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2014 Supreme(Guj) 445
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
Akil Kureshi, Ms. Sonia Gokani, JJ.
N.K.INDUSTRIES LTD - Petitioner(s)
Versus
INCOME TAX OFFICER (OSD) - Respondent(s)
SPECIAL CIVIL APPLICATION No. 24743 of 2006
Decided On: 11th March 2014
Mr J.P SHAH for Mr. MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1
Mr M.R BHATT Sr Advocate with Mrs MAUNA M BHATT, Advocate for the Respondent
The court established that if the Assessing Officer finds a ground brought to their notice by the audit party to be valid, reopening of assessment cannot be quashed solely on that basis.
Headnote:
Income-tax Act - Reopening of Assessment - Section 148 - 147(c) - 36(1)(iii) - 32 - [SUMMARY]
Fact of the Case:
The petitioner challenged a notice issued by the Assessing Officer under Section 148 of the Income-tax Act, 1961, proposing to reopen assessment for the Assessment Year 2001-2002. The petitioner objected to the notice, which was rejected, leading to the filing of the petition.
Finding of the Court:
The court found that the notice for reopening was issued within the prescribed period and that the Assessing Officer had formed an independent reason to believe that income had escaped assessment. The court also noted that the question of depreciation required reexamination.
Issues: The main contention was that the Assessing Officer had acted at the behest of the audit party and that the reopening was not based on independent reason to believe. The petitioner also raised objections to the grounds on which the reopening was based.
Ratio Decidendi: The court held that if a particular issue is brought to the notice of the Assessing Officer by the audit party and the Assessing Officer finds the ground to be valid, reopening of assessment cannot be quashed merely because such ground was brought to the notice by the audit party. The court also noted that the question of depreciation required reexamination.
Final Decision: The petition was dismissed, and the rule was discharged. The interim relief, if any, stood vacated.
(PER : HONOURABLE Mr. JUSTICE AKIL KURESHI)
Petitioner has challenged a notice dated 16th January 2006, as annexed at Annexure-B to the petition, issued by the respondent Assessing Officer under Section 148 of the Income-tax Act, 1961 {“the Act” for short]. Vide such notice, she proposed to reopen assessment of the petitioner for the Assessment Year 20012002. Such assessment was originally framed after scrutiny. At the request of the petitioner, the Assessing Officer supplied the reasons recorded for issuing such notice. Such reasons read as under :-
“In this case, return of income for A.Y 200102 was filed on 31.10.2001 declaring therein total loss of Rs. 32,36,408/= which was finalized u/s. 143 (3) on 30.03.2004 on a total loss of Rs. 26,12,838/=.
2. On perusal of audit report furnished alongwith the return of income it was noticed at Sr. 12B that “the company had given loan amounting to Rs. 660.62 lakhs and the same is considered doubtful and therefore, interest was not charged”. As per the mercantile accounting system accrued interest has to be considered as income. The interest worked out at the rate of 18% on Rs. 660.62 lacs comes to Rs. 1,18,91,160/=. The Company has failed to disclose the said income amounting to Rs. 1,18,91,160/=. This has resulted in under assessment of Rs. 92,67,322/= [Rs. 1,18,91,160 – Rs. 26,23,838 loss determined u/s. 143 (3)].
3. It is seen from the P&L account for F.Y 200001 attached with the return that the company had paid interest to others of Rs. 2,10,876/= and to bank and financial institution Rs. 7,14,237/=. After adjustment of interest received of Rs. 5,27,260/= net interest paid on loan borrowed debited to P&L account of Rs. 3,97,853/=. On the other hand, it had granted interest free unsecured loan of Rs. 652.63 lacs to the company under the same management. The loanee company’s net worth was negative and there was no stipulation of repayment. Since, the company had obtained interest bearing loan and given interest free loan to another company under the same management which cannot be said to have been used for business purpose of the assessee. Therefore, interest of Rs. 3,97,853/= debited to the P&L account requires to be disallowed u/s. 36 [1](iii).
4. It is also noticed from the statement of income that allowable depreciation u/s. 32 of the I.T Act was Rs. 2,42,60,145/=. However, annexure-I shows computation of depreciation pertaining to machinery as under:
Add : Addition after 01.10.2000
Plant & Machinery Rs. 2,00,629
Office Equipments-Heater Rs. 1,500
___________
Rs. 4,26,080 @ 12.5%
= Rs. 53,260/=
The Company has put to use plant and machinery and office equipment worth Rs. 2,02,129/= after 1.10.2000 on which depreciation at the rate of 12.5% works out to be Rs. 25,266/=. The assessee company has wrongly worked out depreciation on W.D.V of Rs. 4,26,080/= at the rate of 12.5% at Rs. 53,260/= claiming excess depreciation of Rs. 27,994/= which requires to be withdrawn.
5. Considering the above facts, I have reason to believe that there is an escapement of income within the meaning of Section 147 (c) of the Income-tax Act, 1961. Issue notice u/s. 148 of the I.T Act.”
Petitioner raised objection to the notice for reopening under communication dated 27th February 2006. Such objections were, however, rejected by the Assessing Officer by an order dated 14th November 2006. At that stage, the petitioner filed this petition.
In the present case, notice for reopening had been issued within a period of four years from the end of the relevant assessment year. Under such circumstances, the additional requirement arising out of the proviso to Section 147 of the Act of the income escaping the assessment due to failure on the part of the assessee to disclose truly and fully all material facts would not arise. It is also not a case of the petitioner that any of the gr
