2021 (11) TMI 372 - AT - Income Tax

Reopening of assessment u/s 147 - disallowing the deduction under section 42 - Change of opinion - whether any opinion was formed by the AO during the assessment proceedings under section 143(3)? - HELD THAT - The words and phrases 'Mere Change of Opinion' do not appear in the provision. As such Change of opinion' postulates formation of opinion and then change thereof. The formation of opinion is possible only after examining the facts and application of mind. If particular deduction claim by the assessee not examined by AO in original assessment under section 143(3), it is a case of 'no opinion. Thus question of 'change of opinion' does not arise. AO has applied his mind during the assessment proceedings under section 143(3) of the Act and thereafter reached to the conclusion by allowing the deduction to the assessee under section 42 of the Act. The question whether the AO has correctly or wrongly given the deduction under section 42 of the Act becomes irrelevant. It is for the reason that the AO being one of the authority under the Income Tax Act has examined the issue and allowed the deduction to the assessee. Thus the view was formed by the AO. Subsequently changing the opinion on the same issue by issuing a notice under section 147 of the Act will amount to review of the order passed under section 143(3). There is no power granted to the AO under the statute to review the order in the garb of initiating the proceedings under section 147 of the Act. Accordingly we hold that, there will not be any difference whether the proceedings were initiated within 4 years or beyond the 4 years as far as change of opinion is concerned. Admittedly, the production sharing contract was not available before the AO during the assessment proceedings under section 143(3) of the Act which was necessary to reach to the conclusion whether the assessee was entitled for the deduction under section 42 of the Act. But the AO without having such contract in his hands has allowed the deduction under section 42 of the Act after conducting the necessary verification which has already been discussed in the preceding paragraph. Now the reference to the production sharing contract becomes redundant in view of the fact that the AO has taken some view after the application of mind. That application of mind whether right or wrong cannot be subject matter of dispute in the proceedings initiated under section 147 of the Act. We are not impressed with the finding of the authorities below on this technical issue. Accordingly, we set aside the finding of the learned CIT (A) by holding that the assessment framed under section 147 read with section 143(3) of the Act is bad in law. Hence the ground of appeal of the assessee is allowed. Deduction u/s 80IB with respect to each oil well/cluster of wells treating them as separate undertaking - AO held that the assessee is not an industrial undertaking which is eligible for deduction - As per the assessee, each well is a separate undertaking - AO during the assessment proceedings observed that the assessee is not maintaining separate books of accounts with respect to each well - HELD THAT - There being no change in the facts and circumstances viz a viz under the provisions of law, we set aside the issue to file of AO for fresh adjudication in the light of direction given in the order of this tribunal in the own case of the assessee - Hence the ground of appeal of the Revenue is allowed for statistical purposes. Depreciation @ 80% on oil wells treating the same as plant and machinery in pursuant to the entry 8(xii) of depreciation table of Income Tax Rule - HELD THAT - Issue decided in favour of assessee as relying on own case reasoning which was adopted by the Tribunal holding that the well would not form a part of the plant and machinery for drilling of oil is not possible. In that view of the matter, the view taken by CIT (Appeals) is restored and the findings of the Tribunal are reversed. Hence, the issue raised in this Appeal is answered in favour of the assessee

Issues Involved:
1. Validity of reassessment proceedings under section 147 read with section 143(3) of the Income Tax Act.
2. Deduction under section 80IB(9) of the Income Tax Act for oil wells as separate undertakings.
3. Classification of oil wells as part of building or as plant and machinery for depreciation purposes.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:
The assessee challenged the reassessment framed under section 147 read with section 143(3) of the Income Tax Act. Initially, the assessee's return declaring a loss was accepted under section 143(3). The AO later initiated reassessment proceedings, claiming the assessee wrongly availed a deduction under section 42 without it being specified in the agreement with the Government of India. The assessee argued that the reassessment was based on a change of opinion, which is not permissible. The Tribunal held that the AO had already formed an opinion during the original assessment by raising queries and accepting the assessee's responses. Therefore, the reassessment based on a change of opinion was invalid. The Tribunal quashed the reassessment proceedings, making the merits of the case redundant.

2. Deduction under Section 80IB(9):
The Revenue appealed against the CIT(A)'s decision to allow the assessee's deduction under section 80IB(9) for each oil well as a separate undertaking. The AO had disallowed the deduction, arguing that the entire Development Contract Area constituted one undertaking. The Tribunal referred to its previous decision in the assessee's case for AY 2005-06, which held that each well is a separate undertaking and eligible for deduction under section 80IB(9). The Tribunal noted that this issue is pending before the Supreme Court and directed the AO to adjudicate the matter afresh based on the Supreme Court's decision.

3. Classification of Oil Wells for Depreciation:
The assessee claimed depreciation at 80% on oil wells, treating them as plant and machinery. The AO allowed only 10%, treating them as part of the building. The CIT(A) upheld the AO's decision. The Tribunal referred to the Gujarat High Court's decision in Niko Resources Ltd., which classified oil wells as plant and machinery and not part of the building. Following this precedent, the Tribunal allowed the assessee's claim for higher depreciation.

Separate Judgments:
The Tribunal delivered separate judgments for each issue, ensuring a detailed and comprehensive analysis for each point of contention. The appeals were partly allowed for the assessee and allowed for statistical purposes for the Revenue, directing fresh adjudication based on the Supreme Court's pending decision.

Conclusion:
The Tribunal quashed the reassessment proceedings under section 147, upheld the classification of oil wells as plant and machinery for higher depreciation, and directed fresh adjudication for the deduction under section 80IB(9) based on the Supreme Court's pending decision.

← Previous Next →