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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R
Per Shri D.S.Sunder Singh, Accountant Member : These appeals are filed by the assessee against the order of the Commissioner of Income Tax [CIT(A)]-6, Hyderabad dated 26.02.2019 for the Assessment Year (A.Ys.)2011-12 to 2015-16. Since the grounds raised
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in these appeals are common, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience as under.
Common issue in all the appeals under consideration is the validity of issue of notice u/s 148 of the Income Tax Act, 1961 (in short ‘Act’). The assessee filed the returns of income for the A.Y 2011-12, 2012-13, 2014-15 and 2015-16 and the Assessing Officer (AO) completed the assessment u/s 143(1) of the Act. Subsequently, the AO found that the assessee had claimed the depreciation on plant and machinery @30% which is to be allowed in the case of the business of running vehicles on hire. Normal depreciation allowable in the case of usage of vehicles in the business is 15%. As the plant and machinery are in the nature of earth moving machinery, which cannot be classified as motor lorries used in the business of running them on hire and the assessee engaged in the business of civil contracts, the AO is of the view that assessee was not eligible for depreciation @30%, hence reopened the assessment u/s 147 by issue of notice u/s 148 with prior approval of Ld.Pr.Commissioner of Income Tax-2 Visakhapatnam and subsequently issued the notices u/s 143(2) and 142(1) and completed the reassessments u/s 143(3) r.w.s. 147 by making
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following additions to the returned income in the respective assessment years. Addition Made (Rs.) EPF & EPF/ Returned Dep.on ESI ESI Total Income Service Tax A.Y. Income Plant & (before (After (Rs.) Expenditure (Rs.) Machinery filing filing (Rs.) (Rs.) ROI) ROI) (Rs.) (Rs.) 2011-12 95,26,110 9,98,056 43,542 27,236 - 1,05,94,944 2012-13 74,18,560 9,85,056 1,45,569 55,551 - 85,54,320 2013-14 50,81,840 10,58,518 - 5,92,597 - 67,32,955 2014-15 23,95,240 4,22,564 5,18,342 39,388 82,397 34,58,551 2015-16 32,42,869 2,19,069 5,92,486 51,185 63,009 41,68,623
Aggrieved by the order of the AO the assessee went on appeal before the CIT(A) and challenged the validity of issue of notice u/s 147 stating that the AO had initiated proceedings u/s 147 due to change of opinion, thus argued that reopening of assessment is invalid, erroneous and contradictory to the facts. The Ld.CIT(A) found that after the receipt of notice u/s 148, the assessee did not raise any objection before the AO against the initiation of proceedings u/s 147 of the Act and for the first time the assessee had raised the issue with regard to the jurisdiction before the Ld.CIT(A). The Ld.CIT(A) further observed that in the instant case, the assessments were completed u/s 143(1) accepting the income returned, hence, there is no case for forming an opinion, thus rejected the contention of the assessee with regard
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to change of opinion and held that the AO has fulfilled the crucial requirement of live link between the information available and inference drawn and prima facie, the assessee is engaged in the business of execution of civil contracts and, claimed higher rate of depreciation @30% in respect of earth moving machinery which is applicable to motor buses, motor lorries and motor taxis used in the business of running them on hire, resulting in excess claim of depreciation, thus viewed that there is substantial material to hold that there is escapement of income. The Ld.CIT(A) placed reliance on various case laws and observed that Hon’ble Courts have laid down the proposition of law that sufficiency of reasons for forming belief for escapement of income is not necessary for reopening the assessment. The Ld. CIT(A) taken the support of the following case laws: (i) Skylight Hospitality LLP Vs. ACIT (2018) 405 ITR 296 (Delhi) (ii) Rakesh Gupta Vs. CIT & Another (2018) 405 ITR 213 (P&H) (iii) Decisions of Hon’ble Supreme Court in the case of (a) ITO Vs. Lakshmani Mewal Das 103 ITR 437 (SC) (b) Raymond Woollen Mills Vs. ITO & Anr. 236 ITR 34 (SC) (c) Phoolchand Bhajranglal & Anr. Vs. ITO 203 ITR 456 (SC) 3.1. The Ld.CIT(A) also relied on the decision of Hon’ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt Ltd. [2007] 291 ITR
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500 (SC) and upheld the validity of issue of notice u/s 148 and dismissed the appeal of the assessee on this ground.
Against the order of the Ld.CIT(A), the assessee filed appeal before us. During the appeal hearing, the Ld.AR argued that issue of notice u/s 147 for reopening of assessment and consequent issue of notice u/s 148 is invalid and it was due to change of opinion, but not having reason to believe that income had escaped assessment. The Ld.AR further argued that if there is excess claim of depreciation, there are other remedial measures available in the Act, which the AO ought to have taken action u/s 154 or 263 instead of reopening the assessment. No fresh information was received by the AO and the assessment was reopened only on account of audit objections as per the information obtained from the AO under RTI Act, hence argued that invoking the jurisdiction u/s 147 is illegal and requested to set aside the orders of the Ld.CIT(A) and to quash the notice issued u/s 148 of the Act.
On the other hand, the Ld.DR supported the orders of the lower authorities.
We have heard both the parties and perused the material placed on record. In the instant case, all the assessments were completed u/s 143(1)
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and no assessment was framed u/s 143(3) of the Act. Therefore, there is no occasion for the AO to examine the issue and to form an opinion or express view with regard to various claims made by the assessee in the return of income. It is settled issue that 143(1) is not an assessment, it is only an intimation. Since no assessments were completed u/s 143(1), there is no case for change of opinion. In the instant case, as per the information available on record, the assessee is engaged in the business of civil contracts and claimed the depreciation on earth moving machinery @30% instead of 15%. Therefore, as observed by the Ld.CIT(A), the AO has fulfilled the crucial link between the information available and the inference drawn to have belief that the income chargeable to tax had escaped the assessment. There is no dispute that the AO had recorded the reasons and obtained the approval from the competent authority as provided in the Act. The AO satisfied all the requirements for issue of notice u/s 148. The Ld.CIT(A) has rightly relied on the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Broker Pvt. Ltd. (supra) , wherein, the Hon’ble Supreme Court observed that the intimation u/s 143(1) is not an assessment. Since the intimation u/s 143(1) is not an assessment within the meaning of statute, there is no question of treating the reassessment was based on change of
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opinion. Therefore, we hold that in the instant case having processed the returns u/s 143(1), there is no case for change of opinion and the AO has rightly reopened the assessment after being satisfied with the reason that the income chargeable to tax had escaped the assessment.
6.1. The second proposition made by the assessee is that the AO ought to have resorted for action u/s 154 or 263 instead of reopening the assessment u/s 147 of the Act. It is for the AO to take appropriate remedial action and to bring the escaped income to assessment but not for the assessee to dictate the terms. In the instant case, the AO viewed that correct remedial action is reopening of assessment and rightly invoked jurisdiction u/s 147, hence we reject the argument of the Ld.AR. Accordingly, we uphold the order of the CIT(A) and dismiss the appeal of the assessee on this ground for the A.Y. 2011-12, 2012-13, 2014-15 and 2015-16. A.Y.2013-14 7. In the instant case, the assessment was originally completed u/s 143(3). Later on, the AO found that the assessee had claimed the depreciation on earth moving machinery @30% against the actual rate of 15%. Therefore, the AO reopened the assessment u/s 147 and issued notice u/s 148 of the Act. On appeal before the first appellate authority, the
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Ld.CIT(A) upheld the validity of issue of notice u/s 148 placing reliance on various case laws. The Ld.CIT(A) has made elaborate discussion upholding the action of the AO. For the sake of clarity and convenience, we extract relevant part of the order of the Ld.CIT(A) from para No.7.2. to 7.2.10 which reads as under : “7.2.0 INITIATION OF PROCEEDINGS U/S 147 OF THE ACT : Ground No.1 & 2 1. The order passed by the learned Asst.Commissioner of Income Tax for the assessment year 2013-14 u/s 143(3) r.w.s. 147 is erroneous in law, contrary to the facts, probabilities of the case and against the principles of natural justice. 2. Initiation of reassessment proceedings is one to change of opinion and the same is against provisions of section 147. 7.2.1 It is contended by the assessee that the order passed by the AO u/s 143(3) r.w.s. 147 of the Act is erroneous in law and contrary to the facts. Further, the assessee is of the opinion that the AO had initiated the reassessment proceedings due to change of opinion which is against the provisions of sec.147 of the Act. 7.2.2 I have carefully considered the grounds of appeal and examined the same in the light of the facts of the case and the relevant provisions of the Act. Also, I have applied the judicial precedents on the subject. At the outset, it may be noted that subsequent to receipt of the notice u/s. 148 of the Act, the assessee did not raise any objection before the AO against the initiation of proceedings u/s 147 of the Act. As such, for the first time before the appellate authority, the assessee has raised the jurisdiction issue. 7.2.3 At the outset, I would like to highlight the fact that, in the instant case, the assessment was reopened within four years from the end of the impugned AY 2013-14. To be precise, for the impugned AY 2013-14, the threshold period of four years had expired on 31.03.2018, However, the AO initiated reopening proceedings by issuing notice u/s. 148 of the Act or 17.03.2017. Accordingly, the first proviso below Sec.147 of the Act is not attracted to the facts of the case. As such, the disclosure of all material facts necessary for completing assessment fully and truly by the assessee during the course of original assessment proceedings u/s 143(3) of the Act, if any, would not come in the way of reopening the assessment.
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7.2.4. Accordingly, the power to make assessment or reassessment within four years from the end of the relevant AY would be attracted even in cases where there has been a complete disclosure of all relevant facts necessary for completion of the assessment. This is precisely because of the reason that the phrase 'escaped' would cover the case of discovery of a mistake in the original assessment u/s. 143(3) of the Act caused by either on erroneous construction of the transaction or due to its non consideration or caused by mistake of law applicable to such transactions even where there has been a complete disclosure of all relevant facts by the assessee which are necessary for the completion of the assessment.
7.2.5. Further, in case, where the AO omitted to consider certain facts at the time of original assessment u/s. 143(3) of the Act, it cannot be considered as change of opinion, when the income which was chargeable to tax is actually taxed correctly in accordance with the provisions of law which was omitted to be considered due to mistake by the AO at the time of completion of the original assessment. Under the circumstances, when the issue itself was not at all considered at the time of original assessment u/s. 143 (3) of the Act, the question of attributing change of opinion while passing the reassessment order rectifying such mistake doesn't arise.
7.2.6. It is also important to note that the basic requirement to reopen the assessment u/s. 147 of the Act is that there should be reason to believe on the part of the AO that income has escaped assessment while passing the original assessment u/s. 143(3) of the Act. In this regard, it is trite law that the word 'reason' in the phrase 'reason to believe' would mean "cause or justification." Accordingly, if the AO has a cause or justification to think that the income had escaped assessment, it can be construed that AO has reason to believe that such income had escaped assessment. Unless the information or the material on the basis of which the AO has come to a belief that the income had escaped assessment is found to be so irrational as not to be worthy of being called a reason by any honest man, his conclusion that it constitutes a sufficient reason cannot be questioned. If the AO honestly comes to a conclusion that a mistake has been made, it matters nothing so far as his jurisdiction to initiate the proceedings u/s. 147 of the Act is considered, even, if he has come to an erroneous conclusion whether on law or on facts.
7.2.7. Further, it is well settled legal position that the court will not in exercise of its extraordinary jurisdiction under the constitution, examine the sufficiency of the reason which led the AO to believe that the income had escaped the assessment. The court can only examine whether the reasons are relevant and have a bearing on matters with regard to which the AO had come to a belief that income had escaped assessment. In this regard reliance is placed on the following decisions.
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Kalyanji Mavji & Co., vs CIT [1976]102 ITR 287 (SC) In this case, the Hon'ble Supreme Court has laid down the position of law with regard to conditions to be fulfilled for the purpose of reopening of assessment. The relevant portion of the same is reproduced below for ready reference. "Section 34(1)* contemplates two categories of cases for reopening the previous assessment: (1) where there has been an omission or failure on the part of the assessee to make a return of his income under section 22 or to disclose fully and truly all material facts necessary for his assessment; and (2) where there has been no such omission on the part of the assessee but the ITO on the basis of information in his possession finds that income chargeable to tax has escaped assessment for any year. It is therefore, manifest that the first category deals with cases where an assessee is himself in default and the second category deals with cases where there is no fault on the part of an assessee but where the income chargeable to tax has actually escaped assessment for one reason or the other and the ITO comes to know about the same. The following tests and principles would apply to determine the applicability of section 34(l)('b) to the following categories of cases: (1) where the information is as to the true and correct slate of the law derived from relevant judicial decisions; (2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the ITO. This is obviously based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority; (3) where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment; (4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law.
If these conditions are satisfied then the ITO would have complete jurisdiction to reopen the original assessment. It is
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obvious that where the ITO gets no subsequent information, but merely proceeds to reopen the original assessment without any facts or materials or without any enquiry into the materials which form part of the original assessment, section 34(1)(b) would have no application. * (equivalent to sec. 147 of the Act)
ITO s Lakshmani Mewal Das [1976] 103 ITR 437 (SC) 3. Phoolchand Bhajranglal & Anr. Vs. ITO 203 ITR 456 (SCJ:& 4. Raymond Woolen Mills vs ITO [1999] 236 ITR 34 (SC):
In the abovementioned cases, the Hon'ble Supreme Court has laid down the proposition of the law that sufficiency of reason on the part of the AO in coming to the belief that income had escaped assessment is not open to question in a court of law, but the existence of belief can be challenged. The relevant portion of the decision is reproduced below for ready reference. "The Supreme Court had only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material was not a thing to be considered at this stage. The Supreme Court could not strike down the reopening of the case in the facts of the instant case. It would be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee might also prove that no new facts came to the knowledge of the ITO after completion of the assessment proceeding. The Supreme Court was not expressing any opinion on the merits of the case. The questions of fact and law were left open to be investigated and decidedly the assessing authority. The assessee would be entitled to take all the points before the assessing authority. The appeals were dismissed. 5. Rajat Export India Pvt Ltd. Vs. ITO [2012] 341 ITR 135 (Del.) 6. Aradhana Estates (P) Ltd vs DCIT [2018] 91 taxmann.com 119 (Guj.):
In this case, the Hon'ble Gujarat High Court has held that what is required to be examined u/s. 147 of the Act is whether the AO has sufficient material at his command to form a reasonable belief that income had escaped assessment. Also, it was held that merely because the transactions on the basis of which the assessment has been reopened were scrutinised by the AO during the original assessment proceedings u/s. 143(3) of the
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Act would not preclude the AO from reopening the assessment. The relevant portion of the decision is reproduced below for ready reference.
"10. The contention that there was no failure on part of the assessee to disclose truly and fully facts cannot be accepted The Assessing Officer, as noted, received fresh material after the assessment was over, prima facie, suggesting that the assessee company had received bogus share application/premium money from number of shell companies.
Merely because the transactions in question were examined by the Assessing Officer during the original assessment would not make any difference. The scrutiny was on the basis of disclosures made and materials supplied by the assessee. Such malarial is found to be prima facie untrue and disclosures not truthful. Earlier scrutiny or examination on the basis of such disclosures or materials would not debar a fresh assessment. Each individual case of this nature is bound to have slight difference in facts. 7. Krishna Developers and company vs DCIT [2017] 84 taxmanm.com 166 (Gui.): In the above case, Hon’ble Gujarat High court held that merely because reasons recorded by AO proceeded on same basis on which AO initially desired to make additions but which failed on account of setting aside of order of assessment by CIT(Appeals), it would not preclude the AO from carrying out exercise of reopening of assessment. The relevant portion of the decision is reproduced below for ready reference. “20. Nothing contained in the language of section 147 would permit to hold that even if all the parameters to enable the Assessing Officer to assess or reassess the income by reopening the assessment are present, same may not be permitted in cases where the original assessment framed by the Assessing Officer has failed on any technical ground, such as in the present case want of service of notice under section 143(2). Once the original assessment is declared as invalid as having been completed without the service of notice on the assessee within the statutory period, there would be thereafter no assessment in the eye of law. The situation therefore, be akin to where return of the assessee has been accepted without a scrutiny. Reopening of the assessment, if the Assessing Officer has the reason to believe that income chargeable to tax has escaped assessment, would be entirely permissible under
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section 147. Merely on the ground that the reasons recorded by the Assessing Officer proceeded on the same basis on which the Assessing Officer initially desired to make additions but which failed on account of setting aside the order of assessment, would not preclude the Assessing Officer from carrying out the exercise of reopening of the assessment, In the present case, facts are peculiar. It is not as if the Assessing Officer, after noticing certain discrepancies in the return of the assessee, slept over his right to undertake the scrutiny assessment. The scrutiny assessment was initiated by issuance of notice under section 143(2) on 23-9-2013. It was also dispatched for service to the assessee on 24-9-2013 by Speed Post on the last known address. The Commissioner (Appeals) however, held that there was no proof of service of notice and since section 143(2) requires service of notice, the assessment was framed without complying with the mandatory requirements. Aggrieved by the above decision of the Hon’ble Gujarat High Court, the assessee preferred Special Leave Petition (SLP) before the Hon'ble Supreme Court. However, after examining the issue, SLP filed by the assessee has been dismissed by the Hon 'ble Supreme court as reported in Krishna Developers and Company vs DCIT' [2018] 91 taxmann.com 306 (SC). 7.2.8 At this juncture, it is also important to note that at the time of initiation of proceedings u/s 147 of the Act i.e. while recording the reasons and issuance of notice u/s 148 of the Act, absolute certainty regarding the escapement of income from assessment is not necessary. However, "reasons to believe" recorded prior to issue of notice must not be based on mere suspicion, gossip or rumour. There should be live link between the information available with the AO and inference drawn that income has escaped assessment. 7.2.9 In the instant case, it is clearly established that the AO has fulfilled the crucial requirement of live link between the information available and inference drawn in as much as, prima facie, the assessee, who is engaged in the business of execution of civil contract works claimed higher rate of depreciation @ 30% in respect of earth moving machinery, which is applicable in respect of motor buses, motor lorries and motor taxis used in a business of running them on hire, resulting in excess amount of depreciation allowance of Rs.1O,58,518/-. In this regard, reliance is placed on the following latest decisions on the issue of the AO need not be certain at the time of issuance of notice u/s. 148 of the Act that income had actually escaped assessment. 1) Jayant Security & Finance Ltd. [2018] 91 Taxmann.com 181 dated 12.02.2018: In this case, the Hon'ble Gujarat High Court has held that
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initiation of reassessment proceedings u/s. 147 of the Act on the basis of information received from Investigation Wing that the assessee had received certain amount as a loan from a company, working as Entry Operator and earning bogus funds to provide advances to various persons, was justified. While doing so, it is observed by the Hon'ble High Court that it is not for the Court to judge whether there exists sufficient reasons in order to come to a belief by the AO that income had escaped assessment. As such, it is opined by the Court that the assessee cannot question the belief of the AO that income had escaped assessment, but without pointing out that there exists no belief or that the belief is not at all a bonafide one or based on vague, irrelevant and non-specific information. The relevant portion of the decision is reproduced below for ready reference: The reasons recorded show that the Assessing Officer had received information from the investigating Wing in connection with advances received by the ssessee from EWFIL. Upon verification, it was found that the said EWFIL was an entry operator and had received bogus share application money/premium from paper companies and thereafter advanced loans to certain entities and companies. EWFIL works as an entry operator and earns bogus funds to provide advances to various persons. Out of the loan received by the assessee from EWFIL repayment of certain amount was made. Interest of certain amount was also paid. The Assessing Officer further noted that as per information, EWFIL was a paper concern and the advances/loans received by the assessee from such concern were bogus loans and the entire transactions were bogus and sham transactions. That, on the basis of such materials on record that he formed a belief that the assessee had not made trite and full disclosures and the income chargeable to tax as, therefore, escaped assessment. [Para 6]
The reasons thus recorded do not proceed only on the information supplied by the Investigating Wing. The Assessing Officer having applied his mind and processed such information, formed his belief that the income chargeable to tax has escaped assessment. Neither the application of mind, nor the formation of belief that income chargeable to tax has escaped assessment on the basis of information available at the disposal of Assessing Officer, have to be expressed in any rigid format in the reasons recorded. Hence, as these two essential requirements can be gathered from the reasons recorded, the notice for reopening cannot fail on such basis. [Para 7] The question of change of opinion and failure on the part of the assessee to disclose truly and fully all material facts, in the present case are closely connected. Undoubtedly, as noted earlier, the Assessing Officer during the original assessment had examined the transactions, However, such examination would necessarily be on the basis of disclosures made by the assessee in the return filed and during the scrutiny assessment. If the Assessing Officer has information to form a reasonable
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opinion that prima facie the entire transaction itself was sham and bogus, as reference to such transaction during the original assessment and raising certain queries in this respect would not prevent him from reopening the assessment on the principle of change of opinion. As noted, the opinion would be formed on the basis of disclosures. When disclosures are found to be prima facie untrue, the opinion formed earlier would not prevent Assessing Officer from examining the issue. In the present ease, as noted, Assessing Officer received additional information after the Original assessment was over, on the basis of which he formed a belief that the entire transaction was a sham transaction. At this stage, where the Court is examining the validity of notice of reopening, it is not necessarily that Assessing Officer must have conclusive evidence to hold that invariably additions would be made in the income of the assessee, What is required is the reason to believe that income chargeable to tax has escaped assessment, Sufficiency of the materials in the hand of the Assessing Officer which enabled him to form such a belief would not be examined [Para 8]'
2) Skylight Hospitality LLP Vs. ACIT [2018] 405 ITR 296 (Delhi) 3) Rakesh Gupta Vs. CIT & Another [2018] 405 ITR 213 (P&H) 7.2.10. In view of the aforementioned factual matrix and settled position of law, I don't find fault with the AO in initiating the proceedings u/s 147 of the Act, prima fade, on the basis of higher rate of depreciation @ 30% claimed by the assessee in respect of earth moving machinery used in its business of civil contracts, as against applicable rate of depreciation @ 15%. Thus, the grounds of appeal raised by the assessee on this issue are dismissed.”
Against the order of the CIT(A), the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR reiterated the submissions made before the CIT(A), which was discussed in the earlier paragraphs. The Ld.AR also submitted that the assessment was reopened because of audit objection, hence it constitutes change of opinion. Therefore, there is no case for reopening the assessment u/s 147 of the Act.
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Per contra, the Ld.DR relied on the orders of the lower authorities.
We have heard both the parties and perused the material placed on record. In the instant case, the assessment was originally completed u/s 143(3) by an order dated 29.10.2015. Notice u/s 148 was issued on 17.03.2017 within 4 years from the relevant assessment year. As per the provisions of the Act, for reopening the assessment within 4 years it is not necessary to have fresh information or the failure on the part of the assessee to disclose full information. During the appeal hearing, for a query from the Bench, the assessee could not furnish any information on submission of details with regard to claim of higher rate of depreciation with the relevant evidences before the AO. As per para 2 of the assessment order dated 29.10.2015 for the A.Y.2013-14, the AO called for the various details and the AR had produced the books of accounts, bills and vouchers for verification which was observed that the bills, vouchers and books of accounts were torn out and not in verifiable condition. The assessee also stated that due to HudHud cyclone that took place in the month of October 2014, the office premises was severally damaged and consequently the relevant records and books of accounts got spoiled. From the above submission of the assessee, it
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is evident that the assessee could not submit complete information before the AO. Further since the assessment was reopened within 4 years from the end of the relevant A.Y. As per the provision of the income tax failure attributable to the assessee is not applicable in case of assessments reopened within four years. It is evident from the assessment order that the assessee has claimed higher rate of depreciation for which the assessee did not furnish the details and the AO also did not examine the issue at the time of original assessment. Hence, we agree with the order of the Ld.CIT(A) that the AO has rightly invoked jurisdiction u/s 147 and reopened the assessment within 4 years. Accordingly, we uphold the issue of notice u/s 148 for all the impugned assessment years.
The next contention raised by the Ld.A.R is that the assessments were reopened on account of audit objection. In the instant case the AO has reopened the assessments for claiming higher rate of depreciation which was overlooked by the AO because of lack of proper information. The issue is factual issue but not legal issue which is to be settled after long debate and inferences. The Hon’ble supreme court held that on factual issues reopening of assessment even from the audit objection is valid. For the sake of clarity, we extract the relevant part of the order of Hon’ble Apex court
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Commissioner of Income-taxv.P.V.S. Beedies (P.) Ltd., [1999] 103 Taxman 294 (SC) which reads asunder:
“3. We are of the view that both the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of section 147(b). The audit party has merely pointed out a fact which has been overlooked by the ITO in the assessment. The fact that the recognition granted to this Charitable Trust had expired on 22-9-1992 was not noticed by the ITO. This is not a case of information on a question of law. The dispute as to whether reopening is permissible after the audit party expresses an opinion on a question of law is now being considered by a larger Bench of this Court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of a factual error pointed out by the audit party is permissible under law. In view of that we hold that reopening of the case under section 147(b) in the facts of this case was on the basis of factual information given by the internal audit party and was valid in law. The judgment under appeal is set aside to this extent.”
11.1. In the instant case there is no dispute that the Audit party has raised the objection with regard to the excess claim of depreciation and there is no evidence available on record to show that the assessee is using the vehicles for running them on hire. Therefore we, find no merit in the argument of the Ld.AR and reject the same. A.Y.2011-12 12. The next issue in Ground No.2 for the A.Y.2011-12 is with regard to the delay in remittances of EPF and ESI contributions of employees u/s 43B of the Act. This issue is involved for the A.Ys.2012-13, 2013-14, 2014-15 and 2015-16 also. From the assessment order, it is found that the assessee
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remitted the employees contribution relating to the PF, ESI beyond the due date provided under the provisions of relevant Act, but before the due date for filing the return of income. Therefore, the AO disallowed the deduction claimed u/s 43B of the Act against which the assessee preferred appeal before the Ld.CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO. Hence, the assessee preferred appeal before this Tribunal.
We have heard both the parties and perused the material placed on record. For all the impugned assessment years, it is found from the assessment order that the assessee remitted the employees contribution relating to EPF and ESI beyond due date provided under the relevant Acts but before the due date for filing the return of income. This Tribunal has consistently taken view that PF, ESI remitted before the due date for filing the return of income is required to be allowed as deduction. The Coordinate Bench has followed the decision of Hon’ble High Court of Karnataka in the case of ESSAE TERAOKA PVT Ltd. Vs. DCIT [366 ITR 408] and allowed the deduction. On identical facts, this Tribunal in the case of ACIT Vs. Brandix India Apparel City Private Ltd. vide I.T.A. No.485/Viz/2018 dated 25.01.2019 held that employees contribution to PF required to be allowed even if the same is paid before the due date of filing the return u/s 139(1) of the Act.
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We extract relevant part of the order of this Tribunal cited supra for the sake of clarity and convenience as under : “4. We have heard both the parties and perused the material placed on record. This Tribunal has taken a consistent view that the employees contribution to PF required to be allowed even if the same is paid before the due date of filing the return u/s 139(1) of the Act. The Tribunal has followed the decision of Hon’ble Karnataka High Court in the case of ESSAE TERAOKA PVT Ltd. Vs. DCIT [366 ITR 408] and the decision of ITAT, Hyderabad in the case of Tetra Soft India Pvt. Td. Vs. ACIT (2015) (40 ITR Tribunal 470) while delivering the above ruling. Therefore, respectfully following the view taken by this Tribunal we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.” 13.1. Respectfully following the view taken by the coordinate bench of ITAT, we hold that the assessee is entitled for deduction on account of PF and ESI if the same is remitted before the due date of filing the return of income. Accordingly, we set aside the order of the CIT(A) and delete the addition made by the AO. The appeals of the assessee on this issue for the A.Y.2011- 12 to 2015-16 are allowed. 14. Ground No.3 is related to the disallowance of depreciation claimed by the assessee. The assessee is engaged in the business of civil contract and claimed the depreciation on the following items @30% instead of 15%. (i) Hitachi Excavator (v) Ace Hydra (ii) Dozer D80 (vi) Escort Hydra (iii) Tata Di 207 (vii) JCB Machine fixed (iv) Anw Tippers
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The AO disallowed the excess depreciation claimed by the assessee holding that the assessee is not in the business of running them on hire. From the service tax returns, the AO found that the assessee is providing the services of manpower recruitment, cargo handling services, erecting machinery and communication business services and construction services in respect,, of the commercial and industrial buildings and civil contractors. Therefore, the AO found from the service tax returns also that the assessee was not in the business of running the vehicles on hire. The Ld.AO further gone through the definitions of the lorry and held that motor lorries as per the IT Rules should mean motor taxes and not earth moving machinery. Therefore, the AO restricted the depreciation @15% and disallowed the excess depreciation claimed by the assessee for the A.Y.2011-12 to 2015-16 as under: Excess Depreciation Depreciation Depreciation A.Y. Claimed @30% allowed @15% allowed (Rs.) (Rs.) (Rs.) 2011-12 19,96,113 9,98,056 9,98,056 2012-13 16,52,700 12,84,873 9,85,056 2013-14 27,10,468 16,52,700 10,58,518 2014-15 16,91,161 12,66,577 4,22,564 2015-16 9,92,176 7,73,107 2,19,069
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Aggrieved by the order of the AO, the assessee filed appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO. The Ld.CIT(A) found that the assessee is not engaged in the business of running the vehicles on hire, therefore, not entitled for higher rate of depreciation. Accordingly, dismissed the appeal of the assessee and confirmed the order of the AO. Against which the assessee preferred appeal before this Tribunal.
15.1. During the appeal hearing, the Ld.AR submitted that the assessee is engaged in the business of civil contracts and also given the vehicles occasionally to other customers as and when the vehicles were not used in it’s business or the vehicles were kept idle. The Ld.AR further argued that if the vehicles are given on hire even occasionally, the assessee is entitled for higher rate of depreciation. The assessee also relied on the decision of ITAT Rajkot in the case of ACIT, Gandhidham Circle, Gandhidham Kutch Vs. M/s Bhimji Velji Sorathia Construction in I.T.A. No.346/Rjt/2016 dated 28.02.2018.
On the other hand, the Ld.DR supported the orders of the Ld.CIT(A).
We have heard both the parties and perused the material placed on record. In the instant case, the assessee is engaged in the business of civil
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contracts, but not engaged in the business of running vehicles on hire. The AO has given a finding in the assessment order that as per the service tax returns, the assessee was providing services of manpower recruitment, cargo handling services, erecting, commissioning and installation, business auxiliary services, construction services in respect of the commercial or industrial buildings and civil structures. As per the assessment record, the assessee is engaged in the business of civil contract works. The AO further observed that the assessee is not in the business of hiring vehicles and the bills submitted by the assessee shows temporary arrangement for earning extra income and the assessee is occasionally using the vehicles for hire purpose as and when the vehicles are kept idle. As per Income Tax rules, motor cars other than that are used in the business of running them on hire are entitled for lower rate of depreciation. Only the vehicles which are used in the business of running them on hire are entitled for higher rate of depreciation. Form the facts of the case, there is no dispute that the assessee is not engaged in the business of running the vehicles on hire and used the same for the purpose of its own business. For a query from the Bench, the Ld.AR replied that on very few occasions, the assessee’s vehicles were given on hire. The Ld.AR even could not provide the details of the dates on which
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the vehicles were given on hire to ascertain the facts, whether the assessee has given the vehicles on hire. The dominant object of the assessee is to use the motor lorries / trucks in it’s own business but not running them on hire. In the instant case, as discussed earlier, the assessee failed to establish that the dominant purpose was to use the vehicles for running them on hire. The dominant purpose is to use the vehicles for its own business. The purpose of allowing deduction at higher rate of depreciation in vehicles running them on hire is that the vehicles are used extensively without taking much care and suffer heavy wear and tear. Whereas in the case of assessee’s own business, the wear and tear is lesser than the vehicles used in running on hire. In the instant case, the assessee also failed to establish that the vehicles were used in the business of running them on hire. Following the decision of Hon’ble Kerala High Court in the case of N.D.Joseph Vs.CIT (2010) 325 ITR 200 and the decision of Hon’ble Supreme Court in the case of CIT Vs. Gupta Global Exim (P.)Ltd, 171 taxman 474 (SC), we hold that the assessee is disentitled for higher rate of depreciation. Accordingly, the assessee’s appeal on this ground is dismissed .
In the result, appeals of the assessee for the A.Y.2011-12 to 2015-16 are partly allowed.
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Order pronounced in the open court on 23rd August, 2019.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर धसंह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBERलेखा सदस्य/ACCOUNTANT MEMBER नवशधखधपटणम /Visakhapatnam नदनधंक /Dated : 23.08.2019 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee- M/s Arihant Constructions, M/s B.V.Rao & CO LLP Chartered Accountants, FF-1, Satya Lakshmi Vinayaka Towers, Madhuranagar, Visakhapatnam 2. रधजस्व/The Revenue - Asst.Commissioner of Income Tax, Circle-4(1), Visakhapatnam 3. The Pr.Commissioner of Income Tax-2, Visakhapatnam 4. The Commissioner of Income Tax (Appeals)-6, Hyderabad 5. तिभागीय प्रतितिति, आयकर अिीिीय अतिकरण, तिशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्डफ़ाईि / Guard file आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, Visakhapatnam
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Sl. Description Date Initials No. 1. Date of dictation by the Author 05.08.2019 Sr.PS 2. Draft placed before the Dictating Member 06.08.2019 Sr.PS 3. Draft placed before the Second Member Sr. PS 4. Draft approved by the Second Member Sr. PS 5. Date of approved order comes to the Sr. PS Sr. PS 6. Date of pronouncement of order Sr. PS 7. Date of file sent to the Bench Clerk Sr. PS 8. Date on which file goes to the OS B.Clk 9. Date on which file goes to the Sr.PS OS 10 Date of despatch of order Sr. PS