2009 (4) TMI 972 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction adopted by the Assessing Officer u/s 147/148.
2. Disallowance of depreciation on gas cylinders.

Summary:

Jurisdiction Adopted by the Assessing Officer u/s 147/148:
The assessee, M/s. Praxair India Pvt. Ltd., challenged the jurisdiction adopted by the Assessing Officer (AO) under the provisions of Section 147/148 of the Income Tax Act, 1961. The AO issued a notice u/s 148 on 21.3.2006, citing reasons for reopening the assessment, including excess depreciation granted on cylinders and assets acquired from other business units. The assessee argued that the reassessment proceedings were not in accordance with the provisions of the Income Tax Act, 1961, and that the reasons recorded should be disclosed by the AO. The CIT(A) did not consider the assessee's agitation regarding the AO assuming jurisdiction for framing reassessment under Section 147/148 but confined himself to the issues of depreciation on gas cylinders and assets acquired from other entities. The Tribunal held that the AO's assumption of jurisdiction under Section 147/148 was without basis, as the material facts were available to the AO, and the reassessment was based on an audit objection regarding the claim of depreciation on gas cylinders.

Disallowance of Depreciation on Gas Cylinders:
The AO disallowed the depreciation on gas cylinders, allowing it at 25% instead of the claimed 100%. The CIT(A) agreed with the assessee that industrial gas cylinders are eligible for depreciation at 100%. However, the CIT(A) upheld the AO's decision on the assets acquired from other business units, applying Explanation 3 to Section 43(1), which states that the main purpose of the transfer of such assets was to reduce the liability of income tax by claiming depreciation with reference to an enhanced cost. The Tribunal found that the AO did not provide an opportunity for the assessee to be heard before reducing the cost of acquisition of the assets from the block of assets for claiming depreciation. The Tribunal held that the AO's assumption of jurisdiction under Section 147/148 was misplaced, and the reassessment was based on suspicion and surmises. The Tribunal concluded that the claim of depreciation on gas cylinders at 100% could not be reduced to 25%, and the appeal of the assessee was allowed.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the AO's assumption of jurisdiction under Section 147/148 was without basis and that the claim of depreciation on gas cylinders at 100% was justified. The reassessment proceedings were found to be based on an audit objection and not on material facts indicating income having escaped assessment.