P. Shanmugam, J. 1. The petitioner is a society registered under the Cooperative Societies Act. The writ petition challenges the proceedings initiated by the second respondent to reopen the assessment for the year 1989-90 invoking Section 148 of the Income-tax Act, hereinafter referred to as "the Act", on the ground of want of jurisdiction after the prescribed period of limitation.
2. The brief facts are as follows: The petitioner filed the return of income for the year 1989-90 on October 30, 1989, declaring a total income of Rs. 17,30,000. In arriving at the total income the petitioner deducted a sum of Rs. 10,14,837 as depreciation allowance. The depreciation allowance is arrived at as under :
Rs.
(i) On building and furniture :
Written down value, i.e., WDV Rs. 9,56,930-10 per cent.
95,693.00
(ii) On plant and machinery WDV Rs. 6,19,558-33 1/3 per cent 2,06,549.00
(iii) On plant and machinery WDV Rs. 14,25,190-50 per cent.
7,12,595.00 Total depreciation 10,14,837.00
3. The assessment under Section 143(3) of the Act was made on July 31, 1991. On the presumption that there is an apparent mistake from records rectifiable under Section 154 of the Act, an order was passed on March 27, 1996, to rectify the mistake. An appeal was filed, inter alia, contending that there was no mandatory notice under Section 154(3) of the Act. The Commissioner of Income-tax (Appeals) allowed the appeal and cancelled the rectification order on November 3, 1997 on the ground that it was invalid for want of notice and opportunity. Thereafter fresh proceedings were initiated by issuing a notice dated January 16, 1998, under Section 154 of the Act and again another dated April 24, 1998, under Section 148 of the Act proposing to reassess the income on the plea that income chargeable to tax has escaped assessment within the meaning of Section 147 of the Act. The petitioner submitted a reply dated May 13, 1998, stating that the proceedings are time barred and invalid and also this petition under article 226 of the Constitution challenging the initiation of proceedings and notice. A statement has been filed on behalf of the second respondent. The case put forward is that the petitioner has claimed excessive depreciation and has omitted/failed to make a full and true disclosure. According to the Department the percentage of depreciation claimed is factually incorrect.
4. I have heard the counsel for the petitioner and learned senior standing counsel for income-tax.
5. Section 147 of the Act empowers the Assessing Officer to assess or reassess income which has escaped assessment. However, no action to reassess the escaped assessment can be taken after the expiry of four years, unless any income chargeable to income tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for their assessment in the return. Therefore, the only question that arises for consideration is whether the petitioner has failed to disclose fully and truly all material facts necessary for their assessment.
6. The case of the Revenue is that the petitioner had furnished inaccurate particulars by claiming excessive depreciation in respect of certain items of plant and machinery. According to the Department, the assessee ought to have made a complete and true disclosure, in that the percentage of depreciation claimed by the petitioner at the rate of 50 per cent, is factually incorrect whereas the claim of depreciation on all those items should be only at the rate of 33 1/3 per cent, and not 50 per cent.
7. On this aspect, viz., the failure to disclose full and true material facts the following decisions are cited : In Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), a Constitution Bench of the Supreme Court held that there is a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. From the primary facts in the possession of the Income-tax Officer, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise the assessing authority has to draw inferences as regards certain other facts ; and ultimately from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences. The duty of the assessee does not extend beyond the full and truthful disclosure of all primary facts. Once all the primary facts are before the Assessing Authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn.
8. In CIT v. Burlop Dealers Ltd. [1971] 79 ITR 609 (SC), following the decision in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), the Supreme Court held that the assessee had disclosed his books of account and evidence from which material facts could be discovered. It was under no obligation to inform the Income-tax Officer about the possible inferences which may be raised against him. It was for the Income-tax Officer to raise such an inference and if he did not do so the income which has escaped assessment cannot be brought to tax under Section 34(1)(a) of the 1922 Act.
9. In ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), it was held by the Supreme Court in reference to the notice issued under Section 148 that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts.
10. Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC), is a case of escaped assessment on the basis of excessive depreciation allowance allowed. The Supreme Court held as follows (page 9) :
"The case of the appellant is that in determining the amount of depreciation at the time of the original assessment for the two assessment years in question, the Income-tax Officer relied upon the written down value of the various capital assets as obtaining in the records of the department. This stand has not been controverted. When an Income-tax Officer relies upon his own records for determining the amount of depreciation and makes a mistake in doing so, we fail to understand as to how responsibility for that mistake can be ascribed to an omission or failure on the part of the assessee. It also cannot be disputed that initial depreciation in respect of items of capital assets in the shape of new machinery, plant and building installed or erected after the 31st day of March, 1945, and before the 1st day of April, 1956, is normally claimed and allowed. It seems that the Income-tax Officer in working the figures of depreciation for certain items of capital assets lost sight of the fact that the aggregate of the depreciation, including the initial depreciation, allowed under different heads could not exceed the original cost to the assessee of those items of capital assets. The appellant cannot be held liable because of this remissness on the part of the Income-tax Officer in not applying the law contained in Clause (c) of the proviso to Section 10(2)(vi) of the Act of 1922. As observed by Shah J. in CIT v. Bhanji Lavji [1971] 79 ITR 582 (SC), Section 34(1)(a) of the Act of 1922 (corresponding to Section 147(a) of the Act of 1961) does not cast a duty upon the assessee to instruct the Income-tax Officer on questions of law."
11. In Indian Oil Corporation v. ITO [1986] 159 ITR 956, the Supreme Court reiterating the settled position on this aspect held as follows (page 970) :
"As is well-settled now by the several authorities of this court and of several High Courts, there must be materials to come to the conclusion that there was 'omission or failure to disclose fully and truly all material facts necessary for the assessment of the year'. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, the obligation is to disclose facts ; secondly, those which are material ; thirdly, the disclosure must be full and, fourthly, true. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, for computing or determining the proper tax due from the assessee, it is necessary to know all the facts which help the assessing authority in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as to certain other facts. But on the primary facts it is for the taxing authority is to draw inferences. It is not necessary for the assessee to draw inferences for him. See, in this connection, the observations in Calcutta Discount Co. Ltd.'s case [1961] 41 ITR 191 (SC)."
12. Reliance was placed by learned senior standing counsel on behalf of the Revenue on the Supreme Court decision in Indo-Aden Salt Mfg. and Trading Co. P. Ltd. v. CIT [1986] 159 ITR 624, wherein the Supreme Court held that since excess depreciation had been allowed, the Income-tax Officer could reasonably be said to have material to form the belief that there was underassessment owing to the failure or omission on the part of the appellant to disclose fully and truly all material facts and that the fact that the Income-tax Officer could have in the original assessment proceedings found out the correct position by further probing did not exonerate the appellant from the duty to make a full and true disclosure of material facts. From the facts of the said case it is clear that there was a claim of depreciation at 6 per cent, which was available only in respect of such assets constructed of masonry and not earth work. The question was whether the excessive depreciation had been allowed and income had escaped assessment for those years owing to the failure on the part of the appellant to disclose fully and truly all material facts necessary for assessment. In that context, the Supreme Court held that if some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts--the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent, but that was immaterial. The Supreme Court found on the facts of the case as follows (page 627) :
"It is the admitted position that the assessee had not disclosed either by a valuation report or by a statement before the Income-tax Officer as to what portion consisted of earth work and what portion or proportion consisted of masonry work. For the purpose of calculating depreciation, that indubitably was a material fact. If excess depreciation has been allowed on that basis, i.e., that the entirety of the work consisted of masonry work, income might have been underassessed. The Income-tax Officer can reasonably be said to have material to form that belief. That position is also well-settled by the scheme of the section and concluded by the authorities of this court."
13. This judgment is distinguishable on facts and cannot apply to the case on hand.
14. In Renusagar Power Co. Ltd. v. ITO [1979] 117ITR 719, a Division Bench of the Allahabad High Court relying on Kantamani Venkata Narayana and Sons v. First. Addl. ITO [1967] 63 ITR 638 (SC), held that even though an enquiry had been made by the Income-tax Officer at the time of the original assessment, still Section 147(a) can be invoked if materials coming subsequently to the possession of the Revenue showed that the disclosure made by the petitioner was neither full nor true. Even in cases where the Income-tax Officer, if he had been circumspect, could have found out the truth from the books and other documents produced, he is not precluded from exercising the power to assess the income which has escaped assessment. It could not, therefore, be held that the non-disclosure of primary facts by the petitioner was not responsible for allowance of the rebate. In that case the claim of development rebate at the rate of 35 per cent, was held to be not justified. Admittedly, the petitioner in that case was not engaged in any manufacturing business and hence the allowance of rebate at 35 per cent, was not justified. However, the claim of the assessee that it was due to the wrong appreciation of law and not by reason of non-disclosure of primary facts by the assessee was not accepted. This judgment also, in my view, is distinguishable on the facts of the case.
15. In Bengal Luxmi Cotton Mills Ltd. v. ITO [1973] 87 ITR 618, the learned judge of the Calcutta High Court took a view that anything that requires to be proved by evidence is not necessarily an inferential fact. Whether a particular machinery was there or not, whether the petitioner had brought into use any machinery in a particular year is a primary fact. The existence or non-existence of a primary fact may be required to be proved by evidence. It was further held that the High Court in exercise of writ jurisdiction was concerned to see whether in fact there were some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of underassessment.
16. In East India Hotels Ltd. v. Deputy CIT [1993] 204 ITR 435 another learned judge of the Calcutta High Court while holding that notice issued under Section 148 of the Act beyond four years of the assessment held that if the assessee wrongly understood the implication of the notification, then at the highest it might be said that there was a wrong understanding and it could be said that the assessee had erred in law in claiming depreciation in the manner it did but that is not a case of omission or failure on the part of the assessee to disclose all material facts.
17. In Kantamani Venkata Narayana and Sons v. First Addl ITO [1967] 63 ITR 638, the Supreme Court held that on the facts of the case the Income-tax Officer had, prima facie, reason to believe that the assessee had omitted to disclose fully and truly all material facts and that in consequence of such non-disclosure income had escaped assessment. In that case, the Income-tax Officer was found to have prima facie reason to believe that the material information had been withheld, and that on account of withholding of that information there is an escaped assessment.
18. Applying the principles as laid down by the Supreme Court and other High Courts it could be seen in this case that the petitioner had filed a depreciation statement even though no prescribed form is provided to be filed. The petitioner had claimed depreciation on plant and machinery. On eight items they have claimed depreciation at the rate of 33 1/3 per cent. In reference to 12 other items they have claimed at the rate of 50 per cent. The written down value as on March 31, 1988, and the written down value as on March 31, 1989, after claiming depreciation at the rate specified, were given in the statement. Therefore, the primary facts in support of their claim of written down value have been furnished. However, while working out the depreciation rate, instead of 33.33 per cent, for all items they have made a claim of 50 per cent, in reference to 12 items. This claim on the rate of depreciation cannot be held to be failure to disclose full and true material facts necessary for assessing. It cannot be stated that this is the duty of the assessee to point out that he had made a wrong claim in the rate of depreciation. The claim was made as the assessee understood as leviable, according to law. The material facts having been placed before the Assessing Officer it is the duty of the officer to draw inferences from those material facts disclosed. On his failure the burden cannot be shifted to the assessee to hold that there is a failure to disclose the material facts. This provision is of a special or extraordinary nature since it empowers reopening of an assessment after the period of limitation of four years and hence must satisfy the test strictly.
19. For the above reasons, the impugned notice exhibit P-7 is illegal inasmuch as it does not satisfy the requirement of Section 147 of the Act. Hence, exhibit P-7 notice is quashed. The original petition is allowed.