Kuehne+Nagel Pvt. Ltd. Vs ACIT (Delhi High Court)
Introduction: In a recent legal development, the Delhi High Court delivered a decisive judgment in favor of Kuehne+Nagel Pvt. Ltd., quashing reassessment proceedings initiated by the Assessing Officer for Assessment Year (AY) 2012-13. The court’s ruling hinged on the absence of new material grounds for reassessment, providing crucial insights into the legal nuances of tax proceedings.
Background: The matter revolved around a notice dated 12.02.2019 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, concerning the claim of depreciation on temporary structures at the rate of 100%. Kuehne+Nagel Pvt. Ltd. challenged the notice, contending that the reassessment proceedings were unjustified.
Legal Analysis:
1. Change of Opinion vs. New Material Basis: The crux of the legal argument centered on whether the reassessment was a case of change of opinion or if it was grounded in new material evidence. The petitioner asserted that the issue of depreciation on temporary structures was already scrutinized during the assessment proceedings, and the Assessing Officer had accepted the claim. The court concurred, highlighting the lack of fresh material as a basis for the reassessment.
2. Provisions Invoked by Revenue: The revenue relied on Explanation 1 and Explanation 2(c)(iv) appended to Section 147 of the Act. Explanation 1 clarifies that the production of account books or evidence that could have been discovered by due diligence doesn’t necessarily constitute disclosure. Explanation 2(c)(iv) deals with cases of excessive loss or depreciation allowance. The court critically analyzed these provisions in the context of the case.
3. Claim of Excessive Depreciation: The revenue contended that even if the claim was previously accepted, reassessment could be triggered if it involved excessive loss or depreciation allowance. The court, however, held that once a structure is categorized as temporary, the prescribed rate of depreciation is 100%, making the claim non-excessive.
4. Timing and Bar of Limitation: The court also examined whether the notice under Section 148 was barred by time. Though not explicitly stating a failure to disclose material facts, the court emphasized the change of opinion, rendering the reassessment proceedings unjustified.
Court’s Decision and Implications: The Delhi High Court unequivocally ruled in favor of Kuehne+Nagel Pvt. Ltd., quashing the notice and subsequent orders. The judgment establishes a precedent reinforcing the principle that reassessment must be based on new and substantive grounds, preventing arbitrary or unfounded reopening of assessments. This legal victory for taxpayers underscores the significance of procedural integrity in tax dispute resolutions.
Conclusion: The legal analysis of the Kuehne+Nagel Pvt. Ltd. case illuminates the delicate balance between change of opinion and the necessity for fresh material in reassessment proceedings. This judgment serves as a beacon for taxpayers, emphasizing the importance of a valid and concrete basis for the reopening of assessments by tax authorities. It reiterates the commitment of the judiciary to uphold fairness and due process in tax matters, setting a robust precedent for future disputes.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This writ petition concerns Assessment Year (AY) 2012-13.
2. Via the instant writ petition, challenge is laid to the notice dated 12.02.2019 issued by the Assessing Officer (AO) under Section 148 of the Income Tax Act, 1961 [in short, “Act”].
3. Besides this, challenge is also laid to the orders dated 01.07.2019 and 26.07.2019 concerning the objections raised by the petitioner with regard to reassessment proceedings triggered against it.
4. The notice in the writ petition was issued as far back as on 11.2019, when six weeks were granted to the respondents to file a counter-affidavit in the matter. The last opportunity in this behalf was given on 22.05.2023. Once again, further, six weeks were granted to the respondent/revenue to file a counter-affidavit in the matter.
5. As a matter of fact, opportunity on the previous date was given despite the order dated 18.07.2022 noting that respondents were being given a last and final opportunity to file a counter-affidavit, albeit within four
6. Unfortunately, the counter-affidavit has not seen the light of the day.
7. Since the matter has been pending for the past four years, we do not deem it fit to grant further time. We have thus decided to hear the matter, based on the record presently available with us.
Background:
8. For the purpose of adjudication, the following broad facts are required to be noticed:
9. The petitioner had filed its Return of Income (ROI) on 28.11.2012. Via the said ROI, the petitioner declared its total income as Rs.57,37,84,404/-. The petitioner’s ROI was picked for scrutiny and accordingly, notice dated 08/08/2013 was issued under Section 143(2) of the Act.
10. The record shows that in the course of the assessment proceedings, one of the queries raised concerned the depreciation claimed by the petitioner with regard to the temporary structures. Concededly, the depreciation rate prescribed qua temporary structures is 100%.
10.1 In this behalf, we may note that a questionnaire dated 04.01.2016 was issued to which a reply dated 12.01.2016 was submitted by the petitioner.
11. The petitioner defended its stand with regard to the claim made qua depreciation of temporary structure at the rate of 100%.
11.1 Significantly, to enquire into this matter an officer was deputed by the AO to visit the premises of the petitioner and carry out a physical inspection of the subject temporary structure.
12. Evidently, it was only thereafter, that on 15.02.2016, the AO framed an Assessment Order under Section 143(3) of the Act and pegged the petitioner’s income at Rs.57,64,22,890/-.
13. The record also discloses that despite the AO having made an enquiry with regard to the claim of depreciation vis-à-vis the subject temporary structure albeit before framing the Assessment Order under Section 143(3) of the Act, on 12.01.2017, a notice under Section 154/155 of the Act was served on the petitioner.
13.1 This notice was apparently issued based on an audit objection received from the office of Additional Commissioner of Income Tax Audit-2. It appears that the petitioner submitted several replies concerning the aforementioned notice. In this regard, reference is made to replies dated 23.01.2017, 15.03.2017, 27.03.2017 and 11.05.2017.
14. Although, no formal order was passed dropping the notice issued under Section 154/155 of the Act, matter, in effect became moribund. After more than four years had elapsed since the end of the AY in issue i.e., AY 2012-13, as alluded to above, notice dated 12.02.2019 was issued under Section 148 of the Act concerning the claim of depreciation vis-à-vis temporary structure at the rate of 100%.
14.1 The notice, however, did not allege that the petitioner had failed to fairly and truly disclose all material facts.
15. The petitioner, however, in response to the notice, intimated to the AO that the return as originally filed on 28.11.2011 which was revised on 08.03.2014 should be treated as a return in response to the notice issued under Section 148 of the Act.
16. As regards “Reasons to Believe” recorded by the AO, the petitioner filed its objections on 20.06.2019. Amongst others, one of the assertion made by the petitioner was that this was the case of a change of opinion without any new material coming to the fore. In sum, it was emphasized that reassessment proceedings were barred under the provisions of the first proviso appended to Section 147 of the Act.
16.1 The AO disposed of the objections via order dated 01 .07.2019 and while disposing of objections, took recourse to Explanation 1 and Explanation 2 (c) (iv) appended to Section 147 of the Act.
17. Since, according to the petitioner, the order dated 01.07.2019 did not constitute a speaking order, a grievance was articulated in that behalf via communication dated 02.07.2019. The AO dealt with the same via order dated 26.07.2019. In effect, the AO emphasised that the objections filed by the petitioner had been disposed of via order dated 01 .07.2019.
17.1 It is in these circumstances, that the petitioner approached the court via the instant writ petition.
Submissions of Counsel
18. As noticed at the outset, the respondent/revenue, for reasons best known to it, have not filed a counter-affidavit in the matter. Notwithstanding that, we may note that the entire petition is based on the record available with the respondent/revenue concerning the petitioner.
19. In support of the petitioner’s case, submissions were advanced by Ms Ananya Kapoor, whereas on behalf of the respondents, arguments were put forth by Mr Shivendra Singh.
20. Ms Kapoor submitted that the reassessment proceedings were wrongly triggered. It is emphasised that the issue concerning claim of depreciation vis-a-vis temporary structures at the rate of 100% was raised during the scrutiny-assessment.
20.1 In other words, Ms Kapoor’s contention is that this is a clear case of change of opinion.
20.2 Furthermore, it is submitted that since the reassessment proceedings were triggered after four years from the end of the AY in issue, the provisions of the first proviso appended to Section 147 of the Act would also be applicable. The AO could not have triggered reassessment proceedings without fresh material coming to his notice which demonstrated that facts material for assessment were not truly and fairly disclosed by the petitioner.
21. On the other hand, Mr Singh in defence of the impugned action largely relied upon the order dated 01.07.2019 passed by the AO. Based on the said order, it was contended that a conjoint reading of Explanation 1 and Explanation 2 (c) (iv) appended to Section 147 of the Act would show that merely because material evidence could not be elicited and/or discovered by the AO after due diligence, it would not necessarily amount to the disclosure within the meaning of Section 147 of the Act.
22. The submission, in particular, emphasised that Explanation 2 (c) (iv) appended to Section 147 of the Act in no uncertain terms brings to the fore that if it is, inter alia, a case of excessive loss of depreciation allowance, then reassessment proceedings can be triggered in a given.
Analysis and Reasons
23. We have heard learned counsel for the parties and perused the record.
24. According to us, the record as made available to us leaves us with no doubt that a specific query was raised with regard to the claim made by the petitioner concerning depreciation qua the subject temporary structure. For convenience, the relevant part of the questionnaire and the query raised is set-forth hereafter:
“Please furnished detailed note on temporary erection on which 100% depreciation is claimed. Prove with evidences the life cycle of these fixed assets. Enclose purchases of such temporary erection. Show cause why these erection should not be treated as part of assessee P & M. It is very important to note here that assessee company does not have any block of assets on account of “Building”. The block “building” under bloke of assets concepts has three categories buildings – Residential @5%, building other than residential-10% 80 1A-(4)(i) building @100% and purely temporary erections such as wooden structures @ 100%. In the case of the assessee the nature of these temporary erection is listed as follows which are primarily leasehold improvements in the used premises on which assessee is conducting is business and by no imagination the same can be treated as Purely Temporary in nature as the business of the assessee is ongoing from these premises.
