Appeal No 1792 of 1971
Appeal from the Judgment and Order dated the 31st March 1970 of the Gujarat High Court in Special Civil Application No 54566
RH Dhebar SK Dholakia and AC Bhatia for the appel lant
RM Mehta and Girish Chandra for Respondent
94 The Judgment of the Court was delivered by KHANNA J
This appeal on certificate is against the judgment of Gujarat High Court dismissing petition under article 226 of the Constitution of India filed by the appel lant for a writ of certiorari or other appropriate writ to quash two notices issued by the respondent to the appellant under section 148 of the Income tax Act 1961 hereinafter referred to as the Act of 1961
The matter relates to the assessment years 1957 58 and 1959 60
The appellant is a public limited company which carries on the business of manufacture of pottery and sani tary wares at Morvi and other places in the State of Guja rat
In respect of the assessment year 1957 58 the corre sponding accounting year for which ended on July 31 1966 the appellant filed its return under the Indian Income tax Act 1922 hereinafter referred to as the Act of 1922
The predecessor in interest of the responded by assessment order dated April 16 1959 assessed the total income of the appel lant at Rs 460372
In computing the said income the Income tax Officer allowed depreciations amounting to Rs 505487
For the assessment year 1959 60 the appellant like wise filed return
Assessment order in respect of that year was made on March 30 1961 and the income of the appel lant was assessed at Rs 1104650 after allowing depreciation of Rs 357926
On October 5 1965 a letter was addressed on behalf of the respondent to the appellant stating that there had been a mistake in the calculation of the depreciation allowance in respect of certain items of the capital assets of the appellant for the period covered by the assessment years 1955 56 to 1962 63
As a result of the mistake it was stated a sum of Rs 239723 had been allowed as deprecia tion allowance in excess of the permissible limit
Enclosed with the letter was a chart showing excess depreciation allegedly allowed during the above mentioned period
The excess amounts of depreciation for the years 1957 58 and 1959 60 were mentioned in the chart to be Rs 37869 and Rs 26945 respectively
The appellant company was asked if it had any objection to the rectification of the mistake the above letter was followed by another letter wherein the respondent wrote to the appellant that the mistake in depriciation arose because the initial depriciation was not taken into account in finding out whether the total depreciation allowed exceeded the original cost
On Febru ary 2 1966 the Income tax Officer addressed another letter to the appellant stating that for the assessment years 1957 58 and 1959 60 the income of the appellant had escaped assessment for failure of the appellant to disclose all material facts within the meaning of section 147a of the Act of 1961
The appellant in reply stated that depre ciation calculation sheets had been worked by the income tax authorities and there was no failure on the part of the appellant to disclose all facts
The impugned notices were thereafter issued on March 4 1966 by the Incometax Officer to the appellant stating that he had reason to believe that income of the appellant chargeable to tax for the assessment years in question had escaped assessment within the meaning of section 147 of the Act of 1961
The Income tax Officer accordingly stated that he proposed to recompute and reas sess the incomelossdepreciation 95 allowance for the aforesaid years
The appellant was called upon to furnish returns in the prescribed form within 30 days from the date of the service of the notices
It was also mentioned that the notices were being issued after obtaining the necessary satisfaction of the Commissioner of Income tax
The appellant thereafter filed writ petition in the High Court on April 29 1966
According to the case of the appellant there was no omission or failure on its part to disclose fully and truly all material facts necessary for the assessment
All material facts it was stated regard ing the acquisition of various capital assets from time to time were on the record of the department
The fact that initial depreciation on the new assets had been allowed was also on the record of the department
If there was any oversight on the part of the Income tax Officer the appel lant it was claimed could not be held responsible for that
The petition was resisted by the respondent and the affidavit of Shri NM Baxi Income tax Officer was filed in opposition to the petition
According to that affidavit the appellant did not disclose in the return that initial depreciation in respect of certain items of capital assets had been allowed in the past and that the same should be taken into account while calculating the depriciation allow able for the assessment years in question
The High Court found that the first requirement of section 147a of the Act of 1961 was satisfied inasmuch as the Income tax Officer had reason to believe that the income of the appellant for the two assessment years in question had escaped assessment
The mistake arose because of the fact that the initial depreciation allowance which had been allowed to the appellant in respect of some of the items of the capital assets was not taken into account while comput ing the depreciation allowance during the relevant years
As a result of that it was found that the depreciation allowance during the various years including the initial depreciation exceeded the original cost of those items of the capital assets to the appellant
Dealing with the question as to whether there was omission or failure on the part of the appellant to disclose truly and fully all mate rial facts it was observed that the appellant was bound to disclose the fact that initial depreciation had been allowed in respect of the items of capital assets in question during the previous years
The appellant as such was held to have failed to disclose all material facts
The plea of the appellant that all the material facts were already on the record of the department in the opinion of the High Court did not make material difference
In result the petition was dismissed
Before dealing with the contentions advanced in appeal it may be apposite to refer to the relevant provisions
According to section 10 of the Act of 1922 the tax shall be payable by an assessee under the head Profits and gains of business profession or vocation in respect of the profit or gains of any business profession or vocation carried on by him
Such profits or gains shall be computed after making a number of allowances
Those allowances include those 96 allowed in respect of depreciation as mentioned in clauses vi and vi a of sub section 2 the material part of which at the relevant time read as under vi in respect of depreciation of such buildings machinery plant or furniture being the property of the assessee a sum equivalent  to such percentage on the written down value thereof as may in any case or class of cases be prescribed and where the buildings have been newly erected or the machinery or plant being new not being machinery or plant entitled to the development rebate under clause vi b has been installed after the 31st day of March 1945 and before the 1st day of April 1956 a fur ther sum which shall however not be deductible in determining the written down value for the purposes of this clause in respect of the year of erection or installation equivalent a in the case of buildings the erection of which is begun and completed between the st day of April 1946 and the 31st day of March 1956 both dates inclusive to fifteen per cent of the cost thereof to the assessee b in the case of other buildings to ten per cent of the cost thereof to the assessee c in the case of machinery or plant to twenty per cent of the cost thereof to the assessee Provided that a    b    c the aggregate of all allowances in respect of depreciation made under this clause and clause vi a 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 buildings machinery plant or furniture as the case may be vi a in respect of depreciation of buildings newly erected or of machinery or plant being new which has been installed after the 31st day of March 1948 a further sum which shall be deductible in determining the written down value equal to the amount admissible under clause vi exclusive of the extra allowance for double or multiple shift working of the machinery or plant and the initial depreciation allowance admissible under that clause for the first year of erection of the building or the installation of the machinery or plant in not more than five successive assessments for the financial years next following the previous year in which such buildings are erected and such machinery and plant installed and falling within the period commencing on the 1st day of April 1949 and ending on the 31st day of March 1959 97 It is apparent from the above provisions that depreciation of three distinct kinds could be allowed in respect of buildings machinery and plant
The first category was of ordinary depreciation equivalent to such percentage on the written down value thereof as may be prescribed
The second category was of depreciation of buildings newly erected or new machinery or plant not being machinery or plant entitled to development rebate under clause vi b which has been installed after the 31st day of March 1945 and before the st day of April 1956 equivalent to such percentage if the cost thereof as is prescribed
Such initial depreciation was granted in the first year of the construction of the build ing or installation of the plant or machinery
This cate gory of depreciation was not deduction in determining the written down value for the purpose of clause vi
The third category of depreciation was additional depreciation which was claimable for a period of five years in respect of buildings newly erected or new machinery or plant in stalled after the 31st day of March 1948 in terms of clause via
The depreciation permissible under this category was deduction in determining the written down value
Clause c of the proviso to clause vi of sub section 2 of section 10 however makes it clear that the aggre gate of all three categories of depreciation allowance was in no case to exceed the original cost to the assessee of the building machinery or plant as the case may be
The case of the respondent is that the amount of depre ciation allowed to the appellant in respect of certain items of capital assets for the two assessment years in question was so much that the aggregate of all allowances in respect of depreciation made under clauses vi and vi a of sub section 2 of section 10 of the Act of 1922 exceeded the original cost to the appellant of those items of the capital assets
There was thus a violation of the provisions of clause c of the proviso to section 10 2vi of the Act
The above mistake it is stated occurred because the initial depreciation which had been allowed in respect of those items of the capital assets was not taken into account in computing the depreciation regarding those items in the two assessment years in question
The present is therefore a case according to the respondent of income escaping assessment under section 147 of the Act of 1961
Reliance in this connection is placed upon clause d of Explanation 1 to section 147 of the Act of 1961 according to which it would be a case of income escaping assessment where excessive depreciation allowance is comput ed
The material part of section 147 of the Act of 1961 reads as under 147
Income escaping assessment
If a the Income tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return under section 139 for any 8 1458SCI76 98 assessment year to the Income tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year income chargeable to tax has escaped assessment for that year or b Notwithstanding that there has been no omission or failure as mentioned in clause a on the part of the assessee the Income tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year he may subject to the provisions of sections 148 to 153 assess or reassess such income or recompute the loss or the depreciation allowance as the case may be for the assess ment year concerned hereafter in section 148 to 153 referred to as the relevant assessment year 
 According to section 148 of the Act of 1961 before making the assessment reassessment or recomputation under  section 147 the Income tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub section 2 of section 139 and the provisions of the Act shall so for as may be apply accordingly as if the notice were a notice issued under that sub section
The Income tax Officer has also before issuing such notice to record his reasons for doing so
Section 149 prescribes the time limit for the notice
The time limit in a case not falling under clause ii of sub section 1 of section 149 with which we are not concerned shall be eight years from the end of the relevant assessment year
In case falling under clause b of section 147 however the time limit for the notice is four years from the end of the relevant assessment year
Clause a of section 147 of the Act of 1961 corresponds to clause a of sub section 1 of section 34 of the Act of 1922
The language of clause a of section 147 read with sections 148 and 149 of the Act of 1961 as also the corre sponding provisions of the Act of 1922 makes it plain that two conditions have to be satisfied before an Income tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year viz i the Income tax Officer must have reason to believe that income chargeable to tax has escaped assessment and ii he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee a to make a return under section 139 for the assessment year to the Income tax Officer or b to disclose fully and truly material facts necessary for his assessment for that year
Both these conditions must co exist to confer jurisdiction on the Income tax Officer
It is also imperative for the Income tax Officer to record his reasons before initiating pro ceedings as required by section 1482
Another require ment is that before notice is issued after the expiry of four years from the end of the relevant assessment years the Commissioner should be satisfied on the reasons recorded by the Income tax Officer that it is a fit case for the issue of such notice
The duty which is cast upon the asses see is to make a true and full disclosure of the primary facts at the time of the original assessment
 99 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 contem plated by law
The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts
Once he has done that axis duty ends
It is for the Income tax Officer to draw the correct inference from the 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
If an Income tax Officer draws an inference which appears subsequently to be erroneous mere change of opinion with regard to that inference would not justify initiation of action for re opening assessment see Income tax Officer vs Lakhmani Mewal Das1
The words omission or failure to disclose fully and truly all material facts necessary for his assessment for that year postulate a duty on the assessee to disclose fully and truly all material facts necessary for his assess ment
What facts are material and necessary for assessment will differ from case to case
In every assessment proceed ing the assessing authority will for the purpose of com puting or determining the proper tax due from an assessee require to know all the facts which help him coming to the correct conclusion
From the primary facts in his posses sion whether on disclosure by the assesseeor discovered by him on the basis of the facts disclosed or otherwise the assessing authority has to draw inference 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 and ascertain on a correct interpretation of the taxing enactment the proper tax leviable see Calcutta Discount Co vs Income tax Offi cer2 as further observed in that case Does the duty however extend beyond the full and truthful disclosure of all primary facts  In our opinion the answer to this question must be in the negative
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
It is not for somebody else far less the assessee to tell the assessing authority what inferences whether of facts or law should be drawn
Indeed when it is remem bered that people differ as regards what inferences should be drawn from given facts it will be meaningless to demand that the assessee must disclose what inferences whether of facts or law he would draw from the  primary facts
 Keeping in view the principles enunciated above we may deal with the contention advanced on behalf of the appel lant that the present is not a case in which action could be taken under section 147a of the Act of 1961
This contention has been controverted 1 2 100 by the learned counsel for the respondent who has canvassed for the correctness of the view taken by the High Court in the judgment under appeal
It would appear from what has been  discussed above that one of the essential requisites for proceeding under clause a of section 147of the Act of 1961 is that the income chargeable to tax should escape assessment because of the omission or failure on the part of the assessee to dis close fully and truly all material facts necessary for his assessment
The present is not a case where the assessee had omitted or failed to file the return
Question then arises as to what has been omission or failure on the part of the assessee to make a full and true disclosure
There is nothing before us to show that in the return filed by the assessee appellant the particulars given were not cor rect
Form C under rule 19 of the Indian Income tax Rules 1922 at the relevant time gives the form of return which had to be filed by the companies
Part V of that form deals with depreciation
The said part requires a number of columns to be filled in by the assessee
It has not been suggested that any of the information furnished of any of the particulars given in those columns by the appellant company were factually incorrect
Nor is it the case of the revenue that the appellant failed to
furnish the particu lars required to be inserted in those columns
Indeed the copy of the return has not been filed and consequently no argument on that score could be or has been addressed before us
Part V of the form no doubt requires the assessee to state the written down value in column No 2
Such writ ten down value had to be specified without taking into account the initial depreciation because such depreciation in terms of clause vi of section 102 of the Act of 1922 could not be deducted in determining the written down value for the purpose of that clause
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 contro verted
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 al lowed 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 102vi of the Act of 1922
As observed by Shah J in Commissioner of Income tax vs Bhanji Lavji1 section 341a of the Act of 1922 corresponding to section 147 a 179 ITR 582
SC 101 of the Act of 1961 does not cast a duty upon the assessee to instruct the Income tax Officer on questions of law
It may also be mentioned that so far as the assessment for the assessment year 1957 58 is concerned the assess ment order was once rectified and at another time revised
Despite such rectification and revision the above mistake in the calculation of the depreciation remained undetected
It was only in October 1965 that the Income tax Officer realised that higher
amount of depreciation had been al lowed to the appellant than was actually due
A letter to that effect was consequently sent to the assessee on Octo ber 5 1965
It was however nowhere mentioned in that letter that the higher amount of depreciation had been allowed and the income as such had escaped assessment because of the omission or failure on the part of the asses see to disclose truly and fully all material facts
Refer ence to such omission or failure came only in a subsequent communication
The submission made on behalf of the appel lant is not without force that reference was made to asses see s omission or failure to disclose truly and fully all material facts because it was realised that after the expiry of four years from the end of the relevant assessment year no action for reopening of assessment could be taken on the basis of detection of mistake alone unless there was also an allegation that the income had escaped assessment because of the omission or failure of the appellant to disclose fully and truly material facts
Looking to a11 the facts we are of the opinion that it cannot be said that the excess depre ciation was allowed to the appellant company and its income as such escaped assessment because of its omission or fail ure to disclose fully and truly all material facts
It has been said that the taxes are the price that we pay for civilization
If so it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well versed with the law on the sub ject
Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue
At the same time we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings that state issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity
So far as income tax assessment orders are concerned they cannot be reopened on the scope of income escaping assessment under section 147 of the Act of 1961 after the expiry of four years from the end of the assess ment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment
As already mentioned this cannot be said in the present case
The appeal is conse quently allowed the judgment of the High Court is set aside and the impugned notices are quashed
The parties in the circumstances shall bear their own costs throughout
PHP Appeal aIlowed


Summary:
The appellant a Public Limited Company filed its Income Tax Return relating to the assessment years 1957 58 and 1959 60 under the Income Tax Act 1922
The Income Tax Officer passed assessment orders on 16 4 1959 and on 30 3 1961 respectively in respect of the two years
Certain depreciation was allowed by the Income Tax Officer for both the years
On 5 10 1965
the Income Tax Officer addressed a letter to the appellant stating that there had been a mistake in the calculation of the depreciation allowance
The appellant was asked by that letter if it had any objec tion to
the rectification of the mistake in the calculation of the depreciation amounts
for the above mentioned two years
On 2nd February 1966 the Income Tax Officer ad dressed a letter under section 147a of the Income Tax Act 1961 alleging that the income of the appellant had escaped assessment for failure of the appellant to disclose all materials facts
The appellant in his reply stated that the depreciation was calculated by the Income Tax authorities and there was no failure on the part of the appellant in disclosing all the facts
Thereafter the Income Tax Offi cer issued the notices on 4 3 1966 stating that he had reasons to believe that the income of the appellant charge able to tax for the assessment years in question had escaped assessment within the to meaning of section 147 of the 1961 Act
The appellant was called upon to furnish fresh return
The appellant challenged the said notices by filing a Writ Petition in the High Court
According to the appellant there was no omission or failure on its part to disclose fully and truly all material facts necessary for the assess ment that all material facts were placed before the assess ing authority and that the fact that initial depreciation on the new assets had been allowed was also on the record of the department
It was further contended that if there was any oversight on the part of the Income Tax Officer the appellant could not be held responsible
The respondent filed an affidavit in the High Court contending that the appellant did not disclose in the return that initially depreciation in respect of certain items of capital assets had been allowed in the past and that the same should be taken into account while calculating the depreciation allow able for the assessment years in question
The High Court dismissed the Writ Petition on the ground that there was an omission or failure on the part of the appellant to disclose truly and fully the fact that the initial depreciation had been allowed in respect of items of capital assets in ques tion during the previous years
Under section 10 of the 1922 Act an assessee is liable to pay tax under the head Profits and Gains of Business Profession or Vocation carried on by him
Such profits or gains shall be computed after making a number of allowances
Those allowances included the allowances provided by section 102vi which deals with depreciation under section 147a of the Income Tax Act 1961
if the Income Tax Officer has reason to believe that the reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment income charge able to tax has escaped assessment for that year he may subject to the provisions of sections 148 to 151 assess or reassess such income or recompute the loss or the deprecia tion allow 93 ance as the case may be
According to section 148 of 1961 Act before making the assessment reassessment or recompu tation under section 147 the income Tax Officer shall serve on the assessee a notice containing all or any of the re quirements which may be included in a notice under section 1491
The Income Tax Officer has also before issuing such notice to record his reasons for doing so
Section 149 prescribes a time limit for the notice
The time limit in respect of section 147a is 8 years
Allowing the appeal HELD 1
Two conditions have to be satisfied before an Income Tax Officer acquires jurisdiction to issue notice under section 148 beyond the period of 4 years but within the period of 8 years i The Income Tax Officer must have reason to believe that income chargeable to tax has escaped assessment ii He must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly material facts necessary for his assessment for that year
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
The duty of the assessee in any ease does not extend beyond making a true and full disclosure of primary facts
Once he has done that his duty ends
It is for the Income Tax Officer to draw the correct inference from the 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
If an Income Tax Officer draws an inference which appears subsequently to be erroneous mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment
98 E G H 99 A B Income Tax Officer vs Lakhmani Mewal Dass followed
What facts are material and necessary for assessment will differ from case to case
Calcutta Discount Co vs Income Tax Officer  followed
The Income Tax return has to be filled in form No C under rule 19 of the Income Tax Rules 1922
Part V of that form deals with depreciation
The said part requires a number of columns to be filled in by the assessee
It has not been suggested that any of the information furnished or any of the particulars given in those columns by the appellant Company were factually incorrect
When Income Tax Officer relies upon his own records for determining the amount of depreciation and makes
a mistake in doing so the respon sibility for the mistake cannot be ascribed to an omission or failure on the part of the assessee
99 D 100 B D E F Commission of Income Tax vs Bhanji Lavli fol lowed
Taxes are the price that is paid for civilisation
It is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well versed with the law on the subject
Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue
At the same time it has to be borne in mind that the policy of law is that there must be a point of finality in all legal proceed ings