Wp/27783/2011 Of Hyderabad Metropolitan Water Supply And v. The Asst. Commissioner Of Income-Tax

THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKURAND THE HON’BLE SHRI JUSTICE SANJAY KUMAR W.P. No.27783 of 2011 DATED:22-03-2012 Between:Hyderabad Metropolitan Water Supply … Petitioner AndThe Assistant Commissioner of Income Tax,Hyderabad. … Respondent THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKURAND THE HON’BLE SHRI JUSTICE SANJAY KUMAR W.P.NO.27783 OF 2011 JUDGMENT: (per Hon’ble the Chief Justice Shri Madan B. Lokur) *** 1. The prayer made in the writ petition is for an appropriate order ordirection to the effect that the re-assessment order passed by therespondents on 17.8.2011 against the petitioner for the assessmentyear 2003-04 is illegal and arbitrary. 2. We may note that the assessment for the year 2003-04 was earliercompleted by the respondent but was sought to be reopened through anotice given to the petitioner on 19.2.2010. The petitioner soughtreasons for re-opening the assessment and was informed by acommunication dated 29.11.2010 the reasons. The communicationgave the following reasons for reopening the assessment: “As requested by you the reasons recorded for issuing notices under Section148 for the Assessment Years 2003-04, 2005-06 & 2006-07 are furnished asunder: i)During the course of special audit conducted under Section142 (2A) of the Income Tax Act, it was noticed that you areclaiming the depreciation on reservoirs, land, building etc.,without excluding the grants-in-aid received from the Governmentfor the development of assets. Thus, the depreciation allowablewas not correctly determined. ii)You are following ‘mixed system of accounting’ as againstthe provisions of Section 145 under which you are required tofollow ‘mercantile system of accounting’. Therefore, the bookresult shown are not reflecting the true and correct affairs. In view of the above reasons, I have reason to believe that theincome of M/s Hyderabad Metro Water Supply & SewerageBoard for Assessment Years 2003-04, 2005-06 and 2006-07 hadescaped assessment. Therefore, the assessments for the abovethree years are reopened by issue of notices under Section 148of the Income Tax Act”. 3. The petitioner did not file any objections to the reasons given bythe respondent for reopening the assessment. 4. Since no objections were received by the respondents to thecommunication dated 29.11.2010, the accounts of the petitioner wererecast and the taxable income for the assessment year 2003-04 wasproposed to be assessed at Rs.43.16 crores as against the lossreturned by the petitioner in its return of income filed on 1.12.2003 of (-)Rs.148.81 crores. The petitioner was asked to submit its objections, ifany, to the proposed assessment on or before 28.7.2011. 5. The petitioner submitted its objections to the proposedassessment and on a consideration of these objections, therespondent passed the re-assessment order, which is under challengebefore us. 6. Learned counsel for the petitioner submits that the reasons forreopening the assessment appear to be different from what has beencommunicated to the petitioner in the letter dated 29.11.2010. In thisregard, learned counsel for the petitioner places reliance on the ordersheet, particularly, an undated order sheet of February, 2010 in whichit is recorded as follows: 5. The petitioner submitted its objections to the proposedassessment and on a consideration of these objections, therespondent passed the re-assessment order, which is under challengebefore us. 6. Learned counsel for the petitioner submits that the reasons forreopening the assessment appear to be different from what has beencommunicated to the petitioner in the letter dated 29.11.2010. In thisregard, learned counsel for the petitioner places reliance on the ordersheet, particularly, an undated order sheet of February, 2010 in whichit is recorded as follows: “In this case assessments for the Assessment Years 2001-02, 2002-03 & 2004-05 were reopened subsequent to IAP Audit objectionregarding excess rate of depreciation claimed on reservoirs, landbuilding etc., without excluding grant-in-aids received from Governmentfor the development of assets. In view of the above, the additionaldepreciation claimed for the Assessment Years 2003-04, 2005-06 and2006-07, is also to be verified and disallowed if any. Further, it is alsofound that the assessee is following mixed accounting system asagainst the provisions of Section 145 under which the assessee has to03 & 2004-05 were reopened subsequent to IAP Audit objectionregarding excess rate of depreciation claimed on reservoirs, landbuilding etc., without excluding grant-in-aids received from Governmentfor the development of assets. In view of the above, the additionaldepreciation claimed for the Assessment Years 2003-04, 2005-06 and2006-07, is also to be verified and disallowed if any. Further, it is alsofound that the assessee is following mixed accounting system asagainst the provisions of Section 145 under which the assessee has to follow mercantile system of accountancy only and, therefore, theseaspects have to be verified to arrive at the correct income. In view ofthe above, I believe as the assessee failed in his part to disclosecorrect income changeable to tax and that there is escapement ofincome for Assessment Year 2003-4.” 7. Relying on the above note sheet, learned counsel for thepetitioner submits that the assessment for the year 2003-04 wasreopened on the basis of an internal audit party objection regarding theexcess rate of depreciation claimed by the petitioner on reservoirs,land, building etc., without excluding the grant-in-aid received from theGovernment for the development of assets. 8. In our opinion, a reading of the note sheet indicates that this mayhave been the reason for reopening the assessment for the years otherthan 2003-04. The reasons for reopening the assessment for the year2003-04 were already communicated on 29.11.2010. Thatcommunication stated that one of the reasons for re-opening theassessment is the special audit report under Section 142(2A) of theIncome Tax Act, 1961 (hereinafter referred to as ‘the Act’) and theclaim of depreciation by the petitioner on reservoirs, land, building etc.,without excluding the grant-in-aid received from the Government forthe development of assets. 9. It is submitted by learned counsel for the petitioner that the lawlaid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. Income Tax Officer[[1]],has not been followed inasmuch as the petitioner was not given a hearing on the objections filed to thereopening nor any speaking order was passed thereon. 10. In our opinion, this argument is only stated to be rejected sincewe have already noted that when the reasons for reopening theassessment were communicated to the petitioner on 29.11.2010, noobjections were filed by the petitioner to the reasons given. Therefore, there is no question of hearing the petitioner on the objections orpassing a speaking order on non-existent objections. 11. Under the circumstances, we see no merit in this writ petition. 9. It is submitted by learned counsel for the petitioner that the lawlaid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. Income Tax Officer[[1]],has not been followed inasmuch as the petitioner was not given a hearing on the objections filed to thereopening nor any speaking order was passed thereon. 10. In our opinion, this argument is only stated to be rejected sincewe have already noted that when the reasons for reopening theassessment were communicated to the petitioner on 29.11.2010, noobjections were filed by the petitioner to the reasons given. Therefore, there is no question of hearing the petitioner on the objections orpassing a speaking order on non-existent objections. 11. Under the circumstances, we see no merit in this writ petition. 12. It has been brought to our notice that in respect of assessmentyears 2005-06, 2006-07 and 2008-09 the petitioner has alreadypreferred appeals and they are pending before the Commissioner ofIncome Tax (Appeals). Since the entire issue is already before theappellate authority, we are of the view, that in addition to the reasonsthat we have already given, there is yet another reason not to interferewith the re-assessment order passed for 2003-04. 13. There is no merit in this writ petition. It is accordingly dismissed.The miscellaneous application also stands disposed of.The miscellaneous application also stands disposed of. 14. The interim order stands vacated. MADAN B. LOKUR, CJ 22-03-2012 SANJAY KUMAR, J pnb [1][2003] 259 ITR 19