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Income Tax Appellate Tribunal, DELHI BENCH ‘H’, NEW DELHI
ORDER Per Prashant Maharishi, AM:
This appeal is preferred by assessee against the order of CIT (A) - Karnal dated 1st Feb, 2013 passed u/s 250(6) of the Act. 02. The Grounds of appeal
assessee has preferred in this appeal are as under :-
1. That the Learned CIT(A) erred in not declaring the assessment made u/s 147/143(3) as bad in law as the AO issued the notice u/s 147/148 in violation of the explicit provisions of the said section and without having any reason to believe that any income has escaped assessment in the case of the assessee as the notice u/s 148 has been issued on the basis of the objection raised by the Audit Party as, it will not constitute the “reason to believe”as provided u/s 148 and clearly falls in the realm of change of opinion, which vitiates the proceedings u/s 147 and renders the assessment to be declared as void ab-initio, which be kindly held so.
2. Further, the Learned CIT (A) also erred in not declaring the notice u/s 148 as bad in law on merits too. That neither any income of the assessee has escaped assessment and nor any reason to believe for the escapement of the income exists, which 2 Veer Overseas is the foremost condition for the issuance of the notice u/s 148, hence, the notice has been issued in gross violation of the substantive law, moreover when the assessment has already been completed u/s 143(3) of the Income Tax Act, 1961, and deserves to be quashed, which be kindly ordered so and the original assessment completed u/s 143(3) be kindly ordered to be restored.
3. That the l’d CIT(A) also erred in confirming the disallowance of depreciation to the extent of Rs. 1,69,500/- calculated by reducing the subsidy from the value of the machinery, which is against the explicit decision of various courts as well as our jurisdictional High Court of P&H in the case of CIT vs. Haryana Flour Mills (P) Ltd, (1998) 145 CTR (P&H) 89, which be kindly allowed as claimed by the assessee / appellant.”
The brief facts of the case is that assessee is engaged in the business of manufacturing export of rice. For the assessment year 2006-07 the original assessment u/s 143(3) was completed on 30th December, 2008 at income of Rs. 3602250/-. Subsequently, it has come to the notice of AO that capital subsidy of Rs. 1130000/- is received by the assessee but the amount of subsidy has not been reduced from the cost of Plant and Machinery in terms of provisions of explanation 10 to Section 43(1), therefore, a notice u/s 148 was issued on 09.02.2011. In response to notice assessee submitted on 20th May 2011 that original return filed u/s 139 may be treated as ROI filed in response to notice u/s 148. Reasons recorded for reopening were supplied to assessee on 08.02.2011, to which assessee filed objections on 19.12.2008, which were disposed of on 29.12.2011. Main ground of the appeal of the assessee is that notice u/s 148 has been issued based on audit objection and further there is change of opinion. On merits of the case, ground of appeal
of the assessee is that to the extent of Rs. 169500/- depreciation on Plant and Machinery has been reduced because of subsidy, which is against the decision of Jurisdictional High Court in the case of CIT vs. Haryana Flour Mills Pvt. Ltd. 145 CTR 89.
04. On ground of reopening, Ld. AR submitted that during the course of original assessment, assessee has disclosed the relevant facts of the claim of the subsidy. The pointed submission was that on the face of the balance 3 Veer Overseas sheet in Schedule B the assessee has disclosed under the head ‘ Reserves and surplus’ an amount of Rs. 1130000/- received during the year as capital subsidy. Further during assessment proceedings detailed explanation along with books of accounts were submitted before the Assessing Officer. Further It was also submitted that for the same year proceedings u/s 154 were initiated on 24th Feb, 2014 wherein AO stated that the subsidy received of Rs. 1130000/- is required to be reduced from the cost of Plant & Machinery and therefore excess claim of depreciation is a mistake apparent from record. On 07.02.2011 AO himself has dropped, those proceedings u/s 154 vide letter dated 07.02.2011, meaning thereby that there is no error in the original assessment order. AR further submitted that vide letter dated 25.11.2008 the assessee vide para no. 4 submitted details of depreciation claimed. Assessee further submitted in the same communication that the subsidy with respect to the capital asset has been received for the promotion of export; therefore, it cannot be reduced from the cost of the asset for the purpose of allowance of depreciation. In view of the above, he stated that reopening has been made based on audit objection and more so, it is a mere change of opinion. On the merits of the case, he submitted that the subsidy is given for export promotion and therefore he relied on the decision of CIT vs. Haryana Flour Mills 145 CTR 89.
Ld. DR for the revenue submitted that reopening is not the change of opinion but it is reappraisal of the facts already provided for. He relied on the decision of Hon’ble Delhi High Court in the case of CIT V M/s Usha International reported at 348 ITR 485( Delhi). On the merits, he submitted that the explanation 10 to section 43(1) is clear and subsidy is required to be reduced from the cost of fixed assets for working depreciation.
We have carefully considered the rival submissions as well as the orders of lower authorities. The brief facts as already narrated shows that original assessments was completed on 30th December 2008 and during that assessment. The assessee has disclosed the details of capital subsidy 4 Veer Overseas received of Rs. 1130000/- firstly, in the balance sheet submitted before the AO and secondly, a pointed answer was provided in para no. 4 of the letter dated 25.11.2008 by the assessee. The para no. 4 of the letter which was submitted by the assessee which is also placed at paper book page no. 62 clearly shows that there was a query regarding depreciation claim made by the assessee as well as whether the subsidy can be reduced from the cost of the asset for the purposes of depreciation. Obviously, as no disallowance is made in return of income on this count. Thirdly, AO himself issued a notice u/s 154 on 24th February, 2010 stating that the assessee while claiming depreciation on assets, capital subsidy of Rs. 1130000/- received from the State Government is not reduced from the cost of Plant and Machinery and therefore there is an excess depreciation claim of Rs. 169500/- which is required to be disallowed. Vide order dated 07.02.2011, AO himself dropped proceedings u/s 154 of the Act. On 8.2.2011 i.e. on the very next day of dropping proceedings u/s 154 it was noticed that AO has recorded the reasons for reopening that he has reason to believe that subsidy received of Rs. 1130000/- during the year under consideration by the assessee has not been deducted from the cost of Plant and Machinery and therefore an excess depreciation of Rs. 169500/- has been allowed to the assessee which is required to be withdrawn. Surprisingly 07.02.2011- assessing officer has dropped proceedings u/s 154 confirming thereby that there is no mistake apparent from the record and on the next day, he records the reasons for reopening of the assessment. Proceedings u/s 154 and u/s 147 clearly shows that assessing officer is changing his opinion on same set of facts within a short span of time. Further Hon SC in CIT V Kelvinator of India Limited 320 ITR 561 has held that after 1st April, 1989, AO has power to reopen the assessment under s. 147 provided AO has reason to believe that income has escaped assessment and there is tangible material to come to the conclusion that there is escapement of income; mere "change of opinion" cannot per se be reason to reopen. From the assessment order as well as the reasons recorded does not show that what “tangible material”
the assessing officer received which prompted him to reopen assessment. Ld. CIT (A) has given a finding that as issue of capital subsidy neither was debated nor discuss during the course of original assessment it is not a change of opinion. On this ground the documents produced before us which are placed at page no. 62 and 63 of the paper book being letter dated 25.11.2008 clearly discusses at para no. 4 that whether the subsidy is required to be reduced from the cost of plant and machinery or not. The submission of the above letter before the assessing officer was also not disputed by revenue during the course of hearing. For this reason, we are of the view that CIT (A) has incorrectly held that the issue of capital subsidy was neither debated nor discussed during the course of original assessment. As reopening proceedings are initiated within 4 years, it is important to examine whether there is “change of opinion” by AO as in the assessment order this issue is not discussed. For this Hon. Delhi high court in CIT V Usha International 348 ITR 485 has held that “7. In Kelvinator (2002) 256 ITR 1 (FB), a Full Bench judgment of this court, this question has been answered in the affirmative on the ground that an assessment order passed under section 143(3) of the Act must be presumed to be one passed after full scrutiny and formation of opinion on the points raised in the return and in the course of the assessment proceedings. It has been observed that section 114(e) of the Evidence Act comes into operation and it must be presumed that the AO had performed his duty in the manner expected of him, that is, after examining and forming an opinion on all aspects of the return, though he has not been articulate about it in the assessment order. It has also been held that if such a presumption is not drawn, that would amount to putting a premium on a perfunctory discharge of duties by the assessing authority and permitting him to take advantage of his own wrong. The contention of the revenue to the contrary was rejected in terms. I do not therefore think that in a case where failure to furnish full and true particulars is not shown in the reasons recorded for reopening the assessment, albeit within four years, the assessment made under section 143(3) can be reopened on the ground that no opinion was formed by the assessing authority in the original assessment in respect of matters that are the subject-matter of the notice under section 148. That question, in my opinion, stands concluded by the Full Bench judgment of this court in Kelvinator (supra). It may be added that Kelvinator (supra) was also a case of the assessment being reopened within four years.”
On reading the above, it is apparent that even when reopening is made within 4 years where assessment is framed u/s 143(3) there must be a 6 Veer Overseas tangible material and in the reasons, recorded AO must show failure to furnish full and true particulars by the assessee. The reason for reopening of assessment does not show any such finding by AO. Therefore, on both these counts reopening proceedings in this case fails. The reliance placed by DR on decision of Hon’ble Delhi High Court in case of CIT V M/s Usha International 348 ITR 485, in fact supports the case of the assessee. Hence, the reopening proceedings u/s 148 is without any tangible material and without recording failure to furnish full and true particulars by the assessee and it is mere change of opinion on same set of facts. Hence, we quash reassessment notice issued u/s 148 and order passed u/s 143(3) rws 147 on 30.12.2011. Therefore, ground no. 1 and 2 of the appeal are allowed.
In view of our finding given in para no. above, we do not adjudicate on ground no. 3 of the appeal as same has become academic in nature therefore, ground no. 3 of the appeal is dismiss. In the result, we have quashed reopening of assessment u/s 148 of the Act without discussing on merits the claim of subsidy to be reduced from the cost of capital asset for working depreciation with respect to Explanation 10 of section 43(1) of the Act. 08. In the result, appeal of the assessee is allowed. (Order Pronounced in the Court on 08/10/2015)