IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 09.06.2008 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN and THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeals) Nos.265 and 266 of 2008 and M.Ps.No.1 of 2008 in T.C.(A) No.266 of 2008 The Commissioner of Income Tax, Tamil Nadu III, Madras. Appellant v. M/s.Raj Finlease Ltd., 5 Ramanuja Street, Sowcarpet, Chennai 79. Respondent Tax cases filed under section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'B' Bench, Chennai dated 13.07.2007 passed in ITA Nos.990 and 789/Mds/2003 against the order of the Deputy Registrar Income Tax, Appellate Tribunal, company Circle V (3) Madras 34, dt. 13.7.2007 and against the order of the Commissioner of Income Tax (Appeals) V Madras 34, dt. 38.2.2003 in ITA.32/2002-03 and arising out of the order of Deputy Commissioner of Income Tax, Company Circle V (3) Chennai-34, dt 28.3.2002 in PA.No.GIR/NO.53106-R. For Appellant : Mr.J.Nareshkumar, Standing Counsel for the IT Dept. JUDGMENT (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN, J.) By formulating the following question of law, the revenue has come forward with the above appeals as against the order of the Tribunal dated 13.07.2007 passed in ITA Nos.990 and 789/Mds/2003 : https://hcservices.ecourts.gov.in/hcservices/ "Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessment was not validly reopened and accordingly annulled the reassessment order, even though income chargeable to tax has escaped by virtue of claiming excess depreciation and the Tribunal has not adjudicated the other issues raised by the assessee is valid? 2. The facts culled out from the records proceed as follows : The relevant assessment year is 1998-99. The assessee company filed a return of income for the said assessment year declaring a net income of Rs.1,54,640/- on 30.11.1998. The assessment was completed under section 143(3) of the Income Tax Act. Later on, the assessing officer, taking a view that there was an escapement of income, issued a notice under section 148 of the Income Tax Act on 14.03.2001 calling upon the assessee to file a return of income for the said assessment year. The reason sought for by the assessee for the reopening has not been furnished. However the assessee, by his letter dated 24.02.2002, informed the assessing officer that the return filed by him originally could be treated as the return filed in response to the notice under section 148 of the Act. The assessing officer reopened and framed the assessment on the premise that the assessee has withdrawn the claim for depreciation on plant and machinery leased out in the assessment years 1996-97 and 1997-98, however, failed to file a revised return withdrawing the depreciation as in the earlier years. Thus, the reopening was based on the ground that there was excess claim of depreciation of Rs.16,74,008/- which escaped assessment. As against that order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) who, by observing that the assessee himself having requested to treat his return filed earlier on 31.03.1999 as the return filed in response to the notice under section 148 of the Act, cannot re-agitate now by saying that the assessing officer has no reason to reopen the assessment. The said order was carried on appeal to the Tribunal by the assessee. Before the Commissioner as well as before the Tribunal the assessee relied on the reasoning he obtained from the assessing officer for reopening of assessment, by filing an application under the Right to Information Act. On the basis of that information so furnished, the Tribunal has come to the conclusion that when the assessing officer decided to reopen the assessment, the only item which has escaped assessment was claim of depreciation in excess of what was eligible to the assessee. But this reason did not really exist, as the assessee had filed a revised return within the time allowed under section 139(5) of the Act on 31.03.1999, and this fact of filing of revised return has been ignored by the assessing authority. 3. It is relevant to state here that while making the reassessment, the assessing officer has made certain other additions also. Learned counsel for the revenue assailed the order of the Tribunal on the ground that the filing of the revised return https://hcservices.ecourts.gov.in/hcservices/ for the assessment year 1998-99 is a consequence of wrong claim of depreciation made for the assessment year 1996-97. That return cannot be treated as valid return. The Tribunal, while allowing the appeal, has not considered whether the other additions made by the assessing officer is valid or not and totally annulled the reassessment. 4. Heard the learned counsel for the revenue and perused the materials available on record. 5. The reasoning for invoking the provisions of section 147 of the Act, i.e., for issuance of notice under section 148 of the Act for re-assessment furnished to the assessee, is as follows : "The assessee has withdrawn their claim for 100% depreciation on plant and machinery leased out in the assessment years 1996-97 and 1997-98. In line with the same the assessee has not filed any revised return withdrawing the depreciation as in earlier years. The assessee has claimed depreciation at Rs.16.74,408/-. As income chargeable to tax has escaped assessment by virtue of claiming depreciation in excess of what is eligible, the assessment finalized has to be reopened under section 147 of the Act. I have reason to believe that income chargeable to tax has escaped assessment and I propose to re-open the assessment under section 147 of the Income Tax Act". 6. From the above reasoning, it could be seen that the assessing officer was of the view that for the assessment year under consideration the depreciation was not withdrawn and that is the reason for reopening the assessment. The assessing officer, in addition to the adding of depreciation, made certain other additions also on account of loss incurred by the assessee on the sale of re-possessed vehicle and some trade creditors. 7. Section 147 of the Act which provides that for any escapement of assessment, the assessment can be reopened only in cases where the assessing officer has reason to believe that income chargeable to tax has escaped assessment. The belief must be based on some prima facie materials. (See Raymond Woollen Mills Ltd. v. Income Tax Officer) (1999) 236 ITR 34.) 8. The Tribunal, the ultimate fact finding authority, has concluded that on the date when the assessing officer decided to reopen the assessment, he had reason to believe that the escapement of assessment of income was with regard to claim of depreciation in excess of what was eligible to assessee. That reason was not in existence when the assessing officer initiated reopening proceedings under section 147 of the Act because of the reason that the assessee had already filed a revised return within the time allowed under section 139(5) of the Act on 31.03.1999 vide acknowledgement No.01193. Had this factor been considered by the assessing officer, then there was no reason available to him for reopening the assessment. He could not have had any jurisdiction https://hcservices.ecourts.gov.in/hcservices/ to reopen the assessment, in the absence of any reason to believe that some item of income has escaped taxation. The Tribunal further observed that once the assessment is validly reopened, the other additions could also be made legally, but the action of reopening has to take precedence for framing the assessment. Unless and until the assessment is validly reopened, no addition can be made whether the item based on which reopening was made or on other items and ultimately held that in the absence of valid and proper initiation of reopening proceedings under section 147 of the Act, reassessment could not be made. 9. We are in complete agreement with the reasoning given by the Tribunal, which is the stated and well established legal principle pertaining to reopening of assessment under section 147 of the Act. When the reasoning given for reopening of assessment is not available at the time of initiation of reopening, the reopening could only be regarded as not in accordance with law and invalid. 10. For the reasons stated above, the appeal deserves to be dismissed and it is accordingly dismissed. Miscellaneous petition is closed. sd/- Asst.Registrar /true copy/ Sub Asst.Registrar rg/mf TO 1. The Registrar, The Income Tax Appellate Tribunal, Bench 'B', Rajaji Bhavan, Besant Nagar, Chennai. 2.. The Commissioner of Income Tax(Appeals)-V 121, Mahatma Gandhi Road, Chennai-34. 3. The Deputy commissioner of Income Tax, Company Circle V(3), Chennai 34. 4. The Commissioner of Income Tax, Tamilnadu III, Madras. 1 cc To Mr.Pushya Sitaraman, Standing Counsel for I.T.Cases, SR.27728 T C (As) Nos.265 and 266 of 2008 and M.Ps.No.1 of 2008 in T.C.(A) No.266 of 2008 rb [co] gkg/21.7 https://hcservices.ecourts.gov.in/hcservices/