The Commissioner of Income Tax,Tamil Nadu III, Madras v. M/s.Raj Finlease Ltd.,5 Ramanuja Street,Sowcarpet, Chennai 79

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 09.06.2008Coram :THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJATax Case (Appeals) Nos.265 and 266 of 2008 andM.Ps.No.1 of 2008 in T.C.(A) No.266 of 2008The Commissioner of Income Tax,Tamil Nadu III, Madras.Appellantv.M/s.Raj Finlease Ltd.,5 Ramanuja Street,Sowcarpet, Chennai 79.RespondentTax cases filed under section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal, Madras 'B'Bench, Chennai dated 13.07.2007 passed in ITA Nos.990 and789/Mds/2003 against the order of the Deputy Registrar Income Tax,Appellate Tribunal, company Circle V (3) Madras 34, dt. 13.7.2007and against the order of the Commissioner of Income Tax (Appeals) VMadras 34, dt. 38.2.2003 in ITA.32/2002-03 and arising out of theorder of Deputy Commissioner of Income Tax, Company Circle V (3)Chennai-34, dt 28.3.2002 in PA.No.GIR/NO.53106-R.For Appellant:Mr.J.Nareshkumar,Standing Counsel for the IT Dept.JUDGMENT(Judgment of the Court was delivered byK.RAVIRAJA PANDIAN, J.)By formulating the following question of law, the revenue hascome forward with the above appeals as against the order of theTribunal dated 13.07.2007 passed in ITA Nos.990 and 789/Mds/2003 : https://hcservices.ecourts.gov.in/hcservices/ "Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right in lawin holding that the assessment was not validly reopenedand accordingly annulled the reassessment order, eventhough income chargeable to tax has escaped by virtue ofclaiming excess depreciation and the Tribunal has notadjudicated the other issues raised by the assessee isvalid?2. The facts culled out from the records proceed as follows :The relevant assessment year is 1998-99. The assessee companyfiled a return of income for the said assessment year declaring anet income of Rs.1,54,640/- on 30.11.1998. The assessment wascompleted under section 143(3) of the Income Tax Act. Later on,the assessing officer, taking a view that there was an escapementof income, issued a notice under section 148 of the Income Tax Acton 14.03.2001 calling upon the assessee to file a return of incomefor the said assessment year. The reason sought for by theassessee for the reopening has not been furnished. However theassessee, by his letter dated 24.02.2002, informed the assessingofficer that the return filed by him originally could be treated asthe return filed in response to the notice under section 148 of theAct. The assessing officer reopened and framed the assessment onthe premise that the assessee has withdrawn the claim fordepreciation on plant and machinery leased out in the assessmentyears 1996-97 and 1997-98, however, failed to file a revised returnwithdrawing the depreciation as in the earlier years. Thus, thereopening was based on the ground that there was excess claim ofdepreciation of Rs.16,74,008/- which escaped assessment. Asagainst that order, the assessee preferred an appeal before theCommissioner of Income Tax (Appeals) who, by observing that theassessee himself having requested to treat his return filed earlieron 31.03.1999 as the return filed in response to the notice undersection 148 of the Act, cannot re-agitate now by saying that theassessing officer has no reason to reopen the assessment. The saidorder was carried on appeal to the Tribunal by the assessee.Before the Commissioner as well as before the Tribunal the assesseerelied on the reasoning he obtained from the assessing officer forreopening of assessment, by filing an application under the Rightto Information Act. On the basis of that information so furnished,the Tribunal has come to the conclusion that when the assessingofficer decided to reopen the assessment, the only item which hasescaped assessment was claim of depreciation in excess of what waseligible to the assessee. But this reason did not really exist, asthe assessee had filed a revised return within the time allowedunder section 139(5) of the Act on 31.03.1999, and this fact offiling of revised return has been ignored by the assessingauthority.3. It is relevant to state here that while making thereassessment, the assessing officer has made certain otheradditions also. Learned counsel for the revenue assailed the orderof the Tribunal on the ground that the filing of the revised return https://hcservices.ecourts.gov.in/hcservices/ for the assessment year 1998-99 is a consequence of wrong claim ofdepreciation made for the assessment year 1996-97. That returncannot be treated as valid return. The Tribunal, while allowingthe appeal, has not considered whether the other additions made bythe assessing officer is valid or not and totally annulled thereassessment.4. Heard the learned counsel for the revenue and perused thematerials available on record.5. The reasoning for invoking the provisions of section 147 ofthe Act, i.e., for issuance of notice under section 148 of the Actfor re-assessment furnished to the assessee, is as follows :"The assessee has withdrawn their claim for 100%depreciation on plant and machinery leased out in theassessment years 1996-97 and 1997-98. In line with the samethe assessee has not filed any revised return withdrawing thedepreciation as in earlier years. The assessee has claimeddepreciation at Rs.16.74,408/-. As income chargeable to taxhas escaped assessment by virtue of claiming depreciation inexcess of what is eligible, the assessment finalized has tobe reopened under section 147 of the Act. I have reason tobelieve that income chargeable to tax has escaped assessmentand I propose to re-open the assessment under section 147 ofthe Income Tax Act".6. From the above reasoning, it could be seen that theassessing officer was of the view that for the assessment yearunder consideration the depreciation was not withdrawn and that isthe reason for reopening the assessment. The assessing officer, inaddition to the adding of depreciation, made certain otheradditions also on account of loss incurred by the assessee on thesale of re-possessed vehicle and some trade creditors. 7. Section 147 of the Act which provides that for anyescapement of assessment, the assessment can be reopened only incases where the assessing officer has reason to believe that incomechargeable to tax has escaped assessment. The belief must be basedon some prima facie materials. (See Raymond Woollen Mills Ltd. v.Income Tax Officer) (1999) 236 ITR 34.)8. The Tribunal, the ultimate fact finding authority, hasconcluded that on the date when the assessing officer decided toreopen the assessment, he had reason to believe that the escapementof assessment of income was with regard to claim of depreciation inexcess of what was eligible to assessee. That reason was not inexistence when the assessing officer initiated reopeningproceedings under section 147 of the Act because of the reason thatthe assessee had already filed a revised return within the timeallowed under section 139(5) of the Act on 31.03.1999 videacknowledgement No.01193. Had this factor been considered by theassessing officer, then there was no reason available to him forreopening the assessment. He could not have had any jurisdiction https://hcservices.ecourts.gov.in/hcservices/ to reopen the assessment, in the absence of any reason to believethat some item of income has escaped taxation. The Tribunalfurther observed that once the assessment is validly reopened, theother additions could also be made legally, but the action ofreopening has to take precedence for framing the assessment.Unless and until the assessment is validly reopened, no additioncan be made whether the item based on which reopening was made oron other items and ultimately held that in the absence of valid andproper initiation of reopening proceedings under section 147 of theAct, reassessment could not be made. 9. We are in complete agreement with the reasoning given bythe Tribunal, which is the stated and well established legalprinciple pertaining to reopening of assessment under section 147of the Act. When the reasoning given for reopening of assessmentis not available at the time of initiation of reopening, thereopening could only be regarded as not in accordance with law andinvalid.10. For the reasons stated above, the appeal deserves to bedismissed and it is accordingly dismissed. Miscellaneous petitionis closed.sd/-Asst.Registrar/true copy/Sub Asst.Registrarrg/mfTO1. The Registrar, The Income Tax Appellate Tribunal, Bench 'B', Rajaji Bhavan, Besant Nagar, Chennai.2.. The Commissioner of Income Tax(Appeals)-V121, Mahatma Gandhi Road, Chennai-34.3. The Deputy commissioner of Income Tax,Company Circle V(3), Chennai 34.4. The Commissioner of Income Tax, Tamilnadu III, Madras.1 cc To Mr.Pushya Sitaraman, Standing Counsel for I.T.Cases,SR.27728T C (As) Nos.265 and 266 of 2008 andM.Ps.No.1 of 2008 in T.C.(A) No.266 of 2008rb [co]gkg/21.7