2015 (8) TMI 768 - HC - Income Tax

Reopening of assessment - disallowance of depreciation claim - Held that - This is not a case where the Revenue could successfully contend that the income chargeable to tax had escaped assessment due to the reason of failure on the part of the assessee to disclose truly and fully all material facts. Return that the petitioner filed runs into barely 3 or 4 pages. It was not as if that such claim of depreciation was tucked away somewhere in bulky voluminous return where the Assessing Officer could, with due diligence, have discovered such claim. The Revenue, therefore, cannot fall back on Explanation 1 of the Proviso of Section 147 of the Act also, in this respect. In fact claim of depreciation was examined by the Assessing Officer and partially disallowed with respect to other assets. The petitioner had never before the Assessing Officer contended that the asset was actually put to use in the objection that the petitioner raised to the reasons recorded by the Assessing Officer, no such contention was pressed in service. The documents, on the basis of which it is sought to be canvassed before us that there was, in fact, electricity generation during the relevant period, were not placed before the Assessing Officer either during the original assessment or in response to the notice of reopening. We would, therefore, also even otherwise not examine such factual aspect for the first time in this petition. Be that as it may, on the sole ground that for the reasons noted above, notice for reopening the assessment could not have been validly issued, we are inclined to allow this petition. Accordingly, impugned notice is quashed. Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment beyond the prescribed period of 4 years.

Analysis:
1. The petitioner challenged a notice under Section 148 of the Income Tax Act, 1961, dated 29.1.2003, seeking to reopen the assessment for the year 1997-98, beyond the 4-year period. The notice was based on the Assessing Officer's belief that there was an escapement of income due to excess depreciation claimed on wind mills without generating income from electricity. The petitioner objected, claiming full disclosure of material facts.

2. The Assessing Officer contended that the wind-mill purchased was not utilized for business purposes or electricity generation, leading to excess depreciation claimed. The petitioner argued that the asset was indeed put to use, generating electricity later, and objected to the notice on jurisdictional grounds and lack of income escapement due to non-disclosure.

3. The petitioner contended that all material facts were disclosed in the return, including the purchase of the wind-mill and claimed depreciation. The Assessing Officer had the opportunity to disallow the depreciation during the original assessment but failed to do so. The court observed that the Revenue could not claim income escapement due to non-disclosure as the depreciation claim was not hidden in the return.

4. The court noted that the petitioner did not raise the argument of asset utilization before the Assessing Officer during objections to the notice. Documents supporting electricity generation were not presented earlier. Despite other contentions raised, the court focused on the validity of the notice issuance. As the notice was found to be invalid due to lack of income escapement, the petition was allowed, and the notice was quashed.

5. In conclusion, the court emphasized that the notice for reopening the assessment was not validly issued as there was no failure to disclose material facts, and the income chargeable to tax did not escape assessment. The court ruled in favor of the petitioner, quashing the notice under Section 148 of the Income Tax Act, 1961.