ITAT Ahmedabad held that reopening of assessment u/s. 147 of the Income Tax Act after four years without any tangible material amounts to change of opinion and according the same is invalid and liable to be quashed.
Facts- The assessee is a Private Limited Company engaged in manufacturing of Dyes and Dye intermediates. Regular assessment u/s. 143(3) was completed. Thereafter the case was reopened u/s. 148 on account of excess claim of additional depreciation for Fluidized Bed Furnace which was utilized to generate hot air by heat treatment and not for manufacture of article or things, thus not eligible for additional depreciation.
CIT(A) dismissed the appeal. Being aggrieved, the present appeal is filed.
Conclusion- The reasons recorded by the Assessing Officer does not show that any new tangible material available on record and there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment, when the same is reopened after four years period.
Held that in the absence of tangible material, reopening of assessment after four years period amounts to “change of opinion” only. Therefore the reopening of assessment is not valid as per the provisions of section 147 of the Act and the same is hereby quashed.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the Assessee as against the appellate order dated 20.09.2018 passed by the Commissioner of Income Tax (Appeals)-2, Ahmedabad arising out of the reassessment order passed under section 144 r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2010-11. This appeal was originally dismissed wherein the assessee failed to appear before this Tribunal. Thereafter it was recalled Vide M.A. No. 06/Ahd/2023 by order dated 12-05-2023.
2. The brief facts of the case is that the assessee is a Private Limited Company engaged in manufacturing of Dyes and Dye intermediates. For the Assessment Year 2010-11, the assessee filed its Return of Income declaring total income of Rs. 2,36,69,459/-. Regular assessment u/s. 143(3) was completed assessing the total income as Rs. 2,39,71,533/-. Thereafter the case was reopened u/s. 148 on account of excess claim of additional depreciation for Fluidized Bed Furnace which was utilized to generate hot air by heat treatment and not for manufacture of article or things, thus not eligible for additional depreciation.
2.1. During the re-assessment proceedings, the assessee asked to furnish of user manual of the machine to substantiate its claim of additional depreciation and technical details of the machinery. However the assessee sought time to produce the User Manual, however failed to produce the same. Therefore the Assessing Officer passed an ex-parte assessment order disallowing the claim of additional depreciation of Rs. 20,78,780/-.
3. Aggrieved against the same, the assessee filed an appeal before the Ld. Commissioner of Income Tax (Appeals)-2. During the appellate proceedings, the Authorized Representative field a written submission. The Ld. CIT(A) dismissed the assessee appeal on the ground that the assessee failed to prove that the generation of hot air has resulted into production for manufacture of article or things. The assessee neither before the A.O. nor before the appellate proceedings submitted the relevant documents as required by second and third proviso of section 32(iia) in the form of Form No. 3AA showing the details of machinery for plant and increase in installed capacity of production. Therefore the Ld. CIT(A) dismissed the appeal field by the assessee.
4. Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:
1. That the Ld. CIT(A) has erred in observing in para 3.3 of the order that neither before Assessing Officer nor during the appellate proceedings, appellate has submitted the relevant documents as required by IInd & IIIrd proviso of section 32(iia) in form No. 3AA as the requirement of form 3AA, has been omitted in IT Act w.e.f 01-04-2006 and that all details of plant and machinery is submitted before CIT(A) as well as assessing officer in the reassessment proceedings and which were even already available with the assessing officer in the original proceedings assessment and hence the sustaining of disallowance of deprecation is bad in law.
2. That the Ld. CIT(A) failed to appreciate that the assessing officer has merely made the disallowance of depreciation on the basis that assessee could not submit of user manual of machine but the same had been submitted before the order of reassessment and hence the disallowance is without out any basis.
3. That there is no material or evidence that the depreciation claimed and allowed in original assessment is not allowable expenditure and that all the material and documents are already before the assessing officer in original assessment proceedings duly considered and therefore the CIT(A) has erred in holding in para 2.3 of the order that because of failure on the part of appellant, the assessing officer was justified in reopening the assessment passed u/s 143(3) beyond four years of the assessment.
4. That the Ld. CIT(A) has erred in sustaining the disallowance as the order of the assessing officer is without jurisdiction, bad in law on facts and in law.
5. Counsel Mr. Nitin Mehta appearing for the assessee submitted before us Ground No. 3 that the reopening of assessment itself is bad in law since the same was reopened beyond four years period and there is no failure on the part of the assessee in disclosing claim of additional depreciation by the assessee. The Ld. Counsel filed a compilation of Paper Book wherein notice dated 16-08-2012 issued u/s. 142 by the Assessing Officer asking for various details in the questionnaire issued wherein Serial No. 26 reads as under:
“26. Explain whether any claim u/s. 32(1)(iia) has been made by you. If yes, then complete details and justification for the same.”
6. In reply thereto the assessee furnished the details as follows:
“1. In the course of the hearing reply to your query as to claim of depreciation of 100%, we have to state that we have claimed such depreciation on fluidized bed furnace for hot air generation by heat treatment for use in our manufacturing process. We refer to Income Tax Rules Appendix, III (8), (ix) (A) (c) in which Fluidized bed type heat treatment furnace are entitled to 80% depreciation. We have purchased machinery and put to use on 5/9/2009 as per statement A in 3Cd report submitted earlier and therefore u/s 32 0) (ia). We are entitled to additional depreciation @ 20% on such new plant & machinery installed during the year in our manufacturing activity and therefore there is total entitlement of depreciation both together comes to 100% which we have claimed.
2. We enclose herewith details of fluidized bed furnace used for generating hot air alongwith zerox of bills exceeding Rs. 2,00,000/- in which also the description fluidized bed furnace is there and we also enclose herewith a certificate from Suntrack Energy Systems Pvt. Ltd confirming that they have supplied us fluidized bed furnace.
3. In view of the aforesaid, we have correctly claimed depreciation of 100 % for fluidized bed furnace as per IT Rules.”
7. Regular assessment u/s. 143(3) was completed accepting the above reply. It is thereafter the Assessing Officer issued u/s. 148 notice dated 30/03/2017 recording the reasons for reassessment as follows:
“The assessee company, a manufacturer of dyes and dye intermediates, filed its return of income for A.Y. 2010-11 on 15.10.2010 declaring total income at Rs. 2,36,69,459/-. The case was completed in scrutiny manner under section 143(3) of the Act by determining total assessed income at Rs. 2,39,71,533/-.
From the records it was found that on installation of “Fluidized bed furnace’for hot air generation valued Rs. 1,03,93,904/- for what assessee claimed depreciation @80 percent amounting Rs. 83,15,123/- and additional depreciation @ 20 percent amounting Rs. 20,78,780/- i.e. in total 100 percent depreciation was claimed and the same was admitted in the assessment. Additional depreciation was admissible only to assessee engaged in production or manufacture of articles or things. In the instant case, as per the submission of the assessee, the Fluidized Bed Furnace was utilized to generate hot air by heat treatment and not for manufacture of articles and things. Thus, generation of hot air does not result in to ‘production or manufacture of article or thing’ as defined u/s 2(29BA). Furthermore, generating hot air through furnace does not resulting in transformation of object or article or thing having a different name, character and use; or bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure. Thus, assessee was not entitled for additional; depreciation of Rs. 20,78,780/-.
In view of the above, I have reason to believe that the assessee has concealed the income to extent of Rs. 20,78,780/- within the meaning of the provision of section 147 of the I.T Act, 1961. Hence it is a fit case for issuing notice u/s. 148 of the IT Act, 1961 to M/s Indo Colchem Ltd. for A.Y. 2010-11.”
8. Ld. Counsel further submitted that there is no omission on the part of the assessee in disclosing the income before the authority. Therefore there is no escapement of income in reopening the assessment beyond four years period and relied upon Hon’ble Supreme Court judgment in the case of Parashuram Pottery Works Co. Ltd. Vs. ITO reported in (1977) 1 SCC 408 held as follows:
“….14. It may also be mentioned that so far as the assessment for the assessment year 1957-58 is concerned, the assessment order was once rectified and at another time revised. Despite such rectification and revision, the above mistake in the calculation of the depreciation remained undetected. It was only in October 1965 that the Income-tax Officer realized that higher amount of depreciation had been allowed to the appellant than was actually due. A letter to that effect was consequently sent to the assessee on October 5, 1965. It was, however, nowhere mentioned in that letter that the higher amount of depreciation had been allowed and the income as such had escaped assessment because of the omission or failure on the part of the assessee to disclose truly and fully all material facts. Reference to such omission or failure came only in a subsequent communication. The submission made on behalf of the appellant is not without force that reference was made to assessee’s omission or failure to disclose truly and fully all material facts because it was realized that after the expiry of four years from the end of the relevant assessment year no action for reopening of assessment could be taken on the basis of detection of mistake alone unless there was also an allegation that the income had escaped assessment because of the omission or failure of the appellant to dis- close fully and truly material facts. Looking to all the facts, we are of the opinion that it cannot be said that the excess depreciation was allowed to the appellant company and its income as such escaped assessment because of its omission or failure to disclose fully and truly all material facts.
15. It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realizing that price should familiarize themselves with the relevant provisions and become well versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as income-tax assessment orders are concerned, they cannot be reopened on the score of income escaping assessment under Section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, this cannot be said in the present case. The appeal is consequently allowed; the judgment of the High Court is set aside and the impugned notices are quashed. The parties in the circumstances shall bear their own costs throughout.”
9. Even on merits of the case, the assessee relied upon Jurisdictional High Court judgment in the case of CIT Vs. Diamines & Chemicals Ltd. on claim of additional depreciation as follows:
“6… At the outset, it is required to be noted that the assessee claimed the deduction under s. 32(1)(a) of the IT Act with respect to the cost incurred by it for installation of the wind electric generator. The AO disallowed the same and made the addition of Rs. 1,17,99.030 by observing that as the assessee is not in the business of generation and distribution of power, hence the assessee shall not be entitled to deduction under s. 32(1)(a) of the IT Act of Rs. 1,17,98,030. The said addition has been deleted by the CIT(A) relying upon the decisions of the Madras High Court in the case of VTM Ltd. (supra) and in the case of CIT v. Hi Tech Arai Ltd. (supra). In both the aforesaid decisions, the Madras High Court had an occasion to consider the similar issue and it is held that while claiming the deduction under s. 32(1)(a) of the IT Act setting up will mill has nothing to do with the power industry and what is required to be satisfied in order to claim additional depreciation is that the setting up of new machinery or plant should have been acquired and installed by an assessee, who was already engaged in the business of manufacture or production of any article or thing. Considering the aforesaid facts and circumstances and considering the relevant provisions of s. 32(1)(a) of the IT Act, which was prevailing at the relevant time, i.e. during the year under consideration, it cannot be said that the Tribunal by applying the ratio of decision of the Madras High Court in the case of VTM Ltd. (supra) and in the case of Hi Tech Aral Ltd. (supra) has committed any error in deleting the addition of Rs. 1,17,98,030 on account of disallowance of additional depreciation of wind electric generator.
7. We see no reason to interfere with the impugned judgment and order passed by the Tribunal. No question of law, much less substantial question of law arises in the present tax appeal. Hence, the present tax appeal deserves to be dismissed and is accordingly dismissed.”
10. Ld. Counsel further submitted that Jurisdictional High Court judgment in the case of Rantnamani Metals and Tubes Ltd. Vs. DCIT reported in (2015) 371 ITR 301 (Guj.) quashed the reassessment order on claim of additional depreciation which was reopened after 4 years period observing as follows:
“……. 6. As noticed earlier, the assessment year is 2007-08, whereas the notice under section 148 of the Act has been issued on 27.03.2014 which is clearly beyond a period of four years from the end of relevant assessment year. Under the circumstances, for the purpose of valid assumption of jurisdiction on the part of the Assessing Officer, there has to be a failure on the part of the assessee to disclose fully and truly all material facts.
7. From the facts narrated hereinabove, it is apparent that the petitioner, in the statement of depreciation claimed by it for the year under consideration had clearly shown that it had claimed additional depreciation of Rs. 613.51 lakhs on the wind-mill. Under the circumstances, in the facts of the present case, there was no reason for the Assessing Officer to form the belief that there is failure on the part of the petitioner to disclose fully and truly all material facts relevant for its assessment for the assessment year under consideration.
8. From the submissions advanced by the learned counsel for the respondent, primarily the case of the respondent is that the assessee had wrongly claimed additional depreciation in respect of the wind-mill because wind mill was utilized to generate electricity and not for manufacture of any article or thing and that generation of electricity does not result in to production or manufacture of article or thing. As the facts depict, the claim for depreciation had been allowed during the course of scrutiny assessment after verification of all the details. As noted hereinabove, in the facts of the present case, the Assessing Officer could not have entertained the belief as to escapement of income chargeable to tax from assessment for failure to disclose fully and truly all material facts relevant for assessment for the year under consideration. In absence of any such failure on the part of the petitioner, the Assessing Officer could not have assumed valid jurisdiction to reopen the assessment under section 147 of the Act. Evidently, therefore, the reopening of assessment under section 147 of the Act is without any authority of law.”
11. Per contra, the Ld. D.R. appearing for the Revenue supported the orders passed by the Lower Authorities. Therefore the appeal filed by the Assessee is liable to be dismissed.
12. We have given our thoughtful consideration and perused the materials available on record including the Paper Books and Case Laws submitted by the assessee. From the reasons recorded by the A.O., it clearly reflects that the same are based on the books of accounts and balance sheet filed by the assessee. Further the claim of additional depreciation which was considered by the Assessing Officer while passing original assessment order u/s. 143(3) of the Act. Thus the reasons recorded by the Assessing Officer does not show that any new tangible material available on record and there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment, when the same is reopened after four years period. In the light of these facts, we examined the applicability of the Hon’ble Apex Court judgment rendered in the case of CIT Vs. Kelvinator of India Ltd. (187 com 312 SC) wherein it was categorically held that the Assessing Officer has no power to review his assessment order, but has only the power to reassess, provided there is “tangible material” on record that there is escapement of income from assessment. The relevant portion of the Supreme Court judgment reads as follows:
“…4. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 14-1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post 1-4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, Assessing Officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987. Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words “reason to believe”, Parliament re-introduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the Assessing Officer.”
12.1. Further the Full Bench judgment of the Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd. (123 Taxmann.com 433) clearly held that the Assessing Officer does not have any jurisdiction to review his own order, his jurisdiction is confined only to rectification of mistake as contained in section 154 of the Act, that too “mistake apparent on record” and not on debatable issues. Thus the only remedy left with the department is to invoke Revision proceedings u/s. 263 of the Act, to revise the assessment order by the Commissioner of Income Tax on the ground that the assessment order is erroneous and prejudicial to the interest of Revenue. Further wherever a regular assessment order is passed by the Assessing Officer, it is presumed that the order was passed after application of mind, thereby Assessing Officers are not given powers to reopen the assessment on the same set of facts in the absence of tangible material.
12.2. Respectfully following the above judicial precedents, we have no hesitation in holding that in the absence of tangible material, reopening of assessment after four years period amounts to “change of opinion” only. Therefore the reopening of assessment is not valid as per the provisions of section 147 of the Act and the same is hereby quashed. Thus the Ground No. 3 raised by the assessee is hereby allowed.
12.3. Even on merits of the case namely Ground Nos. 1 & 2 the same is also covered in favour of the assessee by the Jurisdictional High Court in the case of Diamines & Chemicals Ltd. Therefore the same is allowed in favour of the assessee.
13. In the result, the appeal filed by the Assessee is hereby allowed.
Order pronounced in the open court on 04-08-2023