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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Instant appeal by the assessee is directed against the order dated 19th November 2015, passed by the learned Commissioner (Appeals)–1, Thane, for the assessment year 2005–06. Assessee has raised following grounds:–
1. On facts and circumstances of the case and in law, the Hon. C.I.T.(A) has erred in passing exparte order even though written submissions were already on the record which has been filed by the appellant, which has not been considered.
2. On facts and circumstances of the case and in law, the Hon. C.I.T.(A) has erred in confirming the action of the 2 M/s. Micro Solutions (I) Pvt. Ltd. Assessing Officer in passing the order under section 144 r.w.s. 147 of the Income Tax Act, 1961.
3. On facts and circumstances of the case and in law, the Hon. C.I.T.(A) has erred in confirming the action of the Assessing Officer in issuing notice and also proceedings under section 148 of the Income Tax Act, 1961 even though the basic requirement of section 148 was not fulfilled.
4. On facts and circumstances of the case the Hon. C.I.T.(A) has erred in confirming the disallowance of additional depreciation which has not been claimed by the appellant under section 32(1)(iia) of the Income Tax Act, 1961.
Brief facts are, the assessee a company being franchise of Aptech Ltd., is engaged in the business of computer education. For the assessment year under consideration, the assessee filed his return of income on 29th October 2005, declaring total income of ` 7,54,425. Assessment in case of the assessee was completed under section 143(3) of the Income Tax Act, 1961 (for short "the Act") on 31st August 2007, determining income at ` 8,81,380. Subsequently, the Assessing Officer having reason to believe that income has escaped assessment due to incorrect claim of depreciation amounting to ` 3,31,114 under section 32(1)(iia) of the Act, re–opened the assessment of the assessee under section 147 by issuing notice under section 148 on 25th June 2010. As observed by the Assessing Officer, since there was no response from the assessee either against the notice issued under section 148 or against the notice issued under section 142(1), the Assessing Officer proceeded to complete the assessment to the best of his judgment under section 144 on the basis
3 M/s. Micro Solutions (I) Pvt. Ltd. of material on record. Accordingly, observing that assessee had not furnished details of new plant and machinery with reference to increased installed capacity as prescribed under section 32(1)(iia), he held that additional depreciation claim of ` 3,30,114 claimed and allowed in the original assessment has to be withdrawn. Accordingly, he completed the assessment adding back the purported additional depreciation claimed of ` 3,30,114. Being aggrieved of the assessment order so passed, assessee preferred appeal before the first appellate authority challenging the assessment order both on the validity of re– opening under section 147 as well as on merits of the addition made. The learned Commissioner (Appeals), however, upheld the view of the Assessing Officer on both count by dismissing the grounds raised by the assessee. Being aggrieved, the assessee is in appeal before us.
As far as the issue pertaining to validity of re–opening of assessment under section 147 is concerned, learned Authorised Representative submitted, assessment was originally completed under section 143(3). At the time of completion of original assessment, the Assessing Officer has examined all the details submitted by the assessee including depreciation claimed a part of which is the subject matter of re–opening as per reasons recorded. Learned Authorised Representative referring to the assessment order passed under section 143(3) of the Act submitted, the very fact that the Assessing Officer
4 M/s. Micro Solutions (I) Pvt. Ltd. while completing the original assessment has disallowed a part of the depreciation shows that he has examined assessee’s claim of depreciation as per schedule of depreciation forming part of financial statement submitted along with return of income. Learned Authorised Representative submitted, undisputedly, in assessee’s case, not only the assessment was completed under section 143(3) originally but the re–opening of assessment was after expiry of four years from the end of the relevant assessment year. Therefore, proviso to section 147 applies. Unless there is a failure on the part of the assessee in disclosing fully and truly all material facts required for his assessment no re–opening under section 147 can be made. He submitted, there is no allegation by the Assessing Officer either in the reasons recorded or in the re–assessment order that alleged escapement of income on account of excess depreciation allowed to the assessee was as a result of failure on the part of the assessee to disclose fully and truly all material facts. He submitted on the other hand the Assessing Officer while completing original assessment has considered all facts and material available on record and specifically the claim of depreciation. He submitted, the reasons recorded for re–opening of assessment, as evident from the re–assessment order would show that there was no fresh tangible available before the Assessing Officer, inasmuch as, the Assessing Officer by re–examining the material already available on record at the time of original assessment has re–opened the 5 M/s. Micro Solutions (I) Pvt. Ltd. assessment. He, therefore, submitted the re–opening of assessment being on a mere change of opinion should be quashed.
As far as the merits of the addition is concerned, the learned Authorised Representative drawing our attention to the depreciation schedule submitted, neither there is any addition to the fixed assets nor the assessee has claimed additional depreciation. He submitted, as per the reasons for re–opening supplied to the assessee, the Assessing Officer had stated that the amount of ` 5,49,365, had been deducted from the block of assets as per Companies Act, however, the same value has not been deducted from the computation of depreciation as per Income Tax Act, which has resulted in excess allowance of depreciation. He submitted, after receiving the reasons recorded for re–opening the assessment the assessee in letter dated 26th October 2010, while objecting to the re–opening of assessment has specifically stated that the assessee is claiming depreciation as per straight line method and has written–off an amount of ` 5,40,065, since the assets were purchased in the assessment year 1998–99. Similar treatment was also given in respect of furniture and fixture. Thus, it was stated that there is no excess claim of depreciation. Learned Authorised Representative submitted, as there is no claim of additional depreciation by the assessee, the disallowance made under total misconception of facts has to be deleted.
6 M/s. Micro Solutions (I) Pvt. Ltd.
Learned Department Representative on the other hand submitted there is no bar on the Assessing Officer to re–open the assessment under section 143(3) even in absence of fresh material. He submitted, in terms of Explanation–1 to section 147, the Assessing Officer is empowered to re–open the assessment under section 147, if in the original assessment, the Assessing Officer has not examined the particular issue and thereby has not formed any opinion. As far as merit of the disallowance is concerned, the learned Departmental Representative relied upon observations of the Assessing Officer and the learned Commissioner (Appeals).
We have considered the submissions of the parties and perused the material available on record. Undisputedly, in assessee’s case, assessment for the impugned year was originally completed under section 143(3). It is also not disputed that the notice under section 148 was issued on 25th June 2010. Therefore, the assessment has been re–opened after expiry of four years from the end of the relevant assessment year. Even the Department also accepts the aforesaid factual position. That being the case, it has to be examined whether the re–opening of assessment is valid or not. As per the proviso to section 147 of the Act, in a case where assessment is completed under section 143(3) or section 147 earlier, the same cannot be re–opened after expiry of four years from the end of relevant assessment year
7 M/s. Micro Solutions (I) Pvt. Ltd. unless there is failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. As is evident from the facts on record, the re–opening of assessment was on the issue of excess claim of depreciation as per the reasons recorded. Thus, it is necessary to examine whether there is failure on the part of the assessee to disclose fully or truly all material facts as far as claim of depreciation is concerned. On a perusal of audited annual accounts for the year ended 31st March 2005, submitted along with the return of income and also available at the time of original assessment it is noticed that not only it contains the schedule of depreciation but the details of claim of depreciation has also been furnished. Further, on a perusal of assessment order passed under section 143(3) originally on 31st August 2007, a copy of which is submitted in the paper book, it is noticed that the Assessing Officer has not only examined the books of account but also other documents produced by the assessee along with the return of income. The Assessing Officer has considered various issues including the claim of depreciation in course of original assessment proceedings. This is evident from the fact that he has disallowed a part of depreciation claimed on car. Thus, from the aforesaid facts, it is very much evident that while completing the original assessment, the Assessing Officer has examined assessee’s claim of depreciation on various items of fixed asset. Therefore, the plea of the Department that at the time of original assessment, the 8 M/s. Micro Solutions (I) Pvt. Ltd. Assessing Officer has not examined the claim of depreciation cannot be accepted. Moreover, neither in the reasons recorded as communicated to the assessee nor anywhere in the re–assessment order, there is even a ___________ of allegation by the Assessing Officer that alleged escapement of income on account of excess claim of depreciation was as a failure on the part of the assessee to disclose fully and truly all material facts relevant for his assessment. As the assessee’s case is covered under the proviso to section 147, the Department is duty bound to establish on record that the alleged escapement of income was as a result of failure on the part of the assessee to disclose fully and truly all material facts. There being no allegation by the Department nor any material having been brought on record to suggest that escapement of income was as a failure on the part of the assessee to disclose fully and truly all material facts, the re–opening of assessment is invalid in law. Moreover, as per the reasons communicated to the assessee vide letter dated 25th October 2010, the Assessing Officer has stated that the escapement of income was on account of variance in the claim of depreciation under Companies Act and Income Tax Act. Further, in the notice issued under section 142(1) dated 7th January 2011, the Assessing Officer has stated that the amount of ` 5,46,065 in block of asset of computer is due to sale consideration, whereas, while completing the assessment under section 144 r/w 147, the Assessing Officer has disallowed an 9 M/s. Micro Solutions (I) Pvt. Ltd. amount of ` 3,30,114 on the allegation that assessee has claimed additional depreciation under section 32(1)(iia) on account of new plant and machinery with reference to increased installed capacity. As demonstrated before us by the learned Authorised Representative, there is absolutely no claim of additional depreciation by the assessee under section 32(1)(iia) nor there is any addition of new plant and machinery as alleged in the impugned assessment order. Moreover, in the reasons recorded for re–opening of assessment also there is no allegation of claim of additional depreciation. Thus, as could be seen the ultimate addition made in the re–assessment order is different from escapement of income alleged as per reasons recorded. In fact, there is no live link or nexus between the material available on record and formation of belief for the purpose of re–opening of assessment under section 147. That being the case, the re–opening of assessment is invalid. Unfortunately, the learned Commissioner (Appeals) has not considered in proper perspective the facts and materials on record while deciding the validity of re–opening of assessment under section 147 and approached the issue in a completely mechanical manner. That being the case, we are inclined to set aside the impugned order of the learned Commissioner (Appeals) on the issue and quash the assessment order. Though, in view of our aforesaid decision, there is no necessity to decide the issue on merit, however, it needs to be observed the disallowance made by the Assessing Officer is also not 10 M/s. Micro Solutions (I) Pvt. Ltd. sustainable on merits. As could be seen from the impugned assessment order, the Assessing Officer has made the addition of ` 3,30,114 assuming that the assessee has claimed additional depreciation of ` 32(1)(iia) on new plant and machinery for increased installed capacity. However, as demonstrated before us by learned Authorised Representative neither the assessee has claimed any additional depreciation under section 32(1)(iia) nor there is any addition to the fixed assets on account of new plant and machinery. Therefore, the conclusion drawn by the Assessing Officer is thoroughly misconceived and has no nexus with the facts and material on record. That being the case, the addition made cannot be sustained. Grounds raised are allowed.
In the result, assessee’s appeal stands allowed. Order pronounced in the open Court on 15.06.2016