2014 (9) TMI 270 - HC - Income Tax

Notice issued for reopening of assessment u/s 148 Notice issued after four years Change of opinion - Reason to believe Excessive claim for bad debts and depreciation on equipments leased - Held that - It has been already decided in Commissioner of Income Tax v/s. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT OF INDIA that reason to believe that income chargeable to tax has escaped assessment would not mean a mere change of opinion - the reasons recorded for issuing the notice is with regard to excessive claim for bad debts and depreciation on equipments leased to RESL for AY 1998-1999 - no objection were raised by the Petitioner Bank to the grounds in support of the notice relied upon by the Revenue Petitioner Bank is aware and cannot dispute failure to disclose truly and fully material facts necessary for assessment - it will comes from a party seeking to invoke extra ordinary writ jurisdiction of this court to make a grievance of the reasons not indicating failure to disclose truly and fully all material facts necessary for assessment - The knowledge of the failure on the part of the Petitioner Bank is evident in its affidavit in rejoinder. The Petitioner Bank had made a claim for bad debts in its Return of Income without having taken into account the orders passed on 2nd March 1998 u/s 154 of the Act for the AY 1995-96 as the same, was subject to change in view of the further appeal - There is no merit in the submission that there was no full and true disclosure about the equipments being put to use - The equipment in question was windmill - Karnataka Electricity Board had issued a certificate that the windmill was connected to the grid on 31st March 1998 - Once the windmill was connected to the grid, it started contributing to the production of electricity- A windmill is put to use when it connected to the grid - The confirmation of Karnataka State Electricity Board is clear - there is no failure to make a full and true disclosure by the Petitioner - the certificate of Karnataka State Electricity Board was before the Assessing Officer while making the assessment under Section 143(3) of the Act and forming an opinion that the equipments were put to use on 31st March, 1998 - the ground that the equipments were not put to use on 31st March, 1998, is a mere change of opinion - the notice seeking to reopen the assessment on the ground of depreciation is merely a change of opinion on the part of the AO the notice issued for the aspect of bad debts is upheld whereas the part dealing with the depreciation is liable to be set aside Decided partly in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the notice under Section 148 of the Income Tax Act, 1961.
2. Claim for bad debts under Section 36(1)(viia) of the Act.
3. Claim for depreciation on leased equipment.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the Notice under Section 148:
The petition challenges the notice dated 23rd March 2005 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 1998-99. The reopening notice must satisfy two jurisdictional requirements: (a) the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, and (b) there must have been a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. The court referred to the Supreme Court's decision in Commissioner of Income Tax v/s. Kelvinator of India Limited, which held that the reason to believe that income chargeable to tax has escaped assessment would not mean a mere change of opinion.

2. Claim for Bad Debts:
The Respondent-Revenue argued that the PetitionerBank claimed bad debts of Rs. 10.12 Crores, whereas it was entitled to only Rs. 5.06 Crores. This discrepancy arose because the PetitionerBank did not account for the correct figures of the provisions for bad debts under Section 36(1)(viia) of the Act. The PetitionerBank admitted that the claim was based on the deduction originally claimed for previous years without considering rectification orders. The court held that there was a failure on the part of the PetitionerBank to disclose fully and truly all material facts necessary for assessment. The court rejected the argument that the failure to disclose facts known to the Assessing Officer absolves the PetitionerBank of its obligation. The court also dismissed the contention that the issue was a mere computational error that could be rectified under Section 154 of the Act, noting that the error arose due to the PetitionerBank's failure to disclose material facts.

3. Claim for Depreciation on Leased Equipment:
The Respondent-Revenue contended that the equipment leased to RESL was not put to use during the previous year relevant to Assessment Year 1998-99, and therefore, the PetitionerBank was not entitled to claim depreciation. The PetitionerBank provided evidence that the equipment was installed and commissioned by RESL on 31st March 1998, supported by a certificate from Karnataka Electricity Board. The court found that the equipment was indeed put to use when it was connected to the grid on 31st March 1998. The court held that there was no failure to disclose material facts by the PetitionerBank and that the notice for reopening the assessment on the ground of depreciation was based on a mere change of opinion.

Conclusion:
The court upheld the reopening notice dated 23rd March 2005 concerning the claim for bad debts, finding that the PetitionerBank failed to disclose fully and truly all material facts necessary for assessment. However, the court set aside the reopening notice concerning the claim for depreciation on leased equipment, concluding that it was based on a mere change of opinion. The petition was partly allowed, with no order as to costs.