2016 (9) TMI 1329 - AT - Income Tax

Reopening of assessment - whether the assessee has rightly accounted for claim received from the Insurance Company for plant and machinery and fixed assets or the same should have been accounted for in AY 2005-06 and 2006-07? - Held that - Since the assessee did not have break up of the claim received from the Insurance Company in the assessment years 2005-06 and 2006-07 which was finally received in AY 2007-08 and this was correctly accounted for by the assessee. The disallowance of depreciation by the AO by reopening the assessment in assessment year 2005-06 has resulted into double disallowance one by the assessee suo mottu in assessment year 2007-08 and secondly by the AO in assessment year 2005-06 and 2006-07 which is not correct in terms of provision of the Income Tax Act, 1961 as the same disallowance cannot be made twice. The depreciation has to be allowed in one year. Moreover, while framing the assessment u/s 143(3) read with section 147, the AO has not carried out any rectification in respect of assessment year 2007-08 or nor any such direction was given by ld.CIT(A). In view of this, it would be reasonable and proper if the disallowance as made by the AO in AY 2005-06 is deleted. - Decided in favour of assessee.

Summary

Issues Involved:
- Challenge to jurisdiction of AO under section 147 read with section 148 of the Income Tax Act
- Disallowance of depreciation

Analysis:

Challenge to Jurisdiction of AO under Section 147 read with Section 148:
- The assessee filed appeals against two separate orders for assessment years 2005-06 and 2006-07 pertaining to the reopening of assessment under section 147 read with section 148 of the Income Tax Act, 1961.
- The AO reopened the assessment for AY 2005-06 due to alleged excess depreciation of &8377; 87,27,783, as the assessee did not reduce the WDV of plant and machinery destroyed by fire or credit the insurance claim received. The AO issued a notice under section 148, and the matter was taken up before the CIT(A) who upheld the disallowance.
- The First Appellate Authority held that the AO incorrectly reduced the entire cost of assets destroyed from the WDV, contrary to tax laws. The FAA directed the AO to rework the depreciation as per the provisions of section 43(6)(c)(i)(B) for AY 2005-06 and subsequent years.
- The ITAT, after considering submissions and orders, found that the assessee had correctly accounted for the insurance claim received in AY 2007-08, after receiving details from the Insurance Company. The ITAT concluded that the disallowance of depreciation by the AO resulted in double disallowance, which is not permissible under the Income Tax Act. Therefore, the ITAT directed the AO to delete the disallowance for AY 2005-06.

Disallowance of Depreciation:
- The ITAT's decision on the challenge to the jurisdiction of the AO under section 147 read with section 148 for AY 2005-06 applied mutatis mutandis to the appeal for AY 2006-07.
- Since the ITAT allowed the appeals based on the preliminary technical issue, the merit-based issues were considered academic and could be raised when necessary.
- Ultimately, the ITAT allowed the appeals of the assessee for both assessment years, directing the AO to delete the disallowance of depreciation for AY 2005-06 and by extension for AY 2006-07.

This detailed analysis of the judgment highlights the key issues, arguments presented, and the ITAT's decision, providing a comprehensive understanding of the legal aspects involved in the case.