1990 (11) TMI 201 - AT - Income Tax

Assessment Proceedings, Investment Allowance, Original Assessment, Reassessment Proceedings, Valuation Report

Issues Involved:
1. Re-opening of proceedings under section 147(a) of the Income-tax Act, 1961.
2. Withdrawal of depreciation amounting to Rs. 2,34,729 and investment allowance amounting to Rs. 3,91,216.

Issue-wise Detailed Analysis:

1. Re-opening of proceedings under section 147(a) of the Income-tax Act, 1961:
The original assessment for the assessment year 1977-78 was completed on 27-9-1980 with a total income of Rs. 2,73,328. The assessee was allowed depreciation and investment allowance as claimed. During the assessment proceedings for 1978-79, an inventory valuation report dated June 1977 by M/s. ABC Consultants Pvt. Ltd. was submitted, revealing that certain machinery was not installed or used by 31-3-1977. Based on this report, the Income-tax Officer (ITO) reopened the proceedings for 1977-78 under section 147(a) by issuing a notice on 22-1-1982.

The assessee challenged the reopening, arguing that all material facts were disclosed during the original assessment, and the reopening was a result of a change of opinion. However, the Commissioner of Income-tax (Appeals) upheld the reopening, stating that the disclosure must be both full and true, and the assessee had provided false information regarding the installation and use of machinery.

The Tribunal considered various case laws and submissions. It was noted that the belief for reopening must be based on some grounds and should not be a mere pretence or change of opinion. The Tribunal found that the information from the consultants' report, which the assessee itself submitted, indicated that the machinery was not installed by 31-3-1977. This justified the ITO's belief that the original disclosure was neither full nor true.

The Tribunal referred to several decisions of the Punjab & Haryana High Court, which supported the reopening under section 147(a) when subsequent information exposed the original assessment as false. The Tribunal concluded that the reopening was justified and dismissed the assessee's challenge.

2. Withdrawal of depreciation amounting to Rs. 2,34,729 and investment allowance amounting to Rs. 3,91,216:
The assessee argued that there was substantial evidence submitted during the original assessment showing that the machinery was installed during the relevant year. The payment to M/s. Blue Star Ltd. for erection charges was allowed as a deduction, and there was no mala fide intention in claiming the allowances.

The Departmental Representative countered that the consultants' report, which was based on physical verification, indicated that the machinery was not installed by 31-3-1977. The consultants were independent and had no interest in the matter, making their report reliable. The ITO made diligent efforts to verify the facts during the reassessment proceedings.

The Tribunal found the consultants' report to be credible as it was based on visual verification and not on opinion. The evidence suggested that the machinery was not installed during the relevant year. The Tribunal dismissed the argument that there was no tax effect by claiming the allowances in one year versus the next, noting that the firm's tax rate was linked to the income earned.

The Tribunal concluded that the ITO was justified in withdrawing the depreciation and investment allowance, as the machinery was not installed or used in the year relevant to the assessment year 1977-78. The appeal was dismissed.

Conclusion:
The Tribunal upheld the reopening of proceedings under section 147(a) and the withdrawal of depreciation and investment allowance, dismissing the appeal by the assessee.

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