2013 (3) TMI 486 - AT - Income Tax

Reopening of the assessment under section 147 - Section 80 IB - An order of assessment was passed under section 143(3) - Notice under section 148 - Claimed deduction u/s.801A in respect of the profits of the Goa Unit( Depreciation not claimed resulted in excess deduction ) - Held that - In the present case there was no tangible material which came into the possession of the AO based on which he can came to the conclusion that there was escapement of income because of the failure on the part of the assessee to claim depreciation while arriving at the profits of the Goa Unit. It has to be, therefore, held that the reassessment proceedings have been initiated purely on a change of opinion. We, therefore, held that the initiation of reassessment proceedings is invalid. Consequently the order of assessment under section 147 is annulled. In the present case the assessee had duly disclosed all facts and the AO while passing an order under section 143(3) of the Act is presumed to have applied his mind to the claim of the assessee for deduction under section 80IA of the Act on profits which was calculated without deduction on account of depreciation. Though on merits of the addition made in the reassessment proceedings which is challenged by the assessee in ground No.2 raised before us, we find that a Full Bench of the Bombay High Court in the case of Plastiblends India Ltd. vs. ACIT 2009 (10) TMI 39 - BOMBAY HIGH COURT has held that depreciation has to be claimed and the resultant profits arrived at after claiming depreciation will alone qualify for deduction under section 80IA of the Act, in view of the decision on Ground No.1 regarding validity of initiation of reassessment proceedings, we do not consider is necessary to deal with the said issue raised by the assessee in ground No.1 The appeal of the assessee is allowed.

Summary

Issues:
1. Validity of initiation of reassessment proceedings under section 147 of the Income Tax Act.
2. Deduction of depreciation in respect of profits of the Goa unit for calculating deduction under section 80 IB.

Issue 1: Validity of initiation of reassessment proceedings under section 147 of the Income Tax Act:
The appeal involved a challenge to the validity of the initiation of reassessment proceedings under section 147 of the Income Tax Act. The Assessing Officer (AO) had issued a notice under section 148 based on the Assessee's claim of deduction under section 80IA without claiming depreciation on the profits of the Goa unit. The Assessee contended that the reassessment proceedings were invalid as they were solely based on a change of opinion without any new tangible material. The CIT(A) upheld the initiation of reassessment proceedings, stating that the proviso of section 147 did not apply as the proceedings were within four years from the end of the assessment year. However, the Tribunal held that without tangible material indicating income escapement, the initiation of reassessment proceedings was invalid, citing the decision in the case of Kelvinator of India Ltd. The Tribunal emphasized that giving such power to the AO would amount to providing a review power not contemplated under the law, ultimately annulling the order of assessment under section 147.

Issue 2: Deduction of depreciation in respect of profits of the Goa unit for calculating deduction under section 80 IB:
The second issue revolved around the deduction of depreciation in respect of profits of the Goa unit for calculating deduction under section 80 IB. The AO had disallowed the deduction under section 80IA as the Assessee had not claimed depreciation on the profits of the Goa unit, resulting in excess deduction claimed. The CIT(A) confirmed the AO's order. However, the Tribunal, while addressing the validity of the reassessment proceedings, did not delve into the merits of this issue. Citing a Full Bench decision of the Bombay High Court in the case of Plastiblance India Ltd., the Tribunal noted that depreciation must be claimed to qualify for deduction under section 80IA. Despite the merits of the deduction issue raised by the Assessee, the Tribunal did not delve into it due to the decision on the validity of the reassessment proceedings.

In conclusion, the Tribunal allowed the appeal of the Assessee based on the finding that the initiation of reassessment proceedings was invalid due to being solely based on a change of opinion without tangible material indicating income escapement. The Tribunal did not address the merits of the deduction issue under section 80 IB due to the decision on the validity of the reassessment proceedings.