2021 (8) TMI 215 - AT - Income Tax

Reopening of assessment u/s 147 - time to initiate Revision u/s 263 was not left - proposal based on audit objection to invoke provision of section 263 - as no time left for invoking the provision of section 263 of the Act and therefore, the ld. CIT directed the ld. AO to take action u/s. 147 - HELD THAT - CIT as well as the ld. AO both were proceedings to proceed against the Assessee by invoking the provision of section 263 of the Act on the basis of audit objections. They also got certain enquiries conducted but when the enquiry is concluded, no time was left with them for carrying out proceedings u/s. 263 of the Act. It required issuance of show cause notice, opportunity of hearing to the assessee and then passing of the orders. Time for passing order u/s. 263 of the Act i.e. 31.03.1999 was not available. This fact is also mentioned in one of the correspondence of CIT with ld. AO when he requested ld. AO to expedite the inquiries. Therefore, the ld. CIT directed the ld. AO to initiate action u/s. 147 AO recorded the reasons on 30.03.1999 stating that specifically that the ld. CIT has directed him to invoke provisions of section 147 of the Act and therefore, the reopening was made - it is not the 'reason to believe' of the AO about escapement of income which is basic mandatory requirement of law for reopening u/s. 147 - Opinion of ld. AO is clearly manifest that he thought it is case of erroneous order, which is prejudicial to interest of revenue. Reopening is made at the direction of the ld. CIT. The ld. CIT when he did not find time to invoke provision of section 263 of the act, he directed ld. AO to initiate action u/s. 147 of the Act. Therefore, we do not find any reason to uphold the reopening of the assessment. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice issued under Section 148 of the Income Tax Act.
2. Disallowance of depreciation on lease transactions.

Detailed Analysis:

Issue 1: Validity of Notice Issued Under Section 148 of the Income Tax Act

The appellant challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 07.03.2002, which partly allowed the appeal against the assessment order under Section 143(3) read with Section 148 of the Income Tax Act. The appellant contended that the notice issued under Section 148 was void ab initio and illegal. The appellant argued that they had disclosed all material facts necessary for assessment under Section 143(3), and reassessment based on new views on the same facts was impermissible.

The Tribunal noted that the original assessment was completed on 26.03.1997, and a notice under Section 148 was issued on 30.03.1999. The reasons for reopening included the observation that the assessee was allowed 100% depreciation on certain plant and machinery, which the Assessing Officer (AO) later believed should have been 15% since the items were purchased in bulk. The AO's belief was based on audit objections and subsequent enquiries revealing that some suppliers were not genuine.

The Tribunal found that the reopening was directed by the CIT, who had initially considered invoking Section 263 but later directed action under Section 147 due to time constraints. The Tribunal held that the reopening was not based on the AO's "reason to believe" but was instead at the behest of the CIT. Consequently, the Tribunal quashed the reassessment proceedings, allowing the appellant's ground that the notice under Section 148 was invalid.

Issue 2: Disallowance of Depreciation on Lease Transactions

The appellant also contested the disallowance of depreciation amounting to ?2,51,43,548 on lease transactions with twelve different parties. The AO had treated these transactions as finance transactions rather than lease transactions, thereby disallowing the depreciation claimed.

The CIT(A) had confirmed the AO's action, except for transactions with the Andhra Pradesh State Electricity Board (APSEB), a government corporation, which was deemed genuine. The CIT(A) held that the appellant failed to prove the existence of other suppliers and did not provide sufficient evidence such as valuation reports, delivery challans, or quotations to substantiate the transactions.

Given the Tribunal's decision to quash the reassessment proceedings based on the invalidity of the notice under Section 148, it did not find it necessary to adjudicate on the merits of the depreciation disallowance. Therefore, the Tribunal allowed the appeal in favor of the appellant without addressing the specific details of the depreciation claim.

Conclusion:

The Tribunal quashed the reassessment proceedings initiated under Section 148, finding that the reopening was not based on the AO's independent "reason to believe" but was directed by the CIT. Consequently, the Tribunal allowed the appellant's appeal, rendering the issue of depreciation disallowance moot. The order was pronounced in the open court on 29.07.2021.