M/S. KALATHIA ENGINEERING & CONSTRUCTION LTD.,,AHMEDABAD vs. THE DY.CIT, (OSD)-1, CIRCLE-4,, AHMEDABAD

This appeal by the Assessee is preferred against the order of the Ld. CIT(A)-2, Ahmedabad dated 12.02.2015 pertaining to A.Y. 2006-07.

The substantive grievance of the assessee read as under:- 1. The learned C.I.T.(Appeals) has erred in law in holding that the reopening of assessment was valid. Your appellant submits that all details were available on record and no new information was brought on record by learned Assessing Officer. Under the circumstances, the reopening of assessment is bad in law, and therefore, it is submitted that it be so held now and reopening of assessment be cancelled denovo. 2. The learned C.I.T.(Appeals) has erred in rejecting the claim of additional depreciation of Rs.21,81,367/- on new plant and machinery purchased during the year. It is submitted that additional depreciation be allowed u/s.32 of the I.T. Act as claimed, and therefore, reopening of assessment be cancelled now.

Representatives of both sides were heard at length. Case records carefully perused and with the assistance of the ld. counsel, we have considered the relevant documentary evidences brought on record in the form of a paper book in the light of Rule 18(6) of the ITAT Rules.

The original return of income was filed on 30.12.006 and the assessment was framed u/s. 143(3) of the Act vide order dated 27.06.2008 by which the assessee was assessed at Rs. 13784470/- on a returned income of Rs. 12400750/-. The completed assessment was reopened and the reasons recorded for reopening the assessment read as under:- Regarding : M/s. Kalthia Engineering & Construction Ltd. Plot No.6, Aditya Bungalows, Opp. SAL Hospital, Drive in Road, Thaltej, Ahmedabad. Asst. year : 2006-07 PAN : : AAACK8944N

The ld. counsel vehemently stated that all the necessary details were filed during the original assessment proceedings and the A.O. has completed the scrutiny assessment after verifying the details furnished. Therefore, reopening the completed assessment after 4 years is bad in law. In support of his contention,

It is true that the assessee has furnished full particulars in respect of the claim of depreciation and the details were verified by the A.O. before framing the assessment u/s. 143(3) of the Act.

Section 147 of the Act read as under:- [Income escaping assessment. If the Assessing Officer has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment

Strong reliance has been placed on the proviso mentioned hereinabove. A

Exhibit at page No. 40 is the statement of depreciation as per Income Tax

It can be seen from the aforementioned chart the assessee has claimed additional depreciation on the block of machineries. Section 32 (iia) provides for additional depreciation and the same read as under:- [(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing [ or in the business of generation, transmission or distribution] of power], a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause(ii):

A perusal of the afore-stated provision shows that the additional depreciation is allowable only when the assessee is engaged in the business of manufacture or production of any article or thing or is in the business of generation transmission or distribution of power. The undisputed fact is that the assessee is engaged in the business of construction of road, canals etc. Therefore, by any stretch of imagination, it cannot be said that the assessee is entitled for the claim of additional depreciation. The assessee may have disclosed full material facts but certainly the facts were not true as per the provisions of the law mentioned hereinabove. As mentioned elsewhere, there are two limbs in the first proviso to Section 147 which are “fully and truly”, and the assessee has to satisfy twin conditions namely (i) there is a full disclosure and (ii) the disclosure is true. At this point, we would like to refer to the provisions of Section 263 of

In the original assessment proceedings, the A.O. in his wisdom may have allowed the claim of depreciation but then to mitigate such revenue leakages the legislature has provided for the reopening of the assessment. No doubt the legislature has provided for precaution in the misuse of power for reopening the assessment by providing checks and balances but it cannot be construed that false claims or unlawful claims by the assessee can go away if the reopening in such cases (as the case in hand) is quashed.

In our understanding of the facts of the case in hand in the light of the relevant provisions of the Act as discussed hereinabove, it cannot be said that the assessee has disclosed truly all material facts. The claim of additional depreciation was illegal and the A.O. has rightly reopened the assessment to withdraw the additional depreciation of Rs. 21,81,367/-.

In the first judgment, the Hon’ble Gujarat High Court has laid down the ratio that the onus is on the assessee to reveal the primary facts and to draw the inferential facts would be the responsibility of the Assessing Officer. Once having revealed from the record that the assessee disclosed full and complete facts and on scrutiny, at the time of original assessment all these details are examined, no change of opinion is permissible. As we have already pointed out that the assessee had not disclosed the true facts relating to its claim of additional depreciation. Knowing fully well that he is engaged in the business of construction of roads, canals etc and definitely not eligible for the claim of additional depreciation. The facts of the case in hand are clearly distinguishable.

In the second judgment, the Hon’ble High Court had the occasion to consider the reopening of the assessment on the facts that the assessee had made certain payments without deducting tax at source and subsequently the assessment was reopened to re-examine the said issue on premise that entire expenditure had to be disallowed. Once again the facts are clearly distinguishable on the facts of the case in hand inasmuch as in the present case, the assessee has willfully and intentionally claimed additional depreciation for which he was never entitled for.

The Hon’ble High Court of Delhi in the case of Honda Siel Power products Ltd. 340 ITR 53 has held that “ material particular’ referred to in first proviso to section 147 not only refers to details in return but also to explanations and details furnished during course of assessment proceedings. Therefore, merely because material lies embedded in material or evidence, which Assessing Officer could have uncovered but did not uncover, is not a good ground to deny or strike down a notice for reassessment. It was further held that expression” failure to fully and truly disclosed material facts” also relates to stage of assessment proceedings.

In the case in hand, the assessee has not truly disclosed the fact that he is not eligible for the claim of additional depreciation yet he is claiming additional depreciation for which he was never entitled for.

Considering the facts of the case in hand, we have no hesitation to hold that the re-assessment of the completed assessment is valid and lawful and deserves to be upheld. Ground no. 1 is dismissed.