BAIDYANATH POWER PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX-CIRCLE 4(1)(1), MUMBAI

Since common legal issues relating to the validity of the reassessment proceedings under sections 147 and 148 of the Act arise in both appeals, they were heard together and are being disposed of by this consolidated order for the sake of convenience and brevity.

The assessee has raised various grounds as mentioned herein above, challenging the validity of the reassessment proceedings, the disallowance of depreciation on wind power projects, and the denial of carry forward of business loss.

In substance, the grounds relating to reassessment challenge the assumption of jurisdiction under sections 147 and 148 of the Act on the ground that the reassessment proceedings constitute an impermissible change of opinion/review of the original assessment, were initiated solely on the basis of a CAG Audit Objection and, having been initiated beyond four years from the end of the relevant assessment year, were barred by limitation in the absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment.

The assessee had filed its return of income for Assessment Year 2016- 17 declaring a business loss. The return was selected for scrutiny and an assessment under section 143(3) of the Act was completed after issuance of notices under sections 143(2) and 142(1).

During the original scrutiny proceedings, the Assessing Officer had called for specific information and documents relating, inter alia, to the acquisition of assets, the actual cost thereof, the claim of depreciation on the wind power projects, and the shareholding pattern/voting rights of the assessee. The assessee furnished the requisite details, explanations, agreements and valuation-related documents before the Assessing Officer. The Assessing Officer thereafter completed the assessment under section 143(3) without making any disallowance on these issues.

Subsequently, after the expiry of four years from the end of the relevant assessment year, reassessment proceedings were initiated under sections 147 and 148 pursuant to proceedings under section 148A. The basis for initiating the reassessment proceedings was stated to be an objection raised by the CAG Audit Party concerning the depreciation claimed on wind power projects acquired pursuant to a slump sale and the continuity of shareholding for the purposes of section 79 of the Act.

Pursuant to the reassessment proceedings, the Assessing Officer disallowed depreciation amounting to Rs. 1,99,61,867/- and denied the carry forward of business loss of Rs. 7,27,140/- under section 79 of the Act. The Ld. CIT(A)/NFAC sustained the additions.

Before us, the Ld. AR submitted that all primary and material facts relating to the depreciation claim as well as the shareholding pattern had been fully and truly disclosed during the original scrutiny assessment. The Assessing Officer had specifically examined these matters by issuing questionnaires and calling for supporting documents. It was therefore contended that reopening the assessment on the same material, merely because the Audit Party subsequently raised an objection, amounted to a change of opinion and an impermissible review of the assessment already completed under section 143(3).

Reliance was placed, inter alia, on the judgment of the Hon’ble Supreme Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC), as well as on the judgment of the Hon’ble Supreme Court in CIT v. Financial Software & Systems (P.) Ltd., 2022 SCC OnLine SC 1411. Reliance was also placed on the recent judgment of the Hon’ble Delhi High Court in Sapphire Foods India Ltd. v. ACIT (OSD) & Ors., W.P.(C) No. 6159/2023, judgment dated 16 February 2026, reported at [2026] 183 taxmann.com 506 (Delhi).

The Ld. DR, on the other hand, supported the orders of the lower authorities. He submitted that an audit objection constitutes information within the meaning of Explanation 1(ii) to section 148 of the Act and that the Assessing Officer was therefore entitled to initiate reassessment proceedings on the basis of the information received from the Audit Party.

We have heard the learned counsels for both the parties, perused the material placed on record, the judgments cited before us, and the orders passed by the Revenue Authorities. From the records, we note that it is an undisputed position that the original assessment for Assessment Year 2016- 17 was completed under section 143(3) of the Act. It is also evident from the assessment records that, during the original assessment proceedings, the Assessing Officer had specifically called for information concerning the depreciation claim on the wind power projects and the shareholding pattern of the assessee. The assessee had furnished the requisite information and supporting documents in response to the queries raised by the Assessing Officer.

Thus, this is not a case where the reassessment proceedings were founded upon some fresh material or a fact which was not available before the Assessing Officer at the time of the original assessment. On the contrary, the material relied upon for reopening was already available on the assessment record and the relevant issues had been specifically examined during the original scrutiny proceedings.

The mere fact that an Audit Party subsequently raises an objection does not, by itself, confer upon the Assessing Officer a power to review an assessment which has already been completed. The judgment of the Hon’ble Delhi High Court in Sapphire Foods India Ltd. (supra) is directly relevant in this regard. In that case also, the original assessment had been completed under section 143(3), the relevant material had been considered during the original assessment proceedings, and the subsequent reassessment was sought to be initiated on the basis of an audit objection. The Hon’ble High Court held that reopening the assessment in such circumstances would amount to reviewing the assessment already made and that the audit objection could not enlarge the statutory power of the Assessing Officer to reassess income into a power of review.

We are conscious that an audit objection may constitute information for the purposes of the amended reassessment provisions. However, the characterisation of an audit objection as information does not dispense with the other jurisdictional requirements governing the exercise of power under sections 147 and 148 of the Act. Where the material relied upon by the Assessing Officer was already available before him and the very same issue had been examined during the original scrutiny assessment, reopening the assessment merely on the basis of a subsequent audit objection cannot be sustained as an independent power of review. The principle laid down by the Hon’ble Supreme Court in Kelvinator of India Ltd. (supra) continues to apply against such an impermissible review of a concluded assessment.

The position is further reinforced by the judgment of the Hon’ble Supreme Court in Financial Software & Systems (P.) Ltd. (supra), wherein the Revenue was held not entitled to reopen an assessment on an issue which had been specifically examined during the original assessment proceedings after the assessee had furnished replies to the queries raised by the Assessing Officer. The judgment has also been noticed and applied by the Hon’ble Delhi High Court in Sapphire Foods India Ltd. (supra).

There is an additional and independent jurisdictional infirmity in the present case. The notice under section 148 was issued after the expiry of four years from the end of Assessment Year 2016-17, whereas the original assessment had been completed under section 143(3). Under the law applicable to such reopening, action after the expiry of four years could be taken only where the statutory condition relating to failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment was satisfied.

In the present case, the material relating to the depreciation claim and the shareholding pattern had been specifically called for during the original scrutiny proceedings and had been furnished by the assessee. There is nothing on record to establish that the assessee had failed to disclose fully and truly any material fact necessary for its assessment. The very material relied upon for reopening was already available to the Assessing Officer during the original assessment proceedings.

We also note that, under the first proviso to section 149(1) of the Act, the amended limitation provisions cannot revive a notice which had already become barred under the limitation regime applicable immediately before 1 April 2021. The Hon’ble Delhi High Court, in Sapphire Foods India Ltd. (supra), while considering Assessment Year 2016-17, held that where the original assessment had been completed under section 143(3) and the conditions for reopening beyond four years under the pre-amended law were not satisfied, a subsequent notice under section 148 was barred by limitation.

In view of the foregoing discussion, we hold that the reassessment proceedings initiated against the assessee for Assessment Year 2016-17 are without jurisdiction and cannot be sustained. The reassessment proceedings are accordingly quashed and the reassessment order passed pursuant thereto is set aside.

Since the reassessment itself has been quashed on jurisdictional grounds, the grounds challenging the disallowance of depreciation of Rs. 1,99,61,867/- on the wind power projects and the denial of carry forward of business loss of Rs. 7,27,140/- under section 79 of the Act become academic and are therefore not adjudicated.

Accordingly, ITA No. 3704/Mum/2026 for Assessment Year 2016-17 stands allowed.

In this appeal, the assessee has challenged the validity of the reassessment proceedings, the addition of Rs. 51,73,109/- on account of alleged unaccounted contract receipts from Manipal University, the disallowance of depreciation of Rs. 4,35,53,979/- on goodwill arising from amalgamation, the corresponding adjustment to book profit under section 115JB, and the denial of consequential TDS credit.

The assessee filed its return of income for Assessment Year 2020-21 declaring its business income and claiming the deductions permissible under the Act. Subsequently, proceedings under section 148A were initiated and a notice under section 148 was issued. The principal basis stated for reopening the assessment was the alleged escapement of contract receipts from Manipal University as reflected in the Form 26AS/TDS information.

In the reassessment proceedings, the Assessing Officer made an addition of Rs. 51,73,109/- on the ground that contract receipts from Manipal University had not been accounted for by the assessee. The Assessing Officer also disallowed depreciation of Rs. 4,35,53,979/- claimed on goodwill arising pursuant to amalgamation, made a corresponding adjustment to book profit under section 115JB, and did not grant the corresponding TDS credit.

The learned CIT(A)/NFAC sustained the additions.

As regards the addition of Rs. 51,73,109/- relating to Manipal University, the assessee demonstrated before the lower authorities as well as before us that the relevant receipts from the sale of power and operation and maintenance services had already been credited to the profit and loss account, were reflected in the audited financial statements, and had been duly taken into account while computing the income disclosed in the return.

The Assessing Officer, however, proceeded primarily on the basis of the Form 26AS/TDS information without reconciling the same with the assessee’s books of account and without establishing that the amount represented receipts over and above the turnover already recorded by the assessee.

Once the assessee had demonstrated, with reference to its books of account and audited financial statements, that the receipts reflected in the TDS information had already been accounted for and offered to tax, an addition of the very same receipts, without any finding that they represented additional or undisclosed income, could not be sustained.

The addition of Rs. 51,73,109/- is therefore deleted. Grounds 4 to 6 are allowed.

The next issue concerns the disallowance of depreciation of Rs. 4,35,53,979/- claimed on goodwill arising pursuant to amalgamation.

The assessee’s claim relates to Assessment Year 2020-21. The law applicable to this assessment year is therefore required to be considered with reference to the provisions of section 32(1)(ii) as they stood during the relevant assessment year.

The Hon’ble Supreme Court in CIT v. Smifs Securities Ltd. [2012] 348 ITR 302 (SC) held that goodwill arising on amalgamation is an intangible asset within the meaning of section 32(1)(ii) of the Act and is eligible for depreciation, subject to the provisions of the Act.

Subsequently, the Finance Act, 2021 amended the provisions of the Act to exclude goodwill from the definition of depreciable intangible assets and made corresponding amendments to the provisions relating to depreciation and written down value. Those amendments apply from Assessment Year 2021-22 onwards. Accordingly, for Assessment Year 2020-21, the amendment introduced by the Finance Act, 2021 cannot, by itself, be applied retrospectively so as to deny depreciation otherwise allowable under the law applicable to the relevant assessment year.

In the present case, the goodwill arose pursuant to amalgamation and the assessee’s claim of depreciation pertains to Assessment Year 2020-21. The disallowance made by the Assessing Officer merely by applying the amendments introduced by the Finance Act, 2021 to the year under consideration is therefore not sustainable.

The provisions governing the determination of actual cost and written down value in the case of amalgamation have also to be applied in accordance with the law applicable to the relevant transaction and assessment year. The Assessing Officer cannot invoke the amendments introduced with effect from Assessment Year 2021-22 so as to retrospectively extinguish a depreciation claim otherwise allowable for Assessment Year 2020-21.

We therefore direct the Assessing Officer to allow the depreciation claimed by the assessee on the goodwill for Assessment Year 2020-21, subject to verification of the computation and satisfaction of the statutory conditions applicable to the relevant year. The disallowance of Rs. 4,35,53,979/- is accordingly deleted. Grounds 7 to 13 are allowed.

The next issue concerns the addition of Rs. 4,35,53,979/- to the book profit under section 115JB of the Act.

The starting point for computation of book profit under section 115JB is the net profit shown in the profit and loss account prepared in accordance with the applicable provisions of company law, subject only to the specific additions and deductions prescribed by Explanation 1 to section 115JB(2). The principle laid down by the Hon’ble Supreme Court in Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 (SC) is that the Assessing Officer cannot ordinarily go behind the net profit shown in the profit and loss account except to the extent authorised by the statutory adjustments.

In the present case, the depreciation in question had been debited to the profit and loss account. Since the corresponding disallowance under the normal provisions of the Act itself is deleted, and no specific provision authorising the impugned adjustment to book profit has been shown to be applicable to the facts of the present case, the addition of Rs. 4,35,53,979/- to book profit under section 115JB cannot be sustained.

The adjustment of Rs. 4,35,53,979/- made to the book profit under section 115JB is accordingly deleted. Ground 14 is allowed.

As regards the TDS credit, where the corresponding income has been duly offered to tax, the assessee is entitled to credit for tax deducted at source in accordance with section 199 of the Act read with Rule 37BA of the Income-tax Rules, 1962, subject to verification of the relevant records.

The Assessing Officer is accordingly directed to verify the TDS reflected in the relevant records/Form 26AS and grant the credit legally admissible to the assessee in accordance with section 199 of the Act read with Rule 37BA. Ground 15 is allowed for statistical purposes.

We now turn to the grounds challenging the assumption of jurisdiction under sections 147 and 148 of the Act, including the challenge to the order passed under section 148A(d), the approval under section 151, and the contention that, once the alleged escapement of contract receipts forming the basis of the reopening is found not to exist, the reassessment proceedings cannot be sustained.

The stated basis for reopening the assessment was the alleged escapement of contract receipts from Manipal University. We have, after examination of the material placed before us, found that the receipts relied upon by the Assessing Officer had already been accounted for in the assessee’s books and had been offered to tax. The very foundation on which the reassessment proceedings were initiated is therefore factually unsustainable.

The jurisdiction to reopen an assessment under section 147 is founded upon the existence of income chargeable to tax having escaped assessment. Where the very material forming the basis of the alleged escapement is demonstrated to have already been duly accounted for and offered to tax, the jurisdictional foundation of the reassessment proceedings does not survive.

We therefore hold that the reassessment proceedings for Assessment Year 2020-21 cannot be sustained on the basis stated by the Assessing Officer. The reassessment order is accordingly set aside to the extent challenged in the present appeal.

In view of the above, the jurisdictional grounds relating to the initiation of reassessment proceedings are allowed. Ground 16 is also allowed. The other grounds have already been adjudicated hereinabove.

In the result, ITA No. 3705/Mum/2026 for Assessment Year 2020-21 stands allowed.

In the net result, ITA No. 3704/Mum/2026 for Assessment Year 2016- 17 is allowed and ITA No. 3705/Mum/2026 for Assessment Year 2020-21 stands allowed.