting depreciation at the appropriate rate. It is not even the case of the Revenue that for the immediately preceding assessment year, namely, asst. yr. 1995-96, excess depreciation had been granted due to any omission or failure on the part of the petitioner to disclose fully or truly all material particulars necessary for the assessment of that assessment year. In fact, the said assessment year has not even been sought to be reopened; Apart from that, there is one more aspect. During the accounting period for the assessment year under consideration, the petitioner purchased commercial vehicles worth Rs. 22,22,540 during the second half of the accounting year, leased out the vehicles and claimed depreciation at the rate of 20 per cent, being 1/2 of the depreciation the petitioner would be entitled to, in the light of the second proviso under Section 32 of the Act. The said claim of depreciation has not been even sought to be disturbed, as could be seen from the reasons recorded. This belies the stand of the respondent.

19. In the petition, it is stated that sometime in October, 2001, notice under Section 148 of the Act had already been issued in respect of commission, bad debt, and interest. The said items came to be added in the reassessment order and the petitioner succeeded before the CIT(A) and the Departmental appeal against the same is pending. This factual position is also a relevant factor. Though the Court should not be understood as laying down the proposition that successive notices under Section 148 of the Act cannot be issued, yet, once for the same assessment year, a notice under Section 148 of the Act has been issued, bearing in mind the salutary principle that there should not be piecemeal assessment, successive notices under Section 148 of the Act should not, normally, be issued. It is necessary for the Revenue to ensure that there is complete application of mind as and when it seeks to issue a notice for the purpose of reassessment. Otherwise it may tantamount to change of opinion.

20. The petitioner had made complete disclosure, the AO had called for various details and explanation, which were duly furnished by the petitioner, and thereafter, assessment under Section 143(3) of the Act had been framed. It is pertinent to note that along with the explanation tendered by the petitioner, the petitioner had relied upon various decisions of the Tribunal in support of its claim and hence, even on this count, it is apparent that not only no omission or failure could be ascribed to the petitioner, but, the case of the petitioner in making the claim was duly supported by the decisions of the Tribunal and thus, it cannot be even contended on behalf of the Revenue that the claim made by the petitioner was a false claim.

21. As can be seen from the reasons recorded, in para 5 the respondent states that he has reason to believe that income has escaped assessment within the meaning of Sub-clause (i) of Expln. 2 inserted to Section 147 of the Act, It is further stated that the assessee-company has failed to furnish full and true particulars of income. Thus, on a plain reading, it is stated that he seeks to reassess for the reason that income has escaped assessment because income chargeable to tax has been underassessed. Though the subsequent sentence states that the assessee-company has failed to furnish full and true particulars of income, it is not even the case of the respondent, as per the reasons recorded, that income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. On a plain reading of Expln. 2 below Section 147 of the Act, it is apparent that all that the said Explanation provides for is that the cases, which are mentioned in Clauses (a), (b) and (c), inclusive of Sub-clause (i), (ii), (iii) and (iv) of Clause (c), are where it will be deemed that income chargeable to tax has escaped assessment. The opening portion of Expln. 2 states that for the purposes of this section; meaning thereby, that for the purposes of Section 147 of the Act, income chargeable to tax has escaped assessment in the situations provided in the Explanation by deeming fiction. However, the requirement of discharging the onus cast on the Revenue by the proviso to Section 147 of the Act is in no way, shifted or discharged by the Explanation. In fact, only after prima facie showing that there is escapement of any income that the applicability or otherwise of the proviso to Section 147 of the Act would arise. Once the stipulated period of four years had expired from the end of the relevant assessment year, the proviso stands attracted (other conditions being fulfilled), and the action of the authority will have to be tested at the anvil of the provisions of the proviso.

22. The decision in the case of Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT (supra) relied upon by the learned counsel for the Revenue, instead of assisting the case of the Revenue, supports the contention raised on behalf of the petitioner. This Court has specifically dealt with two distinct situations: one arising within the period of four years and another arising beyond the period of four years in the following words:

'There is no dispute about the fact that the impugned notice under Section 148 of the Act, has been issued within four years from the end of the relevant asst. yr. 1991-92. Under Section 147 of the said Act, within four years from the end of the relevant assessment year, the AO, where he had reason to believe that any income chargeable to tax has escaped assessment for any assessment year, may assess or reassess such income. However, after four years, the proviso would be attracted and no action can be taken under this section unless such income has escaped assessment by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice under Section 142(1) or Section 148 of the said Act, to disclose fully and truly all material facts for his assessment for that assessment year. Therefore, it is only when the case falls under the proviso that the question of non-disclosure of material facts would become relevant. In such cases, if the assessee has made full disclosure on record, then even if such income has escaped assessment, no action can be initiated by the AO under the section. Where, however, the said period of four years has not expired, the conduct of the assessee regarding disclosure of material facts need not be the basis for initiating the proceedings and they can be commenced if the AO has reason to believe that the income has escaped assessment notwithstanding that there was full disclosure of material facts on record. The assessee in such cases cannot defend the initiation of action on the ground that the facts were already placed on record and that the AO must have or ought to have considered them, Expln. 1 to Section 147 of the said Act has a bearing on the disclosure aspect and it applies to the proviso to the extent it allows initiation of the proceedings under Section 147 on account of non-disclosure of material facts by the assessee.' 23. In the present set of circumstances, it is apparent that, as per the reasons recorded, it is not even the case of the Revenue that income chargeable to tax has escaped assessment because of failure to furnish full and true particulars.

In fact, the Revenue refers to the proviso only as an additional factor. The Revenue has not discharged the onus of showing that there was any failure on the part of the petitioner.

24. In the affidavit-in-reply, it is stated on behalf of the respondent-authority that the AO granted depreciation, as claimed by the petitioner, 'without discussing the issue in the assessment order and without looking to the provisions of the Act'. The earlier part of this averment requires to be stated only to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an assessment order would cease to be an order and become an epic tome. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the AO, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with. The latter part of the statement is, to say the least, presumptuous. Every successor officer can make such a statement about his predecessor.

As far as absence of discussion in the assessment order is concerned, this is what has been laid down by this Court in the case of Rayon Silk Mills v. CIT : [1996]221ITR155(Guj) :

'In the first instance it was contended by learned counsel for the assessee that the very premise on which order under Section 263 was made against the assessee, namely, that the ITO has not at all examined the goodwill account is not existent. According to him, it is apparent from the record that the goodwill account was thoroughly examined by the ITO before making the assessment and after examining when he accepted the contention of the assessee its discussion did not find place in the assessment order, as no additions were going to be made or no modifications in the return filed by the assessee were required to be made in that regard.

This contention of the assessee appears to be well-founded. It is true that the assessment order does not speak about the examination of goodwill account as such. However, as we have noticed above, the assessee in his reply to the show-cause notice under Section 263 had specifically mentioned that the entire matter was scrutinised and accepted while passing the assessment order. Our attention was also drawn to Annex. 'D'. A submission made by the assessee to the ITO, Surat, dt. 18th Oct., 1976, regarding the asst. yr. 1974-75 giving detailed chronological data of the constitution of the firm on 11th Nov., 1968, induction of four more partners on 7th Nov., 1972, the creation of goodwill in the books of account of the firm by debiting the goodwill account and crediting the old partners' capital accounts in their profit sharing ratio on that date, formation of a private limited company in the name of Rayon Silk Mills (P) Ltd., and its induction into the firm as partner by the deed of partnership dt. 27th Oct., 1973, and the dissolution of the partnership firm on 23rd Feb., 1974, leaving the private limited company as a sole proprietor thereof and the valuation of the business at the book value as on that date. After giving the chronological sequence of events, the assessee also contended in his submission before the ITO that there was no actual transfer of any asset inasmuch as when a partner is admitted into the firm no transfer takes place. It was also contended that no cash transfer took place from person to person and the transfer and the dissolution of the firm also did not result in accrual of capital gains. In the face of this material on record, it is difficult to explain that the assessment order was made without making any enquiry into the goodwill account of Rs. 10,75,000. ........ .... ...'

Therefore, even if the aforesaid statement is accepted to be correct, it would go to show that the case of the Revenue is only as regards the so-called error committed by the AO and there is no failure on the part of the petitioner. There is mere change of opinion by the successor AO, The law does not permit initiation of reassessment on this count after expiry of a period of four years from the end of the assessment year and the respondent cannot claim to be vested with jurisdiction under Section 147 of the Act in the factual matrix available on record.

25. In the aforesaid decision in the case of Parshuram Pottery Works Co. Ltd. v. ITO (supra), the apex Court has also stated that when an officer relies upon his own records, for determining the amount of depreciation allowable to the assessee and makes a mistake in doing so, responsibility for that mistake cannot be ascribed to an omission or failure on the part of the assessee. The apex Court concludes its judgment in the following terms:

'... .... It has been said that the taxes are the price that we pay for civilisation.

If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as the income-tax assessment orders are concerned, they cannot be reopened on the score of income escaping assessment under Section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. .... .. ...'

26. Though various averments have been .made in the affidavit-in-reply in relation to the merits of the matter, it is not necessary for the Court to enter into discussion as regards merits of the claim inasmuch as the Court is only called upon to decide whether the respondent-authority has jurisdiction to initiate reassessment proceedings or not. It is only for this limited purpose that the Court is required to ascertain as to whether the respondent-authority has any material before it, to arrive at the belief that any income chargeable to tax has escaped assessment by virtue of failure on the part of the petitioner to disclose fully or truly all material facts necessary for the assessment of the assessment year in question.

27. The reliance by the Revenue on the decision of the apex Court in the case of GKN Driveshafts (India) Ltd. v. ITO (supra) requires to be dealt with before concluding. It is apparent from the record that the Revenue placed reliance on the said decision before admission of the petition and this Court has admitted the petition after considering the aforesaid submission of the respondent. Though the position in law is well established that any decision of a Court has to be appreciated in the context of the contrary brought before the Court, the following observations by the apex Court in the case of CIT v. Sun Engineering Works (P) Ltd. : [1992]198ITR297(SC) may be usefully reproduced :

'.....It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. In Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India : [1971]3SCR9 this Court cautioned :

'It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment.'

In the case of GKN Driveshafts (India) Ltd. v. ITO (supra), the Supreme Court was called upon to decide, whether the High Court had correctly rejected the petition, as being premature and that decision of the High Court has been upheld by the Supreme Court. Hence, what is stated in the said decision cannot be applied in each and every case as that would virtually tantamount to this Court abdicating its duty cast upon the Court by the Constitutional Bench of the apex Court in the case of Calcutta Discount Co. Ltd. v. ITO (supra). In each and every case, the Court will have to decide, whether it should exercise jurisdiction under Article 226 of the Constitution of India and entertain a petition or not. The principles have already been set out hereinbefore and bear no repetition.

28. As can be seen from what is stated hereinbefore, the Revenue has not been able to prima facie show that there was any omission or failure on the part of the petitioner to disclose fully or truly all relevant particulars necessary for the assessment of the assessment year in question. In these circumstances, this is a fit case wherein this Court is required to exercise its jurisdiction under Article 226 of the Constitution of India.

29. The impugned notice issued under Section 148 of the Act dt. 20th June, 2002 is hereby quashed and set aside. All the consequential proceedings are also, as a corollary, quashed and set aside. The petition is allowed accordingly. Rule is made absolute. There shall be no order as to costs.

BY THE COURT:

As there is difference of opinion in our decision, the office is directed to place this judgment before the learned Chief Justice for passing appropriate orders.

M.S. Shah, J.

25/26th Feb., 2004

1. In this petition under Article 226 of the Constitution, the petitioner (hereinafter referred to as 'the petitioner' or 'the company') has challenged the notice dt. 20th June, 2002 (Annex. 'E') issued by the Asstt. CIT, Circle-1(1), Surat, under Section 148 of the IT Act, 1961 (hereinafter referred to as 'the Act'), for reopening the assessment for the year 1996-97 on the ground that the officer had reason to believe that the petitioner's income chargeable to tax for the asst. yr. 1996-97 had escaped assessment within the meaning of Section 147 of the Act. The notice was issued after obtaining the necessary satisfaction of the CIT-I, Surat.

2. Initially, a Division Bench of this Court issued notice on 20th Dec., 2002 and granted ad interim stay that no final assessment shall be made. The petition came to be admitted by another Division Bench on 24th March, 2003 and status quo was ordered to be maintained till further orders in respect of the impugned notice. When the petition was heard for final hearing before the third Division Bench (Coram: Hon'ble Mr. Justice D.H. Waghela & Hon'ble Mr. Justice D.A. Mehta), there was a difference of opinion.

3. Hon'ble Mr. Justice D.H. Waghela took the view that in view of the decision of the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO (2002) 259 ITR 19 (hereinafter referred to as 'the GKN case'), the petitioner had an equally efficacious alternative remedy, the petitioner having filed return and having sought reasons for issuing the notice and the reasons having been supplied to the petitioner, the petitioner may file objections to issuance of notice and the AO is bound to dispose of the assessee's objections by passing a speaking order dealing with the preliminary objections. If such order of the AO on preliminary objections is adverse to the petitioner, the petitioner may challenge such decision, but the petition was not required to be entertained at this stage when the petitioner has already been half-way through the process by filing its return in response to the notice under Section 148 r/w Section 147. After recording the aforesaid conclusion and deciding to relegate the petitioner to the original proceedings of reassessment, the said learned Judge did not enter into any further discussion of the rival submissions regarding the petitioner's objections to the impugned notice lest it should influence the decision of the AO, but the said learned Judge did negative the petitioner's contention that there was mere change of opinion of the AO with regard to the depreciation allowance because the AO had not formed any opinion with regard to the applicable rate of the depreciation allowance in the assessment order for the relevant assessment year. The learned single Judge relied on the decision of this Court in Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT : [1999]236ITR832(Guj) to the effect that in cases where an error or mistake is detected, it can never be said that there is a mere change of opinion.

Hon'ble Mr. Justice Waghela, therefore, was of the view that the petition be dismissed and Rule be discharged and interim relief be vacated with a clarification that when the process of reassessment is restarted and preliminary objections to the impugned notice are raised by the petitioner, they shall be considered and decided in accordance with law and after affording to the petitioner sufficient opportunity of being heard.

4. But, Hon'ble Mr. Justice D.A. Mehta took the view that in the GKN case (supra) the Supreme Court did not lay down the law that in no case the assessee can move this Court under Article 226 of the Constitution for challenging the reassessment notice. So what is stated in the GKN case cannot be applied in each and every case as that would virtually tantamount to this Court abdicating its duty cast upon the Court by the Constitutional Bench of the apex Court in Calcutta Discount Ltd. v. ITO : [1961]41ITR191(SC) . In each and every case, the Court will have to decide, whether it should exercise the jurisdiction under Article 226 of the Constitution and entertain a petition or not. Thereafter, Hon'ble Mr. Justice Mehta held that the Revenue was not able to prima facie show that there was any omission or failure on the part of the petitioner to disclose fully or truly all relevant particulars necessary for the assessment of the assessment year in question and that this was a fit case requiring this Court to exercise its jurisdiction under Article 226 of the Constitution. Accordingly, Hon'ble Mr. Justice Mehta took the view that the impugned notice under Section 148 of the Act be quashed and set aside and all the consequential proceedings be also, as a corollary, quashed and set aside and thus the petition be allowed and Rule be made absolute.

5. In view of the above difference of opinion, the said Division Bench passed order dt. 3rd Oct., 2003 directing the matter to be placed before the learned Chief Justice for passing appropriate orders. The matter is thereupon assigned to me.

6. The facts, relevant to the controversy before me, briefly stated, are as under:

6.1 The petitioner is a public limited company. On 30th Nov., 1996, the petitioner filed its return of income for the asst. yr. 1996-97. The relevant accounting period is year ended on 31st March, 1996. Along with the return of income, the petitioner had filed a statement of depreciation wherein depreciation @ 40 per cent on the written down value (WDV) of Rs. 8,50,00,000 had been claimed on commercial vehicles. The petitioner had also claimed depreciation on commercial vehicles worth Rs. 22,22,540 @ 20 per cent because the petitioner had purchased the said commercial vehicles in the second half of the accounting period. On 21st Oct., 1998, the petitioner was served with a letter by the AO calling for various details and at Sr. No. 19, the said letter required--

'Details of vehicles on which depreciation at the rate of 40 per cent is claimed.'

The petitioner replied to the said letter on 22nd Feb., 1999. In relation to the aforesaid query, the petitioner stated that the commercial vehicles purchased by the petitioner had been given on lease and the lessee had used the said commercial vehicles for the business of running them on hire. The petitioner also invited the attention of the AO to the fact that the provisions of Section 32 of the Act or the relevant Rules did not require that the owner of the commercial vehicles was bound to use the vehicles himself for the business of hire. In support of the aforesaid contention, the petitioner placed reliance upon various decisions of the Tribunal, which have been referred to in the said reply. On 24th March, 1999, the AO passed the assessment order under Section 143(3) of the Act and though various additions and disallowances were made, in relation to the aforesaid item of depreciation no disallowance was made.

6.2 On 20th June, 2002, the notice under Section 148 of the Act came to be issued. On 24th June, 2002, the petitioner called upon the AO to supply a copy of the reasons recorded. On 20th Aug., 2002, the AO communicated to the petitioner that there was no statutory requirement of providing a copy of the reasons recorded before filing of the return of income and hence, the petitioner was called upon to furnish the return of income in response to the notice issued under Section 148 of the Act. Thereafter, it appears that the petitioner filed the return on 14th Nov., 2002, returning the same income. On 3rd Dec., 2002, the AO issued a show-cause notice fixing the hearing on 11th Dec., 2002. In the said show-cause notice, it was stated that the petitioner was a leasing company and the motor vehicles had been used, for leasing out and not for hiring and, therefore, excess depreciation on commercial vehicles had been allowed to the extent of Rs. 1.70 crores because according to the AO, the correct rate of depreciation ought to have been 20 per cent and not the higher rate of 40 per cent, as claimed and allowed while framing the assessment under Section 143(3) of the Act.

Along with the affidavit-in-reply, the reasons recorded by the respondent have been placed on record and the relevant portion thereof, reads as under:

'3. On verification of the depreciation statement attached with the return of income, it is noticed that depreciation of Rs. 8.43 crores is inclusive of depreciation of Rs. 3.40 crores on motor vehicles (commercial) claimed at the rate of 40 per cent on WDV/cost of Rs. 8.50 crores. As per Rule 5, the rate of depreciation on motor vehicle in the second column of the table in Appen.-I are as under :

Block of assetsDepreciation

allowance as per

percentage of WDViii (IA) Motor cars other than those used in

a business of running them on hire

acquired or put to use on or after the first

day of April, 199020%(2) (ii) Motor buses, motor lorries and motor

taxis used in a business of running them

on hire40%

4. The assessee is a leasing company. The assessee-company has used the motor vehicles for lease and not for hiring. The assessee-company is, therefore, entitled for depreciation at the normal rate of 20 per cent on motor vehicles (commercial) and not at the higher rate of 40 per cent as claimed and allowed while finalising the assessment. Excess depreciation on motor vehicles (commercial) has been allowed by Rs, 1.70 crores while computing taxable income, which has escaped assessment to the extent.

5. I have, therefore, reason to believe that income to the extent of Rs. 1.70 crores has escaped assessment within the meaning of Sub-clause. (i) of Expln. 2 inserted to Section 147 of the IT Act. The assessee-company has failed to furnish full and true particulars of income.'

6.3 While the Asstt. CIT, Circle-I(1), Surat, had earlier filed affidavit-in-reply dt. 19th Feb., 2003 at the admission stage, during pendency of the petition before me, additional affidavit-in-reply dt. 10th Feb., 2004 has been filed by Mr. N.M. Darji, Asstt. CIT, Circle-I(1), Surat, stating that the assessee is giving vehicles on hire-purchase to various persons all over the State of Gujarat and for that purpose, the assessee is entering into the hire-purchase agreement with the hirer. As per the terms and conditions of such agreement, a vehicle shall be registered in the name of the hirer with an endorsement of the assessee's name and further that the parties mutually agree that the hirer shall be entitled to claim any benefits by way of depreciation as also any other eligible allowance with respect to the vehicles which are available to the hirer under the IT Act, 1961, as applicable from time to time. The deponent has also produced a specimen copy of the hire-purchase agreement dt, 12th Feb., 1997 between the petitioner and Mr. Arvind S. Thakker (hirer). The deponent has also produced a photostat copy of the registration book dt. 2nd April, 1997 showing 'Shri Arvind Thakker' as the registered owner of the vehicle in question with a note that the motor vehicle is subject to a hire-purchase agreement with Garden Finance Ltd. (the present petitioner). The registration book is issued by RTO, Bhuj (Kutch). The deponent has accordingly submitted that from the above two documents, it becomes very clear that the hirer is the owner of the vehicle and the hirer is entitled to claim depreciation for the use of the said vehicle under the IT Act and, therefore, the assessee is not entitled to claim depreciation for use of the said vehicles which has been given to the hirer under the terms and conditions of the hire-purchase agreement and the assessee has wrongly claimed depreciation for the concerned assessment year and, therefore, the AO has right to reopen the assessment under the provisions of the IT Act and the notice issued by the AO to reopen the assessment under Sections 147 and 148 of the Act is legal and valid.

7. At the hearing of this petition, Mr. J.P. Shah with Mr. Manish J. Shah, learned counsel for the petitioner has submitted as under:

7.1 The observations made by a Bench of two Hon'ble Judges of the Supreme Court in the GKN case (supra) were made in the facts of that particular case but the said observations do not lay down any inflexible rule nor do they purport to curtail the jurisdiction of the High Court under Article 226 of the Constitution as propounded by the Constitution Bench of the Supreme Court in Calcutta Discount Co. Ltd. v. ITO (supra).

Strong reliance has also been placed on the decisions in CIT v. Foramer France : [2003]264ITR566(SC) CESC Ltd. v. Dy. CIT : [2003]263ITR402(Cal) Mahalaxmi Motors Ltd. v. Dy. CIT : [2004]265ITR53(AP) Oil & Natural Gas Corporation Ltd. v. Dy. CIT (2003) 133 Taxman 27 (Utt) Mohinder Singh Malik v. Chief CIT and Ajanta Pharma v. Asstt. CIT in support of the submission that even after the GKN case (supra) the Supreme Court and various High Courts have continued to interfere with the reassessment notices in writ jurisdiction.

7.2 The GKN case was already relied upon by the Revenue in their affidavit-in-reply at the admission stage and the same was considered and still the Division Bench thought it fit on 24th March, 2003 to admit the matter and to continue the status quo and, therefore, also the petition may not be thrown out on the ground of alternative remedy which was duly considered at the stage of admission of the petition.

7.3 In the previous assessment year, the facts were similar and the assessee had given on lease certain commercial vehicles and claimed 40 per cent depreciation thereon as being used in business of running them on hire and the same was allowed. Moreover, a reassessment notice was already issued earlier in October, 2001 in respect of commission, bad debt and interest which the AO added which the CIT deleted and the Revenue's appeal against the said order is pending before the Tribunal. It is, therefore, submitted that another reassessment notice for the same year is nothing but harassment.

7.4 On merits of the impugned notice, it is submitted that after the petitioner filed return for asst. yr. 1996-97 along with the statement of depreciation and claimed depreciation at the rate of 40 per cent on written down value of Rs. 8.50 crores and on the addition made during the current assessment year for pro rata depreciation at the rate of 20 per cent on vehicles purchased at the cost of Rs. 22.22 lakhs, the AO had called for various details by letter dt. 21st Oct., 1998 (Annex. 'B') including 'details of vehicles on which depreciation at the rate of 40 per cent is claimed'. In response to the said letter, the petitioner had by its letter dt. 22nd Feb., 1999 (Annex. 'C') clarified that in the financial year 1994-95 relevant to asst. yr. 1995-96, the petitioner had purchased and leased commercial vehicles of the value of Rs. 11.25 crores and in the financial year 1995-96 relevant to asst. yr. 1996-97 the assessee had purchased and leased commercial vehicles of the value of Rs. 22.22 lakhs, the assessee had claimed depreciation at the rate of 40 per cent on commercial vehicles and on other vehicles at the rate of 20 per cent. The assessee had specifically stated as under :

'We have purchased commercial vehicles and the said vehicles were given on lease. The lessee has used the said commercial vehicles for the business of running them on hire. We also draw your kind attention that, there is no requirement in Section 32 or in the rules thereunder that the owner of the commercial vehicles shall use the vehicle himself for the business of hire. We rely on the following decisions:

1. Shriram Transport Finance Co. Ltd. v. Asstt. CIT 63 ITR 336

2. Shriram Investments Ltd. v. Asstt. CIT (1996) 56 TTJ (Mad) 470 : (1996) 59 ITD 570

3. Shriram Transport Finance Co. Ltd. v. Asstt. CIT (1997) 63 ITD 336 (Mad)

You are therefore requested to allow the depreciation at the rate of 40 per cent on commercial vehicles.'

It is submitted that in view of such disclosure made by the petitioner during the course of the original assessment proceedings under Section 143(3) on 22nd Feb., 1999, there is no scope for alleging against the petitioner any failure to disclose fully an truly all materiel facts.

7.5 In any view of the matter, even on merits of the controversy whether the petitioner was entitled to claim depreciation at the rate of 40 per cent, a large number of High Courts have taken the view that for claiming depreciation at the rate of 40 per cent, it is not necessary that the owner of the vehicle should himself be engaged in the business of giving vehicles on hire and that it is sufficient that the vehicles are actually used in the business of hire even if such business is run by the lessee or the hire-purchaser of the vehicles.

Strong reliance has been placed in this behalf on the following decisions:

(i) CIT v. MGF Ltd. 172 Taxation 550 (Del)

(ii) CIT v. AM Construction : [1999]238ITR775(AP)

(iii) ABC India Ltd. v. CIT

(iv) CIT v. Anupchand & .Co. : [1999]239ITR466(MP) (v) CIT v. Madan & Co. : [2002]254ITR445(Mad) .

7.6 As regards reasons mentioned in the additional reply affidavit, the learned counsel for the petitioner have submitted that since such reasons were not part of the impugned notice issued under Section 148, such reasons cannot be looked into and that if at all, the AO is of the view that the grounds mentioned in the additional reply affidavit warrant any fresh notice to be issued under Section 148, they may do so, but the present impugned notice dt. 20th June, 2002 at Annex, 'E' deserves to be quashed and set aside.

7.7 Any clause in the hire-purchase agreement cannot take away the petitioner's right to claim depreciation in accordance with law.

8. On the other hand, Mr. B.B. Naik, learned standing counsel for the Revenue, has opposed the petition and made the following submissions:

8.1 The decision of the GKN Driveshafts (India) Ltd. (supra) laid down a binding principle and the weight of the said decision as a binding precedent is not to be undermined on the ground that the decision does not give reasons.

Strong reliance has been placed on the decisions in Industrial Finance Corporation of India Ltd. v. Cannanore Spinning & Weaving Mills Ltd. : [2002]2SCR1093 and Suganthi Suresh Kumar v. Jagdeeshan : 2002CriLJ1003 in support of the contention that the decision of the apex Court is a binding precedent under Article 141 of the Constitution even if no reasons are given or even if a particular argument is not considered.

8.2 The relevant facts in the present case are identical to the facts in the GKN case and, therefore, also the ratio of the decision in GKN case is squarely applicable to the instant case and, therefore, the petition deserves to be dismissed on the ground that the petitioner has an equally efficacious alternative remedy available to him.

Reliance has also been placed on the decision in VXL India Ltd. v. ITO and the apex Court order dt. 25th March, 1988 rejecting the assessee's SLP against the aforesaid decision of the Punjab & Haryana High Court, as reported in (1988) 171 ITR 48. Reliance has also been placed on Kureethadam Wines v. CIT and New Bank of India Ltd. v. ITO and Anr. : [1982]136ITR679(Delhi) in support of the above submission.

8.3 On merits of the notice for reopening the assessment for the year 1996-97, it is submitted that apart from the reasons contained in the notice dt. 24th Feb., 2002 (Annex. E), the Asstt. CIT, Surat, has found from the hire-purchase agreement (Annex. I to the affidavit dt. 10th Feb., 2004) which the assessee-company had entered into and that apart from that Clause 9(vi) of the agreement providing that the vehicle shall be registered in the name of the hirer with an endorsement of the company's name for the purpose of the Motor Vehicles Act. Clause 14 provides that the hirer shall be entitled to claim any benefits by way of depreciation as also any other eligible allowances with respect to the vehicle which may be available to the hirer under the IT Act, 1961, as applicable from time to time. In view of this specific agreement between the petitioner-company and the hirer, the petitioner is disentitled from claiming any depreciation on such commercial vehicles which are given on hire under the hire-purchase agreement, a specimen copy of which is produced with the additional affidavit dt. 10th Feb., 2004. It is also submitted that the AO is justified in reopening the assessment in view of the aforesaid clauses of the agreement which were not brought to the notice of the AO by the petitioner in the course of the original assessment proceedings. The petitioner-company, therefore, ought not to have been granted any depreciation as only the hirer was entitled to claim such depreciation under the agreement. Mr. Naik also submitted that the AO is also required to ascertain whether double depreciation has been claimed on the same vehicle, one by the petitioner and the other by the hirer, on the strength of the latter's name having been shown as the registered owner of the vehicle in the registration certificate issued by the RTO under the Motor Vehicles Act.

Mr. Naik has further submitted that when reopening of the assessment is justified, no useful purpose would be served by quashing the reassessment notice dt. 20th June, 2002 at Annex. 'E' and issuing another notice for giving the aforesaid reasons about suppression of Clauses 9 and 14 of the hire-purchase agreement.

8.4 It is further submitted for the Revenue that even otherwise the AO has the jurisdiction to consider whether the depreciation at 40 per cent was admissible on the vehicles which the assessee is not plying on hire but which the assessee has given on lease/hire basis to another person who is engaged in the business of running the vehicles on hire. In this behalf, Mr. Naik has relied on the decision of the Calcutta High Court in Soma Finance & Leasing Co. Ltd. v. CIT : [2000]244ITR440(Cal) and the decision of the Rajasthan High Court in CIT v. Sardar Stones (1995) 215 ITR 350 and the Karnataka High Court in Gown Shankar Finance Ltd. v. CIT : [2001]248ITR713(KAR) .

9. At the outset, the Court would like to deal with the preliminary submission urged by Mr. Naik that in view of the decision of the apex Court in GKN Driveshaft case (supra), the petition challenging the notice under Section 148 is not maintainable. In the said decision, the facts as reported in the ITR were as under:

On receiving notices under Section 148, the assessee filed the returns. The assessee also received notices under Section 143(2) calling for further information on certain points in connection with the returns. Thereupon the assessee filed writ petition challenging the notices. By judgment G.K.N. Driveshafts (India) Ltd. v. ITO and Ors. : [2002]257ITR702(Delhi) the High Court dismissed the writ petitions holding that the petitions were premature and the assessee could raise its objections to the notices by filing reply to the notices before the AO. The assessee preferred appeals and the Supreme Court dismissed the appeals and observed that since the reasons for reopening the assessments under Section 148 had been disclosed, the AO had to dispose of the objections, if filed, by passing a speaking order before proceeding with the reassessments for the years in question. While passing such order, the apex Court made the following pertinent observations :

'We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the IT Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The AO is bound to furnish reasons within a reasonable time. On 'receipt of reasons, the noticee is entitled to file objections to issuance of notice and the AO is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the AO has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.'

(emphasis, italicized in print, supplied)

The question is whether the apex Court in the aforesaid decision has laid down an inflexible rule that no writ petition is maintainable against the notice under Section 148 of the Act because the assessee is to file objections before the AO who will deal with them and dispose them of by passing a speaking order.

10. At this stage, it is necessary to refer to the decision of the Constitution Bench of the Calcutta Discount Co. Ltd. v. ITO (supra) wherein the following principles were laid down :

'That though the writ of prohibition or certiorari would not issue against an executive authority, the High Courts had power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction, Where such action of an executive authority, acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassment, the High Courts would issue appropriate orders or directions to prevent such consequences. The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action. When the Constitution conferred on the High Courts the power to give relief, it becomes the duty of the Courts to give such relief in fit cases and the Courts would be failing to perform their duty if relief were refused without adequate reasons.'

(emphasis, italicized in print, supplied)

It is also true that in CIT v. Foramer France (supra), the apex Court dismissed the appeals against the decision of the Allahabad High Court in Foramer v. CIT : [2001]247ITR436(All) wherein the High Court had quashed the notice under Section 148 on the ground that there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment and that as the notices were without jurisdiction, the assessee could not be relegated to the alternative remedy.

11. On perusal of the aforesaid decisions, it appears to me that prior to the GKN case (supra), the Courts would entertain the petition challenging a notice under Section 148 and permit the assessee to satisfy the Court that there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment. Upon reaching such satisfaction the Court would quash the notice for reassessment. The question is why did the Court not require the assessee to appear before the AO.

Earlier, when the Court required the assessee to appear before the AO, the AO would not pass any separate order dealing with the preliminary objections and much less any speaking order, and the AO would deal with all the objections at the time of reassessment. Hence, if the assessee was not permitted to challenge the reassessment notice under Section 148 at the initial stage, the assessee would thereafter have to challenge the reassessment itself entailing the cumbersome liability of paying tax during pendency of the appeal before the CIT(A), second appeal before the Tribunal and then reference/tax appeal before the High Court. It was in this context that the Constitution Bench had observed in Calcutta Discount's case (supra) that where an action of an executive authority, acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassment, the High Courts would issue appropriate orders or directions to prevent such consequences and, therefore, the existence of such alternative remedies as appeals and reference to the High Court was not always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action and that is why in a fit case it would become the duty of the Courts to give such relief and the Courts would be failing to perform their duty if reliefs were refused without adequate reasons.

12. What the Supreme Court has now done in the GKN case (supra) is not to whittle down the principle laid down by the Constitution Bench of the apex Court in Calcutta Discount Co.'s case (supra) but to require the assessee first to lodge preliminary objections before the AO who is bound to decide the preliminary objections to issuance of the reassessment notice by passing a speaking order and, therefore, if such order on the preliminary objections is still against the assessee, the assessee will get an opportunity to challenge the same by filing a writ petition so that he does not have to wait till completion of the reassessment proceedings which would have entailed the liability to pay tax and interest on reassessment and also to go through the gamut of appeal, second appeal before Tribunal and then reference/tax appeal to the High Court.

Viewed in this light, it appears to me that the rigour of availing of the alternative remedy before the AO for objecting to the reassessment notice under Section 148 has been considerably softened by the apex Court in the GKN case (supra) in the year 2003. In my view, therefore, the GKN case does not run counter to the Calcutta Discount Co. case (supra) but it merely provides for challenge to the reassessment notice in two stages, that is--

(i) raising preliminary objections before the AO and in case of failure before the AO,

(ii) challenging the speaking order of the AO under Section 148 of the Act.

13. May be in a given case, the exercise of the powers under Section 148 may be so arbitrary or mala fide that the Court may entertain the petition without requiring the assessee to approach the AO but such cases would be few and far between. For instance, in Mohinder Singh Malik v. Chief CIT (supra) the Punjab & Haryana High Court was concerned with the challenge to the notice under Section 148 of the Act where the grievance of the petitioner was that the notice was issued with an ulterior motive and that the AO had been demanding illegal gratification from the assessee, failing which the AO was threatening that the assessment would be reopened and that it was because of non-compliance with such demand that the impugned notice came to be issued. It was in the context of such facts that although the Court did not record any positive finding against the AO, looking to the reasons recorded and the circumstances in which the notice was issued, the Court raised its eyebrows and looked into the merits of the matter and held that the issuance of the notice was not at all justified.

14. I may now deal with the post GKN decisions relied upon by the assessee.

14.1 As regards the decision of the apex Court in CIT v. Foramer France (supra), the said decision reads as under:

'We have heard learned counsel for the parties and considered the facts of the case. We see no reason to interfere with the decision of the High Court. Accordingly, the civil appeals are dismissed with costs.' The apex Court confirmed the decision of the Allahabad High Court in Foramer v. CIT (supra) but no reference was made to the GKN case. That was a case where the Allahabad High Court had already quashed the reassessment notice on the ground that there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment and, therefore, the notices were without jurisdiction. When there was no reference to the GKN case (supra) by a Bench of the same strength as the Bench in the GKN case, it cannot be said that the principle laid down in the GKN case does not hold the field.

14.2 So also, the decision in Mahalaxmi Motors Ltd. v. Dy. CIT (supra) decided by the Andhra Pradesh High Court did not consider the decision in GKN case.

14.3 The decision of the Bombay High court in Ajanta Pharma Ltd. v. Asstt. CIT (supra) heavily relied upon by the assessee has not considered the aspects highlighted in paras 11 to 13 above while interpreting the decision of the apex Court in the GKN case. Even in the said decision, the Bombay High Court has made the following pertinent observations in para 15 of the judgment:

'When certain facts are to be ascertained or various other materials are to be gone through to arrive at a finding about the absence of jurisdiction, in which case, certainly, the assessee will have to approach the AO. It is so because, the jurisdiction under Article 226 of the Constitution of India being an extraordinary jurisdiction cannot be allowed to be availed as a matter of course. In order to decide an issue of jurisdiction, findings of the authority on the factual aspect may be necessary, In that case, certainly primarily the assessee will have to approach the AO.' 14.4 In Caprihans India Ltd. v. Tarun Seem, Dy. CIT, the Bombay High Court, after referring to the GKN case (supra) in the peculiar facts and circumstances of the case, undertook the inquiry whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Court also found that the reasons did not disclose a finding that the petitioner had failed to disclose fully and truly all material facts necessary in the matter and the Court found ex facie that AO had sought to reopen the assessment on certain erroneous assumptions.

15. The upshot of the above discussion is that while the GKN case (supra) does not purport to divest the Court of its constitutional power to issue a writ of prohibition or any other appropriate writ in a fit case to restrain the assessing authority from proceeding with the notice under Section 148, the GKN case does lay down that ordinarily the procedure to be followed would be as indicated in the GKN case, that is, after receiving reasons, the assessee shall lodge his preliminary objections before the AO against the notice for reassessment and the AO will decide the objections by a speaking order so that an aggrieved assessee can challenge the order in a writ petition.

16. As regards the submission of the learned counsel for the petitioner that the Division Bench had admitted the petition after considering the reply-affidavit urging the alternative plea under the GKN case, it needs to be noted that the order of admission of a petition cannot be treated as concluding the controversy between the parties. All that the order of admission does is to admit the petition to final hearing because the Court has found a prime facie case for examination. It cannot, therefore, preclude the Court hearing the matter finally from deciding the issue, which goes to the root of the matter. In any case, the Division Bench did not have the occasion to consider the additional affidavit dt. 10th Feb., 2004 of the CIT, which is referred to in para 6.3 hereinabove and discussed in the paragraphs that follow.

17. As regards the contention of the learned counsel for the petitioner that only the reasons recorded in the notice are required to be considered and not any subsequent reasons given in the additional affidavit, while ordinarily the Court would consider the challenge to the notice for reassessment on the basis of the reasons recorded, the following aspects cannot be overlooked--that the Court would not issue a futile writ, quashing the impugned notice only for permitting issuance of another notice when the reasons disclosed in the additional affidavit are alternative and, therefore, interconnected with the reasons initially communicated by the AO. The additional reasons as contained in affidavit dt. 10th Feb., 2004 are on the basis of the document namely, the hire-purchase agreement which was produced by the assessee in the original assessment proceedings. The two clauses in the said agreement now relied upon by the Revenue are as under:

'9. The hirer agrees:

(vi) that the company shall be the lawful owner of the vehicle and the vehicle shall be registered in the name of the hirer with an endorsement of the company's name for the sake of convenience and for the limited purpose of the Motor Vehicle Act.

14. The parties hereto mutually agree that the hirer shall be entitled to claim any benefits by way of depreciation as also any other eligible allowances with respect of the vehicle which may be available to the hirer under the IT Act, 1961, as applicable from time to time.'

The record of the assessment proceedings does not indicate that the assessee had brought the aforesaid clauses to the notice of the AO during the course of the assessment proceedings.

18. In Indo-Aden Salt Mfg. & Trading Co. (P) Ltd. v. CIT : [1986]159ITR624(SC) the apex Court has held that the mere fact that the AO could have in the original assessment proceedings found out the correct position by further probing did not exonerate the assessee from the duty to make a full and true disclosure of material facts. It is true that the obligation of the assessee is to disclose only primary facts and not inferential facts. If some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted.

In Zohar Siraj Lokhandwala v. M.G. Kamat : [1994]210ITR956(Bom) the Bombay High Court has held that even where the assessee states primary facts in the assessment proceedings, it is the assessee's duty to disclose all of them including particular entries in account books and particular portions of documents. Mere production of facts or documents before the AO is not enough if some material for the assessment lies embedded in that evidence which the AO can uncover but did not. That was a case where the assessee had produced the trust deed and the assignment deed under which the assessee had received Rs. 45 lakhs. After completion of the assessment, the AO discovered from a perusal of the trust deed as well as the deed of assignment that the assessee had wrongly claimed exemption from levy of capital gain tax. When the ITO issued a notice for reassessment, the assessee filed a writ petition challenging the notice and contending that the trust deed and the assignment deed were already on record before the ITO in the original assessment proceedings. In this set of facts also, the Bombay High Court held that mere production of a trust deed or assignment deed by itself did not amount to a true and full disclosure of material facts necessary for the purpose of assessment, because the relevant clauses of those documents were not brought to the notice of the AO in the original assessment proceedings.

19. In the facts of the present case mere production of the hire purchase agreement did not exonerate the assessee from the liability to point out the aforesaid clauses of the hire-purchase agreement under which the vehicles were to be registered in the name of the hirers and the agreement also provided that it was the hirer which would be entitled to the benefit of depreciation and other allowances under the IT Act.

20. The submission of Mr. Shah for the assessee that the assessee by providing for Clause 14 in the agreement could not have changed the provisions of the IT Act regarding depreciation is not required to be considered at this stage because as observed by the apex Court, 'it is necessary to reiterate that we are now at the stage of the validity of the notice under Section 148/147. The enquiry at this stage is only to see whether there are reasonable grounds for the ITO to believe and not whether the omission/failure and the escapement of income is established. It is necessary to keep this distinction in mind' vide Sri Krishna (P) Ltd. v. ITO : [1996]221ITR538(SC) .

Moreover, the above submission of the assessee proceeds on the factual assumption that none of the hirers have taken depreciation on the vehicles in question for which there is no assertion from the petitioner on oath. Hence, it is for the AO to consider such factual aspects. If the hirers have not taken depreciation, then only it would be open to the petitioners to urge before the AO that 40 per cent depreciation was rightly allowed to them, notwithstanding the fact that the petitioner-company itself is not engaged in the business of running the vehicles on hire.

21. As regards reliance placed by the learned counsel for the petitioner on various decisions in respect of the question whether depreciation is admissible at the rate of 40 per cent when the owner himself does not carry on the business of giving the vehicles on hire but such business is carried on by the lessee or the hirer of the vehicles, as indicated above--this question would arise only if it is held that notwithstanding Clauses 9 and 14 of the hire purchase agreement, the assessee is entitled to claim depreciation and that the hirers had not claimed depreciation.

In ITO v. Biju Patnaik : [1991]188ITR247(SC) the apex Court has sounded the note of caution that at the stage of notice under Section 147/148 of the Act, the Court is not to go into the merits of the controversy whether the particular income is taxable.

22. In view of the above discussion, this petition is dismissed with a clarification that if the assessee lodges its preliminary objections before the AO with reference to the impugned notice under Section 148 and also in relation to the reasons as disclosed in the additional affidavit, dt. 10th Feb., 2004, the AO shall consider and decide the preliminary objections by passing a speaking order. In case the order is adverse to the assessee, the assessee shall be at liberty to challenge such order on the preliminary objections by filing a writ petition and the AO shall not proceed with the reassessment proceedings for a period of one month from the date of despatch of the order to the petitioner by RPAD.

Subject to the aforesaid observations and direction, the petition is dismissed. Rule is discharged with no order as to costs.

Subject	Direct Taxation
Court	Gujarat High Court
Decided On	Feb-25-2004
Case Number	Spl. Civil Appln. No. 12249 of 2002
Judge	D.H. Waghela,; D.A. Mehta and; M.S. Shah, JJ.
Reported in	(2004)188CTR(Guj)316; [2004]268ITR48(Guj)
Acts	Constitution of India - Articles 141 and 226; Income Tax Act, 1961 - Sections 143(3), 147 and 148
Appellant	Garden Finance Ltd.
Respondent	Assistant Commissioner of Income Tax
Appellant Advocate	J.P. Shah and; Manish J. Shah, Advs.
Respondent Advocate	B.B. Naik, Adv.
Disposition	Petition dismissed
Cases Referred	In Zohar Siraj Lokhandwala v. M.G. Kamat

Garden Finance Ltd. Vs. Assistant Commissioner of Income Tax - Court Judgment