Adani Power Limited Vs ACIT (Gujarat High Court)
The petitioner challenged a notice issued under Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment for Assessment Year (AY) 2014–15. The notice dated 31 March 2021 was issued after the original assessment had been completed under Section 143(3).
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The assessee company is engaged in developing, operating and maintaining power projects and in the sale of power. It had filed its return of income declaring losses under both normal provisions and Section 115JB. The case was selected for scrutiny, and multiple notices and questionnaires were issued during the original assessment proceedings. The Assessing Officer (AO) ultimately passed an assessment order on 7 December 2017, disallowing excess depreciation of ₹5.80 crore. The assessee’s appeal before the Commissioner (Appeals) was partly allowed, and an order giving effect was passed in July 2020.
Subsequently, the AO issued the impugned reopening notice under Section 148. The recorded reasons stated that on verification of records including the balance sheet, profit and loss account, notes, tax audit report, and computation of income, it was noticed that the assessee had claimed substantial depreciation, including additional depreciation. The AO analysed depreciation claimed on plant and machinery, including amounts attributed to foreign exchange fluctuation liability under Section 43A. According to the reasons, additional depreciation had been claimed on exchange rate fluctuation relating to earlier years’ imported plant and machinery. It was noted that only a small amount of new plant and machinery had been acquired and put to use before 30 September 2013. The AO concluded that additional depreciation was not allowable on the increased liability due to exchange rate fluctuation in respect of old assets and that this resulted in excess additional depreciation of ₹203.11 crore.
The assessee filed objections to the reopening, which were rejected. A notice under Section 142(1) was also issued seeking details for reassessment. The assessee then approached the High Court challenging both the reopening notice and the order rejecting objections.
On behalf of the assessee, it was argued that the reopening was based solely on material already on record during the original scrutiny assessment and that there was no fresh tangible material. It was further contended that the reopening was beyond four years from the end of the relevant assessment year and there was no failure on the part of the assessee to disclose fully and truly all material facts. The assessee also argued that the reopening was triggered by an audit objection and amounted to a mere change of opinion.
The Revenue contended that depreciation had been wrongly claimed on foreign exchange fluctuation capitalised to assets and that this issue had not been examined during the original assessment. It was submitted that the AO had formed an independent belief after verification of records and that audit information pointing out a factual error could form the basis for reopening. The Revenue maintained that statutory procedures had been followed and approvals obtained.
The High Court examined the reasons recorded for reopening and the original assessment order. It observed that the AO had formed the belief of escapement of income solely on the basis of material already available on record, without any fresh tangible material having a live nexus with the reasons. The Court also noted that there was no allegation in the recorded reasons of any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
From the original assessment order, the Court found that the AO had examined the issue of depreciation during scrutiny and had made a disallowance on a specific aspect relating to depreciation during the project development phase. This indicated that the AO had considered the overall depreciation claim and chosen to make additions only on certain points.
In these circumstances, the Court held that the reopening was not permissible. The impugned notice under Section 148 was quashed and set aside. Consequently, the order rejecting the assessee’s objections was also quashed. The petition was allowed to that extent, with no order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
