2020 (12) TMI 1413 - HC - Income Tax

Reopening of assessment u/s 147 - claim of depreciation on computers and alleged excess relief of tax credit u/s 90/91 since the tax credit in the income tax return was less than the tax credit reflected in Form 26AS - HELD THAT - In this case a comparison of the details sought for by the Officer and supplied by the petitioner at the stage of original assessment and of the reasons for re-assessment that is depreciation and foreign tax credit reveal total identity of the issues identified at the time of original assessment and the reasons on the basis of which proceedings for re-assessment have been initiated. Moreover and admittedly there is no new material let alone tangible material that has come to the notice of the authority to justify the impugned proceeding for re-assessment. As far as the claim of depreciation is concerned the Officer proceeds on the ground that computers constitute plant and machinery eligible for depreciation at 15% and not 60% as claimed by the petitioner. Learned Senior Standing Counsel would submit that as the petitioner is in the business of media and communication and operates a television channel computers and all accessories thereof would assume a far more integral role in the business as such equipment would support editing graphics sound effects and other facilities intrinsic to the business. Though an attractive argument such distinction has not been envisaged in Appendix I (depreciation schedule) and Part A/Tangible Assets categorises all computers under the head Machinery and Plant eligible for depreciation at 60%. Moreover the depreciation statement referred to in the reasons recorded was admittedly on record from the commencement of original proceedings. The above conclusion would be equally if not more relevant to the second issue concerning the alleged claim of excess tax credit. The reasons state that excess relief under Section 90/91 has been claimed and the tax credit in the income tax return is less than the tax credit in the 26AS. In such an event see no escapement of income to tax as the petitioner going as per Form 26AS has more tax to its credit as against what was claimed in the return of income. Tax credit claimed has been rejected in full in intimation dated 30.01.2014 and the petitioner has sought rectification of the intimation on 09.05.2017 and restoration of the credit claimed. There is thus no prejudice that has been caused to the revenue in regard to the claim of foreign tax credit and the initiation of re-assessment proceedings on this ground is found to be misconceived in light of the judgment Sun Engineering Works (P) Ltd. 1992 (9) TMI 1 - SUPREME COURT Issuance of the notice u/s 148 to a non-existing entity due to amalgamation - As both the factum of amalgamation and change of name have been duly intimated to the Officer. Despite this notice under Section 148 has been issued to ACPL which in my view invalidates the proceedings in full. The fact that the petitioner has responded to the notice would not bring to life an invalid proceeding. The response of the petitioner has been on the letter head of ASCPL the reasons have been communicated to ASCPL and the objections of the petitioner to the assumption of jurisdiction have been filed on the letter head of ASCPL. Despite the reiteration of the fact of amalgamation and change of name by the petitioner on 21.03.2019 in response to notice under Section 148 of the Act Section 143(2) notice has been issued to ACPL a non-existing entity. WP allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the initiation of re-assessment proceedings under Section 147 of the Income Tax Act, 1961, was justified, particularly in light of the alleged failure of the assessee to disclose fully and truly all material facts necessary for its assessment for the Assessment Year 2012-13.

2. Whether the issuance of the notice under Section 148 to a non-existing entity due to amalgamation invalidates the re-assessment proceedings.

3. Whether the claims of excess depreciation on computers and excess relief under Sections 90/91 of the Act justify the re-assessment proceedings.

ISSUE-WISE DETAILED ANALYSIS

1. Initiation of Re-assessment Proceedings under Section 147

- Relevant Legal Framework and Precedents: The proviso to Section 147 allows for re-assessment beyond four years if the officer establishes that escapement of income was due to the assessee's failure to disclose material facts. The Court referenced precedents like CIT V. Foramer France and CIT V. Excel Industries Limited, emphasizing the necessity of new and tangible material for re-assessment.

- Court's Interpretation and Reasoning: The Court noted that the original proceedings did not culminate in an assessment order under Section 143(3), but scrutiny was initiated through a Section 143(2) notice. The Court held that the absence of a formal order should not be held against the petitioner, as the officer had sought and received all relevant documents, indicating application of mind.

- Key Evidence and Findings: The Court found no new material justifying re-assessment, as the issues raised were identical to those considered during the original proceedings.

- Application of Law to Facts: The Court applied the legal requirement of new and tangible material for re-assessment, finding it lacking in this case.

- Conclusions: The Court concluded that the re-assessment proceedings were unjustified due to the absence of new material.

2. Issuance of Notice to a Non-Existing Entity

- Relevant Legal Framework and Precedents: The Court considered the legal implications of issuing notices to non-existing entities post-amalgamation.

- Court's Interpretation and Reasoning: The Court found that despite being informed of the amalgamation and change of name, the notice under Section 148 was issued to the non-existing entity, ACPL. The Court held that this invalidated the proceedings.

- Key Evidence and Findings: The petitioner had duly informed the respondent of the amalgamation and change of name, which was acknowledged by the respondent.

- Conclusions: The issuance of notice to a non-existing entity rendered the re-assessment proceedings invalid.

3. Claims of Excess Depreciation and Tax Credit

- Relevant Legal Framework and Precedents: The Court analyzed the depreciation schedule in Appendix I and the provisions under Sections 90/91 concerning tax credits.

- Court's Interpretation and Reasoning: The Court found that computers were categorized under 'Machinery and Plant' eligible for 60% depreciation. Regarding tax credits, the Court noted that the credit claimed was less than that reflected in Form 26AS, indicating no income escapement.

- Key Evidence and Findings: The depreciation statement and tax credit discrepancies were already on record during the original proceedings.

- Application of Law to Facts: The Court applied the depreciation schedule and tax credit provisions, finding no basis for re-assessment.

- Conclusions: The claims of excess depreciation and tax credit did not justify re-assessment.

SIGNIFICANT HOLDINGS

- The Court emphasized that re-assessment proceedings require new and tangible material, which was absent in this case. It stated, "Moreover, and admittedly, there is no new material, let alone tangible material, that has come to the notice of the authority to justify the impugned proceeding for re-assessment."

- The Court held that issuing a notice to a non-existing entity due to amalgamation invalidates the proceedings: "Despite this, notice under Section 148 has been issued to ACPL, which, in my view invalidates the proceedings in full."

- The Court quashed the impugned notices and orders, allowing the writ petition and closing the connected miscellaneous petition without costs.