2024 (1) TMI 314 - HC - Income Tax

Validity of Reopening of assessment - depreciation claimed @ 100% with regard to the temporary structures - HELD THAT - There is no dispute that depreciation on subject temporary structure(s) was claimed by the petitioner. In fact there is no cavil that once a structure is categorized as temporary, the deprecation rate provided under Rule 5 of Appendix I appended to the Income Tax Rules, 1962, is 100%. The arguments advanced that merely because books of account were made available to the AO and he could have discovered material evidence had he been diligent could not be the reason for not triggering reassessment proceedings against the petitioner, does not find favour with us. This is not a case where an aspect was not in the notice of the AO and that he could have discovered by employing diligence. The issue concerning the claim of depreciation by the petitioner with regard to the subject temporary structure(s) was flagged by the AO. The petitioner submitted its reply along with the relevant details and material. The AO after considering the same, accepted the claim made by the petitioner with regard to the subject temporary structure(s). Reliance placed on Explanation 2 (c) (iv) appended to Section 147 of the Act would not in our opinion further cause of the respondent/revenue. The reason we say so is, once it is accepted that the subject structure(s) were temporary no case can be made out that the depreciation allowance claimed was excessive. It is not in dispute that for temporary structures, the prescribed rate of depreciation is 100%. Whether the impugned notice issued under Section 148 of the Act was barred by time? - Although, in the reasons to believe the AO has not stated that the petitioner had failed to disclose full and truly all material facts, in our view, this aspect need not detain us in view of the reasons that we have given hereinabove, that is, it is a clear case of change of opinion. The provisions cited before us on behalf of respondent/revenue i.e., Explanation 1 and Explanation 2 (c) (iv) appended to Section 147 of the Act would not be applicable on the facts and circumstances obtaining in the present case. Writ petition is, accordingly, allowed.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings were triggered based on a change of opinion.
3. Applicability of the first proviso to Section 147 of the Income Tax Act.
4. Timeliness of the notice issued under Section 148.

Summary:

Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 12.02.2019 issued by the Assessing Officer (AO) under Section 148 of the Income Tax Act, 1961, concerning the Assessment Year (AY) 2012-13. Additionally, the petitioner contested the orders dated 01.07.2019 and 26.07.2019 related to the objections raised against the reassessment proceedings.

Change of Opinion:
The court noted that the petitioner had filed its Return of Income (ROI) on 28.11.2012, declaring a total income of Rs. 57,37,84,404/-. During the scrutiny assessment, the AO had raised a specific query regarding the depreciation claimed on temporary structures, which was conceded to be at a rate of 100%. The AO had even deputed an officer to inspect the temporary structure before framing the Assessment Order under Section 143(3) on 15.02.2016. Despite this, a notice under Section 154/155 was issued on 12.01.2017 based on an audit objection, which eventually became moribund.

The court emphasized that the reassessment notice dated 12.02.2019 did not allege that the petitioner had failed to disclose all material facts fairly and truly. The petitioner argued that the reassessment was a clear case of change of opinion without any new material, making the proceedings barred under the first proviso to Section 147.

Applicability of the First Proviso to Section 147:
The court found that the AO had already raised and addressed the issue of depreciation on temporary structures during the original assessment proceedings. The AO's reasons to believe, recorded on 05.02.2019, did not refer to any fresh material, relying instead on Explanation 1 and Explanation 2 (c) (iv) appended to Section 147. The court ruled that this constituted a change of opinion, which is not permissible for triggering reassessment proceedings.

Timeliness of the Notice:
The court noted that the reassessment notice was issued after more than four years from the end of the relevant AY. Since the AO did not claim that the petitioner had failed to disclose all material facts, the court concluded that the notice was barred by time.

Conclusion:
The writ petition was allowed, and the impugned notice dated 12.02.2019, along with the orders disposing of objections dated 01.07.2019 and 26.07.2019, were quashed. The court held that the reassessment proceedings were invalid as they were based on a change of opinion and were time-barred.