M/s. Veer Overseas Ltd., Karnal V. ACIT, Karnal

ITA 3599/DEL/2013

• Counselvise Citation: 359920114 RSA 2013
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 08-09-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 05-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHANDREKAR
• Assessee Lawyers: ABISHEK GUPTA
• Keywords: Reopening of assessment; Capital asset; Depreciation; Audit objection; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 147; 148; 10; 154; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H, NEW DELHI BEFORE SH. G.C.GUPTA, V.P. AND SH. PRASHAN T MAHARISHI, AM ITA NO. 3599/DEL/20 13 : ASSTT. YEAR: 2006-07 VEER OVERSEAS LTD. G.T.ROAD, GHARUNDA KARNAL VS ACIT KARNAL CIRCLE AAYAKAR BHAWAN, SECTOR-12 NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACV9333N ASSESSEE BY : SHRI ABISHEK GUPTA, ADV REVENUE BY : SHRI J.P.CHANDREKAR, SR. DR DATE OF HEARING : 08.09.2015 DATE OF PRONOUNCEMENT : 08.10.2015 ORDER PER PRASHANT MAHARISHI, AM: 01. THIS APPEAL IS PREFERRED BY ASSESSEE AGAINST THE OR DER OF CIT (A) - KARNAL DATED 1 ST FEB, 2013 PASSED U/S 250(6) OF THE ACT. 02. THE GROUNDS OF APPEAL ASSESSEE HAS PREFERRED IN THI S 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 I NCOME HAS ESCAPED ASSESSMENT IN THE CASE OF THE ASSESSEE AS T HE NOTICE U/S 148 HAS BEEN ISSUED ON THE BASIS OF THE OBJECTION R AISED BY THE AUDIT PARTY AS, IT WILL NOT CONSTITUTE THE REASON TO BELIEVEAS 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 DECL ARING THE NOTICE U/S 148 AS BAD IN LAW ON MERITS TOO. THAT NE ITHER ANY INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT AND N OR ANY REASON TO BELIEVE FOR THE ESCAPEMENT OF THE INCOME EXISTS, WHICH ITA NO.3599/DEL/2013 VEER OVERSEAS 2 IS THE FOREMOST CONDITION FOR THE ISSUANCE OF THE N OTICE U/S 148, HENCE, THE NOTICE HAS BEEN ISSUED IN GROSS VIOLATIO N OF THE SUBSTANTIVE LAW, MOREOVER WHEN THE ASSESSMENT HAS A LREADY BEEN COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961, A ND DESERVES TO BE QUASHED, WHICH BE KINDLY ORDERED SO AND THE ORIG INAL ASSESSMENT COMPLETED U/S 143(3) BE KINDLY ORDERED T O BE RESTORED. 3. THAT THE LD CIT(A) ALSO ERRED IN CONFIRMING THE DI SALLOWANCE OF DEPRECIATION TO THE EXTENT OF RS. 1,69,500/- CALCUL ATED 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 FL OUR MILLS (P) LTD, (1998) 145 CTR (P&H) 89, WHICH BE KINDLY A LLOWED AS CLAIMED BY THE ASSESSEE / APPELLANT. 03. THE BRIEF FACTS OF THE CASE IS THAT ASSESSEE IS ENG AGED IN THE BUSINESS OF MANUFACTURING EXPORT OF RICE. FOR THE ASSESSMENT YE AR 2006-07 THE ORIGINAL ASSESSMENT U/S 143(3) WAS COMPLETED ON 30 TH DECEMBER, 2008 AT INCOME OF RS. 3602250/-. SUBSEQUENTLY, IT HAS COME TO THE NOT ICE OF AO THAT CAPITAL SUBSIDY OF RS. 1130000/- IS RECEIVED BY THE ASSESSE E 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), T HEREFORE, A NOTICE U/S 148 WAS ISSUED ON 09.02.2011. IN RESPONSE TO NOTICE ASS ESSEE SUBMITTED ON 20 TH 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 RE OPENING WERE SUPPLIED TO ASSESSEE ON 08.02.2011, TO WHICH ASSESSEE FILED OBJ ECTIONS ON 19.12.2008, WHICH WERE DISPOSED OF ON 29.12.2011. MAIN GROUND O F THE APPEAL OF THE ASSESSEE IS THAT NOTICE U/S 148 HAS BEEN ISSUED BAS ED ON AUDIT OBJECTION AND FURTHER THERE IS CHANGE OF OPINION. ON MERITS OF TH E 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 O F CIT VS. HARYANA FLOUR MILLS PVT. LTD. 145 CTR 89. 04. ON GROUND OF REOPENING, LD. AR SUBMITTED THAT DURIN G THE COURSE OF ORIGINAL ASSESSMENT, ASSESSEE HAS DISCLOSED THE REL EVANT FACTS OF THE CLAIM OF THE SUBSIDY. THE POINTED SUBMISSION WAS THAT ON THE FACE OF THE BALANCE ITA NO.3599/DEL/2013 VEER OVERSEAS 3 SHEET IN SCHEDULE B THE ASSESSEE HAS DISCLOSED UNDE R THE HEAD RESERVES AND SURPLUS AN AMOUNT OF RS. 1130000/- RECEIVED DU RING THE YEAR AS CAPITAL SUBSIDY. FURTHER DURING ASSESSMENT PROCEEDINGS DETA ILED EXPLANATION ALONG WITH BOOKS OF ACCOUNTS WERE SUBMITTED BEFORE THE AS SESSING OFFICER. FURTHER IT WAS ALSO SUBMITTED THAT FOR THE SAME YEAR PROCEEDINGS U/S 154 WERE INITIATED ON 24 TH 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 DEPRECIAT ION 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, M EANING 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 MAD E BASED ON AUDIT OBJECTION AND MORE SO, IT IS A MERE CHANGE OF OPINI ON. ON THE MERITS OF THE CASE, HE SUBMITTED THAT THE SUBSIDY IS GIVEN FOR EX PORT PROMOTION AND THEREFORE HE RELIED ON THE DECISION OF CIT VS. HARY ANA FLOUR MILLS 145 CTR 89. 05. 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 HONBLE DELHI HIGH COURT IN THE CAS E OF CIT V M/S USHA INTERNATIONAL REPORTED AT 348 ITR 485( DELHI). ON T HE MERITS, HE SUBMITTED THAT THE EXPLANATION 10 TO SECTION 43(1) IS CLEAR A ND SUBSIDY IS REQUIRED TO BE REDUCED FROM THE COST OF FIXED ASSETS FOR WORKIN G DEPRECIATION. 06. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE ORDERS OF LOWER AUTHORITIES. THE BRIEF FACTS AS ALREADY NARRA TED SHOWS THAT ORIGINAL ASSESSMENTS WAS COMPLETED ON 30 TH DECEMBER 2008 AND DURING THAT ASSESSMENT. THE ASSESSEE HAS DISCLOSED THE DETAILS OF CAPITAL SUBSIDY ITA NO.3599/DEL/2013 VEER OVERSEAS 4 RECEIVED OF RS. 1130000/- FIRSTLY, IN THE BALANCE S HEET SUBMITTED BEFORE THE AO AND SECONDLY, A POINTED ANSWER WAS PROVIDED IN P ARA 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 P APER BOOK PAGE NO. 62 CLEARLY SHOWS THAT THERE WAS A QUERY REGARDING DEPR ECIATION 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. OBVIOUS LY, AS NO DISALLOWANCE IS MADE IN RETURN OF INCOME ON THIS COUNT. THIRDLY, AO HIMSELF ISSUED A NOTICE U/S 154 ON 24 TH FEBRUARY, 2010 STATING THAT THE ASSESSEE WHILE CLA IMING DEPRECIATION ON ASSETS, CAPITAL SUBSIDY OF RS. 1130 000/- RECEIVED FROM THE STATE GOVERNMENT IS NOT REDUCED FROM THE COST OF PL ANT AND MACHINERY AND THEREFORE THERE IS AN EXCESS DEPRECIATION CLAIM OF RS. 169500/- WHICH IS REQUIRED TO BE DISALLOWED. VIDE ORDER DATED 07.02.2 011, AO HIMSELF DROPPED PROCEEDINGS U/S 154 OF THE ACT. ON 8.2.201 1 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 BEL IEVE THAT SUBSIDY RECEIVED OF RS. 1130000/- DURING THE YEAR UNDER CON SIDERATION BY THE ASSESSEE HAS NOT BEEN DEDUCTED FROM THE COST OF PLA NT AND MACHINERY AND THEREFORE AN EXCESS DEPRECIATION OF RS. 169500/- HA S BEEN ALLOWED TO THE ASSESSEE WHICH IS REQUIRED TO BE WITHDRAWN. SURPRIS INGLY 07.02.2011- ASSESSING OFFICER HAS DROPPED PROCEEDINGS U/S 154 C ONFIRMING THEREBY THAT THERE IS NO MISTAKE APPARENT FROM THE RECORD AND ON THE NEXT DAY, HE RECORDS THE REASONS FOR REOPENING OF THE ASSESSMENT. PROCEE DINGS U/S 154 AND U/S 147 CLEARLY SHOWS THAT ASSESSING OFFICER IS CHANGIN G HIS OPINION ON SAME SET OF FACTS WITHIN A SHORT SPAN OF TIME. FURTHER HON S C IN CIT V KELVINATOR OF INDIA LIMITED 320 ITR 561 HAS HELD THAT AFTER 1ST A PRIL, 1989, AO HAS POWER TO REOPEN THE ASSESSMENT UNDER S. 147 PROVIDE D AO HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND THER E 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 TH E ASSESSMENT ORDER AS WELL AS THE REASONS RECORDED DOES NOT SHOW THAT WHA T TANGIBLE MATERIAL ITA NO.3599/DEL/2013 VEER OVERSEAS 5 THE ASSESSING OFFICER RECEIVED WHICH PROMPTED HIM T O REOPEN ASSESSMENT. LD. CIT (A) HAS GIVEN A FINDING THAT AS ISSUE OF CAPITAL SUBSIDY NEITHER WAS DEBATED NOR DISCUSS DURING THE COURSE OF ORIGIN AL ASSESSMENT IT IS NOT A CHANGE OF OPINION. ON THIS GROUND THE DOCUMENTS PRO DUCED 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 WHE THER THE SUBSIDY IS REQUIRED TO BE REDUCED FROM THE COST OF PLANT AND M ACHINERY OR NOT. THE SUBMISSION OF THE ABOVE LETTER BEFORE THE ASSESSING OFFICER WAS ALSO NOT DISPUTED BY REVENUE DURING THE COURSE OF HEARING. F OR 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 YEA RS, 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. DE LHI HIGH COURT IN CIT V USHA INTERNATIONAL 348 ITR 485 HAS HELD THAT 7. IN KELVINATOR (2002) 256 ITR 1 (FB), A FUL L BENCH JUDGMENT OF THIS COURT, THIS QUESTION HAS BEEN ANSWERED IN THE AFFIR MATIVE 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 P ROCEEDINGS. IT HAS BEEN OBSERVED THAT SECTION 114(E) OF THE EVIDENCE ACT CO MES 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 OPI NION 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 NO T 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 H IS OWN WRONG. THE CONTENTION OF THE REVENUE TO THE CONTRARY WAS REJEC TED IN TERMS. I DO NOT THEREFORE THINK THAT IN A CASE WHERE FAILURE TO FUR NISH FULL AND TRUE PARTICULARS IS NOT SHOWN IN THE REASONS RECORDED FOR REOPENING THE ASSESSMENT, ALBEIT WITHIN FOUR YEARS, THE ASSESSMENT MADE UNDER SECTIO N 143(3) CAN BE REOPENED ON THE GROUND THAT NO OPINION WAS FORMED BY THE ASS ESSING AUTHORITY IN THE ORIGINAL ASSESSMENT IN RESPECT OF MATTERS THAT ARE THE SUBJECT-MATTER OF THE NOTICE UNDER SECTION 148. THAT QUESTION, IN MY OPIN ION, 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 ASSE SSMENT 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 ITA NO.3599/DEL/2013 VEER OVERSEAS 6 TANGIBLE MATERIAL AND IN THE REASONS, RECORDED AO M UST 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 FAI LS. THE RELIANCE PLACED BY DR ON DECISION OF HONBLE DELHI HIGH COURT IN CA SE OF CIT V M/S USHA INTERNATIONAL 348 ITR 485, IN FACT SUPPORTS THE CAS E OF THE ASSESSEE. HENCE, THE REOPENING PROCEEDINGS U/S 148 IS WITHOUT ANY TA NGIBLE 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 FAC TS. 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 AP PEAL ARE ALLOWED. 07. 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 ACADE MIC IN NATURE THEREFORE, GROUND NO. 3 OF THE APPEAL IS DISMISS. I N 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) SD/- SD/- (G.C.GUPTA) (PRASHANT MAHARISHI) VICE PRESIDENT ACCOUNTANT ME MBER DATED: 08/10 /2015 *B. RUKHAIYAR* COPY FORWARDED TO: 1.APPELLANT ITA NO.3599/DEL/2013 VEER OVERSEAS 7 2.RESPONDENT 3.CIT 4.CIT(APPEALS) 5.DR: ITAT ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT DICTATED ON 15/09/2015 2. DRAFT PLACED BEFORE AUTHOR 15/09/2015 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.