2015 (2) TMI 489 - AT - Income Tax

Reopening of assessment - excessive depreciation claim on rolling mill rollers and vehicles - Held that - The learned Departmental Representative correctly submitted that the assessee has not questioned the jurisdiction of the AO during the pendency of the assessment proceedings nor did he challenge the jurisdiction in the appellate proceedings before the CIT(A). Therefore, he is precluded from challenging the jurisdiction of the AO at this stage before the Tribunal. As the assessee has appeared in the proceedings before the AO as well as the CIT(A) without any protest and therefore in view of the provisions of sec.124(3)(a), we are of the opinion that the assessee is not entitled to raise this question at this stage. Therefore ground relating to validity of the reopening of the assessment u/s 148 of the Act is rejected. - Decided against assessee. Notice u/s 143(2) challenged as barred by limitation - Held that - The proviso to sec.148 clearly applies to the facts of the case before us and as provided under clause (b) of the said proviso, the notice which is u/s 143(2) issued after the expiry of 12 months from the end of the month in which the return was filed but before the expiry of the time limit for making the assessment, re-assessment or re-computation as specified in sub-sec.(2) of sec.153 shall be deemed to be a valid notice.- Decided against assessee. Disallowance of depreciation on rolling mill rollers - Held that - The assessee is not eligible for the claim of depreciation on the leased assets which are found to be not in existence. The learned counsel for the assessee, in addition to the above, has raised an alternative contention that if the lease of rolling mill rollers was held to be a bogus lease, then income offered by the assessee as 'lease rentals' should also be reduced and the tax levied accordingly. This contention of the assessee appears to be reasonable. When the lease itself has been held to be only a paper transaction and a bogus transaction, then income there-from also cannot be accepted. In view of the same, we direct the AO to consider the contention of the assessee and reduce the lease rental income from the taxable income and levy tax accordingly subject to the condition that the assessed income shall not be less than the returned income. - Decided in favour of assesee for statistical purposes. Higher rate of depreciation - @40% on leased out trucks allowed by CIT(A) OR 25% allowed by the AO treating the 'leased trucks' as plant and machinery - Held that - CIT(A) has appreciated the contention of the assessee that leasing is also a part of hiring and therefore there is bound to be higher wear and tear due to rough use and the Hon'ble Madras High Court in the case of CIT vs. Madan & Co.(2001 (9) TMI 50 - MADRAS High Court ) has held that the essence of higher depreciation on assets given on hire is that there is higher wear and tear due to rough use. The Revenue has not been able to present before us any decision to the contrary or any evidence to the contrary. In view of the same, we are not inclined to interfere with the order of the CIT(A). - Decided against revenue.

Issues:
1. Validity of assuming jurisdiction under section 148 of the Income-tax Act.
2. Bar on limitation for issuing notice under section 143(2).
3. Eligibility for depreciation on leased assets.
4. Tax treatment of income from a lease transaction.
5. Dispute over the rate of depreciation on leased trucks.

Issue 1: Validity of assuming jurisdiction under section 148:
The case involved cross-appeals by the assessee and the Revenue against the CIT(A)'s order for the assessment years 1996-97 and 1997-98. The AO disallowed depreciation on rolling mill rollers and higher depreciation on vehicles, leading to appeals. The assessee contended that the AO erred in assuming jurisdiction under section 148 without proper conditions. However, the Tribunal rejected this argument, stating that the reasons for reopening were recorded, and the assessee did not challenge jurisdiction during assessment or appellate proceedings, as required by law. Therefore, the challenge to jurisdiction was dismissed.

Issue 2: Bar on limitation for issuing notice under section 143(2):
The assessee claimed that the notice under section 143(2) was time-barred. The Tribunal noted that the notice was issued after the 12-month period from the return filing, but fell within the specified time period under the proviso to section 148. As per the law, notices under section 143(2) issued within the specified period were deemed valid. Thus, the Tribunal rejected the contention that the notice was barred by limitation.

Issue 3: Eligibility for depreciation on leased assets:
The Tribunal held that the assessee was not entitled to claim depreciation on leased assets that were found not to exist. Citing a High Court decision, it concluded that the lease transactions were bogus, and thus, depreciation claims were disallowed. Additionally, the Tribunal directed the AO to reduce the lease rental income from taxable income accordingly, ensuring the assessed income was not lower than the returned income.

Issue 4: Tax treatment of income from a lease transaction:
The Tribunal considered the argument that if the lease was deemed bogus, the income from it should also be reduced for tax purposes. Agreeing with this contention, the Tribunal directed the AO to adjust the tax liability based on the reduced lease rental income, ensuring the tax levied was appropriate.

Issue 5: Dispute over the rate of depreciation on leased trucks:
The Revenue's appeal challenged the higher rate of depreciation granted by the CIT(A) on leased trucks. The Tribunal upheld the CIT(A)'s decision, noting that leasing involves higher wear and tear, as established in a High Court ruling. Without contrary evidence presented by the Revenue, the Tribunal dismissed the appeal, affirming the higher depreciation rate.

In conclusion, the Tribunal partly allowed the assessee's appeals for statistical purposes, disallowed the Revenue's appeals regarding the depreciation rate on leased trucks, and provided detailed legal reasoning for each issue addressed in the judgment.

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