2012 (5) TMI 643 - AT - Income Tax

Reassess the income of the appellant under sections 147/143(3)/145(3) - change of opinion - Disallowance of loss on Indian operations and estimation of income therefrom - Disallowance of payment of employees contribution - Disallowance of payment of employees contribution - Recomputation of deduction U/s 80-HHB of the Act - Interest U/s 234D - disallowance of additional depreciation - prior period expenses

Issues Involved:

1. Jurisdiction of the Assessing Officer (AO) to reassess income under sections 147/143(3)/145(3) of the Income-tax Act, 1961.
2. Disallowance of additional depreciation on plant and machinery and tippers.
3. Rejection of books of account and estimation of profits.
4. Non-admission of additional evidence under Rule 46A.
5. Disallowance of employees' provident fund contribution.
6. Disallowance of prior period expenses.
7. Recalculation of deduction under section 80HHB.
8. Levy of interest under section 234D.
9. Deletion of additions made by AO by the CIT(A).

Detailed Analysis:

1. Jurisdiction to Reassess Income:
The assessee contended that the CIT(A) erred in upholding the jurisdiction of the AO to reassess income, arguing that the reassessment was based on a mere change of opinion and incorrect facts. The CIT(A) rejected this argument, stating that the original assessment order did not discuss the issues of additional depreciation and excess depreciation. The AO had reasonable belief regarding income escapement, and the reopening was within four years, making the proviso to section 147 inapplicable. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's reasons for reopening were valid and based on statutory provisions.

2. Disallowance of Additional Depreciation:
The assessee claimed additional depreciation on plant and machinery and tippers, arguing it was engaged in manufacturing bituminous concrete. The CIT(A) disallowed this, stating the assessee was involved in road construction, not manufacturing or production of an article or thing, citing the Supreme Court's decision in N.C. Budhiraja & Co. The Tribunal upheld this decision, stating that the end product, road construction, does not qualify as manufacturing or production of an article or thing.

3. Rejection of Books of Account and Estimation of Profits:
The AO rejected the assessee's books of account due to discrepancies and lack of proper records, estimating profits at 4% of gross receipts. The CIT(A) upheld this decision. The Tribunal agreed, noting the assessee's failure to maintain stock registers and provide detailed quantitative consumption, justifying the rejection of books and estimation of profits.

4. Non-admission of Additional Evidence:
The assessee's application for additional evidence under Rule 46A was rejected by the CIT(A) as the evidence was not produced during the original assessment or reassessment proceedings. The Tribunal upheld this decision, noting the inordinate delay and contradictions in the assessee's application.

5. Disallowance of Employees' Provident Fund Contribution:
The AO disallowed the deduction for employees' provident fund contributions deposited after the due date. The CIT(A) upheld this, and the Tribunal agreed, stating the disallowance was justified as the contributions were not deposited within the stipulated time.

6. Disallowance of Prior Period Expenses:
The AO disallowed prior period expenses, stating they related to earlier years. The CIT(A) upheld this decision, and the Tribunal agreed, noting the assessee failed to provide evidence that the expenses crystallized during the relevant year.

7. Recalculation of Deduction under Section 80HHB:
The assessee argued for recalculating the deduction under section 80HHB based on assessed profits. The CIT(A) rejected this, stating the assessee did not fulfill the conditions for claiming the deduction. The Tribunal allowed the assessee to create a suitable reserve in its accounts and directed the AO to recompute the deduction in accordance with the law.

8. Levy of Interest under Section 234D:
The AO charged interest under section 234D, which the assessee contested. The Tribunal noted that section 234D applies only to regular assessments and allowed the assessee's ground, stating no interest was leviable under section 234D.

9. Deletion of Additions by CIT(A):
The CIT(A) deleted the additions made by the AO on account of excess depreciation claimed on plant and machinery and office equipment. The Tribunal upheld this decision, noting the accounting treatment was in accordance with Accounting Standard-11 and the average conversion rate was not disputed.

Conclusion:
The Tribunal upheld the reopening of the assessment and the disallowance of additional depreciation, rejection of books, and estimation of profits. It allowed the recalculation of the deduction under section 80HHB and ruled that no interest was leviable under section 234D. The deletion of additions by the CIT(A) was also upheld.

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