DIVAN, J. -
(1.)THE petitioners in each of these two special civil applications are the same, namely, a limited -company, carrying on business of manufacturing textile cloth in Ahmedabad. The petitioners, namely, the Union of India and A. N. Rao, Income -tax Officer, Special Investigation Circle III, are respondents in both these special civil applications. The two special civil applications refer to separate notices issued by the second respondent in each of these special civil application under section 147(a) of the Income -tax Act, 1961, seeking to reopen assessments for different years and the grounds on which the assessments are sought to be re -opened are identical. The petitioners challenge these notices under section 148 of the Act of 1961 seeking to re -open assessments under section 147. Special Civil Application No. 517 of 1971 refers to notices to re -open assessments for assessments years 1962 -63 and 1963 -64 whereas notices which are challenged in Special Civil Application No. 218 of 1972 are in connection with re -opening of the assessments for assessment years 1964 -65 and 1965 -66. Since the notices for these four different reassessment years are being challenged on the same grounds, it will be convenient to dispose of both these special civil application by this common judgment.
(2.)THE petitioners have their registered office at Commercial Ahmedabad Mills' Premises, near Idga Chawky, Asarwa, Ahmedabad, and the petitioners are owners of two textile units both of which are situate at Ahmedabad. The petitioners have been assessed to Income -tax under the Indian Income -tax Act, 1922, and after the coming into force of the Income -tax Act, 1961, under that At as well. The assessments of the petitioners for the assessment years 1958 -59 to 1965 -66 were completed in due course. At the time of assessment, according to the petitioners, they had disclosed truly and fully all particulars necessary for the grants of depreciation allowance and had also furnished the relevant particulars of sale of assets, in the respective assessment years as and when such sales took place. It is the case of the petitioners that after verifying the records, the assessments of the petitioners had been completed and in the course of those assessments, the petitioners were granted necessary depreciation allowance while the liability on account of balancing charge on sales of assets was also brought to charge in the respective assessment years 1962 -63 to 1964 -65. By his letter dated March 18, 1971, the second respondent intimated to the petitioners that he intended to initiate proceedings against the petitioners under section 147(a) of the Act of 1961, in respect of assessment years 1962 -63 to 1965 -66 the corresponding accounting years being 1961 to 1964. This action was proposed because, according to the second respondent, the petitioners had been granted excessive depreciation allowance in assessment years 1960 -61 to 1965 -66 and the second respondent further stated in the said letter that certain capital gains arising on transfer of assets had not been assessed in assessment years 1962 -63 to 1964 -65. By the letter dated March 24, 1971, the petitioners intimated to the second respondent that the action proposed to be taken by the second respondent was without jurisdiction and/or without authority of law. The petitioners further contended that no income had escaped assessment by reason of failure or omission on the part of the petitioners to disclose fully and truly all material facts necessary for the assessments for the relevant years. Thereafter, two notices, both dated March 30, 1971, were issued by the second respondent. Those notices were in respect of assessment years 1962 -63 and 1963 -64 and they were issued under section 148 of the Income -tax Act 1961. These notices were issued as, according to the second respondent, income chargeable to tax for the said two assessments years had escaped assessment within the meaning of section 147 of the Act and the second respondent proposed to reassess the income for the said assessment years and had called upon the petitioners to submit returns in the prescribed form. These two notices, both dated March 30, 1971, have been challenged in Special Civil Application No. 517 of 1971. Thereafter, on January 17, 1972, two further notices were issued by the second respondent in respect of assessment years 1964 -65 and 1965 -66 and these notices, exhibit -B collectively to Special Civil Application No. 218 of 1972, have been challenged in that special civil application. As we have mentioned earlier, the grounds of attack against all the four notices are the same and it will, therefore, convenient to dispose of both these matters by this common judgment. In the affidavit -in -reply filed in Special Civil Application No. 517 of 1971, the second respondent has stated in paragraph 3 :
'In the original return of income filed by the petitioner, depreciation was claimed on machineries on the written down value basis and it was accordingly allowed. However, in respect of certain block of machineries initial depreciation was allowed to the extent of Rs. 2,24,764. The total depreciation, which included the aforesaid amount of initial depreciation, allowed up to the assessment years 1958 -59 in fact exceeded the total cost of the said machineries. As the total depreciation allowed exceeded the cost of machineries, in view of the provisions of section 34(2) (i), no further depreciation in respect of the said block of machineries was admissible from the assessment year 1959 -60 and onwards. The petitioners, however, claimed depreciation on the said block of machineries on the written down value basis without disclosing the initial amount of depreciation, which was allowed to the extent of Rs. 2,24,764 and the subsequent allowance of depreciation. The Petitioner failed to bring to the notice of the Income -tax Officer the fats and figures correctly and made a false claim of depreciation in its return with a view to defraud the revenue. The petitioner also failed to rectify the incorrect figures of written down value supplied by it during the course of the assessment proceedings. Consequently, the petitioner falsely claimed depreciation as allowable though, in fact, it was not due for allowance.'
In order to appreciate the rival contentions at this stage, it is necessary to refer to some of the provisions of the Indian Income -tax Act, 1922, hereinafter referred to as 'the Act of 1922'. Under section 10, sub -section (1) of the Act of 1922, the tax was to be payable by an assessee under the head 'Profits and gains of business, profession or vacation' in respect of the profits or gains of any business, profession or vocation carried on by him. Under sub -section (2), such profits or gains were to be computed after making the allowances set out in the different clauses of that sub -section. Under section 10(2) (vi) in respect of depreciation of buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed was to be allowed. Under the second paragraph of clause (vi), where the building have been newly erected, or the machinery or plant being new, has been installed, after the 31st day of March, 1945, and before the first day of April, 1956, a further sum which was however not to be deductible in determining the written down value for the purposes of the clause in respect of the year of erection or installation, was to be allowed. The proviso to section 10(2) (vi) contained three clauses (a), (b) and (c) clause (c) is material for the purpose of this judgment :
'Provided that -..... (c) the aggregate of all allowance in respect of depreciation made under this clause and clause (via) or under any Act repealed hereby, or under the Indian Income -tax Act, 1886 (II of 1886), shall, in no case, exceed the original cost to the assessee of the building, machinery, plant or furniture, as the case may be.'
(3.)THUS under the Act of 1922 depreciation of three kinds could be allowed, namely : (1) ordinary depreciation; (2) initial depreciation which was granted in the first year of installation but which was not to be taken into consideration for the purpose of arriving at the written down value; and (3) additional depreciation which was climbable for a period of five years but which, like ordinary depreciation, was to be taken into consideration for the purpose of working out the written down value. As regards the initial depreciation, it was in terms provided that this initial depreciation was not to be deductible in determining the written down value for the purpose of section 10(2) (vi). Under section 10(5) (b) of the Act of 1922 the written down value in the case of assets acquired before the previous year was to be the actual cost to the assessee less all depreciation actually allowed to him under that Act or any Act repealed thereby, or under executive orders issued when the Indian Income -tax Act, 1886, was in force. But by virtue of the provision in the second paragraph of section 10(2) (vi), initial depreciation was not to be deductible in determining the written down value for the purpose of the clause. The case of the revenue as set out in the letter dated March 18, 1971, was that the petitioner -company had been allowed excess depreciation on the oldest block of machinery as on January 1, 1952. The written down valued of the said block at the end of the assessment years 1958 -59 was Rs. 2,46,558 but the initial depreciation allowed on that machinery was Rs. 2,24,764. Hence, in view of the provisions of section 10(2) (vi), proviso clause (c), the allowable depreciation for the assessment year 1959 -60 could not have exceeded Rs. 21,724. But the petitioner had been granted depreciation on the said block for the assessment year 1959 -60, to the tune of Rs. 36,984. Thus with the depreciation allowance of Rs. 36,984 granted for the assessment year 1959 -60, the aggregate of depreciation allowance, whether ordinary or initial granted, in respect of that block of machinery exceeded the original cost to the petitioner -company of that block of machinery and according to the second respondent in that letter of March 18, 1971, excess depreciation was granted to the petitioner -company by Rs. 75,190 in the assessment year 1959 -60. It was, therefore, contained that no depreciation was to be available for subsequent years on the said block and it was proposed to withdraw the excess depreciation allowed for the assessment years 1962 -63 to 1965 -66. It is obvious that since the provisions of section 147(b) could not be invoked because the period of limitation of four years from the assessment years under consideration had expired and since there was a period of eight year even for invoking the provisions of section 147(a) of the Act of 1961, the second respondent proposed to confine his action to the depreciation allowance granted to the petitioner -company during the assessment years 1962 -63 to 1965 -66, because those four years would be within the period of eight years immediately preceding March 31, 1961.