JUDGMENT
C.K. Thakker, J.
1. Rule. Mr. B. J. Shelat, the learned advocate for R. P. Bhatt and Co., waives the service of rule on behalf of the respondent. On the facts and in the circumstances of the case, both the petitions have been taken for final hearing today.
2. Both these petitions are filed against notices of reassessment for the years 1986-87 and 1987-88 issued on January 11, 1995, under section 148 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). By the impugned notices, the petitioner was informed that the Assistant Commissioner of Income-tax, Circle Rajkot (respondent herein), has reason to believe that the income chargeable to tax for the assessment years 1986-87 as well as 1987-88 escaped assessment within the meaning of section 147 of the Act. Hence, the respondent proposed to reassess the income for those two assessment years. The petitioner was, therefore, called upon to show cause as to why proceedings should not be initiated against him and the income should not be made taxable. The petitioner has challenged the legality of those notices by filing these petitions.
3. This court issued notice on June 22, 1995, by making it returnable on July 3, 1995. Ad interim relief was also granted. Mr. B. J. Shelat, learned counsel for the respondent, placed on record the so-called reasons recorded by the respondent for the reopening of the proceedings. The said order reads as under :
“Rajesh Leasing and finance Limited, Rajkot. Assessment year 1987-88.
The assessee is a leasing company, doing leasing of industrial equipment, assessment on March 24, 1993, and depreciation was allowed to the extent of Rs. 15,29,350. The Revenue audit party has raised audit objection that the assessee-company being lessor is not entitled for depreciation on the plant and machinery.
The Commissioner of Income-tax, Rajkot, vide his letter No. CIT. R/Jud. /Aud/68/RA (6) of 1994-95 dated January 10, 1995, has approved the action under section 147 of the Income-tax Act, 1961, as the most appropriate remedial action in this case.
I have, therefore, reason to believe that an amount of Rs. 15,29,350 being the depreciation allowed, has escaped assessment for the assessment year 1987-88.
Issue notice under section 148.”
4. Mr. J. P. Shah, learned counsel appearing for the petitioner, strenuously urged that the show-cause notices issued by the respondent are without jurisdiction and are required to be quashed. He submitted that the petitioner had made full and true disclosure of all the material facts. In fact, the petitioner filed returns for the assessment year 1986-87 as early as on June 30, 1986. Likewise, he submitted returns for the year 1987-88 on June 29, 1988. Assessment orders in accordance with law were passed on January 20, 1989. Notice issued under section 263 of the said Act by the Commissioner of Income-tax was also replied by the petitioner of February 1, 1991, and the order was passed on February 28, 1991. A fresh assessment order was passed on March 24, 1993, and depreciation was granted. The Assessing Officer rectified the assessment in accordance with section 143(3) of the Act by passing an order under section 154 of the Act and depreciation to the extent of 30 per cent. was allowed. Thereafter, the present notices were issued. Mr. Shah also submitted that the petitioner filed a reply and contended that there was no failure on his part in making a full and true disclosure of all the relevant and material facts and notices could not have been issued because of change of opinion. Mr. Shah also contended that from a bare reading of the so-called reasons recorded by the respondent, it is clearly proved that he has not applied his mind at all and that he has formed his opinion on the basis of the audit report and is also acting under dictation.
5. In our opinion, the submission of Mr. Shah is well-founded and the petitions are required to be allowed. From the order, the it becomes clear that it is not even the case of the respondent that there was no true and full disclosure of all the material facts by the petitioner and on that ground, the proceedings were require to be reopened. On the contrary, looking to the reasons, it becomes amply clear that it was because the Revenue audit party had raised an audit objection that the assessee-company being a lessor-company was not entitle for depreciation on the plant and machinery that the proceedings were sought to be reopened. Similarly, it is also apparent from the reasons that the Commissioner of Income-tax, Rajkot, had approved the action of reopening of proceedings and, therefore, respondent had reason to reopen the proceedings.
6. Thus, it is not that material facts have been suppressed by the petitioner and on that ground, notices of reopening the proceedings were issued but it was because the Revenue audit party had raised some audit objection that such notices were issued. No notices under section 148 of the Act can be issued on the basis of the audit report and, hence, they cannot be held to be legal and valid. Mr. Shah appears to be right in submitting that had the Revenue audit party not raised an objection, in all probability, notices would not have been issued to the petitioner. Be that as it may, since there is no ground and/or reason that there was suppression of material facts by the petitioner for which reopening of the proceedings was felt necessary, issuance of notices under section 148 of the Act was contrary to law. There was no satisfaction on the part of the competent authority which is reflected in the reasons that he had reason to believe that such reopening of proceeding was necessary.
7. Mr. Shah is also right in contending that the respondent was acting under dictation. This is clearly proved from the reasons recorded by the respondent wherein it was stated that, the Commissioner of Income-tax, Rajkot, had approved the action of the reopening of the proceedings. In fact, notices were issued on the basis of the audit report and the Commissioner of Income-tax’s approval without there being satisfaction and application of mind on the part of the respondent. Such action cannot be upheld by a court of law and the notices must be quashed by allowing the petitions.
8. For the aforesaid reasons, both the petitions are required to be allowed and they are accordingly allowed. Rule is made absolute. Notices dated January 11, 1995, annexure-1, are hereby quashed and set side. On the facts and in the circumstances of the case, there is no order as to costs.
