2009 (11) TMI 556 - AT - Income Tax

Assessment u/s 143(3) - Assessment is legal and valid - Depreciation @ 80 per cent on windmill on the ground that the assessees did not exercise option as per second proviso to r. 5(1A) before the due date of furnishing the return of income under s. 139(1) of the IT Act - The returns filed by the assessees in all these cases were processed under s. 143(1) of the IT Act originally - The cases fall under the main provisions of s. 147 and not under the proviso to s. 147 of the Act - the contention of the learned counsel for the assessee against the reopening - Issue is decided against the assessee and in favour of the Revenue Windmill as energy saving device being G at S. No. (xiii) in Appendix providing the rate of depreciation - There is no mandatory requirement under s. 11 (1) of the Act requiring the assessee to exercise the option when he seeks relief under s. 11(1) of the Act, as it is enough for the assessee to submit a statement along with the return to exercise such option. - As per the third proviso to r. 5(1A) when an option once exercised shall be final and shall apply to all the subsequent assessment years, then for the subsequent years there is no requirement of exercising any separate option. - appeals have satisfied the requirement of second proviso to r. 5(1A) - Issue is decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment.
2. Denial of depreciation at 80% on windmills.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment:
The first issue concerns whether the reopening of assessment under section 143(3) read with section 147 of the Income Tax Act (IT Act) is valid. The assessees argued that the reopening was based on a mere change of opinion, which is not a valid ground for reopening. However, the Departmental Representative contended that reopening is permissible if there is a formation of reasonable belief, and the sufficiency of material cannot be questioned at the notice stage. The Tribunal noted that the returns were originally processed under section 143(1), and hence, the main provisions of section 147 apply, not the proviso. Citing the Supreme Court decision in Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd., the Tribunal upheld the reopening of assessments, rejecting the assessees' contention. This issue was decided in favor of the Revenue.

2. Denial of Depreciation at 80% on Windmills:
The second issue pertains to the denial of depreciation at 80% on windmills on the grounds that the assessees did not exercise the option as per the second proviso to Rule 5(1A) before the due date of filing the return under section 139(1) of the IT Act. The assessees argued that windmills qualify as energy-saving devices under Appendix 1, which should prevail over the general rates in Appendix 1A. They contended that filing the return along with the audit report indicating the depreciation claim constitutes exercising the option within the stipulated time. The Tribunal considered various judicial precedents, including CIT vs. Vijaya Hirasa Kalamkar (HUF) and CIT vs. Shivanand Electronics, which interpreted the term "before" as "up to" or "not after," thereby supporting the assessees' position.

The Tribunal also noted that the absence of a prescribed form for exercising the option implies that the requirement is not mandatory. The Tribunal held that the claim made in the return of income, along with the audit report and books of account, satisfies the requirement of the second proviso to Rule 5(1A). Additionally, the Tribunal emphasized that once the option is exercised, it applies to all subsequent years as per the third proviso to Rule 5(1A). Therefore, the Tribunal concluded that the assessees had validly exercised their option and were entitled to depreciation at 80% on windmills.

Conclusion:
The Tribunal upheld the reopening of assessments but ruled in favor of the assessees regarding the depreciation claim. The appeals were allowed, granting the assessees the benefit of 80% depreciation on windmills as per Appendix 1.