2008 (1) TMI 647 - AT - Income Tax

Re-opening of assessment u/s 147 - issuance of notice u/s 148 - on the basis of change of opinion - Income escaping assessment - Survey - Depreciation on SAPT building as well as maintenance - HELD THAT - The basis for forming an opinion that income has escaped assessment is the outcome of survey carried out at the business premises of the assessee where according to the AO it revealed that SAPT building was not used for the purpose of business. On the basis of such report the ld. Assessing Officer arrived at a conclusion that income has escaped assessment therefore the information which has come to his possession is the basis for forming a prima facie belief about escapement of income. The assessments have not been reopened merely on the basis of change of opinion i.e., merely on the basis of re-appreciation of the material already possessed by the Assessing Officer. In view of the above discussion we do not find any merit in the first grievance of the assessee. The reopening of the assessment is upheld in both the years. Disallowance of depreciation on SAPT building as well as maintenance - Incurred lift expenditure - survey u/s 133A - building not used for the purpose of the business - HELD THAT - If we weigh the material produce by the assessee viz-a-viz the solitary statement of the Estate Manager elicited by the authority during the course of survey, then scale would tilt in favour of the assessee because the statement was recorded under sub-section (3)( iii ) of section 133A without administering the oath to the Estate Manager. This is just an information which required corroboration for deciding an issue against the assessee. AO has not brought any corroborative piece of evidence in support of this information. In the past depreciation was granted to the assessee. Orders for assessment years 1993-94 to 1995-96 have been brought to our notice exhibiting this fact. AO failed to establish that building was not used for the purpose of business. Apart from all these things, even if we take the statement of the Estate Manager as a Gospel Truth then also the assessee had demonstrated that it has not abandoned the building totally. It s staff was there and it was using the building partially. As far as the 2nd limb of argument is concerned the building was the part of the assessee s block of assets - Tribunal in the case of Packwell Printers 1996 (5) TMI 112 - ITAT JABALPUR has considered a similar issue and order of the Tribunal was subsequently followed in the case of Natco Exports 2002 (6) TMI 168 - ITAT HYDERABAD-A , etc. According to these decisions once the asset was part of block of asset and depreciation was granted on that block it cannot be denied in the subsequent year on the ground that one of the asset was not used by the assessee in some of the years. The user of the assets has to apply upon the block as a whole instead of an individual asset. Contrary to these decision no other decision was brought to our notice by the ld. DR. Thus, we allow both these grounds and direct the AO to grant depreciation as well as other expenses i.e., maintenance and lift charges on SAPT building. In the result the appeal of the assessee are partly allowed.

Summary

Issues Involved:
1. Re-opening of assessment by issuance of notice under section 148 is bad in law.
2. Disallowance of depreciation on SAPT building.
3. Disallowance of maintenance of lift expenditure pertaining to said (SAPT) building.

Issue-wise Detailed Analysis:

1. Re-opening of Assessment by Issuance of Notice under Section 148:
The first common grievance in both assessment years is the alleged error by the Assessing Officer in reopening the assessment already made under section 143(3) by issuing a notice under section 148. The assessee argued that the reopening was barred by limitation, as it was done after four years from the end of the accounting year for the assessment year 1996-97. However, the CIT(A) held that the time limits under section 149(1) allow a notice to be issued beyond seven years but up to ten years if the escaped income is Rs. 1 lakh or more. The Assessing Officer's basis for reopening was the outcome of a survey under section 133A, which revealed that the SAPT building was not used for business purposes during the renovation period. The Tribunal upheld the reopening, noting that the notice under section 148 was served within four years and was based on new information from the survey, not merely a change of opinion.

2. Disallowance of Depreciation on SAPT Building:
The second issue concerns the disallowance of depreciation on the SAPT building. The Assessing Officer and CIT(A) concluded that the building was not used for business purposes based on statements recorded during the survey. The assessee contended that the building was used for business purposes and provided evidence of expenses like electricity and telephone bills, sales and purchase activities, and the use of the building as the registered office. The Tribunal considered the legal principle that depreciation is allowed not only for actual use but also for passive use of an asset. The Tribunal found that the building was used for business purposes, albeit partially, and that the statement from the survey had no evidentiary value without corroboration. The Tribunal directed the Assessing Officer to grant depreciation on the SAPT building.

3. Disallowance of Maintenance of Lift Expenditure Pertaining to SAPT Building:
The third issue is linked to the second and involves the disallowance of maintenance and lift expenditure for the SAPT building. The Assessing Officer disallowed these expenses on the grounds that the building was not used for business purposes. The Tribunal, however, found that the building was used for business purposes and directed the Assessing Officer to allow the maintenance and lift expenses.

Conclusion:
The Tribunal upheld the reopening of the assessment but allowed the depreciation and maintenance expenses for the SAPT building, concluding that the building was used for business purposes. The appeal of the assessee was partly allowed.