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2022 (9) TMI 1247 - AT - Income TaxValidity of Reopening of assessment u/s 147 - Reasons for the belief that income has escaped Assessment - disallowance of its claim of depreciation on dam/bridge on the ground that the said amount was even otherwise allowable as a revenue expenditure/deduction u/s.37 - HELD THAT - Excess allowance of depreciation - Neither the misconceived and incorrect observation of the AO; nor his changed/new view as regards the entitlement of the assessee for depreciation on dam in absence of any provision of depreciation on dam in the IT Act would by any means fall within the realm of failure on the part of the assessee to disclose fully and truly all material facts which were necessary for its assessment for the year under consideration , which would have justifiably triggered the applicability of the second limb of the 1st proviso to Sec. 147 in the case of the assessee before us - though the AO had referred to the absence of any provision of depreciation on dam in the IT Act, but thereafter he had confined the reopening of the case on the aspect of excessive claim of depreciation on dam, for the solitary reason that the assessee having claimed 100 percent depreciation on dam was allowed excessive depreciation of Rs. 35.36 crore. As neither of the aforesaid observations of the AO would fall within the meaning of failure on the part of the assessee to fully and truly disclose all material facts which were necessary for its assessment for the year under consideration i.e AY 2008-09, therefore, its case on the aforesaid aspect would not fall within the four corners of the 1st proviso of Sec. 147 of the Act. Disallowance u/s.14A - As the assessee had came forth with full and truly disclosure of all material facts as regards its investments in shares and securities a/w a specific claim that no part of the expenditure was attributable to earning of the exempt income, therefore, it can safely be gathered that there was no failure on its part to disclose fully and truly all material facts necessary for its assessment in so far the aforesaid issue was concerned. As the aforesaid observation of the AO would by no means fall within the meaning of failure on the part of the assessee to fully and truly disclose all material facts which were necessary for its assessment for the year under consideration , therefore, the 1st proviso of Sec. 147 of the Act cannot be brought into play in its case. Allowance of additional depreciation - As observed by the A.O that as the assessee was engaged in the business of generation or generation and distribution of power which was eligible for additional depreciation contemplated in Section 32(1)(iia) of the Act only w.e.f. A.Y.2013-14, therefore, the additional depreciation so allowed to him for the year under consideration i.e. A.Y.2008-09 was liable to be disallowed. The aforesaid reason is in itself self-speaking of the fact that though there had been a full and true disclosure of all material facts on the part of the assessee qua the aforesaid issue as were necessary for its assessment, but the AO had on the basis of changed view sought to reassess the assessee on the said count. As the aforesaid view of the AO cannot be brought within the meaning of failure on the part of the assessee to fully and truly disclose all material facts which were necessary for its assessment for the year under consideration , thus, the extended time period provided in the 1st proviso of Sec. 147 i.e beyond a period of four years from the end of the relevant assessment year i.e AY 2008-09 could not have been availed by the AO for reopening the concluded assessment of the assessee company. Irregular disallowance of depreciation for pre-production period (before September) - As in the case before us the original assessment was framed by the A.O vide his order passed u/s.143(3), dated 31.12.2010, therefore, in absence of any income of the assessee chargeable to tax having escaped assessment for reason of failure on its part to disclose fully and truly all material facts necessary for its assessment, AO, as per the mandate of the 1st proviso to Sec. 147 of the Act could not have assumed jurisdiction for reopening the concluded assessment of the assessee beyond a period of four years from the end of the assessment year i.e beyond 31.03.2013. We, thus, concur with the claim of the Ld. AR that as the A.O had acted in defiance of the 1st proviso to Sec. 147 and had wrongly assumed jurisdiction and reopened the case of the assessee vide notice issued under Sec. 148, dated 23.08.2013 i.e beyond a period of 4 years from the end of the relevant assessment year, therefore, the assessment order so passed by him on the said count cannot be sustained and is liable to be struck down. We are of the considered view, that as claimed by the Ld. AR and, rightly so, as there had been no failure on the part of the assessee company to disclose fully and truly all material facts which were necessary for its assessment for the year under consideration i.e. A.Y.2008-09, therefore, the reopening of its concluded assessment de hors satisfaction of the said statutory requirement beyond a period of four years from the end of the relevant assessment year i.e. A.Y.2008-09 vide notice issued u/s.148 dated 23.08.2013 clearly militates against the mandate of the 1st proviso to section 147 - As the very assumption of jurisdiction by the A.O for reopening the concluded assessment of the assessee that was originally framed vide order passed u/s.143(3) dated 31.12.2010 smack of want of valid assumption of jurisdiction for framing of the impugned assessment u/s.143(3) r.w.s 147, therefore, we herein quash the assessment so framed by him. Assessee appeal allowed .
Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961. 2. Disallowance of depreciation on the dam. 3. Disallowance of additional depreciation. 4. Disallowance under Section 14A of the Income Tax Act, 1961. Detailed Analysis: 1. Validity of Reopening the Assessment: The assessee contended that the reopening of the assessment after four years from the end of the relevant assessment year was invalid as there was no failure on their part to disclose fully and truly all material facts necessary for the assessment. The Tribunal observed that the original assessment was framed under Section 143(3) and the case was reopened beyond four years based on the same facts available during the original assessment. The Tribunal noted that the reasons for reopening did not indicate any failure by the assessee to disclose material facts. The Tribunal concluded that the reopening was based on a change of opinion and not due to any failure by the assessee to disclose material facts, thus violating the "1st proviso" to Section 147. Consequently, the Tribunal quashed the reassessment order. 2. Disallowance of Depreciation on the Dam: The assessee claimed 100% depreciation on a dam constructed for continuous water supply to facilitate electricity production. The AO disallowed the claim, arguing that the dam was not owned by the assessee and there was no provision for depreciation on dams in the Income Tax Act. The Tribunal noted that the assessee had claimed 50% depreciation as the dam was used for less than 180 days. The Tribunal found that the AO's disallowance was based on a change of opinion and not on any failure by the assessee to disclose material facts. The Tribunal admitted the additional ground raised by the assessee, stating that the expenditure on the dam could alternatively be claimed as a revenue expenditure under Section 37 of the Act. 3. Disallowance of Additional Depreciation: The assessee claimed additional depreciation under Section 32(1)(iia) for the generation of power. The AO disallowed the claim, stating that the benefit of additional depreciation for power generation was applicable only from AY 2013-14. The Tribunal noted that the assessee had disclosed all material facts regarding the claim and the disallowance was based on a change of opinion. The Tribunal referred to judicial precedents supporting the view that generation of electricity is a manufacturing process, thus qualifying for additional depreciation. The Tribunal found the AO's disallowance to be unjustified. 4. Disallowance under Section 14A: The AO disallowed Rs. 122.17 lacs under Section 14A, stating that the assessee had made substantial investments in shares and securities but had not offered any disallowance for expenses attributable to earning exempt income. The Tribunal observed that the AO did not refer to the assessee's accounts or record dissatisfaction with the assessee's claim before making the disallowance. The Tribunal referred to judicial precedents requiring the AO to record dissatisfaction based on the assessee's accounts before invoking Rule 8D. The Tribunal found the disallowance under Section 14A to be unsustainable. Conclusion: The Tribunal quashed the reassessment order due to the invalid assumption of jurisdiction by the AO for reopening the assessment beyond four years without any failure by the assessee to disclose material facts. The Tribunal did not adjudicate the merits of the disallowances as the reassessment was quashed on jurisdictional grounds. The appeal filed by the assessee was allowed.
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