Ador Technopack Ltd. vs Dr. Zakir Hussein, Deputy ...
2004 Latest Caselaw 379 Bom

JUDGMENT

V.C. Daga, J.

1. This petition is directed against the notice dt. 28th March, 2003, issued under Section 148 of the Income-tax Act, 1961 (the "Act" for short) and the proceedings initiated pursuant to the said notice.

The facts :

2. The facts giving rise to the present petition, in a nutshell, are as under :

The petitioner is a public limited company having its registered office at Mumbai and factory at Nasik (hereinafter referred to as "assessee" for short). On 29th Nov., 1996, the assessee filed return of income for the asst. yr. 1996-97 and claimed depreciation @ 25 per cent in its tin packaging unit. The assessee, during the assessment proceedings, filed bills showing purchases of raw material backed by the certificate of the chartered engineer certifying such purchases.

3. The respondent No. 1 issued notice under Section 143(2) of the Act. In response thereto, all material documents with necessary information together with relevant evidence in support of the claim of depreciation in 'tin packaging unit' @ 25 per cent was tendered to the AO, the respondent No. 1, to complete the assessment of the petitioner-assessee. The said respondent No. 1, after careful scrutiny of documents with other evidence completed assessment and passed an order of assessment under Section 143(3) of the Act, in which claim for depreciation @ 25 per cent with respect to the 'tin packaging unit' of the assessee was allowed.

4. On 21st March, 2001, respondent No. 2, the CIT, finding order of assessment prejudicial to the interest of the Revenue invoked revisional powers and issued notice under Section 263 of the Act, and, after hearing parties to the said proceedings, passed an order holding that 'tin packaging unit' of the assessee was commissioned and trial .runs were made during the months of November and December, 1996 as per the third annual report of the assessee, as such the 'tin packaging unit' was put to use only after September, 1996. Consequently, the said unit was not entitled to claim depreciation at the rate at which it was allowed by the AO. In the result, the assessment order to the extent it allowed depreciation @ 25 per cent in the 'tin packaging unit' came to be set aside and the matter was remanded to the AO with direction to reconsider the assessment limited to the issue relating to the grant of depreciation in the 'tin packaging unit' and to pass fresh order of assessment after examining all the aspects, facts and circumstances of the case following principles of natural justice by affording reasonable opportunity of hearing to the assessee. The petitioner/assessee did not challenge this order, with the result, it achieved finality.

5. After remand, as indicated above, the assessee's representative appeared before the AO, respondent No. 1 from time to time and reiterated that the assessee was entitled to depreciation @ 25 per cent in the 'tin packaging unit' as was allowed in the original assessment order. However, it appears that respondent No. 1, the AO did not complete the assessment. He could not pass assessment order within a period of one year from the date of passing of the order as required under Section 153(2A) of the Act. The respondent No. 1, finding that he is running short of time to complete assessment, chose to invoke powers under Sections 147 and 148 of the Act and issued notice dt. 28th March, 2003.

6. The assessee, after receipt of the aforesaid notice under Section 148 of the Act, through its representative; vide letter dt. 28th April, 2003 requested for the reasons recorded under Section 147 before issuing notice under Section 148. No reasons were furnished by the AO in spite of written request. The assessee, therefore, issued reminder vide its letter dt. 8th May, 2003. In spite of this reminder, no reasons were furnished. On the contrary, respondent No. 1 issued notice under Sections 143(3) and 142(1) to complete the assessment for the pending assessment. Consequently, third time request for reasons was made, renewed and reiterated by another letter dt. 18th Aug., 2003. In spite of series of repeated reminders respondent No. 1 failed to furnish reasons, which compelled the assessee to invoke extraordinary writ jurisdiction of this Court under Articles. 226 and 227 of the Constitution of India through this petition.

7. On being noticed, respondents appeared through their counsel and disclosed reasons recorded under Section 147 prior to issuance of notice under Section 148, which read as under:

"Notice under Section 147 r/w Section 148 was issued on 28th March, 2003, to you by the then AO. The reasons for reopening the assessment are as follows :

The depreciation of Rs. 53, 93, 833 @ 25 percent on addition to plant and machinery during the year was allowed to the assessee. It. is seen that the machinery was put to use during November and December. Therefore, depreciation was to be allowed at 50 per cent of the allowable depreciation.

The aforesaid resulted in escapement of income by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of the income."

After receipt of the aforesaid reasons, the prayer of the petitioner to amend petition was allowed so as to enable it to challenge validity of the reasons recorded in support of notice under Section 148. Now the petitioner is not only challenging the notice issued under Section 148 based on the following submissions.

Submissions:

8. Mr. Pandit, learned counsel appearing for the petitioner submits that notice under Section 148 r/w Section 147 is invalid and ineffective in law. He contends that the petitioner had disclosed all material facts necessary for determination of claim of depreciation @ 25 per cent on 'tin packaging unit'. He further contends that the petitioner during the course of assessment proceedings had filed all documents backed by the certificate of the chartered engineer along with statement of claim to show, how it was calculated @ 25 per cent with relevant evidence in support of the data as to when the machinery was installed after 30th Sept., 1995, so as to justify its claim for depreciation @ 25 per cent which was allowable in the original order of assessment by the AO.

9. Mr. Pandit further submits that respondent No. 2 having set aside the assessment order vide its order dt. 21st March, 2001 and having directed the AQ to reconsider and reassess the issue with respect to the allowance of depreciation on 'tin packaging unit', it was necessary for respondent No. 1 to complete assessment and pass appropriate order on or before 31st March, 2003, i.e., within one year from the date of the order passed under Section 263 of the Act. Having failed to complete the assessment within statutory time-frame, it was not open, under the provisions of the Act, to invoke jurisdiction under Sections 147 and 148 to claim extended period of limitation to complete pending assessment.

10. Mr. Pandit, learned counsel for the petitioner further contends that, during the pendency of the assessment proceedings, the AO could not have any reason to believe that the income for the asst. yr. 1996-97 has escaped assessment, tie submits triat income for that assessment year could not be said to have escaped assessment within the meaning of Section 147 if the assessment proceedings-in respect of that income are pending for determination. He, thus, submits that the impugned notice is not only without jurisdiction and without authority of law but it also suffers from legal malice.

11. Mr. Pandit placed reliance on the judgment of the apex Court in the case of Ghanshyamdas v. Regional Asstt. Commi. and on the case of S.K. Kochhar v. ITO to contend that notice issued under Section 148 r/w Section 147 including reasons recorded in support thereof are ab initio null and void.

12. Mr. Pandit, at the cost of repetition, reiterated that in the initial assessment proceedings, the petitioner/assessee had filed all material documents in support of its contention that 'tin packaging unit' was ready for trial production in the beginning of August, 1995. He further pointed out from para 4 of the petition that certificate of chartered engineer and copy of bill of purchase was filed during the course of assessment proceeding. It was also pointed out from para 5 of the petition that from time to time petitioner and his representative appeared before respondent No. 1 with all material particulars and details along with relevant documents necessary for determining the claim of depreciation with respect to 'tin packaging unit' of the assessee and the AO, the respondent No. 1 after due scrutiny of documents completed assessment and allowed petitioner's claim for depreciation @ 25 per cent. On the canvass of these undisputed facts, he submits that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year in question.

13. Mr. Pandit further submits that notice under Section 148 of the Act was issued on 28th March, 2003, which is clearly beyond the period of four years from the end of asst. yr. 1996-97. On this count, he contends that the reasons recorded to reopen the assessment do not suggest or remotely impute any failure or omission in any manner on the part of the petitioner/assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year in question as envisaged by proviso to Section 147 of the Act. No reasons in this behalf are to be found. He submits that in absence of reasons it is not possible to read the mind of the authority recording reasons while invoking powers under Section 147 of the Act.

14. Mr. Pandit further contends that in the case, where reopening of assessment is after four years, the AO must have reason to believe that income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts. He further contends that the petitioner has averred in the petition that it has fully and truly disclosed all the material facts in support of its claim of depreciation for the full year on the commissioning of its 'tin packaging unit' and the said averments have not been denied by the respondents in their reply, as such the averments made by the petitioner in this behalf should be treated as having been admitted by the respondents. It should be treated as admission on the part of the respondents for want of their denial in their counter-affidavit. In the above view of the submissions, learned counsel for the petitioner submits that the impugned notice including reasons recorded in support thereof are liable to be quashed and set aside.

Per contra :

15. Mr. Desai, learned senior counsel appearing for the Revenue contends that the present petition is premature. He submits that in view of the disclosure of reasons, now the petitioner should be directed to raise all objections before the AO as per decision of the apex Court in G.K.N. Driveshafts India Ltd. v. ITO and Ors. .

16. Mr. Desai further submits that on true and proper interpretation of Section 147 and 263 of the Act, the order which was passed by the CIT under Section 263 does not have any effect on the powers of the AO to invoke provisions of Section 147 and 148 of the Act. Both powers are independent. They can be exercised independently considering the facts and circumstances of each case. He placed reliance on the judgment of the Madhya Pradesh High Court in the case of CIT v. Gulam Rasool and Ors. and CIT v. Kanubhai Engineers (P) Ltd. . Mr. Desai, thus, contends that the notice issued under Section 148 is legal and valid and it complies with the requirements of Section 147. In the circumstances, Mr. Desai submits that the petition is liable to be dismissed.

Statutory provisions :

17. Before proceeding to consider the rival contentions; it would be profitable to review relevant statutory provisions applicable to the facts of the present case.

"347. Income escaping assessment.-If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance' as the case' may be, for the assessment year concerned (hereinafter in this section and in Section 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under sub-Section. (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

Explanation 1.-Production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(c) where an assessment has been made, but -

(i) income chargeable to tax has been underassessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under this Act; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed."

148. Issue of notice whew income has escaped assessment-(1) Before making the assessment, reassessment or recomputation under Section 147, the AO shall serve on the assessee, a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139.

(2) The AO shall, before issuing any notice under this section, record his reasons for doing so........

263. Revision of orders prejudicial to Revenue.-(1) The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, -

(a) an order passed on or before or after the 1st day of June, 1988, by the AO shall include -

(i) an order of assessment made by the Asstt. CIT or Dy. GIT or the ITO on the basis of the directions issued by the Jt. GIT under Section 144A;

(ii) an order made by the Jt. CIT in exercise of the powers or in the performance of the functions of an AO conferred on, or assigned to him under the orders or directions issued by the Board or by the Chief CIT or Director General or CIT authorised by the Board in this behalf under Section 120;

(b) 'record' shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the CIT;

(c) where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the CIT under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

(2) No order shall be made under Sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.

(3) Notwithstanding anything contained in Sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an qrder of the Tribunal, the High Court or the Supreme Court.

Explanation.-In computing the period of limitation for the purposes of Sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to Section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any Court shall be excluded."

Issues;

18. The submissions advanced by the rival parties give rise to the following issues :

"1. Whether, in the facts and circumstances of the case, the AO is denuded of his powers under Section 147 and 148 of the Act when the order setting aside the assessment with order of remand has become final and conclusive and the assessment proceedings pursuant to such order passed under Section 263 are pending with the AO for assessment in accordance with law ?

2. Whether, in the facts and circumstances of the case, can it be said that there was a failure on the part of the petitioner/assessee to fully and truly disclose all the material facts necessary for determination of claim of depreciation on 'tin packaging unit' of the petitioner ?

Consideration :

As to issue No. 1 :

19. This issue relates to the powers of the AO to issue notice under Section 148 of the Act, especially, when the revisional authority has already reopened the assessment in exercise of revisional powers under Section 263 of the Act and on remand the assessment is pending. In other words, issue for consideration, in the facts and circumstances of this case, is : can the AO invoke the powers to reopen assessment on the premise that the income chargeable to tax has escaped assessment for the assessment year in question. Mr. Pandit, appearing for the petitioner contended that the assessment proceedings being pending, income cannot be said to have escaped assessment warranting invocation of powers under Section 147 r/w Section 148 of the Act. He submitted that until final assessment order is passed in pursuance of the directions issued under the order of remand passed under Section 263, the said powers are not available. As against this, Mr. Desai appearing for the Revenue contends that the powers of CIT under Section 263 and powers of AO under Section 148 are independent of each other and, therefore, even after the CIT has invoked jurisdiction under Section 263, it is open to the AO to invoke jurisdiction under Section 148 of the Act.

20. Let us examine the strength of the rival contentions in the backdrop of the facts found in this petition. In order to appreciate rival submissions, one has to turn to the scheme engrafted under the aforesaid provisions of the Act. Section 147 deals with income escaping assessment. Under this section, if the AO has reason to believe that any 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 and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under Section 147 or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned. Proviso to Section 147 lays down that where an assessment under Section 143(3) or Section 147 has been made for the relevant assessment year, no action can be taken under Section 147 after expiry of four years from the end of relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Section 142(1) or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

21. Section 148 contemplates notice to be issued by the AO to the assessee requiring him to furnish return of his income within a prescribed period.

22. Section 263 provides for revision of the order prejudicial to the interest of the Revenue, wherein the CIT is given power to call for and examine the record of any proceeding under the provisions of the Act and, if he considers that any order passed by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Once revisional power is exercised by the CIT and the assessment is set aside and the case is remanded to the AO, then, under Section 153(2A) of the Act, it is obligatory on the part of the AO to complete the assessment proceedings within a period of one year from the end of the financial year in which the order under Section 263 is passed.

23. The operation of both these sections is somewhat similar in the sense if the CIT under Section 263 of the Act finds that the assessment order is prejudicial to the interest of the Revenue he can reopen the issue, at the same time, the AO, under Sections 147 and 148 of the Act can reopen assessment if he has a reason to believe that income chargeable to tax has escaped assessment. Therefore, virtually both the provisions are for reopening the assessment, one at the level of the CIT and, other at the level of the AO. Now the question is : whether AO can reopen the assessment on account of income escaping assessment, especially, when the CIT has reopened the assessment by setting aside the original one and on remand the proceedings are pending before the AO for assessment afresh.

24. In this case, the assessment order is validly reopened by the revisional authority and the order of assessment has been set aside in part. What is set aside is the assessment in respect of an item which is underassessed. In the event, underassessment is set aside in part, then, the rest of the original order of assessment does not get affected. In other words, the original assessment order is upset only to the extent ordered by the revisional authority. Untouched order of the assessment becomes final and conclusive. The original assessment order to the extent it is untouched retains its character and identity. The revisional order, in this case, has affected only that portion of the order to the extent underassessment was noticed and to the extent order is set aside. Once the order of assessment to the extent it relates to underassessment of an item is set aside and the proceedings are remanded to the AO, then, the assessment proceedings in respect of that item are treated as pending so long as the final assessment does not take place. Now the moot question is : whether, during the pendency of the assessment proceedings, one can have 'reason to believe' that the income has escaped assessment. In order to answer this question, one has to understand the meaning and concept of the words "reason to believe". The words "reason to believe" suggest honest belief of a reasonable man based on direct or circumstantial evidence held in good faith; not a mere pretense. Belief must not be arbitrary or irrational. It must be reasonable or, in other words, it must be based on reasons which are relevant and material. It must be found on reasonable grounds. The words "reason to believe" occurring in Section 147 of the Act received judicial recognition over the period of time. The apex Court in the case of Sheo Nath Singh v. AAC interpreted the said words in the following terms :

"... There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The ITO would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section...."

25. The apex Court, in the case of ITO v. Lakhmani Mewal Das , has held that reason for formation of belief for reopening of assessment must have rational connection or relevant bearing on the formation of belief. The essential requirement for initiating reassessment proceedings under Section 147 r/w Section 148 is that the AO must have a reason to believe that any income chargeable to tax has escaped assessment for any assessment year.

26 The words "reason to believe" have also been defined in various dictionaries. As per Legal Thesaurus (Regular Edition) by William C. Burton, the reason to believe means 'clue'. Clue means indication or suggestion.

27. On the above canvass, having examined the judicial as well as the dictionary meaning of the words "reason to believe", it is clear that the said words convey honest rational belief of a reasonable man based on cogent reasons entertained in good faith. Now the question is : Can this concept be invoked in a case where conclusive and final findings are recorded by the higher Court or Tribunal or forum conclusively holding happening of a particular event. Take for an illustration, 'A' is convicted for an offence of having committed theft and the conviction has become final and conclusive, in that event, can anybody say that he has reason to believe that 'A' has committed theft. Obviously, the answer has to be in negative. Similarly, in the present case, when the CIT, vide his order passed under Section 263 of the Act, has set aside the original assessment and has directed the AO to reframe the assessment on the issue of allowance of depreciation, after examining all the facts of the case and after providing reasonable opportunity of hearing to the assessee, it cannot be said that the income has escaped assessment. When the reassessment proceedings pursuant to the order of the CIT are pending and the AO is entitled to examine all the aspects of the matter on the issue of allowance of depreciation, the question of income escaping assessment does not arise and, consequently, the question of reopening the assessment on the ground that the AO has reason to believe that the income chargeable to tax has escaped assessment does not arise at all.

28. Turning to the facts of the present case on hand, when the order of assessment, though in part was set aside and the finding that the underassessment was required to be enquired into and reassessment is required to be done has become final and conclusive, the question of entertaining reasonable belief that the income chargeable to tax has escaped assessment, in our considered opinion, does not arise much less when the assessment proceedings are still pending. Thus, it was not open for the AO to invoke powers under Sections 147 and 148 of the Act. In other words, so long as the assessment proceedings in respect of certain income subsist, the income cannot be said to have escaped assessment. Such proceedings, if initiated, will have to be held as invalid, ab initio void and illegal.

29. It is, thus clear that the concept of reason to believe comes in picture if the income chargeable to tax has escaped assessment. So long as the assessment is pending, the assessing authority cannot have any such reason to believe that income chargeable to tax for the assessment year in question has escaped assessment. Income cannot be said to have escaped assessment within the meaning of this section if the assessment proceedings in respect of that income and/or issue are still pending and have not yet been culminated into a final order. This question came up for consideration before the Supreme Court in the case of Ghanshyamdas (supra). Relying on the decision of the Calcutta High Court in the case of Lachhiiam Basantalal, In Re: and of the Judicial Committee in Sir Rajendranath Mukeijee v. CIT (1934) 2 ITR 71 (PC), it was laid down that if the assessment proceedings have been initiated, the income cannot be said to have escaped assessment until a final order of assessment is passed on the pending proceedings. Income cannot be said to have escaped assessment when the assessment proceedings are still pending. The dictum laid down is clearly understandable principle. How can an escapement of an income from an assessment be predicted before an assessment is complete ? The same view has been taken in Hargovindsing Narainsing v. CIT . In that case, the Karta of the assessee-HUF, died in September, 1954. Thereafter, disputes arose among the members of the family and a Court receiver was appointed. For the asst. yr. 1956-57, the ITO issued a notice, under Section 22(2) of the Indian IT Act, 1922, in the name of the family to the Court receiver and in response to the notice the Court receiver filed returns. The ITO did not pass any orders on the ground that the notice served on the Court receiver and the returns submitted by him were invalid and proceeded to initiate proceedings under Section 34 of that Act. It was held that at the relevant time the assets of the assessee-family were in charge and under the control of the Court receiver and the notice served on the Court receiver under Section 22(2) and the returns submitted by him were valid. Even if it were assumed that the returns were invalid that would not Authorise the ITO to initiate proceedings under Section 34. This could not be regarded as a case where no return had been filed by the assessee or that his income had escaped assessment. The proceedings under Section 34 were, therefore, not valid.

30. If the valid return of the income has been submitted by the assessee within a period fixed under Section 139(4) for submission of return, Section 147 will not apply during the pendency of the return is a settled law laid down by the apex Court in State of Assam v. Deva Prasad Barua ; CIT v. S. Raman Chettiai and CIT v. Ranchhoddas Karsondas

31. Considered from another angle, the function of the AO is to administer IT Act with solicitude for public treasury and with fairness to the taxpayers. He is necessarily armed with necessary powers. Upto four years an assessment is open to his unreserved consideration on his formation of the requisite belief. If he has such reason, he has the power, and it is his duty to reopen the door and demand the amount legally owing. His formation of belief is not a judicial decision, but an administrative decision. It does not determine anything at this initial stage, but the AO has a duty to proceed so as to obtain what the taxpayer was always bound to pay if the increase is justified at all. The decision to initiate proceedings is not to be preceded by any judicial or quasi-judicial enquiry. His reasoning may be the result of official information or his own investigation or may come from any source that he considers reliable. His' reason is not to be judged by a Court by the standard of what the ideal man would think. In this backdrop, if the formation of reasonable belief is not a judicial decision but an administrative decision of the AO, can he be allowed to invoke powers under Sections 147 and 148 of the Act on the face of the conclusively available judicial verdict of the revisional authority holding that a particular item of income or deduction chargeable to tax. has been underassessed. If the conclusive and final judicial decision is holding the field covering the issue, then, the identical issue cannot be a subject-matter of administrative decision under Sections 147 and 148 of the Act. In our view, on this count also the impugned notice issued under Section 148 of the Act and reasons recorded in support thereof are liable to be quashed and set aside,

32. At this stage, let us consider the strength of the submissions advanced by Mr. Desai, appearing for the Revenue that proceedings under Section 147 are distinct and separate from proceedings under Section 263. Merely because proceedings under Section 263 are initiated by issuing a notice in that behalf, the AO is not debarred from initiating proceedings under Section 147 as held by the Madhya Pradesh High Court in the case of Gulam Rasool (supra).

33. The law laid down in the said judgment is not at all applicable to the facts of the present case. It is no doubt true that operation of both these sections is somewhat similar in the sense if the CIT under Section 263 of the Act finds that the assessment order is prejudicial to the interest of the Revenue, he can reopen the issue, at the same time, the AO, under Sections 147 and 148 of the Act can reopen assessment on account of income having escaped assessment. Sections. 147 and 148 can be pressed into service to reopen assessment so long as the proceedings under Section 263 are not finally terminated. In other words, during the pendency of such proceedings, the powers under Sections 147 and 148 to reopen assessment can always be exercised. But once the assessment insofar as it is prejudicial to the interest of the Revenue is set aside by the CIT and the AO is directed to make fresh assessment regarding grant of depreciation after examining all the aspects, the question of income escaping assessment would arise only when the reassessment order is passed by the AO. In the present case, admittedly, reassessment pursuant to the order of the CIT has not yet been finalised. Therefore, during the pendency of the reassessment proceedings it is not open to the AO to presume that the income has escaped assessment. The decision of the Madhya Pradesh High Court in the case of Gulam Rasool (supra) does not support the contention of the Revenue. In that case, notice under Section 148 was already issued by the AO prior to the issuance of notice under Section 263 of the Act. In that case, the Tribunal had held that the CIT was not justified in invoking jurisdiction under Section 263 when the ITO had already issued notice of reopening the assessment under Sections 147/148 of the Act. In that context it was held by the Madhya Pradesh High Court that both s. 147/148 and s. 263 are for reopening the assessment-one at the level of ITO and other at the level of CIT. It was further held that both the authorities can invoke their powers after the assessment order, but both are not exclusive of each other. In the present case, the facts are altogether different. Firstly, in the present case, the notice under s. 148 has been issued after the order under s. 263 was passed. Secondly, the reassessment pursuant to the order under s. 263 has not been finalised at the time of issuance of notice under s. 148 of the Act. Therefore, the decision of the Madhya Pradesh High Court in the case of Gulam Rasool (supra) does not support the case of the Revenue.

34. The submission advanced by Mr. Desai, relying on the judgment of the apex Court in the case of G.K.N. Driveshafts (India) Ltd. (supra) that the petitioner should be asked to raise all its objections to the validity of the notice before the AO does not survive in view of our finding that the powers under ss. 147 and 148 could not have been invoked by the AO in the peculiar facts of this case.

As to issue No. 2 :

35. In view of our finding on issue No. 1, now it is really not necessary to delve upon issue No. 2 to consider as to whether, in the facts and circumstances of the case, the assessee has disclosed all material facts necessary for determination of depreciation @ 25 per cent on its 'tin packaging unit'. However, since 'the parties have addressed us at length, we propose to record our finding in this behalf.

36. After going through the return of income, we are satisfied that the assessee has filed all the necessary documents backed by the certificate of the chartered engineer along with statement of claim to show how the amount of depreciation C 25 per cent was calculated. Relevant evidence in support of data as to when the machinery was installed after 30th Sept., 1995, so as to justify its claim for depreciation @ 50 per cent which was allowable in the original order of assessment by the AO, was also disclosed. The hearing was attended by the representative of the assessee from time to time. In the circumstances, no failure on the part of the assessee to disclose all material fully and truly can be attributed. If the AO has taken a wrong decision that by itself cannot be a ground to reopen the assessment that too beyond the period of four years. In this case, no reasons are to be found alleging any failure on the part of the assessee to fully and truly disclose all material for the assessment. On this count also, invocation of the powers under s. 147 and issuance of notice under s. 148 are absolutely bad in law.

37. In the result, impugned notice dt. 28th March, 2003 issued by the AO under s. 148 of the Act and reasons recorded in support thereof under s. 147 are quashed and set aside. Petition is allowed. Rule is made absolute in terms of prayer cls. (a) and (b) with no order as to costs.