2006 (5) TMI 161 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessment under section 147.
2. Entitlement to higher rate of depreciation on mini vans.
3. Applicability of block of assets concept under section 32(1)(ii).

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee contended that the reopening of assessment was bad in law and amounted to a change of opinion. The first appellate authority rejected this contention, noting that the returns of income were initially processed under section 143(1) and not under section 143(3), implying no application of mind by the Assessing Officer at that stage. The authority cited Explanation to section 147, which allows reopening for excessive depreciation claims. The Tribunal upheld this view, stating that res judicata does not apply to income-tax proceedings, and reopening based on excessive depreciation claim is permissible.

2. Entitlement to Higher Rate of Depreciation on Mini Vans:
The assessee claimed a higher depreciation rate (40%) for mini vans used for transporting goods to customers, arguing they were used in a business of running vehicles on hire. The Assessing Officer and CIT(A) disagreed, noting the vans were primarily used for the assessee's own business and not hired to outsiders. They referenced several judicial decisions supporting their stance, concluding that the assessee's use of vans was incidental to its main business and did not qualify as a business of running vehicles on hire. The Tribunal agreed, emphasizing that substantial income from hiring was not evident, and the dominant activity was the sale of steel and cement.

3. Applicability of Block of Assets Concept under Section 32(1)(ii):
The assessee argued that once an asset is included in a block of assets with a specific depreciation rate, it should continue to be depreciated at that rate in subsequent years. The Tribunal referred to the ITAT Special Bench decision in Gulati Saree Centre, which held that an asset's depreciation rate could be adjusted in subsequent years if its use changed. The Tribunal concluded that despite the mini vans being part of a block of assets previously depreciated at 40%, they could be reclassified to a lower rate (25%) based on their actual use in the relevant years.

Conclusion:
The Tribunal dismissed the appeals, upholding the reopening of assessments and the lower depreciation rate for the mini vans. The decisions were based on the dominant business activity of the assessee and the specific use of the vans, aligning with judicial precedents and the principles of the Income-tax Act.