2010 (3) TMI 1242 - AT - Income Tax

Summary

Issues Involved:
1. Legality of re-assessment proceedings initiated u/s 147 of the Income Tax Act.
2. Classification of expenditure paid to Madhya Pradesh Electricity Board (MPEB) as capital or revenue expenditure.
3. Charging of interest u/s 234B of the Income Tax Act.

Summary:

Issue 1: Legality of Re-assessment Proceedings u/s 147
The assessee challenged the re-assessment proceedings initiated by the Assessing Officer (AO) u/s 147 of the Income Tax Act, arguing it was illegal and without jurisdiction. The AO had issued a notice u/s 148 based on the belief that the expenditure of Rs. 6,01,69,818/- paid to MPEB for bay lines was capital in nature and not allowable as revenue expenditure. The CIT(A) upheld the reopening of the assessment, noting that the AO had reopened the assessment within four years and had valid reasons. However, the Tribunal found that the AO had no new tangible material to justify reopening the assessment, as the issue had already been adjudicated in previous years and allowed. The Tribunal cited the Supreme Court's ruling in CIT Vs. Kelvinator of India Ltd, emphasizing that reopening based on a mere change of opinion is not permissible. Consequently, the Tribunal quashed the AO's order invoking jurisdiction u/s 147.

Issue 2: Classification of Expenditure
The assessee claimed the expenditure paid to MPEB for bay lines as revenue expenditure, arguing that the ownership of the asset vested with MPEB and the expenditure was incurred out of commercial expediency. The AO disallowed the claim, treating it as capital expenditure. The CIT(A) upheld the AO's decision, stating that the assessee had exclusive rights over the bay lines and referred to Explanation I to section 32 regarding depreciation on leased buildings. The Tribunal, however, did not address the merits of this issue, as the re-assessment proceedings were quashed.

Issue 3: Charging of Interest u/s 234B
The assessee contested the CIT(A)'s decision to charge interest u/s 234B on the difference between the tax liability determined on re-assessment and the amount of taxes pre-paid. As the Tribunal quashed the re-assessment proceedings, this issue was rendered moot and was not addressed further.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the re-assessment proceedings initiated u/s 147 of the Income Tax Act due to the absence of new tangible material and the improper exercise of jurisdiction by the AO. The merits of the expenditure classification and the charging of interest u/s 234B were not addressed due to the quashing of the re-assessment.