EVONIK CATALYSTS INDIA P.LTD,THANE V. ITO WD 1(2), KALYAN

ITA 1085/MUM/2016

AI Insights

The case involves Evonik Catalysts India Private Limited, which challenged the reopening of its assessment for the year 2006-07 by the Income Tax Officer, Ward-1(2), Kalyan. The AO had reopened the assessment citing that depreciation/additional depreciation claimed on new building, plant, and machinery was not allowable as they were not put to use before 31-03-2006. The Tribunal examined whether the reopening was valid, considering the provisions of section 147 of the Income Tax Act and the first proviso which protects against reassessment after four years unless there is a failure to disclose material facts. The Tribunal concluded that the AO had changed his opinion based on the same facts and documents that were previously considered during the original assessment, thus invalidating the reopening.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471399 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONICA PANDE
• Assessee Lawyers: KETAN VED VIRTUALLY APPEARED
• Keywords: Difference of opinion; Change of opinion; Depreciation; Additional depreciation; Reopening of assessment; Reason to believe
• Section: 147; 148; 143(3); 132; 139

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE JUSTICE (RETD.) SHRI C.V. BHADANG, PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA No.1085/Mum/2016 Assessment Year : 2006-07 Evonik Catalysts India Private Limited, (Erstwhile Monarch Catalyst Private Limited), F1/2, MIDC, Phase I, Dombivli (East), Thane-421203 PAN : AAACM5013G vs. Income Tax Officer, Ward-1(2), Kalyan (Appellant) (Respondent) For Assessee : Shri Ketan Ved (Virtually appeared) a/w Shri Abdul Kadir Jawadwala For Revenue : Ms. Monica Pande, Sr.DR Date of Hearing : 01-04-2025 Date of Pronouncement : 03-04-2025 O R D E R PER B.R. BASKARAN, A.M : The assessee has filed this appeal challenging the order dated 31-12-2015 passed by the Ld. Commissioner of Income Tax (Appeals)-2, Thane [‘Ld.CIT(A)’] and it relates to AY.2006-07. The grounds urged by the assessee give rise to the following issues: 2 ITA No. 1085/Mum/2016 i. Validity of reopening of assessment; ii. Disallowance of depreciation on Building and Machinery; iii. Levy of interest u/s.234D of the Act; 2. The facts relating to the case are stated in brief. The assessee is engaged in the business of manufacture of nickel catalyst, activated alloy catalyst etc. The original assessment in the hands of the assessee for the year under consideration was completed u/s. 143(3) of the Act on 31-12- 2008. Subsequently, the AO reopened the assessment by issuing notice u/s. 148 of the Act on 03-04-2012. The reason given by the AO for reopening of assessment was that the depreciation/additional depreciation claimed by the assessee on Plant and Machinery amounting to Rs.1.57 crores on new project at F-1/2, MIDC, Dombivli is not allowable as deduction, since the said building, Plant and Machinery were not put to use by the assessee before 31-03-2006. Hence the depreciation of Rs.1.57 crores has been wrongly allowed to the assessee. The reopened assessment was completed by the AO by disallowing the depreciation of Rs. 1.57 crores claimed by the assessee on new building, Plant and Machinery. 3. The assessee challenged the re-assessment order by filing an appeal before the Ld.CIT(A); wherein the assessee challenged the validity of re- opening of assessment and also the disallowance of depreciation on merits. The Ld.CIT(A), however, dismissed the appeal of the assessee and hence, the assessee has filed this appeal. 4. The Ld.AR first advanced his arguments on the validity of reopening of assessment. He submitted that the AO has reopened the assessment after expiry of four years from the end of the assessment year and further, the original assessment was completed earlier u/s. 143(3) of the Act. The Ld. AR submitted that, under these facts, the assessee would be protected 3 ITA No. 1085/Mum/2016 by the first proviso to sec.147 of the Act, which prescribes the condition that it should be shown by the AO that there was failure on the part of the assessee to disclose fully and truly all the material facts relating to the assessment. The Ld.AR submitted that the AO, during the course of original assessment proceedings, had raised queries on the very same issues on which the present reopening of the assessment was done by the AO. The assessee, during the course of original assessment proceedings, has given replies to each of those issues. After that, the AO completed the original assessment proceeding after satisfying himself over the replies given by the assessee. Accordingly, the Ld.AR contended that there was no failure on the part of the assessee to disclose fully and truly all the material facts relating to assessment. Further, the AO has only changed his opinion on the very same facts, which were considered by him in the original assessment proceedings. Accordingly, he submitted that the impugned reopening is against the provisions of 1st proviso to section 147 of the Act and also on account of change of opinion on the part of the AO. Accordingly, the Ld.AR contended that the reopening of assessment of the year under consideration is not valid. 5. On the contrary, the Ld.DR, submitted that the AO has reopened the assessment after recording proper reasons and hence, the Ld.CIT(A) has confirmed the validity of reopening of assessment. 6. We heard the parties and perused the record. Since the issue is related to the validity of reopening of assessment, we extract below the reasons recorded by the AO for reopening of the assessment:- 4 ITA No. 1085/Mum/2016 REASONS FOR RE-OPENING The assessment of Monarch Catalyst Pvt Ltd for A.Y 06-07 is reopened for following reason: In this case assessee has filed return of income of Rs. 1,52,510/- on 30.10.2006. Assessment u/s. 143(3) was completed on total Income of Rs.2,20,45,116/- on 31.12.2008. The assesses had claimed depreciation / additional depreciation on building and plant machinery amounting to Rs. 1,57,74,003/- on new project at F- 1/2, MIDC, Dombivli during the A.Y.2006-07, the details of which are as under: Assets Addition in Rs. Depreciation claim Rs. a) Building 5,96,27,255/- 29,81,363/- b) Plant & Machinery 7,17,27,629/- 53,79,572/- d) Additional Depreciation -- 74,13,068/- Total 13,13,54,884/- 1,57,74,003 It is noticed that the construction of the building and Installation of machinery was not completed as on 31.03.2006. This is evident from the following facts. 1) The executive engineer, MIDC, Dombivil has accorded completion certificate of the building on 03.04.2006. 2) In the statement recorded at the time of survey under sec133A undertaken in the case of the assessee on 22.11.2007, Shri Rajendra Dhirendra Gunjikar, Sr.Production Manager, has stated that civil construction of new unit of Nickel recovery was completed in July 2006. He has also stated that actual trial production was started In August 2006. 3) In the statement recorded at the time of survey under sec133A undertaken in the case of the assessee on 22.11.2007, Shri Nitin Juttlan, General Manager has stated that the completion of Installation of machinery was made somewhere In July, 2008 and commercial production has started from 28.09.2008. It is evident that the building as well as Plant and Machinery were not put to use by the assessee before 31.03.2006 and therefore, the assessee is not eligible to claim depreciation of Rs 1,57,74,003/-In respect of this assets for A.Y.2006-07. The claim made by the assessee of the depreciation in respect of these assets have been wrongly allowed by the A.O. while completing the assessment, resulting in excessive claim of allowance u/s. 132 of the Act. I have therefore reason to believe that income of the assesses for A.Y 06-07 has escaped assessment within the meaning of provision of Section 147 of the Act. Further, it is seen from records that complete and correct details with regards to above mentioned assets were not furnished by the assessee in the return of Income 5 ITA No. 1085/Mum/2016 filed. Thus there is failure on the part of the assesses to disclose fully and truly all material facts necessary for the assessment.” In view of above, I have reason to believe that above income of the assessee has escaped assessment for the reason on the failure on the part of the assessee to fully and truly disclose all the material facts necessary for the assessment.” 7. It can be noticed that the AO has relied upon two documents for reopening of assessment, viz., the completion certificate given by MIDC and the statements recorded from Shri Nitin Kotian and Shri Rajendra Gunjikar in order to come to form the opinion that the building, plant and machinery were not put to use before 31.3.2006 and hence the depreciation/additional depreciation claimed by the assessee was wrongly allowed. 8. The Ld A.R submitted that the AO the very same documents viz., the completion certificate given by MIDC and the statements given by two employees, were very much available before the AO in the original assessment proceedings and he had raised specific queries on the basis of very same documents. We notice that the above queries were clarified by the assessee to the AO, vide its letter Ref.: MCPL/IT/08-09/497 dated 17th November, 2008. The copy of said letter is placed at pages 100 to 105 of paper book. Following replies have been given by the assessee with regard to the above said issues:- “11. Regarding MIDC Occupancy Certificate dated 3-4-06, we state that the said certificate is given by the Corporation only after the completion of the total building. However, the completion certificate given by authorized architects Mr.Nirav Shah & Mr.Hemal Shah proves that the construction of the building has been completed by 7/3/06 i.e, during the year under consideration. 12. Survey action took place on 22/1/07. During the survey action the statement of Mr. Nitin Kotian and Mr.Rajendra Gunjikar was taken by the survey team. We give below clarification of their statement. 6 ITA No. 1085/Mum/2016 a) The construction of building has been completed by 7/3/06 but certain activities like plastering & colouring of building might have been misconstrued as non completion by the aforesaid employees. b) During the F.Y. 2006-07 there was a breakdown in certain machinery which forced us to discontinue the production in the new plant in order to complete rectification work and again regular production has commenced during July 06. c) During the production activities conducted in the new plant, certain machinery had given away and so the production could not be continued on regular basis. In order to ascertain the causes of failure of said machinery and undertake necessary rectification measures we got delayed to restart the production in full swing by four months. d) As a matter of fact, the same question was put to Mr.Rajendra Gunjikar and to our CMD Mr Shantilal Vadalia. You may refer to statements of Mr.Shantilal Vadalia recorded on the date of Survey in question No.11 and 12 wherein Mr.Shantilal Vadalia specifically clarified about Mr.Rajendra Gunjikar's statements and we quote the relevant portion as under: \"Our Senior Production Manager was posted with W-62, MIDC, Phase -II unit and he was not responsible for the Project and the installation and the trial production details of F-1/2 plant until he was transferred\". \"To the best of my knowledge, the management had not delegated any Project related responsibility to Mr.Rajendra Gunjikar. He was the sold person in W-62 of managerial cadre. So it was not possible for him to be involved in day to day project affairs. If he had been called by the project team for suggestions, it would have been for post trial modifications\" We notice that, after considering the above said replies, the AO has passed the original assessment order u/s 143(3). Thus, we notice that the AO had raised the queries on the very same issues on the basis of which he sought to reopen the assessment and was satisfied with the replies given by the assessee. Hence there is merit in the contentions of the assessee that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. 7 ITA No. 1085/Mum/2016 9. Since the AO had completed the earlier assessment u/s 143(3) and since the present reopening is done after expiry of four years from the end of the relevant assessment year, the applicability of first proviso to sec.147 of the Act needs to be examined. The said proviso reads as under:- “Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year” We have seen earlier that the assessee, during the course of original assessment proceedings, had specifically clarified the queries of the AO on the completion certificate issued by MIDC and also on the statements given by two of its employees. The AO had also passed the original assessment order, after considering those replies only. We notice that the AO has reopened the assessment, which was completed u/s 143(3) of the Act, after expiry of four years from the end of the relevant assessment year. Even though the AO mentions in the reasons for reopening of assessment that there was failure on the part of the assessee to disclose fully and truly all material facts, yet we are of the view that, in the facts of the present case discussed above, it cannot be said there was failure on the part of the assessee to disclose all material facts truly and fully. It is clearly a case of change of opinion on the part of the AO. 10. Accordingly, we are of the view that the assessee would be protected by the first proviso to sec.147 of the Act. Hence, we are of the view that the 8 ITA No. 1085/Mum/2016 reopening of assessment of the year under consideration is not valid. In view of the above, we quash the orders passed by the authorities below. 11. Since we have allowed the appeal of the assessee on the legal ground of validity of reopening of assessment and quashed the orders passed by the authorities below, there is no necessity to adjudicate the grounds urged on merits. 12. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 03-04-2025 Sd/- Sd/- (JUSTICE (RETD.) C.V. BHADANG) PRESIDENT (B.R. BASKARAN) ACCOUNTANT MEMBER Mumbai, Date: 03-04-2025 TNMM Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai "