2022 (8) TMI 956 - AT - Income Tax

Reopening of assessment u/s 147 - Scope of the reasons recorded - Mandatory requirement of Disposal of objections - Change of opinion - HELD THAT - AO was expected to deal with the factual assertions of such vital nature and give a conclusive finding in this regard in accordance with law - AO has failed to do so. AO has declined to entertain the objection of the assessee only on the abstract reasoning that where no opinion has been formed in the original assessment. On this issue, the question of change of opinion does not arise. We totally disagree with the course adopted by the AO while disposing of the objection. The explanation offered by the assessee is plain and simple and the AO could not have shunned aside such explanation without dealing with it. Before us as well, Mr. Jain, assessee has demonstrated on facts that the additional depreciation was claimed on the per centage of the entitlement due to partial use of assets in the earlier year for lesser number of days. Assessee was entitled in law to claim remaining additional depreciation in the current year when the asset was under use. The admission of the claim by the AO in the original assessment thus cannot be said to be in defiance of law. Clearly, the AO has proceeded on wholly erroneous presumption of facts not being in the nature of liability in the first instance. There being no escapement, the reopening on this count was not justified at all. Adverting to the second reason, we take notice of the plea on behalf of the assessee that the provisions for doubtful debts cannot be termed as unascertained liabilities in the light of the judgment in the case of CIT vs. HCL Comnet Systems Services Ltd., 2008 (9) TMI 18 - SUPREME COURT - The plea of the assessee being the tune of law laid down by the Hon ble Supreme Court, we find merit in the plea of the assessee. A debt being an asset and not a liability, consequential provisions on account of doubtful recovery cannot be alleged to be an unascertained liability as correctly pleaded. Thus, no adjustment was required as per the extant law while computing the book profit on account of impairment / diminution of assets. For arriving at such conclusion, we also notice that clause (i) to Explanation-1 appended to sub Section 2 of Section 115JB does not feature in the reasons recorded and the solitary basis for escapement is allegation towards unascertained liability. As noticed earlier, the provision for doubtful debt does not bear the nature of liability per se and therefore, the foundation for claiming escapement by Assessing Officer is shaken to its roots. As regards provisions of Retirement Benefit, it was contended in the objection that the said provision was on account of leave encashment on the basis of actuarial valuation and therefore the provision was in the nature of ascertained liability in contrast to observation of the Assessing Officer and thus does not qualify for addition/adjustment for the basis of computation of book profit under the special provisions of Section 115JB - We find merit in the aforesaid plea in the light of the factual matrix. The second reason for reopening is also thus without any legal basis. The assessment was completed in the instant case under Section 143(3) of the Act and all these facts were made available before the AO - Assessing Officer was not justified in making allegation of escapement qua book profit on this score. The third ground for reopening is based on allegation of lower reporting of prior period income - action of the AO in the original assessment cannot be assailed and the allegation of escapement could not have been made in the factual backdrop. The action of Assessing Officer is thus in the realm of review based on change of opinion which is not permissible in law. We thus find justification in the plea of the assessee on this score too as noted. Noticiably, the Assessing Officer has failed to deal with any of the objection raised before him and passed a summary order without dealing with any of the objection by a speaking order as called upon him in the judgment of the Supreme Court rendered in GKN Driveshaft 2002 (11) TMI 7 - SUPREME COURT - This has defeated the very purpose of the procedure laid down in GKN Driveshaft (supra) for meeting the objections raised on behalf of the assessee. Notwithstanding, on scrupulous examination of factual backdrop, we are satisfied that the reasons recorded does not prima facie indicate any actual escapement and does not satisfy the pre-requisites of Section 147 in the instant case where the assessment was completed under Section 143(3) of the Act. The notice issued under Section 148 is without legal foundation and thus requires to be quashed. The re-assessment order framed on the basis of such notice is without sanction of law and thus does not survive. Re-assessment order being bad in law, we do not consider it necessary to go into the merits under challenge on behalf of the assessee.

Issues Involved:
1. Jurisdiction under Section 147 of the Income-tax Act, 1961.
2. Validity of additional depreciation claim.
3. Disallowance of prior period expenses.
4. Exclusion of subsidies from taxable income.
5. Calculation of book profit under Section 115JB.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 147 of the Income-tax Act, 1961:
The assessee challenged the jurisdiction assumed by the Assessing Officer (AO) under Section 147 based on reasons recorded under Section 148(2). The AO sought to reopen the assessment alleging escapement on three counts: incorrect claim of additional depreciation, provisions for doubtful debts and retirement benefits not being adjusted, and lower reporting of prior period income. The assessee argued that the AO proceeded on factually incorrect premises and disposed of objections without speaking reasons. The tribunal observed that the AO failed to address the factual matrix and objections raised by the assessee, thereby not fulfilling the quasi-judicial duty. The tribunal concluded that the reasons recorded did not prima facie indicate any actual escapement, thus the notice under Section 148 was quashed, and the re-assessment order was deemed without legal sanction.

2. Validity of Additional Depreciation Claim:
The AO alleged that the additional depreciation claimed by the assessee was already claimed in the previous assessment year. The assessee contended that the additional depreciation was claimed on plant and machinery used for less than 180 days in the previous year, entitling them to claim the remaining depreciation in the current year. The tribunal found merit in the assessee's plea, noting that the AO proceeded on an erroneous presumption of facts. The tribunal concluded that there was no escapement, and the reopening on this count was unjustified.

3. Disallowance of Prior Period Expenses:
The AO alleged lower reporting of prior period income. The assessee argued that prior period expenses were adjusted against prior period income, consistent with judicial precedents. The tribunal agreed with the assessee, stating that the AO's action was in the realm of review based on a change of opinion, which is not permissible in law. The tribunal found the AO's allegations of escapement unfounded.

4. Exclusion of Subsidies from Taxable Income:
The assessee contended that subsidies received under various government schemes should be excluded from taxable income as they were capital receipts. The tribunal did not specifically address this issue in the judgment, as the re-assessment order was quashed on jurisdictional grounds.

5. Calculation of Book Profit under Section 115JB:
The Revenue's appeal contested the deletion of additions made for calculating book profit under Section 115JB. The tribunal noted that the provisions for doubtful debts and retirement benefits were not unascertained liabilities and thus did not require adjustment while computing book profit. The tribunal found the AO's allegations without legal basis and dismissed the Revenue's appeal.

Conclusion:
The tribunal allowed the assessee's appeal, quashing the notice under Section 148 and the re-assessment order due to lack of legal foundation. Consequently, the tribunal did not consider it necessary to address the merits of the case. The Revenue's appeal was dismissed as the re-assessment order was deemed invalid.

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