2015 (1) TMI 1447 - AT - Income Tax

Reopening of assessment u/s 147 - disallowance of set-off of brought forward Unabsorbed Depreciation(UD) - HELD THAT - Assessee had capitalised the difference between the accumulated losses and fresh capital issued by it. Not only this the difference was treated as goodwill and the goodwill was a mortised equally over a period of 60 months in the books of the accounts of the assessee. AO allowed the claim made by it without considering the above facts. On a specific query by the Bench the AR admitted that the goodwill was a mortised and that the difference of loss and fresh capital was capitalised in the books. Clear case of claiming double deduction. Considering the facts that the difference between the accumulated losses as on 26. 9. 2002 of 19. 21 Crores less value of share capital of SSAPL of 11. 50 Crores (representing share capital extinguished of SSAPL) capitalization of fresh capital aggregating to 8. 86 Crores and treatment of goodwill in the books of the assessee we are of the opinion that the FAA was justified in upholding the reassessment. Double taxation/double deduction is not permissible under the Act. In the case under consideration the assessee had claimed the amount of 2. 96 Crores as goodwill and had amortised it in the books of accounts. In addition to it the assessee wanted it to the part of unabsorbed losses to be carried forward. Clearly it is not permissible as per the provisions of the Act - assessee should not have reduced the UD in the computation of book profits u/s. 115 JB - Even if the AO while passing order u/s. 143(3) had allowed an impermissible deduction it would not bar him from initiating proceedings u/s. 147. The purpose behind the section is to compute the income that has escaped assessment. In the case under consideration brought forward UD of SSAPLwas allowed in excess during the original assessment proceedings. So if the AO initiated re-assessment procee dings to withdraw the excess allowance no fault can be found with him. In Kelvinator of India 2010 (1) TMI 11 - SUPREME COURT AO has power of reopen an assessment provided there is tangible material to come to the conclusion that there was escapement of income from assessment and that reasons must have link with the formation of the belief. We find that in the case before us there was tangible material before the AO as the assessee has reduced the UD in computation of book profit against the clear intent of the legislature. Therefore in our opinion cases relied upon by the assessee are of no help. We find that the matter relied upon by the DR supports the stand taken by the FAA. Order of the FAA does not suffer from any legal or factual infirmity. So confirming it we decide ground no. 1 2 against the assessee.

Summary

Issues Involved:
1. Initiation of reassessment proceedings under Section 147 of the Income-tax Act, 1961.
2. Disallowance of set-off of brought forward Unabsorbed Depreciation (UD) while computing book profit under Section 115JB of the Income-tax Act, 1961.
3. Additional ground regarding allowance of depreciation on goodwill under Explanation 3(b) to Section 32(1) of the Income-tax Act, 1961.

Detailed Analysis:

1. Initiation of Reassessment Proceedings under Section 147:
The assessee challenged the reassessment proceedings initiated by the Assistant Commissioner of Income-tax (ACIT) under Section 147, arguing that the Assessing Officer (AO) had merely changed his opinion and that all relevant facts had been disclosed in the original return. The AO had issued a reassessment notice on 28.03.2008, citing that taxable income had escaped assessment due to an excess deduction of Rs. 2,96,83,027/- claimed by the assessee. The AO contended that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. The First Appellate Authority (FAA) upheld the reassessment, stating that the AO had not formed an opinion on the excess deduction during the original assessment, and thus, there was no change of opinion. The Tribunal agreed with the FAA, noting that the AO had tangible material to believe that income had escaped assessment, and therefore, the reassessment proceedings were justified.

2. Disallowance of Set-off of Brought Forward Unabsorbed Depreciation:
The assessee claimed a set-off of Rs. 2,96,83,027/- as unabsorbed depreciation of Schenectady Specialities Asia Pvt. Ltd. (SSAPL) during the computation of book profit under Section 115JB. The AO disallowed this amount, arguing that the difference between the accumulated losses and fresh capital issued by the assessee was capitalized and treated as goodwill, making it ineligible for deduction under Section 115JB. The FAA upheld the AO's decision, stating that allowing the deduction would result in double benefit to the assessee, as the goodwill was amortized over 60 months in the books of accounts. The Tribunal concurred, emphasizing that double taxation/double deduction is not permissible under the Act and that the assessee had claimed the amount both as goodwill and as unabsorbed losses to be carried forward, which was not allowed by the provisions of the Act.

3. Additional Ground Regarding Allowance of Depreciation on Goodwill:
The assessee raised an additional ground of appeal, arguing that the AO erred in not allowing depreciation on goodwill under Explanation 3(b) to Section 32(1). The Tribunal noted that neither the AO nor the FAA had deliberated on this issue. Therefore, in the interest of justice, the Tribunal remitted the additional ground back to the AO for fresh adjudication, directing the AO to afford a reasonable opportunity of hearing to the assessee.

Conclusion:
The Tribunal upheld the reassessment proceedings and the disallowance of the set-off of brought forward unabsorbed depreciation, finding no legal or factual infirmity in the FAA's order. However, it remitted the additional ground regarding depreciation on goodwill back to the AO for fresh adjudication. The appeal filed by the assessee was thus partly allowed.