2017 (7) TMI 608 - AT - Income Tax

Re-opening of the assessment u/s 148 - dismissing the claim of assessee on account of depreciation claimed on warehouse building @ 25% - Held that - The assessee was not able to explain as to how the warehouse was plant and machinery in the case of the assessee. The assessee, merely claimed before the authorities below that the apparatus of the businessman by which he is carrying on business, may be termed as Plant . However, the authorities below have noted that nature of business of the assessee was running of a Container Freight Station which is an infrastructure facility only. Therefore, it was correctly held to be building only. Even during the course of arguments, nothing is explained as to how warehouse in the nature of business of the assessee was plant and machinery so as to claim higher depreciation. Merely because in earlier year, warehouse was forming part of the block of asset on which no opinion have been expressed by the authorities below on merit, would not entitle the assessee to claim higher depreciation. In the absence of any evidence or material on record to prove as to how warehouse is plant and machinery in the case of the assessee, re-opening of the assessment is wholly justified in the matter and addition on merit have also been correctly made. Deemed dividend under section 2(22)(e) - Held that - There is no reason to disbelieve explanation of the assessee. Merely because licence deed was on plain paper and not registered, would not be ground to reject contention of the assessee. The factual findings shall have to be given by the authorities below whether the amount received was security from this concern and whether assessee was a shareholder in the company from whom security have been received. In case of negative factual findings on facts, provisions of Section 2(22)(e) would not be attracted in the case of the assessee. Both the issues therefore, require re consideration at the level of the Assessing Officer. Set aside the orders of authorities below and restore this issue to the file of Assessing Officer with direction to re-decide this issue as per law in the light of judgement in the case of M/s Hotel Hilltop (2008 (3) TMI 310 - RAJASTHAN HIGH COURT). The Assessing Officer shall give reasonable sufficient opportunity of being heard to the assessee. This ground is allowed for statistical purposes.

Summary

Issues:
1. Re-opening of assessment under section 148 of the Income Tax Act and dismissal of depreciation claim on warehouse building.
2. Addition of deemed dividend under section 2(22)(e) of the Income Tax Act.

Issue 1: Re-opening of Assessment and Depreciation Claim:
The appellant challenged the re-opening of the assessment under section 148 of the Income Tax Act and the dismissal of the depreciation claim on a warehouse building. The Assessing Officer noted discrepancies in the depreciation claimed by the appellant on the warehouse, which was categorized as 'Plant and Machinery' by the appellant. However, the Assessing Officer deemed the warehouse as a building eligible for a lower depreciation rate of 10%. The appellant argued that the definition of 'Plant' is broad and includes structures integral to business operations. The appellant contended that the warehouse qualified as 'Plant' as it facilitated business activities. The CIT(Appeals) upheld the re-opening of the assessment, citing a Supreme Court ruling validating re-opening based on audit findings. Additionally, the CIT(Appeals) supported the Assessing Officer's decision on the depreciation claim, considering the nature of the appellant's business as an infrastructure facility. The ITAT concurred with the lower authorities, dismissing the appellant's appeal on both grounds.

Issue 2: Addition of Deemed Dividend:
The appellant contested the addition of ?10 lakhs as deemed dividend under section 2(22)(e) of the Income Tax Act. The Assessing Officer observed an unsecured loan received by the appellant from a related company and treated it as a deemed dividend. The appellant argued that the provisions of section 2(22)(e) were not applicable as the amount received was against a security deposit for a rented space. The CIT(Appeals) upheld the addition, emphasizing the common shareholding between the companies. The ITAT, however, found merit in the appellant's submission that they were not shareholders of the lending company. Citing a Rajasthan High Court decision, the ITAT directed a re-consideration by the Assessing Officer. The ITAT highlighted the need for factual findings on shareholding and the nature of the transaction before deeming it as a dividend. Consequently, the ITAT allowed the appeal partially for statistical purposes, instructing a fresh assessment by the Assessing Officer.

In conclusion, the ITAT upheld the re-opening of assessment and dismissal of depreciation claim while directing a reassessment on the addition of deemed dividend. The judgment provides clarity on the interpretation of tax provisions and the importance of factual determinations in tax assessments.