2018 (2) TMI 1910 - AT - Income Tax

Reopening of assessment u/s 147 - notice beyond the period of four years from the end of the relevant assessment year - Disallowance of depreciation - HELD THAT - Scope of validity of reassessment proceedings has to be seen with reference to proviso to section 147 as the original assessment was completed u/s 143(3). The reasons recorded for reopening the assessment has already been incorporated above. From a bare perusal of the same it can be seen that AO is referring to the same documents which were placed on record during the course of original proceedings and from there he derives the inference that proportionate amount of depreciation should have been disallowed because certain assets were de-leased which has resulted into reduction of income from rent of these assets and depreciation of assets has been used for less than 180 days. First of all we find that the issue of depreciation on plant and machinery was specifically asked and enquired upon by the AO in the original assessment proceedings including the rental income received from lease of assets; and in response to that assessee has filed a detailed reply which has already been incorporated above. CIT (A) too has given this finding that this precise issue which has been raised by the AO in the reasons recorded has been dealt by the AO in the original round of assessment proceedings. Thus on the present facts it cannot be held that there is any failure on part of the assessee to disclose fully and truly all material facts relevant for the assessment and without ascribing any such failure on part of the assessee the reopening u/s 147 is clearly barred by limitation. It is a well settled proposition of law as laid down in the aforesaid judgments as relied upon by the Ld. Counsel that if there is no allegation in the reasons recorded that assessee has failed to disclose fully and truly all material facts necessary for assessment then action u/s 147 after the expiry of four years from the end of the relevant assessment year is unsustainable. - Decided against revenue.

Summary

Issues Involved:
1. Validity of reopening and reassessment under Section 147.
2. Disallowance of depreciation on de-leased assets.

Issue-wise Detailed Analysis:

1. Validity of Reopening and Reassessment under Section 147:

The revenue's appeal challenges the order dated 14.11.2014 by the Ld. CIT(A) XV, New Delhi, concerning the quantum of assessment passed under Sections 147/143(3) for the assessment year 2005-06. The primary issue revolves around whether the reopening of the case and reassessment under Section 147 were valid.

The facts indicate that the assessee's return was initially scrutinized, and an assessment under Section 143(3) was completed on 16.12.2008. Subsequently, after more than four years, the case was reopened under Section 147 via a notice dated 20.3.2012 issued under Section 148. The reasons recorded for reopening the assessment suggested that the assessee had improperly claimed depreciation on de-leased assets, leading to income escaping assessment.

The assessee objected to the reopening, arguing that the same material facts had been examined during the original assessment proceedings, and that there was no failure on their part to disclose fully and truly all material facts. The Ld. CIT(A) quashed the reassessment, observing that the issue had been thoroughly examined in the original assessment, and the reopening was merely a "change of opinion," which is impermissible. Additionally, the AO did not record any specific finding that the income had escaped assessment due to the assessee not making a full and true disclosure of material facts.

The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing that the reopening was based on the same documents reviewed during the original proceedings. It was concluded that there was no failure on the assessee's part to disclose material facts, and the reopening was barred by limitation under the proviso to Section 147. The Tribunal cited several judgments, including CIT vs. Kelvinator of India (2010) 320 ITR 561 (SC), to support the principle that reopening based on a change of opinion is unsustainable.

2. Disallowance of Depreciation on De-leased Assets:

The AO had disallowed depreciation of ?1,46,23,965 on the grounds that the leased assets were not used for the entire year, and the lease rental income was shown only for one month. The Ld. CIT(A) found that during the original assessment proceedings, the AO had specifically inquired about the depreciation on leased assets and the reduction in rental income. The assessee had provided detailed explanations and documentary evidence, which the AO had accepted, forming an opinion that the depreciation claim was as per law.

The Tribunal noted that the AO, in the reasons recorded for reopening, referred to the same documents and facts that were scrutinized during the original assessment. It was held that the reassessment was based on a "change of opinion," which is not permissible. The Tribunal reiterated that there was no failure on the assessee's part to disclose fully and truly all material facts, and the reassessment proceedings initiated beyond four years were invalid.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming that the reassessment proceedings were barred by limitation and constituted a change of opinion, making them legally unsustainable. The detailed analysis and reliance on established legal precedents reinforced the decision to quash the reassessment.