ASST. COMM. OF INCOME TAX - 11(3)(1), MUMBAI vs. TPL PLASTECH LTD., MUMBAI

1.2 We have carefully heard the rival submissions, perused relevant material on record including documents placed in the paper book and deliberated on various judicial pronouncements as cited before us. Our adjudication to the appeal would be as given in the succeeding paragraphs. 2.1 Facts as emanating from case records are that the assessee being resident corporate assessee stated to be engaged in the business of manufacturing of polymer products was assessed for year under consideration u/s. 143(3) r.w.s. 147 on 28/12/2016 wherein the income of the assessee was determined at Rs.623.07 Lacs after sole addition on account of additional depreciation for Rs.338.34 Lacs as against returned income of Rs.284.66 Lacs e-filed by the assessee on 22/09/2011. The regular assessment was framed u/s. 143(3) of the Act on 27/02/2014 assessing the income at Rs.284.72 Lacs.

3 M/s.TPL Plastech Limited Assessment Year :2011-12 2.2 Subsequently, the case was reopened by issuance of notice u/s 148 on 30/03/2016 which was duly served upon assessee. In response, the assessee, vide letter dated 28/04/2016, offered original return of income and requested for reasons recorded to reopen the assessment. The reasons were furnished to the assessee on 01/08/2016 and thereafter, notices were issued u/s 143(2) & 142(1) on 04/10/2016 calling for requisite details and explanations. 2.3 The reason which triggered reassessment proceedings, was the fact that the assessee had claimed additional depreciation of Rs.338.34 Lacs on account of addition of plant and machinery, moulds etc. It was noted that during AYs 2010-11 and 2011-12, the assessee had purchased fixed assets of Rs.540.78 Lacs and Rs.988.10 Lacs respectively from its holding company i.e. M/s. Time Technoplast Ltd. Upon perusal of Schedule ‘E’ of annual accounts of holding company, it was noted that the said entity had alienated assets from its books of accounts for Rs.1179.02 Lacs and Rs.1884.05 Lacs during AYs 2010-11 and 2011-12 respectively. The said fact led Ld. AO to form a belief that the assets purchased by the assessee were previously used by its holding company and assessee was claiming additional depreciation on the previously used assets. 2.4 The assessee, vide submissions dated 02/11/2016, defended the same by submitting that the holding company had machine building division and the entire purchase of machinery was made during AYs 2010-11 and 2011-12. It was wrong presumption on the part of Ld. AO that used machinery was purchased by the assessee. In support, copies of purchase invoices were furnished and the attention was drawn to the 4 M/s.TPL Plastech Limited Assessment Year :2011-12 fact that excise duty was charged in the invoices itself because goods could not be removed out of the factory without charging excise duty as the excise duty was levied on manufacture. In case of old machinery, no excise duty would be charged. 2.5 However, the said submissions could not find favour with the Ld. AO, who concluded that the assessee could not furnish any irrefutable and clinching evidence to differentiate between the old and new machinery. The assessee failed to furnish one to one reconciliation and mapping of depreciation claimed with item-wise and block-wise plant and machinery. Accordingly, the additional depreciation of Rs.338.34 Lacs claimed by the assessee u/s 32(1)(iia) was disallowed and added to the income of the assessee. 3.1 Before first appellate authority, the assessee assailed the stand of learned AO on legal grounds as well as on merits by way of elaborate written submissions, which have already been extracted on page nos. 3 to 14 of the impugned order. The assessee in its ground of appeal, contested the validity of reassessment proceedings, inter-alia, on the ground that the objections raised by the assessee on 02/11/2016 against reopening were not disposed-off by way of speaking order which was in violation of the procedure laid down by Hon’ble Apex Court rendered in GKN Driveshafts India Ltd. V/s DCIT (259 ITR 19) and also the decision of Hon’ble Bombay High Court rendered in Asian Paints Ltd. V/s DCIT (296 ITR 96), IOT Infrastructure & Engg. Services Ltd. V/s ACIT (329 ITR 547) & Allana Cold Storage V/s ITO (287 ITR 1). 3.2 The assessee also pleaded that there was no tangible material before Ld. AO so as to form a belief that certain income escaped 5 M/s.TPL Plastech Limited Assessment Year :2011-12 assessment rather the belief was formed merely after going through the existing records and there was a bald assertion that there was failure on the part of the assessee to disclose fully and truly all material facts during assessment proceedings. The Ld. AO merely on surmises and conjectures, held that the alienated assets were transferred to assessee without bringing anything on record to prove the same. Therefore, the notice u/s 148 was nothing but notice to make roving enquiries and issued under vague suspicion. The claim of additional depreciation was allowed during original assessment proceedings and disallowing the same in reassessment proceedings would merely be a change of opinion based on existing material on record which was impermissible under law. Reliance was placed on various judicial pronouncements including the decision of Hon’ble Supreme Court rendered in CIT V/s Kelvinator of India Ltd. (320 ITR 561) as followed by Hon’ble Bombay High Court in the case of Rallis India Ltd. V/s ACIT (323 ITR 54). 3.3 On merits, the assessee submitted that the Machinery under consideration was acquired from ‘Machinery Division’ of its holding company situated at Pantnagar and Daman and it was entirely new plant and machinery which was eligible for claiming additional depreciation. It was wrong presumption in the mind of Ld. AO that machinery was used machinery merely because the same was purchased from a related party. There was nothing on record which would prove that the said machinery was used machinery and not eligible for claiming additional depreciation. It was quite evident from the fact that excise duty was charged in the purchase invoices which would only be in the case of manufacturing and not in case of old machinery. The attention was also 6 M/s.TPL Plastech Limited Assessment Year :2011-12 drawn to confirmatory letter of machinery supplier i.e. M/s Time Technoplast Ltd., verifying the same along with the statement showing bifurcation of old and new machinery as purchased by the assessee. It was submitted that Ld. AO failed to appreciate that the description of the assets was clearly mentioned in the invoices. However, no notice u/s 133(6) was ever issued to the holding company to verify the submitted details. The Ld. AO chose not to take any action against submissions made by assessee but chose to make additions for the simple reason that the assessee was not able to furnish the details of the books of account of another entity. Therefore, the approach adopted by Ld. AO was absurd and no addition could be sustained on that basis. In the above background, it was submitted that the assessee had provided all the evidences as asked for by Ld. AO in discharging the onus of proving the genuineness of said claim of additional depreciation. But Ld. AO did not make any inquiry in order to prove that the transaction was not genuine and merely rejected the evidences without commenting on the same. 3.4 The Ld. CIT (A), concurred with assessee’s submission on legal grounds as well as on merits by observing as under: - Decision 2. I have considered the facts, oral contentions and written submissions of the appellant as against the observations/findings of the AO in assessment order. The submissions and contentions of the appellant are being discussed and decided as under: 3. The case of the appellant was reopened u/s 147 of the Act and the assessment u/s 143(3) r.w.s 147 was completed on 28.12.2016. The appellant contested that the action of reopening u/s 147 of the Act is bad in law and is not justified. It was contested that there was no fresh tangible material available with the assessing officer so as to form a belief that the income of the assessee has escaped assessment. The Learned Assessing Officer has reopened the case on the following reasons:

7 M/s.TPL Plastech Limited Assessment Year :2011-12 "Subsequently, it is notice noticed that as per section 32(1)(iia) of the Act, the additional depreciation of twenty percent is allowable on new machinery purchased by an assessee engaged in manufacture of an article or thing. In the instant case, the assessment was completed under section 143(3) of the Act determining total income at Rs.2,84,68,834/-. It was seen from the depreciation schedule of the assessee that it had claimed additional depreciation of Rs.3,38,34,570/- on addition of P&M and mould etc. However, the notes to account revealed that the assessee had purchased fixed assets of Rs.9,88,10,992 during the AY 2011-12 and Rs.5,40,78,376/-during AY 2010-11 from its Holding Company M/s Time Technoplast Ltd. The assessment of the Holding Company of the assessee was also in the same charge. The scrutiny file of Holding Company was perused and it was noticed that the Holding Company had alienated these assets from its books of account during AY 2011-12" Thus, from the reasons recorded, I am of the view that it was only from the records that the Assessing Officer came to the conclusion that the additional depreciation are not allowable and there was escapement of income. The only information which the AO had was that the scrutiny file of Time Technoplast Ltd., the company from whom the asset was purchased, showed that certain assets were alienated during the year. However, there was no information which showed that these alienated assets were actually transferred to the assessee company. Thus, the same cannot be considered to be a tangible material in order to form a reasonable belief that income of the assessee had escaped assessment. Moreover, the availability of tangible material in the possession of AO at the time of recording is a sine qua none, before the AO can record reasons for reopening of the case. Thus, in view of these facts, I am satisfied that the reopening is bad in law and need to be quashed. The following cases are in support of the appellant: a) In the case of Bombay Stock Exchange Ltd. (writ petition no.2468 dt. 12.06.2014) (89 CCH 118), ; b) The Mumbai ITAT in the case of Motilal R.Todi (supra) c) In the case of CIT vs. Shri Atul Kumar Swami in dated 18-03- 2014 reported at 52 Taxmann.com 47; d) General Machinery & Technical Services Ltd. Vs. ACIT (ITA No. 1176/Mum/2011) 4. Further, the only information which the AO had was that certain assets were alienated during the year by Time Technoplast Ltd. and no enquiry whatsoever was conducted by the AO in order to form a belief that these alienated assets were actually transferred to the appellant. Thus, the AO merely on surmises and conjecture held that these alienated assets were transferred to the assessee company without bringing on record anything to prove the same. Hence, it is quite clear that the notice u/s. 148 had been issued only with the intention of making roving enquiries which is not permissible as per law. The following decisions are in favor of the appellant: a) High Court of Rajasthan- Mukesh Modi vs Deputy Commissioner of Income Tax. The Hon"ble HC of Rajasthan has held that "The reasons which were spelt out in the notice was nothing but an attempt to clear the suspicion of the AO by simply changing its opinion, which per-se cannot satisfy the test of expression "reason to believe". A rowing and fishing enquiry in the hands of AO on mere suspicion or 8 M/s.TPL Plastech Limited Assessment Year :2011-12 change of opinion cannot satisfy expression "reason to believe" exposing the assessee for reopening of assessment. While examining the matter in its entirety and on the basis of findings and conclusions, notices issued to the assessees by the AO u/s 147/148 were not satisfying the pre-requisites for the same. There was no whisper in the notice, or iota of proof that while issuing the same the AO had reason to believe that any income chargeable to tax has escaped assessment for the assessment year". b) ACIT vs Shri O.P. Chawla (Delhi ITAT): "2.1 Keeping in view the above mentioned observations I have no hesitation in holding that while the AO might have had a faint "reason to suspect" that income has escaped assessment, it cannot be said that he had "reason to believe" that the income has escaped assessment. I cannot over emphasise that the requirements of law, specially when it comes to taking action Under Section 147/148, have to be met within letter and spirit. The AO would do well to bear this in mind in future. In this case, there is no doubt that the AO has acted illegally and in an unwarranted manner in issuing notice Under Section 148 when he had no reason to believe that income has escaped assessment. Notice Under Section 148 cannot be issued for making roving enquiries on the basis of vague suspicions. Accordingly, in view of the above the assessment order dated 30-3-2000 is annulled as the same is bad in law and is ab initio null and void. These grounds are decided in favour of the appellant."

5. Further, the appellant on receipt of the copy reasons recorded has filed an objection against the same before the AO on 02/11/2016. Copy of the same was provided during the course of appellate proceedings. However, no speaking order was passed by the AO in order to dispose-off the objections so raised and proceeded to pass the reassessment order u/s 147. Further, no reference of the same was made by the AO in his assessment order. Thus in view of the these facts, I am of the opinion that the AO has grossly erred in law as any objection filed against the reasons for reopening need to be disposed-off by the AO before proceeding to complete the reassessment proceedings. The following cases are in support of the appellant: a) The Apex Court in the case of GKN Driveshafts (India) Ltd. v/s D.C.I.T. (2003) 259 ITR 19 (SC) has laid down the procedure to challenge the reassessment proceedings and held as follows: "We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years." b) In the case of Asian Paint Ltd. vs. Dy. CIT (2008) 296 ITR 96 (Bom), the Hon'ble Bombay HC held that Assessing officer should dispose off the assessee objection and serve the order on assessee. c) Hon'ble Bombay High Court in the case of IOT Infrastructure and Eng. Services Ltd. vs. ACIT (2010) 329 ITR 547 (Bom) held that the reassessment framed by the assessing officer without disposing of the primary objection raised by 9 M/s.TPL Plastech Limited Assessment Year :2011-12 the assessee to the issue of reassessment notice issued by him was liable to be quashed. d) Hon'ble Bombay HC in the case of Allana cold storage vs. ITO (2006) 287 ITR 1 (Bom.) (Asst Yr 2001-2002) following the order passed by Supreme Court in the case of GKN Driveshaft held that reasons for notice must be given and objections of assessee must be considered.

6. Further, ongoing through the records it was seen that the said claim of additional depreciation was allowed to the assessee during the course original assessment proceedings completed u/s 143(3) of the Act. However, the same has now been disallowed by the AO without bringing on record any tangible material. Thus, in my opinion disallowing the claim of depreciation now is only a mere change of opinion of the Assessing Officer based on the materials already available on record which it is not permissible under law. Following cases are in support of the appellant: a) Hon'ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC): b) Hon'ble Bombay High Court in the case of Rallis India Ltd. c) CIT vs Amitabh Bachchan (ITA No. 4646 of 2010 Bom HC) d) M.J. Pharmaceutical Ltd. vs. CIT (2008) 297 ITR 119 (Bom) e) D. T. & T. D. C. Ltd. vs. CIT (2010) 324 ITR 234 (Del.). f) Godrej Agrovat Ltd. Vs DCIT 323 ITR 97 (Bombay HC) 7. In a nutshell, the reopening of the assessment in the case of appellant was bad in law on the following grounds:

a) Absence of fresh tangible material in order to form a reasonable belief that income of the appellant had escaped assessment; b) The notice u/s. 148 was issued only with the intention of making roving enquiries which is not permissible as per law; c) The AO didn't dispose-off the objection filed against the reasons for reopening; d) The claim of additional depreciation was allowed to the appellant during the course of original assessment proceedings and disallowing the same now in the absence of fresh tangible material is merely change of opinion which is not permissible as per law. Decision Ground No. 1 &

2. Thus, initiation of reassessment proceedings by the Assessing Officer itself was bad in law and the reassessment completed in pursuance thereof is liable to be quashed being invalid. Accordingly, the Ground No. 1 & 2 of the said appeal is allowed. Ground No. 3 &

4. As a result of the decision rendered above on the preliminary issue quashing/cancelling the assessment made by the Assessing Officer u/s. 143(3) read with section 147, the Ground No.3 & 4 raised in the appeal in respect of addition made in the assessment have become infructuous and not necessary or expedient to decide the same the appeal of the assessee is allowed.

Aggrieved by aforesaid adjudication, the revenue is under further appeal before us.

10 M/s.TPL Plastech Limited Assessment Year :2011-12 4.1 We have applied our mind to the adjudication of learned fist appellate authority in the impugned order. It is quite evident that Ld. CIT(A), upon due consideration of factual matrix, came to a conclusion that there was no fresh tangible material on record which would suggest escapement of income in the hands of the assessee. The reopening was resorted to with a view to make roving enquiries. The reassessment proceedings also suffered from legal infirmities since the objections raised by the assessee against reopening were not disposed-off by way of speaking order which was contrary to settled legal position that the objections raised by the assessee must be disposed-off before proceeding to reassess assessee’s income. Further, the said claim of additional depreciation was already allowed to the assessee during the course of original assessment proceedings and in the absence of any fresh tangible material on record, disallowing the same in reassessment proceedings would be mere change of opinion which is impermissible under law. 4.2 We find that learned first appellate authority has clinched the issue in correct perspective. As rightly noted by Ld. CIT(A), the assessee’s objection to the reassessment proceedings were not disposed-off by Ld.AO with due application of mind which was in violation of the procedure laid down by Hon’ble Apex Court rendered in GKN Driveshafts India Ltd. V/s DCIT (259 ITR 19). We also find that the stated factual matrix was squarely covered by the recent decision of Hon’ble High Court of Bombay at Goa in the case of Fomento Resorts & Hotels Private Ltd. V/s ACIT (ITA No. 63 of 2007 dated 30/08/2019)

11 M/s.TPL Plastech Limited Assessment Year :2011-12 wherein the reassessment proceedings were set aside by Hon’ble Court for want of jurisdictional requirements by observing as under:-

12 M/s.TPL Plastech Limited Assessment Year :2011-12 10. As noted by us above, should the first substantial question of law be answered in favour of the Appellant-Assessee, and against the Respondent- Revenue, then, there will be no necessity to advert to the second substantial question of law framed by us in our order dated 20th November, 2007.

14 M/s.TPL Plastech Limited Assessment Year :2011-12 “ Whether on the facts and circumstances of the case and in law, the Tribunal was justified in restoring the issue to the Assessing Officer after having quashed/set aside the order dated 14 th December, 2009 passed by the Assessing Officer without having disposed of the objections filed by the appellant to the reasons recorded in support of the reopening Notice dated 28 th March, 2008 ?”

16 M/s.TPL Plastech Limited Assessment Year :2011-12 4.4 It is also evident that as per assessee’s submissions, it acquired new plant & machinery from the parent entity and in support of the same, it filed copies of invoices clearly mentioning the description of machinery bought by the assessee. The excise duty was charged in the invoices which would make it a case of manufacturing since no excise duty would be applicable in case of old machinery. However, no investigation, whatsoever, was done by Ld. AO during reassessment proceedings, to rebut the assessee’s claim and no further verification was done. No contrary material was brought on record to fortify the stated additions except making an allegation that the assessee claimed additional depreciation on old machinery. 4.5 Keeping in view the entirety of facts and circumstances, we find that no fault could be found in the impugned order.

5. Resultantly, the appeal stands dismissed.