BHAGWATI ASSOCIATES P.LTD, MUMBAI V. ITO 2(1)(1), MUMBAI

ITA 409/MUM/2010

• Counselvise Citation: 40919914 RSA 2010
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-03-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 18-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VARMA
• Assessee Lawyers: K SHIVARAM
• Keywords: Capital asset; Depreciation; Principle of natural justice; Difference of opinion; Revised return; Change of opinion
• Section: 143(3); 115JB; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY (AM) AND SHRI S.S. GO DARA (JM) ITA NO.409/M/2010 (AY: 2004-05) ITA NO.410/M/2010 (AY: 2006-07) M/S. BHAGWATI ASSOCIATES PVT. LTD., 711/712, DALAMAL TOWERS, FREE PRESS JOURNAL MARG, 211, NARIMAN POINT, MUMBAI 400 021. PAN: AAACB2917N VS. INCOME TAX OFFICER, RANGE 2(1)(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. SHIVARAM RESPONDENT BY: SHRI PRAVIN VARMA DATE OF HEARING: 22.3.2012 DAT E OF ORDER:23.5.2012 O R D E R PER S.S. GODARA, J.M: ITA NO.409/M/2010 (AY: 2004-05) THE ASSESSEE HAS FILED THE INSTANT APPEAL AGAINST THE ORDER OF LD. CIT (A)-4, MUMBAI DATED 29.12.2009 FOR THE ASSESSMENT YEAR 2004-05. 2. BRIEF FACTS OF THE INSTANT CASE ARE THAT THE ASS ESSEE WAS CARRYING ON THE BUSINESS OF THE STRUCTURAL ENGINEER / CONSULTING ENGINEERS BY T HE NAME OF M/S. BHAGWATI DESIGNS P. LTD. IN THE AY 2001-02, IT SOLD BUSINESS TO M/S. F.L. SM ITH A/S TRADE MARK, VIDE AGREEMENT DATED 4.4.2001. 3. IN THE SAID AGREEMENT, THE ASSESSEE ALSO EXECUTE D / UNDERTOOK A NON-COMPETE CLAUSE SO AS TO RESTRAIN ITSELF FROM CARRYING ITS E NGINEERING BUSINESS FOR FIVE YEARS EXCEPT 2 ITA NOS. 409 & 410/M/2010 THAT OF LEASING AND INVESTMENT. MEANING THEREBY, T HE RIGHT TO CARRY OUT MAIN BUSINESS OF STRUCTURAL / CONSULTING ENGINEERING STOOD SURRENDER ED FOR THE PURPOSE OF FIVE YEARS. 4. DURING THE ASSESSMENT YEAR IN HAND, THE ASSESSEE SOLD ITS SWASTIK CHAMBERS PROPERTY TO ITS ASSOCIATE CONCERN I.E., M/S. BHAGWA TI DESIGNS PVT. LTD., FOR RS. 3,76,67,000/-. ACCORDINGLY, IT CLAIMED LONG TERM CAPITAL GAINS AS UNDER: COST / WDV OF ASSETS AS ON 1.4.2005 - RS. 31,21, 026/- TOTAL CONSIDERATION IN LIEU OF SALE OF PROPERTY - R S.3,36,67,000/- RS.3,45,45,974/- 5. ALONG WITH THE SAID CAPITAL GAINS, THE ASSESSEE ALSO CLAIMED BENEFIT U/S 54EC OF THE INCOME TAX ACT, 1961 (HEREINAFTER TO BE REFERRED AS THE ACT) QUA PROPERTY PURCHASED (OFFICE PREMISES) AT CHEMBUR, MUMBAI FOR RS. 3,35,00,000/- THEREBY DECLARING TOTAL INVESTMENT RS. 3,73,85,800/-. 6. IN THE RETURN FILED ON 30.10.2004, THE ASSESSEE DECLARED LOSS OF RS. 17,66,097/- AND COMPUTED BOOK PROFITS U/S 115JB OF THE ACT I.E. AS PER MAT (MINIMUM ALTERNATE TAX). ON 29.09.2006, THE ASSESSING OFFICER PASSED ORDER U/S 143(3) ASSESSING THE LOSS AS RS. 14,06,850/-. 7. AFTER A PERIOD OF ONE AND HALF YEAR, THE ASSESSI NG OFFICER ON 26.3.2008 SERVED A NOTICE OF REOPENING TO THE ASSESSEE U/S 148 FOR THE REASONS AS UNDER: THE RETURN OF INCOME FILED BY ASSESSEE FOR AY 2004- 05 WAS ASSESSED U/S 143(3) ON 29.09.2006 DETERMINING TAXABLE INCOME U/S 115JB. IN THE RETURN OF INCOME, ASSESSEE CLAIMED EXEMPTION ON CAPITAL GAIN ARISING OUT OF SALE OF OFFICE PREMISES OF RS. 3,45,45,974/- ON THE GROUND THAT SUCH CAPITAL GAIN IS REINVESTED U/S 54EC. HOWEVER, FROM SCHEDULE OF INV ESTMENT, IT IS SEEN THAT NO SUCH INVESTMENT HAS BEEN MADE. FURTHER IN THE D EPRECIATION SCHEDULE AS PER IT ACT, ASSESSEE HAS DEDUCTED THE SALE CONSIDER ATION OF RS. 3,76,67,000/- FROM THE BLOCK OF ASSETS. ASSESSEE HAS ALSO SHOWN ADDITION OF RS. 3,73,85,800/- BEING PURCHASE OF OFFICE PREMISES. D UE TO NON-COMPETE CLAUSE ASSESSEE HAS NOT OFFERED ANY INCOME FROM BUSINESS. THUS PREMISES PURCHASED DURING THE YEAR CANNOT BE SAID TO BE PUT TO USE FOR THE PURPOSE OF BUSINESS. CONSEQUENTLY THE ASSESSEE NEEDED TO OFFER ENTIRE CA PITAL GAIN TO TAX AS THE 3 ITA NOS. 409 & 410/M/2010 ENTIRE BLOCK OF ASSETS DOES NOT EXIST. HOWEVER, TH IS WAS NOT DOES, RESULTING IN UNDER ASSESSMENT OF INCOME TO THE EXTENT OF RS. 3,4 5,45,974/- IN A SHORT LEVY OF TAX OF RS. 69,09,195/-. 8. IN RESPONSE TO THE REOPENING NOTICE, THE ASSESSE E FILED ITS REVISED RETURN ALONG WITH EXPLANATION. THEREAFTER, VIDE LETTER DATED 11.10.2 008, THE ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THAT ITS BUSINESS IN FURTHERANCE TO THE NON-COMPETE CLAUSE HAD NOT BEEN CLOSED PERMANENTLY. BUT, IT WAS A TEMPORARY CLOSUR E I.E., LULLNESS IN THE BUSINESS. HENCE, PER ASSESSEE, BLOCK OF ASSETS STILL EXISTED SO AS TO CLAIM DEPRECIATION. THE ASS ESSEE FURTHER CONTENDED THAT IN THE AY 2007-08, IT HAD ST ARTED ITS BUSINESS. HAD ALSO FILED RETURN DECLARING INCOME FROM THE SAME VERY BUSINESS OF ENG INEERING. ALSO EXPLAINED BEFORE THE ASSESSING OFFICER THAT DURING THE NON-COMPETE CLAUS E PERIOD OF 5 YEARS, IT HAD COMPUTED ITS INCOME UNDER VARIOUS HEADS I.E., RENTAL INCOME, CAP ITAL GAINS AND DIVIDEND INCOME AS INCOME FROM OTHER SOURCES. 8.1. SO FAR AS NOTICE OF REOPENING IS CONCERNED, TH E ASSESSEE EXPLAINED BEFORE THE ASSESSING OFFICER THAT IT WAS BY MISTAKE ONLY THAT THE ASSESSEE HAD CLAIMED EXEMPTION U/S 54EC OF THE ACT. IN THIS MANNER, THE ASSESSEE TOOK A STAND BEFORE THE ASSESSING OFFICER THAT IT HAD BEEN CARRYING BUSINESS THROUGHOUT EXCEP T THE PERIOD OF FIVE YEARS IN FURTHERANCE TO THE NON-COMPETE CLAUSE. 9. AFTER HEARING THE ASSESSEE, THE ASSESSING OFFICE R PASSED REASSESSMENT ORDER ON 24.12.2008. NEGATED THE ASSESSEES CONTENTION THAT THE BLOCK OF ASSETS STILL EXISTED. HELD THAT THE ASSETS WERE NOT IN USE IN FURTHERANCE TO T HE NON-COMPETE CLAUSE. HENCE, THE SAID BLOCK OF ASSETS HAD BECOME CAPITAL ASSETS. THEREFO RE, THE SALE OF THE SAID ASSETS ONLY LEADS TO CAPITAL GAIN. THE ASSESSING OFFICER ALSO OBSERV ED AS UNDER: F) IN THIS CASE, THE ASSESSEE SOLD THIS PROPERTY AN D THERE WAS A LTCG OF RS. 3,45,45,974/- WHICH ACCORDING TO THE ASSESSEE W AS REINVESTED IN ANOTHER PROPERTY AS PER SEC.54EC. HOWEVER, DURING THE PROC EEDINGS, THE ASSESSEE CHANGED ITS STAND AND CLAIMED EXEMPTION ON CAPITAL GAIN U/S 43(6)(C) INSTEAD 4 ITA NOS. 409 & 410/M/2010 OF 54EC, PAGE 2 OF THE ASSESSEE LETTER DATED 11.10. 2008 READS INTER ALIA AS UNDER: IT IS TRUE THAT OUR CLIENTS HAD CLAIMED EXEMPTION O N CAPITAL GAINS BY MISTAKE U/S 54EC INSTEAD OF SECTION 43(6)(C). THIS BY ITSELF CANNOT BE TAKE N ADVANTAGE OF BY THE DEPARTMENT TO TAX THE EXCESS AMOUNT REALIZED ON THE SALE OF IMMOVABLE PRO PERTY BUT REINVESTED BY PURCHASE OF NEW PROPERTY IN REPLACEMENT OF THE SAME AS BUSINESS ASS ET UNDER THE PROVISION OF SECTION 43(6)(C). G) HERE, THE MOMENT THE ASSET WAS NOT USED FOR BUSI NESS, THE SAME WAS TO BE BIFURCATED FROM THE BLOCK OF ASSETS, FORMING PART OF FIXED ASSETS FOR WHICH DEPRECIATION WAS BEING CLAIMED. SO THE QUESTI ON OF CLAIM EXEMPTION U/S 54EC BY INVESTING IN A NEW PROPERTY DOES NOT AR ISE AS THE NEW PROPERTY IS CLASSIFIED AS A BUSINESS ASSET. PAGE 2 OF ASSES SEE LETTER DATED 11.10.2008 READS FURTHER AS UNDER: IT IS NOT CORRECT TO SAY THAT THE NEW PREMISES PUR CHASED BY THE COMPANY WERE NOT PUT TO USE FOR THE PURPOSES OF BUSINESS WHEN THE COMPANY WAS C ONTINUING IN BUSINESS EXCEPT FOR FIVE YEARS PERIOD DUE TO NON COMPETE CLAUSE AND OTHER AC TIVITIES. THIS FACT OF PURCHASE OF THE NEW PROPERTY AS REPLACEMENT AND CONTINUING OTHER ACTIVI TIES TILL THE EXPIRY OF NON-COMPETE CLAUSE PROVE BEYOND DOUBT THAT COMPANY WAS CONDUCTING OLD BUSINESS OF CONSULTING ENGINEERS BUT FOR THE PERIOD OF FIVE YEARS DUE TO NON-COMPETE CLAUSE . H) SIMILARLY, FOLLOWING THE SAME YARD STICK, THE QU ESTION OF WDV WILL ARISE ONLY IN THE CASE WHERE THE ASSET IS A BUSINESS ASSE T. HOWEVER, IN THIS CASE, IT IS ALREADY PROVED BEYOND DOUBT THAT THIS ASSET WHIC H HAS BEEN SOLD CANNOT BE CATEGORIZED AS A BUSINESS ASSET, BUT A CAPITAL A SSET, AS NO BUSINESS IS CARRIED OUT FROM THIS PREMISES, DUE TO THE NON-COMP ETE AGREEMENT. I) IN BRIEF, NEITHER THE PROVISIONS SEC. 54EC NON 4 3(6)(C) ARE APPLICABLE TO THIS CASE FOR CLAIMING EXEMPTION IN RESPECT OF L TCG ARISING OUT OF SALE OF THE ASSET IN QUESTION. J) THE ASSESSEE HAS CORRECTLY INCLUDED THE PROFIT O N SALE OF PROPERTY IN THE P & L A/C, WHICH RESULTED IN THE CALCULATION OF BOOK PROFIT AS PER THE PROVISIONS OF SEC. 115JA OF THE IT ACT AND PAID TAX ES THEREON. K) BASED ON THIS CONCLUSION, THIS ASSET BEING A CAP ITAL ASSET, WHEN SOLD, WILL GIVE RISE TO LTCG AND SINCE THE ASSESSEE IS NO T ELIGIBLE FOR EXEMPTION U/S 54EC NOR 43(6)(C), THE TOTAL OF RS. 3,45,45,974/- I S TO BE TAXED UNDER THE HEAD LTCG INSTEAD OF RS. NIL AS CLAIMED BY THE AS SESSEE AND INCLUDED IN THE BLOCK OF ASSETS, FOR CLAIMING DEPRECIATION. L) IN SHORT, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM ANY EXEMPTION AND THEREFORE, THE TOTAL LTCG OF RS. 3,45,45,974/- IS T AXED UNDER THE HEAD LONG TERM CAPITAL GAIN. PENALTY PROCEEDINGS U/S 271(1) (C) OF THE IT ACT ARE INITIATED SEPARATELY FOR FURNISHING INACCURATE PART ICULARS AND CONCEALMENT OF THE INCOME 9.1. IN THIS MANNER, THE ASSESSING OFFICER RECOMPUT ED THE ASSESSEES INCOME AS RS. 3,10,64,903/-. 5 ITA NOS. 409 & 410/M/2010 10. IN APPEAL, THE ASSESSEE CHALLENGED THE REASSESS MENT BEFORE THE FIRST APPELLATE AUTHORITY. THE LD. CIT (A), VIDE IMPUGNED ORDER, U PHELD THE VALIDITY OF THE REOPENING IN QUESTION. ALSO REJECTED THE ASSESSEES CONTENTION R EGARDING DEPRECIATION OF BLOCK OF ASSETS BY OBSERVING AS UNDER: I ALSO DO NOT AGREE WITH THE SUBMISSIONS OF THE AUT HORIZED REPRESENTATIVE THAT NO CAPITAL GAIN IS CHARGEABLE EVEN WHEN THERE IS NO BUSINESS. IN THIS CASE THE ASSESSEE WAS BARRED FROM CONDUCTING ANY BU SINESS AS HIS BUSINESS WAS SOLD AND A NON-COMPETE CLAUSE WAS INSERTED IN T HE SALE OF AGREEMENT FOR FIVE YEARS. SINCE THERE IS NO BUSINESS THERE CANNO T BE ANY BLOCK OF ASSET. AS 2(11) DEFINES BLOCK OF ASSET FOR THE PURPOSE OF GRA NTING DEPRECIATION AND DEPRECIATION IS GRANTED FOR USE OF ASSETS FOR THE P URPOSE OF BUSINESS ONLY. ADMITTEDLY, THE ASSESSEE HAS NOT USED THESE ASSETS IN THIS YEAR BUT ONLY LET THEM OUT ON RENT. HENCE ON SALE OF PROPERTY THE AS SESSEE HAS TO SHOW CAPITAL GAIN ON THE EXCESS AMOUNT REALIZED BY HIM O VER THE COST OF ASSET. IN THE CASE OF CIT VS. VEEKAYLAL INVT. CO. PVT. LTD. A S REPORTED IN 249 ITR PAGE 597 IT WAS HELD THAT CAPITAL GAIN IS CHARGEABLE EVE N FOR DETERMINING BOOK PROFIT U/S 115JB. IN THE CASE OF CARTINI INDIA LTD . VS. ADDL.CIT IT WAS HELD THAT SEC. 50 WOULD BE APPLICABLE EVEN THOUGH THE AS SET WAS NOT USED IN THE YEAR IN WHICH THE PROPERTY WAS SOLD IF IT WAS PROVE D THAT THE ASSET WAS USED PREVIOUSLY FOR THE BUSINESS. ADMITTEDLY THE ASSESS EE HAS USED THIS ASSET IN HIS BUSINESS EARLIER. BUT WHEN HE HAS SOLD THE PRO PERTY IN THIS YEAR THERE WAS NO BUSINESS. STILL SEC. 50 WOULD BE APPLICABLE AND SHORT TERM CAPITAL GAIN IS CHARGEABLE ON SALE OF PROPERTY AS THE ASSET HAS BEEN USED FOR THE BUSINESS OF THE ASSESSEE IN THE EARLIER YEARS. ACC ORDINGLY, I HOLD THAT SHORT TERM CAPITAL GAIN IS CHARGEABLE ON SALE OF DEPRECIA BLE ASSET OF THE ASSESSEE U/S 50. THE CONCEPT OF BLOCK OF ASSET WOULD NOT BE APPLICABLE IN THIS CASE AS THERE WAS NO BUSINESS IN THIS YEAR AND THE CONCEPT OF BLOCK OF ASSET U/S 2(11) WOULD BE APPLICABLE ONLY IN THE CASE OF BUSIN ESS AND NOT OTHERWISE. HENCE, THE EXCESS AMOUNT OF SALE OF IMMOVABLE PROPE RTY WOULD NOT BE ADDED TO THE BLOCK OF ASSET AS THERE IS NO BUSINESS. BUT SHORT TERM CAPITAL GAIN IS CHARGEABLE AS THE ASSET HAS BEEN USED FOR BUSINESS AND DEPRECIATION HAS BEEN ALLOWED TO THE ASSESSEE. THE AO DIRECTED TO C HARGE SHORT TERM CAPITAL GAIN U/S 50 ON SALE OF PROPERTY. THIS GROUND IS DI SMISSED. 11. ACCORDINGLY, IN THIS BACKGROUND OF FACTS, THE A SSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE US RAISING 5 GROUNDS. GROUND NO. 4 A ND 5 ARE GENERAL IN NATURE. GROUND NO. 1 AND 2 CHALLENGE THE LEGALITY OF THE REOPENING IN QUESTION. GROUND NO.3 IS REGARDING ASSESSEES CLAIM OF DEPRECIATION QUA BLOCK OF ASSETS IN QUESTION. SINCE, GROUND NO.1 AND 2 ARE INTER CONNECTED, WE PROCEED TO DECIDE THEM TO GETHER. 6 ITA NOS. 409 & 410/M/2010 12. IN SUPPORT OF GROUND NO.1 & 2, THE LEARNED AR H AS TAKEN US TO PERUSE THE ORDER OF THE LD. CIT (A) AS WELL THE REASSESSMENT ORDER (SUP RA). SUBMITTED THAT REASONS STATED IN THE SAME FOR REOPENING IN QUESTION HAVE BEEN THAT T HE ASSESSEES INCOME FROM CAPITAL GAINS HAD ESCAPED ASSESSMENT. THE LEARNED AR HAS ALSO RE FERRED TO THE PAPER BOOK I.E., PAGES 22 & 26 (CLAUSE 9 CONTAINING DETAILS OF FIXED ASSETS W ITH ANNEXURE II; CLAUSE 12 DETAILS OF BUILDING WITH ANNEXURE IV; CLAUSE 13 DETAILS OF DEP RECIATION; CLAUSE 15 DETAILS OF SALE OF AGREEMENT OF PREMISES, CLAUSE 17 PERTAINING TO EXPE NSES; PAGE 27 CLAUSE 1 DETAILS OF ADDITION OF PROPERTY; PAGE 28 CLAUSE 4 DEPRECIATION BREAKUP) AND ORIGINAL ASSESSMENT ORDER DATED 29.09.2006. 12.1. TAKING CUE FROM THE PAPER BOOK REFERRED TO AB OVE, THE LEARNED AR HAS VEHEMENTLY ARGUED THAT THE MATERIAL AVAILABLE AT THE TIME OF I NITIAL ASSESSMENT AS WELL AS REASSESSMENT IS THE SAME. THEREFORE, REOPENING IN QUESTION IS N OT VALID AS IT IS ONLY BASED ON MERE CHANGE OF OPINION WHICH IS NOT PERMISSIBLE UNDER TH E PROVISIONS OF THE ACT AND LAW. IN THIS REGARD, HE HAS PLACED RELIANCE ON THE JUDGMENT OF H ONBLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR INDIA 320 ITR 561. 13. REGARDING SEC. 50 OF THE ACT, LEARNED AR, HE HA S RELIED ON VARIOUS CASE LAWS. 68 ITD 462, ARTIC VS. ACIT, ITAT MUMBAI; 44 SOT 236 (DEL.) DCIT VS. ANSAL PROPERTIES & INFRASTRUCTURE LTD; 87 ITD 181 (SB) ITAT, MUMBAI. THEREFORE, PRAYED FOR ACCEPTANCE OF THE GROUND. 14. REPLYING TO THE ARGUMENTS OF LEARNED AR, LEARNE D DR HAS REFERRED BEFORE US THE REASONS REPRODUCED HEREINABOVE BY THE ASSESSING OFF ICER. SUBMITTED THAT, SINCE, THE ASSESSEE HAD ADMITTED THAT THERE WAS A MISTAKE IN C LAIMING EXEMPTION OF CAPITAL GAINS U/S 54EC INSTEAD OF SEC. 43(6)(C), THEREFORE, THE ASSES SING OFFICER HAD CORRECTLY REOPENED THE ASSESSMENT. HENCE PRAYED FOR REJECTION OF THE GROU ND. 7 ITA NOS. 409 & 410/M/2010 15. WE HAVE HEARD BOTH THE LEARNED REPRESENTATIVES. THE PAPER BOOK HAS ALSO BEEN PERUSED AS REFERRED TO BY THEM. FACTUAL POSITION I S NOT IN DISPUTE. ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED ON 29.9.2006. BEFORE COMPL ETING THE SAID ASSESSMENT, VIDE LETTER DATED 16.9.2006, THE ASSESSEE HAD FURNISHED DETAILS OF THE COMPUTATION COUPLED WITH OTHER EXPLANATIONS WHICH LED TO THE ASSESSMENT ORDER U/S 143(3) (SUPRA). 16. WE HAVE ALSO SEEN THE ORDER. WE FIND THAT, THE RE IS NO OPINION REGARDING INVESTMENT U/S 54EC QUA AMOUNT OF RS. 3,45,45,974/- ARISING OU T OF SALE OF OFFICE PREMISES BY THE ASSESSEE. IT ALSO TRANSPIRES THAT IN THE ORDER, TH ERE IS NO DISCUSSION EVEN ABOUT THE PURCHASE OF THE OFFICE PREMISES FOR RS. 3,73,85,800 /- INCLUDED IN THE BLOCK OF ASSETS. MEANING THEREBY THAT THE SAID ISSUES HAD IN FACT ES CAPED THE ASSESSMENT; WHICH ULTIMATELY LED TO THE REOPENING NOTICE FOR THE REASONS WHICH H AVE ALREADY BEEN REPRODUCED HEREINABOVE. 17. THE ASSESSEES RELIANCE ON KELVINATOR INDIA CAS E (SUPRA), IN OUR OPINION, ALSO DOES NOT APPLY QUA THE FACTS OF THE CASE. BECAUSE IT IS ONLY WHEN THE AO ALREADY DECIDES THE ISSUE THAT HE CANNOT CHANGE HIS OPINION SINCE THERE AFTER, HE BECOME FUNCTUS OFFICIO. BUT WHEN THERE ARE NO DETAILS; PARTICULARLY AS STATED B Y THE AO IN THE REOPENING NOTICE ASKING FOR DETAILS U/S 54EC, A FACT ADMITTED BY THE ASSESS EE IN REPLY TO THE SAME MAKES IT CLEAR THAT THE REOPENING IN HAND CANNOT BE HELD TO BE SUFFERIN G FROM ANY ILLEGALITY. THEREFORE, WE HOLD THAT THE AO WAS JUSTIFIED IN ISSUING NOTICE OF REOP ENING AS WELL AS IN PASSING RE-ASSESSMENT. HENCE, WE UPHOLD THE VALIDITY OF THE REASSESSMENT. REJECT THE GROUND NOS. 1 & 2. 18. GROUND NO.3:- BACK DROP OF THIS GROUND IS THAT BEFORE THE ASSESS ING OFFICER, THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE GROUND THA T NON-COMPETE CLAUSE INCORPORATED IN THE AGREEMENT DID NOT AMOUNT TO PERMANENT CLOSURE O F THE BUSINESS AS THERE WAS NO EVIDENCE OF PERMANENT CLOSURE OR LACK OF BASIC INFR ASTRUCTURE. THE ASSESSEE FURTHER CONTENDED BEFORE THE ASSESSING OFFICER THAT IN THE ASSESSMENT YEAR 2007-08, I.E., 8 ITA NOS. 409 & 410/M/2010 IMMEDIATELY AFTER EXPIRY OF FIVE YEARS OF NON-COMPE TE CLAUSE DURATION, IT HAD FILED ITS RETURN DECLARING INCOME FROM BUSINESS. BUT, THE ASSESSING OFFICER DECLINED THE ASSESSEES CLAIM OF DEPRECIATION WHICH HAS BEEN UPHELD BY THE LD. CIT ( A). HENCE THE INSTANT GROUND. 19. IN SUPPORT OF THE GROUND, THE LEARNED AR HAS RE FERRED TO TAX AUDIT REPORT OF THE ASSESSEE, COLUMN 14, CONTAINING DETAILS OF DEPRECIA TION AS WELL AS EXPLANATION IN SUPPORT THERETO REGARDING DEPRECIATION OF COMPUTERS, OTHER DEPRECIATION AS WELL AS THAT OF VEHICLES BELONGING TO THE ASSESSEE. TOTAL AMOUNT OF RS. 8,5 1,634/-. 20. REITERATING THE SUBMISSIONS OF THE ASSESSEE, TH E LEARNED AR HAS EMPHASIZED THE FACTUAL POSITION BY SUBMITTING THAT ONCE THE ASSESS EE MADE A CLAIM OF DEPRECIATION RESORTING TO BLOCK OF ASSETS NORMALLY U/S 2(11), THE SAID D EPRECIATION ONCE ALLOWED CANNOT BE WITHDRAWN IN THE SUBSEQUENT YEARS UNLESS IT IS A CA SE OF PERMANENT CLOSURE OF BUSINESS. PER LEARNED AR, THERE IS NO SUCH EVIDENCE AVAILABLE ON RECORD THAT EITHER THE BLOCK OF ASSETS IN QUESTION HAD BEEN DISPOSED OFF OR IT CEASED TO EXIS T BUSINESS IN QUESTION STOOD PERMANENTLY CLOSED. THEREFORE, TAKING SUPPORT FROM THE ABOVE R EFERRED RECORD, THE LEARNED HAS PRAYED FOR ACCEPTANCE OF THE GROUND. 21. OPPOSING THE ARGUMENTS, THE LEARNED DR HAS SUPP ORTED THE IMPUGNED FINDINGS. ALSO RELIED ON A REPORT DATED 3.3.2008 PREPARED BY THE TAXATION INSPECTOR NAMELY K.K.V. NAIR AFTER VISITING THE SPOT. RELYING ON THE SAID REPORT, THE LEARNED DR STATED BEFORE US THAT THE BUSINESS OF THE ASSESSEES BUSINESS STOOD CLOSE D. HENCE, THE ASSESSEE HAS FOREGONE HIS ENTITLEMENT OF CLAIMING DEPRECIATION. THE LEARNED DR HAS FURTHER ARGUED IN THE SAME BREATH THAT THERE IS NO EVIDENCE THAT THE ASSESSEE WAS CAR RYING BUSINESS IN FURTHERANCE TO THE NON- COMPETE CLAUSE. ELABORATING HIS ARGUMENTS, THE LEA RNED DR SUBMITTED THAT SINCE THE BUSINESS REMAINED CLOSED, THEREFORE, THE ASSESSEE I S NOT ENTITLED FOR THE DEPRECIATION IN QUESTION. HENCE, PRAYED FOR REJECTION OF THE GROUN D. 9 ITA NOS. 409 & 410/M/2010 22. WE HAVE HEARD BOTH THE LEARNED REPRESENTATIVES. ALSO PERUSED THE RECORD REFERRED TO. ON THE ONE HAND, THE ASSESSEE HAS RELIED ON HI S RETURN FOR THE AY 2007-08 DULY SUBMITTED BEFORE THE ASSESSING OFFICER WHICH HAS NO T BEEN NEGATED EITHER BY THE ASSESSING OFFICER OR BY THE LD. CIT (A). ON THE OTHER HAND, THE REVENUE HAS RELIED ON THE REPORT DATED 3.3.2008 TO SUBMIT THAT THE BUSINESS IN QUEST ION CLAIMED BY THE ASSESSEE IS NOT ON THE SPOT. THE PERUSAL OF THE FINDINGS AS WELL AS A NALYSES OF THE FACTS BY THE ASSESSING OFFICER AND THE LD. CIT (A) MAKES IT CLEAR BEFORE U S THAT THE ASSESSEE WAS NEVER AFFORDED OPPORTUNITY TO BE CONFRONTED WITH THE SAME. IN OUR OPINION, THE SAME IS VIOLATION OF THE BASIC PRINCIPLES OF NATURAL JUSTICE I.E. AUDI ALTERM PARTEM. 23. UNDER THE PROVISIONS OF INCOME TAX ACT, 1961, A LTHOUGH DETAILED PROCEDURE HAS BEEN PRESCRIBED BOTH FOR THE ASSESSEE AS WELL AS RE VENUE TO SUPPORT THEIR RESPECTIVE CLAIMS. BUT, AT THE SAME TIME, BY NO STRETCH OF IMAGINATION , WE CAN ACCEPT THE PLEA OF REVENUE THAT ANY DOCUMENT OR EVIDENCE CAN BE RELIED UPON WITHOUT EVEN SHOWING IT TO THE ASSESSEE. 24. AT THE SAME TIME, SO FAR AS IMPUGNED FINDINGS O F LD. CIT (A) THAT IN THE ABSENCE OF ANY BUSINESS THE ASSESSEE CANNOT CLAIM DEPRECIATION ALSO DOES NOT HOLD GROUND. THE ASSESSEE HAS CLAIMED THAT IN THE AY 2007-08 (AFTER A PERIOD OF FIVE YEARS FROM THE NON- COMPETE CLAUSE) IT HAS FILED RETURN CLAIMING BUSINE SS INCOME IS ITSELF CONCLUSIVE PROOF, IN OUR VIEW OF THE BUSINESS HAVING BEEN RESTARTED. EVEN O THERWISE ALSO, THE BLOCK OF ASSETS REGARDING WHICH ONCE CLAIM OF DEPRECIATION IS ACCEP TED, THE SAME CONTINUES UNLESS THERE IS PERMANENT CLOSURE OF BUSINESS. WE HAVE ALREADY HEL D HEREINABOVE THAT THERE IS NO PERMANENT CLOSURE OF BUSINESS IN QUESTION, THEREFOR E, AS A NECESSARY COROLLARY OF SAID FINDING, WE ARE CONSTRAINED TO HOLD THAT IN THE SAI D EVENTUALITY, THE ASSESSEE IS ENTITLED FOR THE CLAIM OF DEPRECIATION REGARDING BLOCK OF ASSETS IN QUESTION. 24.1. HENCE, WE ACCEPT THIS GROUND. 10 ITA NOS. 409 & 410/M/2010 25. CONSEQUENTLY, WE UPHOLD THE REOPENING IN QUESTI ON. REJECT GROUND NOS. 1 & 2. ACCEPT GROUND NO.3 ON MERITS. ITA NO.410/M/2010 (AY: 2006-07) 26. IN THIS CASE, THE ASSESSEE HAS IMPUGNED THE LD. CIT (A) ORDER DATED 4.1.2010. 27. WE FIND THAT IN TOTAL THERE ARE SIX GROUNDS. G ROUND NOS. 5 & 6 ARE GENERAL IN NATURE. 28. REGARDING GROUND NO. 1 TO 4, BOTH THE LEARNED R EPRESENTATIVES HAVE VERY FAIRLY STATED THAT THEY ARE COVERED BY FINDINGS QUA GROUND NO.3 I N THE APPEAL DECIDED HEREINABOVE. 29. SINCE, WE HAVE ACCEPTED, THE ASSESSEES GROUND NO.3 RAISED IN ITA NO.409/M/2010, THEREFORE, IN THIS APPEAL ALSO, WE DEEM IT APPROPRI ATE TO HOLD THAT THE INSTANT GROUNDS STAND DECIDED ACCORDINGLY I.E., ACCEPTED. 30. WE ORDER ACCORDINGLY. ORDER PRONOUNCED IN THE OPEN COURT ON 23.5.2012. SD/- SD/- (J. SUDHAKAR REDDY) (S.S. G ODARA) ACCOUNTANT MEMBER JUDICIAL ME MBER DATE : 23.5.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CONCERNED 5. THE DR B BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI.