COMMISSIONER OF INCOME TAX (EXEMPTIONS) vs. KHETRI TRUST

$~55 * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 195/2016 SAMCO MACHINERY INDIA PVT LTD. ..... Petitioner Through: Dr. Rakesh Gupta, Mr. Somil Agarwal, Mr. Rohit Kumar Gupta and Ms. Monika Ghai, Advs. Versus ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-22(1), & ANR. ..... Respondent Through: CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE NAJMI WAZIRI O R D E R % 18.01.2017 The petitioner is aggrieved by the reopening of its assessment by the impugned notice dated 13.03.2015 in respect of Assessment Year 2008-09. The re-assessment notice alleged inter alia as follows: "Reasons recorded for initiating proceedings u/s 147/148 The original assessment u/s 143(3) the assessment was completed on 10.12.2010 determining the loss of the assessee at (-)`11 ,42, 760/-. Perusal of records revealed that the assessee had claimed and allowed additional depreciation of `1 0,68,440/-@20% on account W.P.(C) 195/2016 Page 1 of 4

of Plant and Machinery. As the claim is allowable on New Plant and Machinery on a person, who is already engaged in the business of manufacturing and not a person who is setting up new production capacity in the first year when the company has commenced the business of manufacturing. The provision of section 32(1 )(iia) was inserted to the I.T. Act with a view to provide an incentive for expansion of production capacity. As such the claim of the additional depreciation should have been disallowed of `10,68,400/- and added back to income of the assessee. This has resulted in over assessment of loss of the assessee to the tune of `1 0,68,400/-. I have therefore, reason to believe that an amount of `1 0,68,440/- has escaped assessment within the meaning of section 147(c) of the I.T. Act, 1961." It is contended by the petitioner that the concerned assessments were completed in the relevant years after scrutiny under Section 143(3) of the Act during which specific queries were made with respect to the issue of determination after which the claim was allowed. The petitioner relies upon a circular of the CBDT dated 27.02.2006 which interprets Section 32(1)(iia) of the Act as under: “Enhancement of the rate of additional depreciation on new machinery and plant and withdrawal of certain conditions – 3.6 Under the existing provisions of clause (iia) of sub-section (1) of section 32, additional depreciation is allowed at the rate of fifteen per cent of the actual cost of the new machinery and plant (other than ships and aircraft) acquired and installed after the 31st day of March, 2002. W.P.(C) 195/2016 Page 2 of 4

Additional depreciation is allowed in the case of a new industrial undertaking during any previous year in which it begins to manufacture or produce any article or thing on or after the 1st day of April, 2002, or to any industrial undertaking existing before that date if it achieves substantial expansion during the previous year by way of increase in its installed capacity by not less than ten per cent. In order to encourage investment, the Finance Act, 2005, has amended section 32 to increase the rate of additional depreciation to twenty per cent on new machinery and plant other than ships and aircraft, acquired and installed after the 31st day of March, 2005, and dispensed with the condition of additional depreciation to be allowed to a new industrial undertaking and the condition of expansion in installed capacity. Depreciation rates have been modified through a Notification, dated 28th February, 2005. The modified depreciation rates are effective from the assessment year 2006-07. Among other things, the rate of depreciation of plant and machinery has been reduced from 25% to 15%. Applicability: From the assessment year 2006-07 onwards [Section 8].” The Revenue resists the petition and contends that the condition in Section 32(1)(iia) is that for claiming additional depreciation the unit must be existing, i.e., it should not be a new industrial undertaking. This Court is of the opinion that the impugned notice cannot sustain. Needless to add that once the A.O. inquired into the claims and framed the assessment under Section 143(3) of the Act, in the absence of any tangible material that can be valid “reasons to believe”, t he re-assessment notice W.P.(C) 195/2016 Page 3 of 4

could not have been issued. Even otherwise, in the light of the CBDT’s Circular of 27th February, 2006 (quoted above), the Revenue’s stand to justify the re-assessment notice is unsustainable. The impugned notice and all further proceedings are hereby quashed. The writ petition is allowed. S. RAVINDRA BHAT, J NAJMI WAZIRI, J JANUARY 18, 2017/acm W.P.(C) 195/2016 Page 4 of 4