The court emphasized the obligation of the Assessing Officer to dispose of objections to the issuance of a notice under Section 148 of the Income Tax Act by passing a speaking order before proceeding with the assessment on merits. The court also highlighted the discretionary jurisdiction of judicial review when there is a violation of principles of natural justice or the procedure required for the decision is not adopted.

SANJIV KHANNA, J.

1. Admit. Rule DB.

2. We have heard counsels for the parties and proceed to pronounce our decision.

3. The petitioner herein is a company and for the assessment year 2003-04, a regular assessment order dated 20.10.2005 after scrutiny under Section 143(3) of the Income Tax Act, 1961 (‘Act’, for short), was passed.

4. Subsequently, respondent No.1-the Deputy Commissioner of Income Tax, Circle 7

(1) issued notice under Section 148 of the Act dated 8.3.2010. In response to the said notice, the petitioner filed computation of income under protest vide letter dated 15.4.2010 and requested respondent No.1 to furnish reasons recorded prior to the issue of notice under Section 148.

5. The respondent No.1, vide letter dated 6.10.2010, furnished the reasons to believe to the petitioner. The reasons recorded are as under:

“The provision for gratuity amounting to Rs.16,59,906/-claimed in the profit and loss account and offered it for tax while computing the income under normal provision of the act. But while computing the income under special provision u/s 115 JB of the IT Act, it was not added back. This provision was required to be added back being an unascertained liability. The mistake has resulted in underassessment of income by Rs.16,59,906 with consequent short levy of tax by Rs.1,72,873 including interest u/s 234B.

The petitioner had credited a capital reserve of Rs.66,64,20,487 as settlement amount in terms of settlement agreement with foreign promoters (Milacron Inc. USA, Widia GmbH and Meturit AG) the amount of Rs.66,64,20,487 accrued to petitioner on discharge of his liabilities on account of dents, dues, bonds, bills, contracts, agreements, promises, damages, executions, claims, demands, etc. The petitioner acknowledged and confirmed that on after the date of settlement agreement, any of the foreign promotes were entitled at their discretion to carry on the business as they may deem fit, or to transfer and deal with all or any of the shares or assets of the company, or to terminate the operations of the company & or wind up the company. Since the amount had accrued to petitioner in the course of business, it should have been taxable as business income. Omission to do so has resulted in underassessment of income of Rs.66,64,20,487 involving undercharge of tax of Rs.32,38,92,850 including interest.

The petitioner debited ‘Provision for diminution in value of investment of mutual funds’ amounting to Rs.2,62,30,297 to his profit and loss account and offered it for tax while computing the income under normal provision of the act. But while computing the income under special provisions of the IT Act, it was not added back. The mistake has resulted in underassessment of income by Rs.2,62,30,297 with consequent short levy of tax by Rs.27,31,802 including interest u/s 234B.”

6. The petitioner thereafter filed objections vide letter dated 26.10.2010, as stipulated and mandated by the decision of the Supreme Court in GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Ors. (2003) 259 ITR 19 (SC). In the objections, which go into about 70 typed pages, the petitioner relied upon case law, referred to the factual aspects and submitted that the issues/questions raised were examined by the Assessing Officer in the original assessment proceedings and that no new material/information had come to the possession/knowledge of the respondent No.1, subsequent to the original assessment. It was stated that this was a case of change of opinion and further that the requirements of the first proviso to Section 147 of the Act were not satisfied. The assessee had made full and true disclosure of material facts at the time of original assessment. With regard to issue No.1, i.e. provision for gratuity, reference was made to the specific material available to the Assessing Officer in original assessment. With regard to settlement, the material available with the Assessing Officer in the original proceedings, including a legal