Hyderabad Metropolitan Water Supply & Sewerage Board V. The Assistant Commissioner of Income Tax, Hyderabad

WP/27783/2011

AI Insights

The case involves the Hyderabad Metropolitan Water Supply & Sewerage Board (petitioner) challenging the legality of a re-assessment order issued by the Assistant Commissioner of Income Tax, Hyderabad (respondent) for the assessment year 2003-04. The re-assessment was initiated following a special audit under Section 142(2A) of the Income Tax Act, which revealed discrepancies in the depreciation claimed on assets and the accounting system used by the petitioner. The petitioner argued that the reasons for reopening the assessment were different from those initially communicated. However, the court found that the reasons provided in the communication dated 29.11.2010 were consistent with the grounds for reopening the assessment as per the audit findings. The court dismissed the petition, noting that the petitioner had not filed objections to the reopening reasons and that the matter was already under consideration by the appellate authority for other assessment years.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 691829 (HC-HYDERABAD)
• Appeal Type: Others
• Pronouncement Date: 22-03-2012
• Assessment Year: misc
• Other Referred Cases: GKN Driveshafts (India) Ltd. v. Income Tax Officer
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Depreciation; Grants-in-aid; Illegal and arbitrary; Mercantile system of accounting; Mixed System of Accounting; Re-assessment order; Special Audit
• Section: 148; 145; 142(2A)

Judgement Text

"THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKUR AND THE HON’BLE SHRI JUSTICE SANJAY KUMAR W.P. No.27783 of 2011 DATED:22-03-2012 Between: Hyderabad Metropolitan Water Supply … Petitioner And The Assistant Commissioner of Income Tax, Hyderabad. … Respondent THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B. LOKUR AND 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 or direction to the effect that the re-assessment order passed by the respondents on 17.8.2011 against the petitioner for the assessment year 2003-04 is illegal and arbitrary. 2. We may note that the assessment for the year 2003-04 was earlier completed by the respondent but was sought to be reopened through a notice given to the petitioner on 19.2.2010. The petitioner sought reasons for re-opening the assessment and was informed by a communication dated 29.11.2010 the reasons. The communication gave the following reasons for reopening the assessment: “As requested by you the reasons recorded for issuing notices under Section 148 for the Assessment Years 2003-04, 2005-06 & 2006-07 are furnished as under: i) During the course of special audit conducted under Section 142 (2A) of the Income Tax Act, it was noticed that you are claiming the depreciation on reservoirs, land, building etc., without excluding the grants-in-aid received from the Government for the development of assets. Thus, the depreciation allowable was not correctly determined. ii) You are following ‘mixed system of accounting’ as against the provisions of Section 145 under which you are required to follow ‘mercantile system of accounting’. Therefore, the book result shown are not reflecting the true and correct affairs. In view of the above reasons, I have reason to believe that the income of M/s Hyderabad Metro Water Supply & Sewerage Board for Assessment Years 2003-04, 2005-06 and 2006-07 had escaped assessment. Therefore, the assessments for the above three years are reopened by issue of notices under Section 148 of the Income Tax Act”. 3. The petitioner did not file any objections to the reasons given by the respondent for reopening the assessment. 4. Since no objections were received by the respondents to the communication dated 29.11.2010, the accounts of the petitioner were recast and the taxable income for the assessment year 2003-04 was proposed to be assessed at Rs.43.16 crores as against the loss returned 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, if any, to the proposed assessment on or before 28.7.2011. 5. The petitioner submitted its objections to the proposed assessment and on a consideration of these objections, the respondent passed the re-assessment order, which is under challenge before us. 6. Learned counsel for the petitioner submits that the reasons for reopening the assessment appear to be different from what has been communicated to the petitioner in the letter dated 29.11.2010. In this regard, learned counsel for the petitioner places reliance on the order sheet, particularly, an undated order sheet of February, 2010 in which it is recorded as follows: “In this case assessments for the Assessment Years 2001-02, 2002- 03 & 2004-05 were reopened subsequent to IAP Audit objection regarding excess rate of depreciation claimed on reservoirs, land building etc., without excluding grant-in-aids received from Government for the development of assets. In view of the above, the additional depreciation claimed for the Assessment Years 2003-04, 2005-06 and 2006-07, is also to be verified and disallowed if any. Further, it is also found that the assessee is following mixed accounting system as against the provisions of Section 145 under which the assessee has to follow mercantile system of accountancy only and, therefore, these aspects have to be verified to arrive at the correct income. In view of the above, I believe as the assessee failed in his part to disclose correct income changeable to tax and that there is escapement of income for Assessment Year 2003-4.” 7. Relying on the above note sheet, learned counsel for the petitioner submits that the assessment for the year 2003-04 was reopened on the basis of an internal audit party objection regarding the excess rate of depreciation claimed by the petitioner on reservoirs, land, building etc., without excluding the grant-in-aid received from the Government for the development of assets. 8. In our opinion, a reading of the note sheet indicates that this may have been the reason for reopening the assessment for the years other than 2003-04. The reasons for reopening the assessment for the year 2003-04 were already communicated on 29.11.2010. That communication stated that one of the reasons for re-opening the assessment is the special audit report under Section 142(2A) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and the claim of depreciation by the petitioner on reservoirs, land, building etc., without excluding the grant-in-aid received from the Government for the development of assets. 9. It is submitted by learned counsel for the petitioner that the law laid 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 the reopening nor any speaking order was passed thereon. 10. In our opinion, this argument is only stated to be rejected since we have already noted that when the reasons for reopening the assessment were communicated to the petitioner on 29.11.2010, no objections were filed by the petitioner to the reasons given. Therefore, there is no question of hearing the petitioner on the objections or passing 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 assessment years 2005-06, 2006-07 and 2008-09 the petitioner has already preferred appeals and they are pending before the Commissioner of Income Tax (Appeals). Since the entire issue is already before the appellate authority, we are of the view, that in addition to the reasons that we have already given, there is yet another reason not to interfere with 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. 14. The interim order stands vacated. MADAN B. LOKUR, CJ SANJAY KUMAR, J 22-03-2012 pnb [1] [2003] 259 ITR 19 "