2013 (1) TMI 945 - AT - Income Tax

Summary

Issues Involved:
1. Validity of initiation of reassessment proceedings u/s 148 of the Income Tax Act, 1961.
2. Disallowance of depreciation on leased machinery.

Summary:

1. Validity of initiation of reassessment proceedings u/s 148 of the Income Tax Act, 1961:

The assessee challenged the initiation of reassessment proceedings u/s 148, arguing that the reasons recorded by the Assessing Officer (AO) did not mention any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The AO had issued a notice u/s 148 based on a survey conducted u/s 133A at Bellary Steels & Alloys Ltd. (BSAL), which revealed that BSAL had entered into bogus lease transactions. The AO concluded that the lease transaction was fictitious and issued the notice on 17.03.2003, beyond the four-year period from the end of the relevant assessment year.

The CIT(A) upheld the AO's decision, relying on the Supreme Court's decision in Phool Chand Bajrang v. ITO and other cases, stating that new information obtained from the survey justified the reopening of the assessment. However, the Tribunal referred to the decisions of the Bombay High Court in Hindustan Lever Ltd. v. R.B. Wadkar and the Karnataka High Court in CIT and ACIT v. Hewlett Packard Digital Global Solutions Ltd., which emphasized that the reasons recorded must explicitly state the failure of the assessee to disclose fully and truly all material facts.

The Tribunal concluded that the AO did not record any such failure in the reasons for reopening the assessment, making the initiation of reassessment proceedings invalid. Consequently, the reassessment order was annulled.

2. Disallowance of depreciation on leased machinery:

Given the decision on the validity of the initiation of reassessment proceedings, the Tribunal did not consider the merits of the disallowance of depreciation on leased machinery. The appeal of the assessee was allowed, and the reassessment order was annulled.

Conclusion:

The appeal of the assessee was allowed, and the reassessment order was annulled due to the invalid initiation of reassessment proceedings u/s 148, as the AO failed to record the necessary failure on the part of the assessee to disclose fully and truly all material facts.