SUDARSHAN JEANS PRIVATE LIMITED,KOLHAPUR vs. ITO, AMBALA

The perusal of recorded reasons as well as notice issued u/s 148 dated 31-03-2021 would clearly show that the case is proposed to be reopened beyond four years. Nothing has been shown in the recorded reason as to existence of tangible material / information which has come to the possession of Ld. AO subsequent to the culmination of regular assessment proceeding which would indicate that certain income escaped in the hands of the assessee. The Hon’ble Apex Court in the case of Kelvinator of India Ltd. (320 ITR 561) held that post 01- 04-1989, Ld. AO has power to reopen, provided there is 'tangible material' to come to a conclusion that there is escapement of income from assessment. The recorded reasons must have a live link with formation of belief. With effect from 1-4-1989, the condition to reopen the case is that Ld. AO must have reasons to believe that income had escaped assessment. Post 01-04-1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe', failing which Sec. 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfilment of certain pre-conditions and if the concept of 'change of opinion' is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. The facts of the present case would show that reopening is merely on the basis of same set of material which was available to Ld. AO at the time of regular assessment proceedings itself. This being so, the reopening could not be sustained on this score only. We order so.

Another reason for which reopening could not be sustained, is the fact that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. The depreciation schedule was separately been furnished by the assessee in its Income Tax Return as well as in its financial statements, clearly spelling out the additions made in electrical installations and the quantum of depreciation / additional depreciation as claimed by the assessee against the same. The schedule of depreciation was part of assessee’s return of income and was also available at the time of regular assessment itself. The same is clearly evident from the observation of Ld. AO in regular assessment framed u/s 143(3) that the claim made by the assessee u/s 32(1)(iia) was found in order. This being so, there was no reason to trigger the reopening beyond four years on the basis of same facts as available during the course of regular assessment proceedings. The proviso to s.147 provides that when an assessment has already been framed u/s 143(3), no action shall be taken after the expiry of four years from the end of relevant assessment year unless any income chargeable to tax as escaped assessment by reason of the failure on the part of the assessee to make a return u/s 139 or in response to notice issued u/s 142(1) or s.148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. When the assessee has disclosed all material facts, the reopening could not be sustained in law as held by jurisdictional Punjab & Haryana High Court in the case of Duli Chand Singhania (269 ITR 192). In this decision, the Hon’ble Court has held that in order to assume jurisdiction u/s 147 in a case where assessment has been made u/s 143(3), certain conditions are required to be satisfied viz. (i) Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, and (ii) he must also have reason to believe that such escapement occurred by reason of failure on part of assessee either (a) to make a return of income under section 139 or in response to notice issued under section 142(1) or section 148; or (b) to disclose fully and truly all material facts necessary for his assessment for that purpose. In case where the assessment has been made u/s 143(3) and action u/s 147 is sought to be taken after expiry of four years from end of relevant assessment year, it is necessary that condition no. (i) and either of conditions no. (ii)(a) or (ii)(b) must co-exist. This decision has been followed by Hon’ble High Court of Madras in the case of Seshasayee Paper & Board Ltd. (148 Taxmann.com 432) holding that the existence of ''jurisdictional fact'' is sine qua non for the exerciseof power. If the jurisdictional fact exists, only then the authority can proceed with the case and take an appropriate decision in accordance with law. It leaves no room for any doubt that to invoke the extended period, AO ought to have demonstrated the existence of any of the three circumstances set out in the proviso to s.147 of the Act. In this case, failure on the part of the assessee to fully and truly disclose all material particulars would constitute the "jurisdictional fact" for invoking extended period of limitation and failure to record the existence of the above jurisdictional fact while invoking the extended period under the proviso to s.147 of the Act, would vitiate the entire proceedings. These case laws duly support the legal arguments of Ld. AR. Respectfully following the same, we would hold that the jurisdictional requirement to reopen the case of the assessee was not fulfilled by Ld. AO in the present case. The reopening could not be sustained on this score also. 8. we find substantial force on merits also. It could be seen that Appendix-1 Depreciation Schedule of Income Tax Rules, prescribes depreciation rate of 10% for Furniture and fittings which include electrical fittings. The electrical fittings as defined in Note-5 include electric wirings, switches, sockets, other fittings and fans etc. The material on record would indicate that electrical installation expenditure included purchase and installation of transformers, machine panel boards for transformer connectivity, metal detectors and spark detectors (which are critical safety devises to prevent fire hazards in a textile factory) and yarn conditioning machines used for moisture regulation in yarn. These installations are indispensable for running the manufacturing process and are functionally inseparable from the plant and machinery. The expenditure incurred under this head is thus integral to Plant & Machinery and correctly been classified as such. This being so, the ratio of decision of Hon’ble Punjab & Haryana High Court in the case of Oswal Woollen Mills Ltd. (289 ITR 261) would apply holding that air conditioning plants, electrical installations and transformers constitute an integral part of Plant & Machinery and therefore, eligible for investment allowance. Similar is the view of Delhi Tribunal in the case of Nalwa Steel Power Ltd. (ITA No.4559/Del/2010 dated 09-08-2016) taking the same view. Respectfully following the same, we would hold that the assessee’s claim of depreciation @15% and claim of additional depreciation on electrical installation was in order. The assessee succeeds on merits also.

Considering above position of law, we would hold that the impugned reopening of assessment stood vitiated in law and liable to be quashed on legal grounds. The assessee succeeds on merits also. We order so.