R.N.Pyne, J. - (1.) This appeal is directed against, the judgment and order of A.N. Sen J., dated July 3, 1975 (Burma Shell Oil Storage and Distributing Co. of India Ltd. v. Income-tax Officer allowing the respondent's application made under Article 226 of the Constitution challenging two notices issued in connection with initiation of penalty proceedings against the respondent. The facts of this case may be briefly stated.
(2.) The respondent which is a company incorporated under the provisions of the English Companies Acts with liability of its members limited by shares and has its registered office at Burmah House, Piper Sway, Swindon in the United Kingdom, carries on business, inter alia, at Burmah Shell House, Ballard Street, Bombay-1, and also at No. 31, Binoy Badal Dinesh Bag in the town of Calcutta. The respondent's business consists in the importation and of purchase and storage, sale and distribution of petroleum and allied products. The capital of the respondent has been contributed in pounds sterling and as on December 31, 1966, the authorised capital of the respondent consisted of 25,000,000 divided into 12,500,000 'A' ordinary shares of pound one each and 12,500,000 'B' ordinary shares of pound one each. All the shares of the respondent were issued and fully paid up. The respondent's accounts including profit and loss account were expressed in terms of pound sterling. The respondent was obliged by law to lay before its shareholders at its annual general meeting a profit and loss account expressed in terms of pounds sterling. The financial year of the respondent is from January to December. The respondent company had been assessed to income-tax in India for a number of years. For the assessment year 1967-68, it duly filed its return and the assessment year involved in the proceeding in the court of the first instance and in this appeal is the assessment year 1967-68. On June 5, 1966, the rupee was devalued and as a result of the devaluation of the rupee, the respondent in respect of its trading for the financial year 1966 claimed to have suffered a loss in consequence of the fall in the sterling value of its current assets held in India including oil stocks. It appears that the respondent had further provided in respect of depreciation an amount based on its original actual cost in terms of sterling of its capital asset, which, by reason of the said devaluation, was greater in terms of rupees than it would otherwise have been, and it claimed in its income-tax return for the assessment year 1967-68 depreciation on the enhanced basis on account of the devaluation. The development rebate and terminal or balancing charge in respect of assets discarded or sold on the basis of their original actual cost in sterling were also claimed. Assessment year 1967-68 was the first year in which these questions fell to be considered and the respondent had in its return for the said year claimed deduction for the loss on devaluation and the said greater depreciation on its fixed asset and also the said development rebate.
(3.) The respondent's return for the assessment year 1967-68 was duly filed and sent with a covering letter and in the said letter as also in the return, it was specifically pointed out that it was claiming devaluation loss and the said greater depreciation. In the course of the assessment proceedings on the basis of the said return filed by the respondent for the assessment year 1967-68, the Income-tax Officer made several queries and asked for several clarifications all of which were duly furnished by the respondent. A revised return under cover of a letter dated May 20, 1971, was also filed in the course of the said proceedings. In the said revised return, the respondent again made it clear that it had claimed devaluation loss and the said greater depreciation as well as development rebate and terminal charge on the aforesaid basis of devaluation of the rupee. After the filing of the revised return, the respondent at the request of the Income-tax Officer furnished a statement of depreciation and development rebate on the basis that no greater amount was allowable by virtue of devaluation. On the basis of the loss suffered by the respondent on account of devaluation and on the basis of the respondent's claim for greater depreciation as also development rebate, the respondent in the return originally filed had shown a substantial loss of over Rs. 68,00,000 (sixty-eight lakhs). In the course of the assessment proceedings before the Income-tax Officer, the respondent was represented by Shri V. Newatia of M/s. Price Water House Peat & Co. and Shri O.P. Mathur, Taxation Officer of the respondent company. They were heard by the Income-tax Officer and the Income-tax Officer for reasons recorded in his order disallowed the entire claim of the respondent on account of devaluation loss and added back an amount of Rs. 8,19,01,945 to the respondent's income claimed by the respondent by way of deduction on this account. The Income-tax Officer also disallowed a large part of the claim on account of depreciation, terminal allowance and development rebate. On the basis of the view expressed by the Income-tax Officer that the entire claim on account of devaluation loss and the greater part of the claim on account of depreciation, terminal allowance and development rebate were not allowable and on the basis of the said claims being rejected and being added to the income of the respondent and as a necessary consequence of such rejection, the respondent's total income was assessed at Rs. 8,25,26,427. Against the said order of assessment by the Income-tax Officer, an appeal was preferred by the respondent before the Appellate Assistant Commissioner of Income-tax who for reasons recorded in his order dated December 4, 1972, substantially upheld the order of the Income-tax Officer and the Appellate Commissioner on the question of the devaluation loss held that the fall in the sterling value of the Indian assets was a notional or hypothetical loss and it was not a real loss sustained during the year of account. Against the order of the Appellate Assistant Commissioner, the respondent had preferred a further appeal to the Income-tax Appellate Tribunal which was pending at the time of hearing of the writ application.;