2016 (6) TMI 1245 - AT - Income Tax

Reopening of assessment - depreciation/additional depreciation and inventory written off - change of opinion - Held that - There is no dispute about the fact that the Assessing Officer issued section 142 notice to the assessee raising specific queries on 20-07-2005. There is no issue between the parties that clause 7 and 17 therein forming pages 255 and 256 of the paper book asked the assessee to produce all necessary details pertaining to depreciation/additional depreciation and inventory written off amounting Rs. 2.48 crores respectively. This followed assessee s explanation tendered on 25-08-2005 and 23-09-2005 on the very issues. The Assessing Officer thereafter framed regular assessment on 31-03-2006 not rejecting the same. We are of the opinion in this factual backdrop that it can be safely inferred that the Assessing Officer duly agreed with the assessee s explanation. The Revenue s contention is that he had not mentioned anything in the assessment order on these issues. This fails to impress us. We are of the opinion that it was beyond assessee s control as to whether or not its relevant explanation formed part of discussion in assessment order. Suffice to say the Assessing Officer did not specific reject the corresponding explanation in the scrutiny assessment. We observe in this factual backdrop that he formed an opinion in assessee s favour and reopened the said assessment subsequently without any fresh tangible material. We are of the view that the same amounts to mere change of opinion not permissible Whether Assessing Officer in the course of scrutiny assessment had examined the issue of section 36(1)(iii) interest disallowance and not that of interest income arising from GSIL loan? - Held that - Once the assessee could not have booked the income in absence of any interest stipulation in loan agreement even by following accrual principle Assessing Officer s corresponding reason of reopening does not satisfy the cause-effect relationship reiterated hereinabove. We conclude that the issue as to whether or not the Assessing Officer had examined this issue in scrutiny has been rendered academic. The Revenue s further contention that the tribunal had already examined the very issue (supra) is not borne out from the records comprising of reopening reasons. We accept assessee s arguments and quash the impugned reopening. This renders other grounds on merits in both the cross appeals to have been rendered infructuous. - Decided against revenue

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act, 1961.
2. Disallowance of additional depreciation under Section 32(1)(iia) of the Act.
3. Disallowance of inventory write-off.
4. Addition of interest income receivable from GSIL.

Issue-Wise Detailed Analysis:

1. Validity of Reopening Assessment under Section 147:
The assessee challenged the reopening of the assessment, arguing it was a mere change of opinion since all material facts were disclosed during the original assessment. The Assessing Officer (AO) had issued a Section 148 notice within four years from the end of the relevant assessment year, citing reasons such as additional depreciation, inventory write-off, and interest income from GSIL. The CIT(A) upheld the reopening, stating it was not necessary for the AO to show that the income had escaped assessment due to the assessee's failure to disclose material facts. The Tribunal, however, concluded that the reopening was based on a mere change of opinion without any fresh tangible material, rendering it invalid as per the Supreme Court's decision in CIT vs. Kelvinator of India Ltd. and the Gujarat High Court's ruling in Gujarat Power Corporation.

2. Disallowance of Additional Depreciation under Section 32(1)(iia):
The Revenue contended that the CIT(A) erred in deleting the disallowance of additional depreciation on new machinery acquired and installed, arguing that certain expenditures were incurred prior to 01.04.2002 and were not substantiated with supporting evidence. The Tribunal noted that the AO had raised specific queries during the original assessment, and the assessee had provided detailed explanations. Since the AO did not reject these explanations in the original assessment, the Tribunal inferred that the AO had accepted them, making the reopening on this ground invalid.

3. Disallowance of Inventory Write-Off:
The Revenue argued that the CIT(A) wrongly deleted the disallowance of inventory write-off, claiming it was a capital loss. The Tribunal observed that the AO had scrutinized the inventory write-off during the original assessment, and the assessee had provided justifications. Since the AO did not disallow the inventory write-off in the original assessment, the Tribunal concluded that reopening on this ground was also a mere change of opinion.

4. Addition of Interest Income Receivable from GSIL:
The AO had added interest income receivable from GSIL, arguing that the assessee should have declared this income based on the accrual principle. The Tribunal noted that the loan agreement with GSIL did not stipulate any interest, and the interest rate was determined only after arbitration, which occurred after the relevant assessment year. The Tribunal held that the assessee could not have anticipated this interest income, and thus, the AO's reason for reopening on this ground did not satisfy the cause-effect relationship required for valid reopening.

Conclusion:
The Tribunal quashed the reopening of the assessment, deeming it a mere change of opinion without fresh tangible material. Consequently, the assessee's appeal was allowed, and the Revenue's appeal was dismissed. The other grounds on merits in both cross appeals were rendered infructuous. The order was pronounced in the open court on 10-06-2016.