H.N. Seth, J. - (1.) ALL these special appeals and writ petitions raise common and connected questions of fact and law and can be conveniently dealt with and disposed of by a common judgment.
(2.) M/s. Modi Spg. and Weaving Mills, hereinafter referred to as "the company", was incorporated in 1946. From time to time, the company purchased and installed machinery of the value of Rs. 75,00,000 for its factory. In proceedings for assessment of income-tax, the company was allowed, in computing its income from business for the assessment years 1950-51, 1951-52 and 1952-53, initial depreciation aggregating to Rs. 15,91,511 in respect of new machinery installed in the relevant previous years. The company was also allowed normal depreciation at the appropriate rates. In the assessment year 1956-57, the aggregate of all the depreciation allowances including initial depreciation exceeded the original cost of the machinery, but the Income-tax Officer, on the written down value of the machinery computed at Rs. 16,48,053, allowed Rs. 2,59,236 as normal depreciation. In so computing the normal depreciation, the Income-tax Officer apparently lost sight of Clause (c) of the proviso to Section 10(2)(vi) of the Indian Income-tax Act, 1922, which provided that the aggregate of all allowances in respect of depreciation on machinery and plant was not to exceed the original cost of the same to the assessee. The Income-tax Officer allowed similar depreciation allowance which, because of the aforesaid Clause, was not allowable, in the assessment years 1957-58 and 1958-59, as a percentage on the appropriate written down value of the machinery and plant in those years. Subsequently, the Income-tax Officer, on November 20, 1964, issued notices for reopening the company's assessment for the three years, under Section 148, of the Income-tax Act, 1961. The company filed fresh returns under protest and objected to the notices issued for reopening its assessments. The company further filed three Writ Petitions Nos. 969 of 1965, 970 of 1965 and 971 of 1965 (Modi. Spg. and Wvg. Mills Co. Ltd. v. Income-tax Officer, 1966 59 ITR 401) in respect of each of the three years and prayed that the three notices issued under Section 148 of the Act for reopening its assessment be quashed. At the hearing of the petitions, counsel for the company conceded that during the course of assessment for the three years it had in fact been allowed depreciation in contravention of Clause (c) to the proviso to Section 10(2)(vi) of the 1922 Act. It was also admitted that because of Clause (c) to Explanation 1 to Section 147 of the Income-tax Act, 1961, the petitioner's income having been made the subject-matter of excessive relief under the Indian Income-tax Act, 1922, it had escaped assessment. Learned counsel for the petitioner urged that the Income-tax Officer could have no jurisdiction to reopen its assessment unless he had reasons to believed that while filing its return, the petitioner had not truly and fully disclosed all the information required to be furnished in the prescribed form. There is no column in the prescribed form which required an assessee to state the particulars either about the initial depreciation in respect of a machinery allowed in earlier years or that about its cost to the assessee. Accordingly, if the petitioner did not furnish that information in its return, it cannot be said that he failed or omitted to fully and truly disclose material particulars and no question of the Income-tax Officer believing that any part of the petitioner's income has escaped assessment on account of its failure to disclose material particulars of its income arose. Moreover, necessary facts regarding the cost of the machineries and the initial and normal depreciation allowed in respect of such machinery in earlier years was available to the Income-tax Officer in the assessment record of the petitioner. In the circumstances, if the Income-tax Officer did not care to look into the record available with him, it could 'not be said that escapement of income from assessment was by reason of the petitioner failing to disclose these facts. It, on the other hand, was by reason of the Income-tax Officer omitting to look into the assessment record of the petitioner. The three writ petitions came up for hearing before the learned single judge of this court. He held that the company filled the columns its return correctly. He repelled the argument raised on behalf of the revenue that in column 2 of Part V of its return, the statement of particulars prescribed to be furnished with regard to claim of depreciation under proviso (a) of Section 10(2)(vi), the petitioner furnished wrong particulars of the written down Value of the machinery at the beginning of the accounting period inasmuch as it did not, while working out the written down value, take into account the amount of initial depreciation which had been allowed in earlier years. He worked it out only by taking into consideration normal depreciation. This resulted in furnishing of inaccurate particulars and it was because of this that the Income-tax Officer was misled into making a wrong assessment. The learned single judge held that in connection with column 2 of Part V of the return, the petitioner correctly disclosed the amount of the written down value of the machinery. For calculating the amount of the written down value of the machinery at the beginning of the accounting year, the amount of initial depreciation allowed in any earlier year was not to be taken into consideration. The learned judge, however, observed that it was incumbent upon the petitioner to disclose to the Income-tax Officer all material facts necessary to make out its claim to depreciation. It was not open to it to set out only those facts which exaggerated its claim; it was bound to disclose all material facts which went to show the correct amount of the allowances to which it was entitled. In the result he rejected the three petitions. The petitioner then filed three special appeals, namely, Special Appeals Nos. 476 of 1965, 477 of 1965 and 478 of 1965.
(3.) IN appeal this court observed that the only question for consideration was whether the INcome-tax Officer was justified in issuing a notice under Section 148 of the INcome-tax Act, 1961. After stating that there was apparently a mistake and error on the side of the company as well as the INcome-tax Officer, the court observed that the INcome-tax Officer could reasonably come to the conclusion that it was due to the omission and failure on the part of the assessee in disclosing fully and truly all material facts necessary for the assessment that the INcome-tax Officer committed the error as a result of which a part of the petitioner's income escaped assessment. IN the opinion of the Division Bench, it was just to hold that the INcome-tax Officer, while issuing the notices under Section 148 of the INcome-tax Act, could reasonably believe that, prima facie, the responsibility for escapement of assessment was on the assessee. IN the result the Bench affirmed the judgment of the learned single judge and dismissed the three special appeals. Being aggrieved, the petitioner filed three appeals before the Supreme Court. The Supreme Court, by its judgment dated 10th February, 1969, allowed the three appeals. It set aside the judgment of the Division Bench and remanded the case for a fresh decision in accordance with the observations made in its judgment. The Supreme Court pointed out that Section 34 of the INcome-tax Act conferred jurisdiction upon the INcome-tax Officer to issue notice in respect of the assessment beyond a period of four years but within the period of eight years, from the end of the relevant year, if two conditions existed- (1) that the INcome-tax Officer has reason to believe that income, profits or gains chargeable to income-tax had been under-assessed ; and (2) that he also had reasons to believe that such "underassessment" had occurred by reason of either- (i) omission or failure on the part of the assessee to make a return of his income under Section 22; or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. These conditions are cumulative and precedent to the exercise of jurisdiction to issue a notice of reassessment. It observed that while deciding the special appeals, this court had found that the petitioner's income had in fact escaped assessment, but then it had not considered the question whether that income escaped assessment by reason of any omission or failure on the part of the company to disclose fully and truly all material facts necessary for its assessment. In the result, while setting aside the judgment of this court and remanding the case it directed this court to determine the question whether by reason of the omission or failure on the part of the company to disclose fully and truly all material facts necessary for assessment of the company for the three years in question, any income, profits or gains chargeable to income-tax had escaped assessment or that the company has been given excessive depreciation allowance in computing its income.;