2012 (9) TMI 333 - HC - Income Tax

Reopening of assessment - claim for depreciation at the higher rate at 40% - Held that - In the scrutiny assessment, AO with respect to depreciation claimed has raised a specific query and called upon the petitioner to justify the claim by giving details of vehicles on which depreciation at the rate of 40% was claimed. In reply to such question, the assessee made a detailed representation stating that company had purchased and leased commercial vehicles during financial years between 1.4.1994 to 31.3.1995 and 1.4.1995 to 31.3.1996. Details of such purchases were provided. It was also pointed out that the company was claiming depreciation at the rate of 40% on the commercial vehicle. It was stated that on certain vehicles, the company had claimed depreciation at the rate of 20% having reference to the vehicles purchased by the company during the second half of the year and therefore, half of otherwise available depreciation could be claimed. As the assessee company had placed full facts before the AO in the original assessment itself and also during the course of scrutiny assessment detailed submissions were given as despite commercial vehicles have been leased out, higher rate of depreciation was justified. This is therefore, not a case where income chargeable to tax can be stated to have escaped assessment for the reason of assessee failing to disclose truly and fully all material facts - in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment beyond four years.
2. Full and true disclosure of material facts by the assessee.
3. Entitlement to higher rate of depreciation on leased commercial vehicles.

Detailed Analysis:

1. Validity of Reopening the Assessment Beyond Four Years:
The court examined whether the notice for reopening the assessment, issued beyond the period of four years from the end of the relevant assessment year, was valid. The petitioner contended that the reopening notice was without jurisdiction as the assessee had made true and full disclosures about its claim for depreciation at a higher rate. The court noted that the Assessing Officer had previously scrutinized the claim and made no disallowance in the final computation. The court emphasized that for reopening beyond four years, it must be shown that income chargeable to tax escaped assessment due to the assessee's failure to disclose fully and truly all material facts. Since the notice was issued beyond four years and the Assessing Officer did not state that the income escaped assessment due to the assessee's failure to disclose material facts, the court held the reopening notice invalid.

2. Full and True Disclosure of Material Facts by the Assessee:
The court revisited the material on record and found that the assessee had lodged a claim of depreciation at the rate of 40% on the Written Down Value of commercial vehicles purchased earlier. The petitioner had also claimed part depreciation at a higher rate for vehicles purchased in the second half of the year and leased out. The Assessing Officer had raised specific queries regarding the depreciation claimed, to which the assessee provided detailed responses, including the assertion that the leased vehicles were used by the lessee for the business of running them on hire. The court concluded that the assessee had placed full facts before the Assessing Officer during the original assessment, thus fulfilling the requirement of true and full disclosure.

3. Entitlement to Higher Rate of Depreciation on Leased Commercial Vehicles:
The court noted that the petitioner had claimed depreciation at the rate of 40% on commercial vehicles, asserting that the lessee used the vehicles for the business of running them on hire. The court referenced the statutory provisions and decisions of the courts to support the company's entitlement to a higher rate of depreciation. Although the court did not delve into the validity of the company's legal submissions regarding the higher depreciation rate, it underscored that the full facts were disclosed during the original assessment. Consequently, the court found that the income chargeable to tax did not escape assessment due to any failure on the part of the assessee to disclose material facts.

Conclusion:
The court concluded that the mandatory condition for reopening the assessment beyond four years was not satisfied, as the assessee had disclosed all material facts fully and truly. Therefore, the impugned notices for reopening the assessments were quashed, and the petitions were allowed. The court made the rule absolute, with no costs awarded.