2015 (8) TMI 425 - HC - Income Tax

Reopening of assessment - whether allowance of terminal depreciation, which allowance is not allowable under any provision of the Act tantamounts to change of opinion ? - Held that - The term depreciation , as ordinarily understood in the context of the Income-tax Act, 1961, has been considered in the case of I. C. D. S. Ltd. v. CIT 2013 (1) TMI 344 - SUPREME COURT which was concerned with the interpretation of section 32 of the Income-tax Act, 1961 that Depreciation is the monetary equivalent of the wear and tear suffered by a capital asset that is set aside to facilitate its replacement when the asset becomes dysfunctional. Applying the above interpretation of section 32 of the Act in the instant case we have no manner of doubt that the assessee had in fact claimed depreciation as contemplated under section 32 merely because it was termed as terminal depreciation was no reason to disallow the claim. The Tribunal has relied, and, in our view correctly, upon the decision of the hon ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. reported in 2010 (1) TMI 11 - SUPREME COURT OF INDIA which held that the concept of change of opinion should be used as a test to check any abuse of power by the Assessing Officer. In our view, the test is correctly applied in the present case and there was no occasion for the Assessing Officer to reopen the assessment without any tangible material which formed a live link to the formation of reason to believe escapement of income. There is nothing to show that he had reason to believe that income had escaped assessment. Mere description of the depreciation claimed as terminal depreciation could not have justified the conclusion reached by the Assessing Officer. - Decided against revenue.

Summary

Issues:
1. Whether the Income-tax Appellate Tribunal was justified in holding that the reason to reopen, due to incorrect allowance of 'terminal' depreciation, amounts to a change of opinion?
2. Whether there is a possibility of change of opinion where only one view is possible on an issue, such as the deduction claim of terminal depreciation?
3. Whether the Income-tax Appellate Tribunal was correct in holding that the assessment made under section 147 is bad in law?

Analysis:

Issue 1: The case involved the assessment year 2005-06 where the assessee claimed depreciation on various assets, described as 'terminal depreciation.' The Assessing Officer disallowed this deduction, stating that there is no provision in the Income-tax Act to allow terminal depreciation. The officer concluded that the assessee could not claim this type of depreciation based on the material on record. The Commissioner of Income-tax (Appeals) later allowed the depreciation claimed by the assessee. The Income-tax Appellate Tribunal also disagreed with the Assessing Officer, stating that there was no tangible material to support the reopening of the assessment due to the claimed 'terminal depreciation.'

Issue 2: The High Court referred to the interpretation of depreciation by the Supreme Court, emphasizing that depreciation is the monetary equivalent of the wear and tear suffered by a capital asset. The court cited previous judgments to explain the concept of depreciation and its purpose in replacing the lost value of an asset. Applying this interpretation to the case, the court found that the assessee had claimed depreciation as per section 32 of the Income-tax Act, and the term 'terminal depreciation' should not lead to disallowing the claim.

Issue 3: The High Court further discussed the concept of change of opinion as a test to prevent abuse of power by Assessing Officers. Referring to a Supreme Court decision, the court emphasized that there must be tangible material linking to the belief that income has escaped assessment to justify reopening an assessment. In this case, the court found that the Assessing Officer did not have a valid reason to believe that income had escaped assessment solely based on the description of 'terminal depreciation.' Therefore, the court dismissed the appeal, stating that no substantial question of law arose in the case.

In conclusion, the High Court upheld the decision of the Income-tax Appellate Tribunal, emphasizing that the Assessing Officer lacked tangible material to justify reopening the assessment based on the claimed 'terminal depreciation.' The court's analysis focused on the interpretation of depreciation under the Income-tax Act and the concept of change of opinion in assessment proceedings.