2015 (4) TMI 591 - AT - Income Tax

Validity of reopening of assessment - significant change in the accounting policy regarding depreciation - Held that - Following the decision of Hon'ble Jurisdictional High Court in Export Credit Guarantee Corporation of India Ltd Vs, Additional CIT 2013 (1) TMI 517 - BOMBAY HIGH COURT we hold that the reopening in this case is proper as the Assessing Officer has exercised the power conferred u/s 147 of fulfillment of requirements in the said section. On merits the assessee has not produced the requisite records and evidence to show the basis on which such a change in accounting policy was taken by the board of Directors. Even the resolution of board of Directors was not produced by the assessee either before the Assessing Officer or before us. Thus, the issue requires a proper verification and examination of the relevant facts and records. Accordingly, we set aside the issue on merits to the record of Assessing Officer for deciding afresh after verification and examination of relevant record. The assessee is directed to produce the evaluation report, board s resolution as well as the approval of the board s decision in the general body meeting in support of its claim that the change of method of depreciation as well as rate of depreciation is in conformity with the requirement of provisions of Companies Act as well as Accounting Standard. - Decided partly in favour of assessee for statistical purposes.

Issues Involved:
1. Validity of reopening of assessment under section 143(3) read with section 147 of the Income-Tax Act, 1961.
2. Legality of the addition of Rs. 9,07,59,966 to the book profits under section 115JB of the Income-Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening of Assessment:
The primary issue was the reopening of the assessment by the Assessing Officer (AO) under section 143(3) read with section 147 of the Income-Tax Act, 1961. The assessee contended that the reassessment was based on the same records available during the original assessment, arguing it was merely a change of opinion, which is not permissible in law.

- Original Assessment and Reopening: The assessee filed its return of income on 31.10.2005, declaring a total loss of Rs. 2,36,77,306. The assessment was completed under section 143(3)/115JB on 31.12.2007, accepting the returned loss and book profit of Rs. 1,35,21,987. The AO later reopened the assessment on 18.03.2010, citing a significant change in the accounting policy regarding depreciation, leading to an increased depreciation charge of Rs. 9,07,59,966.

- Assessee's Argument: The assessee argued that the reopening was based on the same material already on record, and the AO had no jurisdiction to alter the accounts audited and found in conformity with the Companies Act. The assessee relied on the Supreme Court judgment in Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC), asserting that the AO must accept the authenticity of accounts prepared per the Companies Act.

- Revenue's Argument: The Revenue argued that there was no change of opinion as no enquiry was conducted by the AO regarding the higher depreciation rate during the original assessment. The change in accounting policy was significant and overlooked by the AO initially, justifying the reopening.

- Tribunal's Findings: The Tribunal noted that the AO is not permitted to review or revise its own assessment order under section 143(3), even if no proper enquiry was conducted initially. However, if a claim not permissible under law was allowed without applying the mind, the AO could reopen the assessment. The Tribunal found that the assessee's significant change in depreciation policy, reducing profit by Rs. 9,07,59,966, was ignored by the AO. The Tribunal cited the Hon'ble High Court's decision in Export Credit Guarantee Corporation of India Ltd v. Additional CIT (350 ITR 651), emphasizing that the AO had tangible material to believe income had escaped assessment.

2. Legality of Addition to Book Profits:
The second issue was the legality of the AO's action in increasing the book profits by Rs. 9,07,59,966 under section 115JB of the Income-Tax Act, 1961.

- Assessee's Argument: The assessee argued that section 115JB mandates specific adjustments to book profits, and the AO cannot make adjustments beyond those prescribed by the Act. The accounts were prepared per the Companies Act, and the AO had no jurisdiction to alter them. The assessee cited several case laws supporting this view.

- Revenue's Argument: The Revenue contended that the change in accounting policy regarding depreciation was not explained by the assessee, and the AO did not conduct any enquiry on this aspect during the original assessment.

- Tribunal's Findings: The Tribunal observed that the change in depreciation method and rate should be based on a proper evaluation of the useful life of assets, supported by a board resolution and approval in a general body meeting. The assessee failed to produce such records. The Tribunal emphasized that merely noting the change in accounting policy without proper documentation does not prove conformity with the Companies Act. The Tribunal directed the AO to verify and examine the relevant records, including the evaluation report, board's resolution, and approval in the general body meeting, to determine if the change in depreciation policy was justified.

Conclusion:
The Tribunal upheld the reopening of the assessment as valid, given the AO had tangible material to believe income had escaped assessment. However, on the merits, the Tribunal remanded the issue back to the AO for a fresh examination of the relevant records and proper verification of the change in accounting policy regarding depreciation. The appeal of the assessee was partly allowed for statistical purposes.

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