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Facts
The assessee, a special purpose vehicle, converted a meter gauge railway track to broad gauge on a Build-Own-Transfer basis. Depreciation was allowed during the original assessment. Subsequently, the assessment was reopened based on audit objections, alleging the assessee was not the owner of the asset.
Held
The Tribunal held that the reassessment proceedings were initiated based on a 'change of opinion' and borrowed satisfaction from the audit party, without proper application of mind by the AO. The objections of the assessee were not disposed of by a speaking order.
Key Issues
Whether reassessment proceedings initiated on the basis of audit objections and a change of opinion, without disposing of assessee's objections by a speaking order, are valid?
Sections Cited
148, 147, 234B, 143(3)
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Income Tax Appellate Tribunal, DELHI BENCH ‘C’: NEW DELHI
(Assessment Year: 2006-07) Viramgam Mahesana Project Limited, vs. ACIT, Circle 17(1), E – 9, 3rd Floor, New Delhi. NDSE Part 2, New Delhi – 110 049. (PAN :AABCV7027L) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri K. Sampath, Advocate Shri V. Raja Kumar, Advocate REVENUE BY : Shri Dayainder Singh Sidhu, CITDR Date of Hearing : 03.06.2025 Date of Order : 14.08.2025 ORDER PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. Thisappeal is filed by the assesseeagainst the order of ld. Commissioner of Income-tax (Appeals)-19, New Delhi [hereinafter referred to as ‘ld. CIT (A)]dated 22.10.2014for Assessment Year 2006-07 raising following grounds of appeal :- “1 That on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the initiation of the reassessment proceedings, u/s 148 of the Income Tax Act, and also failed to appreciate that neither the mandatory requirements of section 148 of the Income Tax Act nor the pre-conditions for invoking the provisions 147 of the Income Tax Act, stood satisfied. Thus the notice u/s 148 of the Income Tax Act, is bad in law.
2. That the Ld. CIT(A) has erred in justifying reassessment proceedings without appreciating that the AO has not dealt with the objections filed, for initiation of reassessment proceedings, by disregarding the judgement of Hon'ble Apex Court in the case of GKN Driveshaft reported in 259 ITR
19. (SC).
3. That the Ld. CIT(A) has misinterpreted the CBOT clarification in Circular no. 9/2014 dated 23.04.2014, which is related to BOT (Build Operate Transfer) Projects whereas assessee company's project is BUILD OWN TRANSFER. The Ld. CIT(A) has failed to appreciate the submissions and documents/evidences placed on records and has arbitrarily applied the circular without taking into consideration the complete facts of the case. In any case, sustaining the adverse inference taken by AO on the basis Audit Objection, (which stood dropped subsequently) unsupported by any evidence is highly unjustified.
4. That the Ld. CIT(A) has erred in law as well as on facts in confirming disallowance of depreciation of Rs.13,34,96,966/- on the project asset owned by the assessee company on the allegation that the assessee company is not the owner of these assets.
5. That the Ld. CIT(A) has erred both in law as well as on facts in sustaining the charge of interest under section 234 B of the Income Tax Act. It is thus accordingly prayed that the disallowances, as made be ordered to be deleted and the charge of interest also be ordered to be modified.”
2. At the time of hearing, ld. AR of the assessee vehemently argued on the technical issues raised by the assessee in Ground Nos.1 & 2. In this regard, he submitted as under :- “2. The assessee is a Company established as a special purpose vehicle (SPV) for conversion of the existing meter gauge railway track Virangam and Mahesana Stations into broad gauge on 'Build- Own-Transfer' (BOT) basis vide agreement dated 23.05.2003 (extracts at PB 68 to 80). It was assessed vide order u/s 143(3) of the Income- tax Act, 1961 (the Act) dated 23.12.08 (PB 49) specifically referring to and allowing the claim of depreciation. Thereafter assessment was reopened vide notice u/s 148 of the Act dated 30.03.2011 (PB 54). The reasons recorded dated 25.03.2011 (PB 55) are a word to word replica of para 2 of an audit note issued to the AO (PB 51) in this case.
The assessee challenges validity of re-opening of assessment on as many as three counts: A CHANGE OF OPINION (i) During original assessment proceedings, the claim of depreciation on the railway track as build and own by the assessee was allowed after due examination by the concerned AO. Letter dated 23.12.2008 (PB 9 to 14) filed before the AO during the original assessment proceedings is relevant. At para 1 of the said letter itself, there is reference to the track work which forms the main asset in the fixed assets schedule of the assessee. At para 12 of the said letter there is a detailed submission explaining why the track work, as forming part of the assessee's plant and machinery, is entitled to depreciation. After a careful examination of the said submissions, the Assessing Officer in assessment allowed depreciation vide order dated 23.12.2008 (PB 49). The order makes specific reference to the claim for depreciation and states that the income is determined after taking into consideration the details, information and evidence filed by the assessee as stated above. Even while making out the audit note (PB 51) which would be on the basis of assessment record, it is clear that the audit party had complete details of the depreciation claim and the relevant asset before it. (ii) On receipt of the audit note (PB 51) and after consideration of the assessee's submissions in this regard vide letter 11.05.2010 (PB 52), the AO had written to the audit party on 09.12.2011 (PB 65) specifically admitting that for the relevant period, the assessee was the owner of the railway track. On the basis of the AO's observation, the audit party had treated the objection as settled vide its intimation dated 30.03.2012 (PB 66). After the AO himself admitting in writing that during the subject year the assessee was owner of the railway track the re-opening of the assessment on that very excuse is hit by a change of opinion in ways more than one.
(iii) In State Bank of India vs. ACIT (411 ITR 664), the Hon'ble High Court of Bombay has held that it can and should be assumed that while framing an assessment, the Assessing Officer has examined and applied his mind to the basic documents as required for the framing of an assessment (Para 6 of the said judgement). In the subject case the assessee's audited accounts themselves made clear and specific disclosure of the assessee's ownership of the railway track. The fixed assets schedule (PS 41) as well as the notes to accounts (PS 45) made specific disclosure of the depreciation claim as well as the railway track. Even annexure to the auditor report at para 1 itself (PS 34) disclosed the said details. Without examining these documents the AO could not have- framed assessment in the assessee's case. He is assume to have examined them and formed an opinion. In fact as pointed out in (b) above he indeed concedes this fact. B. COMPLETE NON-APPLICATION OF MIND OF AO TO THE AUDIT NOTE (i) As per section 147 of the Act an assessment can be validly re- opened on a belief formed by the AO. It cannot be so on the opinion of the audit party. The reasons recorded in the subject case (PB 55) are a word to word replica of the audit note (PB 51) with the sole removal of the word 'mistake' in the last sentence of the audit note. While thus copy pasting the audit note the AO has even failed to notice the reference to Access Charge receivable by the assessee. A ridiculous figure of Rs.79,695/- Crores has been held to be receivable by the assessee twice a year, while from the assessee's annual accounts itself the AO while recording his satisfaction, ought to have noted that it's gross receipts for the year were only Rs.16.16 Crores (PS 39). On receipt of such details, the AO was required to conduct some verification of details or enquiry before shooting out the notice. The AO had no basis to hold that the track work did not belong to the assessee. The very concept of 'Build-Operate-Transfer' as alleged in the audit note and lifted into reason is impossibility, because, as per law, nobody can operate a railway service in India other than the Indian Railways itself. The assessment has thus been re-opened without any examination or application of mind and is based wholly on a borrowed satisfaction and being so is unsustainable in law, particularly in view of the judgement of Delhi High Court Tansworld International Inc. vs. JCIT (2005) 273 ITR 242 (para 24).
(ii) Any satisfaction recorded u/s 147 of the Act on the basis of a borrowed satisfaction is untenable in law. Authorities on this point are the jurisdictional High Court decisions in – a. Pro CIT vs. Meenakshi Overseas P. Ltd. (2017) 395 ITR 677 (Del) b. Sarthak Securities Co. Pvt. Ltd. vs. ITO (2010) 329 ITR 110 (Del) c. CIT vs. SFIL Stock Braking Ltd. (2010) 325 ITR 285 (Del) C. NO ORDER PASSED AGAINST OBJECTIONS FILED On receipt of the reasons recorded dated 25.03.2011, the assessee filed detailed objections (PB 59). The said objections have never been disposed off through a speaking order before proceeding with and framing the assessment. This in violation of mandate in GKN Driveshaft (2003) 259 ITR 19 (SC).”
3. On the other hand, ld. DR of the Revenue objected to the submissions made by the ld. AR of the Assessee and submitted that he relies on the decision of Hon’ble Madras High Court in the case of Home Finders Housing Ltd. vs. ITO (2018) 93 taxmann.com 371 (Madras) and submitted that as per the abovesaid decision, no doubt AO is bound to dispose off all the objections raised by the assessee by passing a speaking order, however, he submitted that in case the disposing off the objections require detailed examination of facts and application of legal provisions, which would require considerable time, the AO can dispose of the objections, by giving his tentative reasons for overruling the objections. He submitted that the AO has dealt with accordingly in this case. He relied on the above findings and prayed that the technical issues raised by the assessee may be dismissed.
Considered the rival submissions and material placed on record. We observe from the record that the reassessment proceedings were initiated on the basis of audit objections and the reasons recorded by the audit party are, the assessee had executed the conversion of meter gauge railway track into broad gauge on Build-Own-Transfer basis vide agreement executed by the assessee with the Railways and capitalized the same, accordingly claimed the relevant depreciation. The audit party raised the query on the basis that it should be treated similar to the Build-Operate-Transfer basis operated in the Road projects. The AO clarified the relevant aspects and the difference between the project executed by the assessee and the Road projects. Subsequently, the same was dropped by the audit party.
By using the same reasons raised by the audit party, the AO proceeded to initiate the reassessment proceedings recording the exact similar issues. It is brought to our attention that the erstwhile AO has applied his mind in the original assessment and after due verification of the documents, allowed the depreciation claimed by the assessee. The AO has also clarified the above facts to the audit party and closed the audit points. We noticed that the same audit query was applied to reopen the assessment and further, the assessee had raised objections to the above initiation of reassessment on the basis of AO has not disposed of the objection by passing a speaking order. He has completed the reassessment on the basis of above reasons recorded.
After consideration of above facts and reasons on record, we are of the opinion that the assessing officer has one hand satisfied with the facts on record at the time of original assessment and closed the audit query. However, at the secondary stage, he forms an opinion that the assessee had in fact followed the method of Build-Operate-Transfer. It is fact on record that the assessee had in fact converted the meter gauge to broad gauge, this project was in fact carried out for the Railways, it is different from Build Operate and transfer adopted in the road projects however, it is in the nature of Build Own and Transfer. Therefore, there is considerable difference in the approach adopted by the erstwhile AO and the present AO, therefore, in our considered view, there is change of opinion in this case, there cannot be a situation where two views are possible for AO to adopt at the time of original assessment and reassessment, which is not permitted. In our view, revenue cannot reopen an assessment on a mere change of opinion, we observed that the various courts have held that the concept of ‘change of opinion’ must be treated as an in-built test to check the abuse of power and hence the Revenue has the power to reopen an assessment, provided there is tangible material to come to the conclusion that there was escapement of income from assessment. It is a fact that the Revenue initiated the reassessment proceedings based on the audit objections raised by the audit party, thus the reasons for reopening of assessment are recorded on borrowed satisfaction of the audit party. Once there is a conscious application of mind after considering the relevant facts and material available on record at the relevant point of time, while making the assessment a different and divergent view cannot again be taken as this would amount to ‘change of opinion’. Therefore, in the given case, the AO has sought to resurrect a stale and concluded issue which was already examined during the course of regular assessment. Therefore, in our considered view, the reassessment was initiated based on change of opinion. A similar view was expressed by the Hon’ble Delhi High Court in the case of Meenakshi Overseas P Ltd (supra). Therefore, we are inclined to agree with the submissions of the assessee on the jurisdictional issue, accordingly, the grounds 1 and 2 raised by the assessee are allowed.
Other grounds raised
by the assessee are kept open at this stage.
8. In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on this 14th day of August, 2025.