2012 (10) TMI 540 - AT - Income Tax

Reopening of assessment - assessment was not completed u/s 143(3) - AY 2001-02 - Held that - No much force in the argument of assessee against reopening especially keeping in view the fact that assessment in the assessment year 2001-02 was not completed u/s 143(3) of the Act and the AO had no chance to look into the details of claim made by the assessee. As decided in ACIT Versus Rajesh Jhaveri Stock Brokers P. Limited 2007 (5) TMI 197 - SUPREME COURT states that Failure to take steps u/s 143(3) will not render the AO powerless to initiate reassessment proceedings when initiation u/s 143(1) has been issued reopening of the case in assessment year 2001-02 was justified - against assessee. Reopening of assessment - on the basis of report by an audit party - AY 2003-04 - Held that - Relying on Commissioner of Income-Tax Versus P. V. S. Beedies Pvt. Limited 1997 (10) TMI 5 - SUPREME COURT that there can be no dispute that audit party is entitled to point out factual error or omission in the assessment and Hon ble Court further held that reopening of assessment on the basis of factual error pointed out by the audit part is permissible under the law - against assessee. Disallowance of maintenance expenses and depreciation on electrical installation - assessee had already enjoyed deduction u/s 24(1) - Held that - Assessee had rented a part of its building and had also entered into a separate agreement for providing maintenance services - the objection of the AO that assessee had already enjoyed deduction u/s 24(1) in respect of depreciation on electrical equipments is not correct. However the disallowance of Rs.14, 06, 505/- being expenses incurred on building repairs/partition etc. was justified in view of the fact that the assessee had already enjoyed deduction u/s 24(1) against income from house property. Therefore CIT(A) has rightly allowed the claim of assessee in respect of depreciation and had rightly upheld the disallowance on account of building repairs etc. Deduction under section 10B - disallowance as no new activity was started at new unit at Gurgaon - assessee company was claiming deduction u/s 80HHE on its existing business - Held that - The assessee though originally was operating from Delhi but had purchased separate land and had constructed building thereon at Plot No.27 Sector-18 Electronic City Gurgaon and had obtained registration under STPI as a 100% export oriented unit.The building was equipped with computers and other necessary equipments before the financial year 2000-01 as is evident from bills of purchase of computers. Though invoices of computers are addressed to assessee s address at Delhi but installation reports which are attached with purchase bills mentions that these were installed at Gurgaon i.e. the address where the assessee had claimed to have set up new unit.The assessee during the course of assessment proceedings also submitted Copy of registration certificate under ESI Act 1948, PF Act allotment letter for TAN from IT Department, Copy of Form D of Shop & Commercial Establishment Act 1958, Copy of license for providing bounded warehouse & Copy of agreement with Software Technology Park of India which clears all doubt hat assessee had set up a new unit at Gurgaon which was duly registered as 100% export oriented unit. Electric installation should not be considered for calculation of total value of plant & machinery is not correct in view of the fact that definition of plant & machinery includes in itself electric installation office equipment and or vehicles. The contention of DR that electric installations carried different rates of depreciation as compared to plant & machinery does not carry any weight as mere classification for depreciation purposes cannot alter the nature of electric installations which indeed is part of plant & machinery - The objection raised by the Dr that assessee had rented the building and therefore was not in a possession of the same also do not carry any force in view of the fact that lease agreement was entered in for 50% of total covered area and balance 50% was available with the assessee to carry on its business - in favour of assessee.

Summary

Issues Involved:
1. Allowing of deduction under section 10B of the Income Tax Act, 1961.
2. Deletion of disallowance of Rs. 18,76,004 on account of depreciation on electrical installation for the assessment year 2003-04.
3. Reopening of cases under section 147/148 of the Income Tax Act, 1961.
4. Disallowance of Rs. 14,06,505 on account of maintenance expenses for the assessment year 2003-04.
5. Acceptance of additional evidence by CIT(A).

Detailed Analysis:

1. Deduction under Section 10B:
The sole issue raised by the Revenue was the allowance of deduction under section 10B. The assessee claimed this deduction for its new industrial undertaking at Gurgaon, which was registered as a 100% export-oriented unit. The Assessing Officer (AO) disallowed the claim, arguing that the new unit was formed by splitting the existing business and transferring more than 20% of the old unit's assets. However, the CIT(A) found that the AO had miscalculated the percentage of old machinery transferred and determined it to be less than 20%. The CIT(A) also noted that the assessee had provided sufficient documentary evidence to prove that the new unit was a separate and distinct entity. The Tribunal upheld the CIT(A)'s decision, confirming the eligibility of the assessee for the deduction under section 10B.

2. Depreciation on Electrical Installation:
For the assessment year 2003-04, the AO disallowed the depreciation on electrical installations, arguing that the assessee had already claimed a 30% deduction under section 24(1) against income from house property. The CIT(A) reversed this decision, stating that the maintenance charges received by the assessee were taxed as income from other sources, and thus, the actual expenditure, including depreciation, should be deducted under section 57. The Tribunal upheld the CIT(A)'s decision, allowing the depreciation on electrical installations.

3. Reopening of Cases under Section 147/148:
The assessee challenged the reopening of cases for the assessment years 2001-02 and 2003-04. The primary objections were defects in the form of reasons recorded and that the reopening was based on an audit party's report. The Tribunal found that the reopening for the assessment year 2001-02 was justified as the original assessment was not completed under section 143(3). For the assessment year 2003-04, the Tribunal held that reopening based on factual errors pointed out by the audit party was permissible. The Tribunal dismissed the assessee's objections and upheld the reopening of cases.

4. Disallowance of Maintenance Expenses:
The AO disallowed the maintenance expenses of Rs. 14,06,505 for the assessment year 2003-04, arguing that the assessee had already claimed a 30% deduction under section 24(1). The CIT(A) upheld this disallowance, stating that these expenses were related to building maintenance, which was covered under the 30% deduction. The Tribunal agreed with the CIT(A) and upheld the disallowance of maintenance expenses.

5. Acceptance of Additional Evidence:
The Revenue challenged the acceptance of additional evidence by the CIT(A) for the assessment years 2001-02, 2003-04, and 2005-06. The Tribunal found that the additional evidence admitted by the CIT(A) was significant and necessary for deciding the claim of the assessee. The evidence was accepted after obtaining a remand report from the AO, who did not object to the merits of the additional evidence. The Tribunal dismissed the Revenue's objection regarding the acceptance of additional evidence.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue and the cross-objections filed by the assessee, upholding the CIT(A)'s decisions on all issues. The assessee was found eligible for the deduction under section 10B, the disallowance of depreciation on electrical installations was reversed, the reopening of cases was justified, the disallowance of maintenance expenses was upheld, and the acceptance of additional evidence by the CIT(A) was deemed appropriate.