2014 (12) TMI 53 - AT - Income Tax

Validity of reassessment proceedings u/s 148 Any new tangible material came to the notice of the AO or not - Held that - Existence of new tangible material with the AO is a condition precedent to formulate a belief that certain income chargeable to tax has escaped assessment within the meaning of section 147 of the Act - it is to be appreciated that absence of fresh tangible material would not enable the AO to entertain a belief that certain income chargeable to tax has escaped assessment within the meaning of section 147 of the Act - If the AO forms a belief that certain income chargeable to tax has escaped assessment on the basis of the material already available at the time of original assessment proceedings, it would not be a valid reopening of assessment u/s 147/148 of the Act - the AO was made aware of the intention and purpose for which the assessee was making investment in shares and securities - the existence of the transactions of long term and short term capital gain and dividend earnings was noted by the AO - the reasons recorded thereof to invoke section 147 of the Act do not show any fresh material which came to the notice of the AO so as to enable him to formulate a belief that income chargeable to tax has escaped assessment on the ground that income from short term capital gain was to be assessed as business income . On the issue of treating the short term capital gain as business income, the initiation of proceedings by the AO u/s 147 of the Act is based on material already available at the time of original assessment proceedings and no new tangible material come to his notice following the decision in COMMISSIONER OF INCOME TAX. CENTRAL I Versus SHRI AMITABH BACHCHAN 2012 (7) TMI 374 - BOMBAY HIGH COURT , such an initiation of re-assessment proceedings u/s 147 of the Act is invalid. The assessee is a company engaged in the business of manufacturing of engineering goods and fabrication as well as generation of electricity by windmill - As far as the application of section 32(1)(iia) of the Act relating to additional depreciation is concerned, what is required to be satisfied is acquisition and installation of a new machinery or plant after the 31st day of March, 2005 by an assessee who is already engaged in the business of manufacture or production of any article or thing - as per the AO, income has escaped assessment on account of allowance of additional depreciation on windmill because windmill is not related to business of manufacture or production of any article or thing - it does not state that setting up of a new machinery or plant should have any operational connectivity to the article or thing that was already being manufactured by the assessee - the normal depreciation on windmill in terms of section 32(1) of the Act was also allowed in the original assessment, and that has not been disturbed by the AO at the time of initiating the reassessment proceedings there was no justification for the AO to baldly formulate a belief which is not even in consonance with the phraseology of the relevant provision or any other judicial pronouncement to say that additional depreciation u/s 32(1)(iia) of the Act on windmill is not allowable thus, the initiation of proceedings by the AO by issuance of notice u/s 147/148 of the Act suffer from legal infirmities and is to be set aside Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reassessment proceedings initiated by the Assessing Officer under section 147/148 of the Income Tax Act, 1961.
2. Treatment of short-term capital gains as business income.
3. Allowance of additional depreciation on windmills under section 32(1)(iia) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Reassessment Proceedings:
The primary issue in the appeal of the assessee was the validity of the reassessment proceedings initiated by the Assessing Officer (AO) by issuing a notice under section 148 of the Income Tax Act, 1961. The assessee contended that no new material or facts had come to the notice of the AO, and thus the reopening of the assessment was based on a change of opinion, which is impermissible. The assessee also argued that the reopening was based on an audit objection, which was not accepted as valid by the predecessor AO. The Tribunal held that the initiation of reassessment proceedings was invalid because there was no new tangible material that had come to the notice of the AO. The reasons recorded by the AO were based on the material already available at the time of the original assessment, and thus the reopening was not valid.

2. Treatment of Short-term Capital Gains as Business Income:
The AO had formed a belief that the short-term capital gains declared by the assessee should have been treated as business income. The Tribunal noted that during the original assessment, the AO was aware of the assessee's transactions in shares and securities, and the reasons recorded for reopening the assessment did not show any fresh material. The Tribunal held that the initiation of reassessment proceedings on this ground was invalid as it was based on a reappraisal of the material already on record.

3. Allowance of Additional Depreciation on Windmills:
The AO had also formed a belief that the additional depreciation allowed on windmills was not permissible. The Tribunal observed that the AO's assertions were not supported by any statutory provisions. The Tribunal noted that section 32(1)(iia) of the Act allows additional depreciation on new machinery or plant acquired and installed by an assessee engaged in the business of manufacture or production of any article or thing. The Tribunal held that the AO's contention that the business of generation of windmill is not related to the business of manufacture or production of an article or thing was not relevant to the claim of additional depreciation. The Tribunal concluded that the AO's belief about the escapement of income on this ground was not justified.

Conclusion:
The Tribunal held that the initiation of reassessment proceedings by the AO was invalid due to the lack of new tangible material. Consequently, the reassessment order dated 28.12.2011 was quashed. The other grounds of appeal relating to the merits of the additions were rendered academic and were not adjudicated. The cross-appeal of the Revenue was also dismissed as infructuous. The appeal of the assessee was allowed, and the cross-appeal of the Revenue was dismissed.