1981 (1) TMI 130 - AT - Income Tax

Summary

Issues:
1. Reopening of assessments based on Audit Report.
2. Admissibility of depreciation on leased machinery.
3. Escapement of income from self-occupied property.
4. Competency of Audit opinion to reopen assessments.

Analysis:
The judgment by the Appellate Tribunal ITAT CALCUTTA-B involved two appeals by the Revenue concerning the assessment years 1972-73 and 1973-74. The Income Tax Officer (ITO) reopened the assessments based on a report from Revenue Audit, which highlighted that depreciation on machinery leased out by the assessee-HUF was not admissible under section 32 of the Income-tax Act. Additionally, it pointed out the non-inclusion of income from a house property used as a residence by the assessee. The Assistant Commissioner of Income Tax (AAC) cancelled the assessments, citing that the Audit's opinion on legal aspects did not provide valid grounds for reopening assessments, referencing the Supreme Court decision in Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC).

The Departmental Representative argued that the reopening was justified as there was an escapement of income, particularly due to the non-disclosure of income from the residential property. The assessee's counsel contended that the entire property, including the building and machinery, had been leased out, and income from the lease was being assessed in the hands of the HUF. The Tribunal found that the Audit's opinion regarding depreciation on leased machinery was erroneous, and even if correct, it constituted an opinion on legal issues, not actionable information for reopening assessments as per the Supreme Court decision.

Regarding the alleged escapement of income from the self-occupied property, the Tribunal examined the lease deed executed in 1957, which encompassed the entire property, including plant, machinery, and buildings. Since all buildings within the compound were leased out, it was determined that there was no separate income escapement from the HUF. Consequently, the Tribunal upheld the AAC's decision to cancel the assessments, dismissing both appeals by the Revenue.

In conclusion, the judgment clarified the inadmissibility of depreciation on leased machinery, the absence of income escapement from the self-occupied property due to comprehensive leasing arrangements, and the limitations on reopening assessments based on Audit opinions involving legal interpretations.