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TMI Blog2017 (2) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... im of depreciation has been wrongly claimed but without disturbing (rather accepting) such original claim of depreciation. We are therefore of the considered view that the reasons recorded are self-contradictory and cannot form the basis to initiate reassessment proceedings. On this ground alone, the reopening of assessment u/s 147 cannot be held valid in law and is liable to be quashed. As far as the issue of claim of deduction u/s 43B of the Act we agree with the contentions of the ld. AR that the issue has been duly examined by the AO during the course of original assessment proceedings and to this extent there is clearly a change of opinion which has been rightly upheld by the ld. CIT(A). - Decided against revenue. Disallowance on account of additional depreciation on the assets of power generating units - CIT(A) allowed the claim - Held that:- It is now a settled position that the process of generation of electricity is akin to manufacture of an article or thing, the assessee in the instant case satisfy the requirement that it is engaged in the business of manufacture or production of an article or thing. Now coming to the amendment which has been brought-in by the Finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment u/s 147 of the Act in this case was merely change of opinion, and therefore, bad in law. (ii) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance of ₹ 18,16,98,068/- on account of additional depreciation on the assets of power generating units. (ii) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance of ₹ 1,41,57,121/- made by the AO u/s 43B. ITA No. 681/JP/14 AY 2009-10 (i) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in annulling the assessment order by holding that reopening of the assessment u/s 147 of the Act in this case was merely change of opinion, and therefore, bad in law. (ii) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance of ₹ 13,20,232/- made by the AO on account of withdrawal of additional depreciation claimed by the assessee in respect of machinery installed in its power generating units. (iii) On the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the disallowance of ₹ 61,71,580/- ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby, that they were not allowed additional depreciation during the year under consideration i.e. A.Y. 08-09. In respect of claim of assessee u/s 43B, he held that explanation of the assessee is not acceptable and therefore disallowed the claim of the assessee. 5. On appeal, the Ld. CIT(A) held that the reopening of assessment u/s 148 was bad in law and the order is ab-initio void in as much as the issue of depreciation and claim of deduction u/s 43B were considered by the then AO and therefore the reopening of assessment by the AO was merely a change of opinion.Hence, against the said order of ld CIT(A), the Revenue is in appeal before us. 6. The ld AR, at the outset, submitted that both the issues regarding the claim of additional depreciation on power plant and windmill, and the claim of deduction u/s 43B was examined in the course of assessment proceedings u/s 143(3) as under:- (a) AO vide query letter dt. 25.10.2010 in Point No. 3 and 9 required assessee to furnish assets register and file copy of accounts of all assets added or sold during the year so as to consider the assessee s claim of depreciation on these assets. In response to same, assessee vide reply dt. 09.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007 for ₹ 54,30,165/- in support of its claim of deduction u/s 43B. After considering the above submission of assessee along with evidence, AO while framing assessment u/s 143(3) allowed the claim of deduction u/s 43B. 7. The ld AR submitted that from the above, it can be noted that when the AO in the original assessment proceedings has examined the issues of additional depreciation and deduction u/s 43B, on those very issues notice u/s 148 taken by him is only on account of change of opinion. On such change of opinion, re-assessment proceedings initiated by him, even within a period of 4 years, is illegal and bad in law. For this reliance is placed on following cases:- (a) CIT Vs. Hindustan Zinc Ltd. (2016) 241 Taxman 392 (Raj.) (HC): AO initiated reassessment proceedings on the ground that assessee had made incorrect claim of additional depreciation on captive power plant. On appeal, it was held that it is noticed that assessee had made true and full disclosure of all relevant facts relating to the claim of additional depreciation and also in respect of claim for grant of deduction u/s 80-IA. Further, a separate audit report in the prescribed form 10CCB in support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of change of opinion even within a period of four years from the end of relevant assessment year. Therefore, impugned reassessment proceedings were to be quashed. (c) CIT vs. Usha International Ltd.(2012) 77 DTR 396 (Del.)(HC)(FB): Expression change of opinion postulates formation of opinion and then a change thereof. In the context ofs.147, it implies that the AO have formed an opinion at the first instance and later proposes or wants to take a different view. Question of change of opinion arises when an AO initially forms an opinion and decides not to make an addition accepting the assessee s position or stand. Reassessment proceedings in the said cases would be hit by the principle of change of opinion . In case an issue or query is raised by the AO and answered by the assessee in the original assessment proceedings, and the AO does not make any addition, it has to be accepted that the issue has been examined but the AO did not find any ground or reason to make any addition, and thus, the reassessment would be invalid. Once there has been a full and true disclosure of all material and primary facts at the time of original assessment u/s 143(3), and the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear so as to depict true and correct picture of the company. In the process of widening of the road, the Bombay Municipal Corporation took over the front side of the property and thus assessee was left with the balance plot. Assessee sold the development rights of the said property in 1999 but retained the right of balance FSI with it. The right on FSI, which was retained, was valued and was reflected in the balance sheet. On sale of development rights of property, assessee declared capital gain and return was processed u/s 143(1). However, AO reopened the assessment, for the reason that assessee had paid municipal taxes which appears to be for the change of usage . On local enquiries it is understood that the property in question was a factory building and now it stands developed as shops and marriage hall consisting of 110 units, known as Oshiwara Plaza and assessee had developed the property consisting of 110 units and sold the same during the period. In response to the show-cause notice, assessee furnished a detailed reply and upon going through the reply, AO noticed that the initial assumptions which were the basis for reopening of the assessment were wrong but, he procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the reasons recorded by the AO on this issue is on flimsy ground and therefore the reopening on this issue is illegal and bad in law. In view of above, the order passed by the AO u/s 143(3)/147 is illegal and bad in law and therefore the Ld. CIT(A) has rightly held that reopening of assessment u/s 148 is bad in law and the order is held to be ab-initio void. 10. The ld DR is heard who has vehemently argued the matter and supported the reopening of assessment proceedings. He submitted that the both the issue of claim of additional depreciation as well as claim under section 43B was not examined by the AO in the original assessment proceedings and hence, there is no question of change of opinion. 11. We have heard the rival contentions and pursued the material available on record. The Revenue has challenged the order of the ld. CIT(A) wherein he has held that the claim of additional depreciation and claim of deduction u/s 43B were considered by the Assessing Officer while completing the original assessment u/s 143(3) of the Act. The ld. CIT(A) held reopening of the assessment by the AO as merely change of opinion which is bad in law and the order passed u/s 147 read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged to revenue expenditure, identify the amounts and head of accounts under which they are debited. (9) Produce the assets registers required to be maintained as per the Company Laws and file the copies of accounts of all the assets added or sold during the year under consideration with copies of bills and the dates on which they were first put to use so as to consider your claims for depreciation of these assets. 12.2 Thereafter, on 03.12.2010, the Assessing Officer has asked the following further details alongwith necessary supporting evidences: (10) As per note of computation, production in Mangalam Power Plant, Morak and Mangalam Wind Power Plant, Jaisalmer has started in October and September, 2007 respectively but no production and sales details have been shown in the books of accounts. Please furnish month wise details of production and sales alongwith documentary evidence of production commenced. Please also file complete details of income and expenditure details of above plants separately. (11) As per depreciation chart filed, investment of ₹ 79.44 crores and Rs. 33.62 crores has been shown in the case of Mangalam Power Plant, Morak but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y submitted at Ann. 20 vide our submission daed 9.11.2010 and balance out of internal accruals. We have used internal accruals of ₹ 3362 lacss for installing Manglam Wind Mills . (12) We are enclosing herewith following: (i) Copies of agreements with JVVNL and Suzlon Energy Ltd. relating to Banking and wheeling agreements for Mangalam Wing Mills (ii) Details of production and consumption have already been mentioned in point No.10 above. As per the details mentioned above, your goodself will find that a receipt of ₹ 2345.85 lacs from Power Plant and ₹ 47.69 lacs from wind mills is disclosed as per P L account of the respective units. Since units generated were consumed by the cement plants for captive purpose, hence the receipt has been netted off from the power and fuel expenses of Mangalam Cement Ltd. Please refer Schedule 15 of Balance sheet. Hence depreciation claimed is allowable u/s 32 of the Income Tax Act, 1961. 12.4 For claim of depreciation, the assessee has to satisfy the requirements of section 32(1)(i) and section 32(1)(ii) of the Act wherein the assessee has to satisfy the test of ownership over the assets and the usage of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been challenged by issuance of notice u/s 148 of the Act. The basis of formation of belief by the AO that the assets falls under clause (i) and not clause (ii) and hence, claim of additional depreciation on such assets is not allowable, cannot therefore be accepted. More so, when the claim of depreciation on such assets under section 32(1)(ii) has been allowed by the Revenue in original assessment proceedings and also in the instant reassessment proceedings which are under challenge before us. There cannot be a situation where the additional claim of depreciation is disputed stating that the original claim of depreciation has been wrongly claimed but without disturbing (rather accepting) such original claim of depreciation. We are therefore of the considered view that the reasons recorded are self-contradictory and cannot form the basis to initiate reassessment proceedings. On this ground alone, the reopening of assessment u/s 147 cannot be held valid in law and is liable to be quashed. 12.6 Further, on review of the queries raised by the AO, it transpires that the same were related to examination of purchase of the assets during the year, the date on which they were first put t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The electricity produced from power plant at Morak was directly utilized in manufacturing of cement whereas the electricity produced from windmill at Jaisalmer was supplied to Jaipur Vidhyut Vitran Nigam Ltd. who in turn reduce that quantity of electricity from the power bill raised on the assessee. On these P M, assessee claimed additional depreciation of ₹ 18,16,98,068/- (Rs.14,44,58,058 + ₹ 3,72,40,000) u/s 32(1)(iia) of the Act. 13.2 The AO while framing assessment u/s 143(3)/147 held that in view of amended provision of sec. 32(1)(iia), assessee s engaged in the business of generation or generation and distribution of power is allowed additional depreciation w.e.f. A.Y. 2013-14, meaning thereby, that they were not allowed additional depreciation during the year under consideration i.e. A.Y. 08-09. Accordingly, he disallowed the claim of additional depreciation. 13.3 The Ld. CIT(A) after considering the language of section 32(1)(i) held that the power plant of the assessee has to be treated as an undertaking of assessee generating power and therefore the assessee clearly falls in the first category and was eligible for depreciation. Secondly, the assessee s c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired and installed upto 31.03.2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a wind mill has nothing to do with the power industry, namely, manufacture of oil seeds etc. is totally not germane to the specific provision contained in section 32(1)(iia) of the Act CIT Vs. Diamines Chemicals Ltd. (2014) 109 DTR 62 (Guj.) (HC): The assessee already in the business of manufacture of chemicals, is eligible for additional depreciation u/s 32(1)(iia) in respect of windmill electricity generating machinery acquired by it. JCIT vs. Mineral Enterprises Ltd. (2013) 144 ITD 680 (Bang.)(Trib.): The assessee was engaged in manufacture of article or thing. By exercising the option provided under second proviso to rule 5(1A), it claimed additional depreciation on wind mill. The AO disallowed the claim of additional depreciation on wind mill on the ground that provisions of the Act allowed depreciation only in case of any new machinery or plant (other than ships and aircraft) and not for wind mill, which was engaged in power generation. It was held that in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of goods and thus admissibility of additional depreciation could not be denied to assessee merely on the ground that electricity is not an article or thing. In view of the said decisions, P M acquired and installed by assessee for generation of electricity is akin to manufacture or production of an article or thing and consequently assessee is entitled for additional depreciation u/s 32(1)(iia) on same. 14.3 It was further submitted that the AO while framing assessment u/s 143(3)/147 held that assessee s submission is not acceptable in view of amended provision of sec. 32(1)(iia) whereby assessee s engaged in the business of generation or generation and distribution of power is allowed additional depreciation w.e.f. A.Y. 13-14, meaning thereby, that they were not allowed additional depreciation during the year under consideration i.e. A.Y. 08-09. The said amendment has been incorrectly interpreted by AO. The Hon ble Chennai Tribunal in case of ACIT Vs. M. Satish Kumar (2012) 19 ITR (Trib.) 646, case pertaining to A.Y. 08-09, has given a finding on such amendment and has held that generation of electricity is a manufacturing activity entitling assessee to claim additional depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generation and distribution of power, eligible for benefit under section 32(1)(iia). Although the said amendment is with effect from 1.4.2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia). Further, the Hon ble Kolkata Tribunal in case of Damodar Valley Corporation (2016) 160 ITD 78, case pertaining to A.Y. 11-12 held that on perusal of section 32(1)(iia) of the Act as it stood upto A.Y. 2012-13, it is evident that the additional depreciation is permissible to all assessees who are engaged in the business of manufacture or production of any article or thing. In the circumstances, the assessee who is desirous of claiming the additional depreciation need only to prove that during the relevant year he was engaged in the business of manufacture or production of any article or thing. Now the question to be decided is as to whether the assessee engaged in generation and distribution of electricity could be said to be engaged in the business of manufacture or production of any article or thing so as to be eligible for claiming additional depreciation u/s 32(1)(iia) of the Act. It is w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e its submission dated 21.09.2012 has submitted as under:- (1.1) It may be noted that section 32(1) was amended w.e.f. 01.04.98 whereby under clause (i) of this section an undertaking engaged in generation or generation and distribution of Power is allowed depreciation at such percent age of the actual cost as may be prescribed. The prescribed rate is given in Appendix 1A of the rules whereby straight line of depreciation is provided. Clause(ii) of this section provides for the depreciation on the written down Value of the block of assets as per the rates prescribed in new Appendix-1 . (1.2) As per second proviso to Rule 5(1A) an undertaking specified in clause (i) of section 32 may, instead if claiming deprecation specified in appendix 1A at its option be allowed depreciation as per Appendix-1, if such option is exercised before the due date for furnishing the return of income u/s 139(10 the option once exercised shall be final shall apply to all the subsequent A.Ys. (1.3) From the above provisions, I is clear that the undertaking engaged in generation of generation distribution of Power has an option to claim the depreciation either u/s 32(1)(i) or 32(1)(ii). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution of powers, the assessee s claim was denied holding the said amendment prospective in nature. However, the assessee s case is that as per the second proviso to Rule 5(1)(a) of the IT rules, an undertaking specified in section in 32(1)(i) may instead of claiming depreciation as per Appendix IA (depreciation on actual coston straight line basis) can exercise its option to claim depreciation as per Appendix-1 (on written down value) and such option has been exercised by the assessee before the due date of furnishing of return of income u/s 139(1) of the Act. 16.5 On review of provisions of section 32 read with the rules, it is clear that an undertaking engaged in generation or generation distribution of power has an option to claim the depreciation either u/s 32(1)(i) or 32(1)(ii) of the Act. There is no dispute that the assessee has claimed depreciation u/s 32 (1)(ii) of the Act. The AO has not disputed the said claim of the assessee in respect of claim of depreciation u/s 32(1)(ii) of the Act whereby the assessee has claimed depreciation @ 80% on the assets pertaining to the power plant at Morak and windmill at Jaisalmer in the year under consideration. 16.6 W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r have specifically been included and held eligible for claim of additional depreciation. In our view, the said amendment cannot be held to disentitle the assessee to claim of the additional depreciation. Various Coordinate Benches have held that even prior to the amendment brought in by the Finance Act 2012, the assessees engaged in generation or generation and distribution of electricity were held eligible for additional depreciation. In this regard, reference can be drawn to the decision of NTPC Ltd. (supra), M. Satish Kumar (supra) and Damodar Valley Corpn. (supra). No contrary authority has been brought to our notice. In our view, the said amendment cannot be read to negate the settled legal position that generation of electricity is akin to manufacture or production of an article or thing. As held by Coordinate Bench in M Satish Kumar (supra), the said amendment by the Finance Act 2012 gives an impetus to the view that generation of electricity is a manufacturing process. In light of above, the assessee is held entitled to the additional claim of depreciation on the power plant and the windmill installed during the year. Hence the ground of the department is dismissed. 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was claimed as deduction u/s 43B which was disallowed by AO. It was held that there is no part of s. 43B or the IT Act itself which requires that when deduction is claimed on the basis of s. 43B, the assessee must satisfy the twin test of both proving actual payment of the due tax or cess in the previous year in question as well as satisfying the Department that due provision had been made in the books in regard to such duty or tax for which payment was made later on. To introduce this double test would be writing words into the section which neither the Tribunal nor the Court is entitled to do. In other parts of the Act, where provision in the books is given a special status, and that is specifically called for but s. 43B is not one such section. The Tribunal was not correct in law in holding that where mercantile system is followed deduction of tax under s. 43B is impermissible unless the provision was made in the year in which the liability for tax accrued or arose. CIT Vs. Dharampal Satyapal Sons (P.) Ltd. 50 DTR 287 (Del.) (HC): Payment of pre-deposit by the assessee on the direction of CESTAT. Though the CESTAT had directed the assessee to make aforesaid payment by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of Hon ble Rajasthan High Court dt. 10.10.2007. Further, the land tax of ₹ 54,30,165/- was paid on 07.02.2008 as per the order of Hon ble Rajasthan High Court dt. 01.11.2007. The service tax and land tax are statutory liabilities which are paid during the year as per the orders of the CESTAT and Hon ble Rajasthan High Court. These are statutory liabilities which pertain to the business carried on by the assessee. The assessee cannot be denied a deduction in respect of these payments merely on account of the fact that these are payments in respect of matters which are contested before the authorities and no expenditure is book in the profit and loss account. The decision of Hon ble Delhi High Court in case of Dharampal Satyapal Sons (supra) supports the case of the assessee. In light of above, we upheld the order of the ld CIT(A) in deleting the disallowance of ₹ 1,41,57,121/- u/s 43B made by the AO. In the result, the ground taken by Revenue is dismissed. ITA No. 681/JP/14 AY 2009-10 In this appeal, identical grounds of appeal under identical facts and circumstances of the case have been taken up by the Revenue wherein in ground no. 1, the Revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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