1997 (12) TMI 27 - HC - Income Tax

Audit report on extra depreciation for leased hotel machinery u/s147(b) treated as 'information'; reassessment jurisdiction upheld.

The dominant issue was whether reassessment under s. 147(b) IT Act was without jurisdiction because the 'information' was derived from an audit report ... Reassessment u/s 147(b) - Information - claimed extra depreciation in respect of certain plant and machinery which were leased - Whether, the Tribunal was justified in holding and had valid materials to hold that the reassessment made under s. 147(b) of the IT Act was without jurisdiction and, therefore, invalid ? - HELD THAT:- The extra allowance of depreciation of an amount equal to the amount of normal allowance is allowable in the case of machinery and plant installed by the assessee, being an Indian company in the premises used by it as a hotel, provided such a hotel is approved by the Central Government for the purposes under s. 33 of the IT Act. A fair reading of the rule shows that to be eligible for extra depreciation allowance, the assessee must be an Indian company and the machinery and plant should be installed in the premises used by the assessee as an approved hotel. Therefore, the prerequisite condition is that the installation of the machinery should be in the premises used by the assessee as a hotel. In our view there is no question of any interpretation of law involved in the audit report and the report of the audit has to be construed as if the audit has brought to the attention of the ITO the relevant provision of law. Since the audit party has not interpreted the law but has merely brought to the attention of the ITO the provisions of law, the report of the audit party in our opinion, constitutes 'information' within the meaning of s. 147(b) of the Act. Tribunal was not correct in holding that the audit party has interpreted the relevant provisions relating to the granting of extra depreciation allowance, and erred in holding that the ITO has no jurisdiction under s. 147(b) of the Act to reopen the assessment. We are also not able to accept the contention of learned counsel for the assessee that the Department should have resorted to either rectification proceedings or revisional proceedings. If the statutory conditions prescribed under s. 147(b) are satisfied, it is permissible for the Department to invoke the reassessment proceedings, notwithstanding the fact that other remedies are available to the Department under other provisions of the statute. Since we are not able to uphold the view of the Tribunal that the ITO has no jurisdiction to reopen the assessment necessarily the matter will have to go before the Tribunal to decide the question on the merits of the case. Accordingly, we hold that the Tribunal was not correct in holding that the officer has no jurisdiction to reopen the assessment under s. 147(b) of the Act and the reassessment consequently made was invalid. Issues Involved: The judgment involves the interpretation of whether the reassessment made under section 147(b) of the Income Tax Act was valid based on the audit party's communication of law to the assessing officer.Summary:Issue 1: Extra Depreciation ClaimThe assessee claimed extra depreciation for plant and machinery leased to a hotel. The audit party highlighted that the assets were not used in the assessee's business premises, leading to reassessment under section 147(b) by the ITO. The CIT(A) and Tribunal upheld the reassessment, emphasizing the need for the assets to be used in the hotel business premises for extra depreciation.Issue 2: Tribunal's DecisionThe Tribunal allowed the assessee's appeal, stating that the audit party's communication did not constitute 'information' for reopening the assessment. The Tribunal relied on a Supreme Court decision to support its stance.Issue 3: Interpretation of LawThe Revenue contended that the audit party did not interpret the law but merely informed the ITO of the relevant provisions. The assessee argued that the audit party did interpret the law, making the reassessment invalid.Court's DecisionThe High Court analyzed the relevant law on extra depreciation allowance for approved hotels. It concluded that the audit party's communication constituted 'information' under section 147(b) and the reassessment was valid. The Court disagreed with the Tribunal's view that the ITO lacked jurisdiction to reopen the assessment. The matter was remanded to the Tribunal for further consideration.In conclusion, the High Court held that the reassessment under section 147(b) was valid, contrary to the Tribunal's decision. The question of law was answered in favor of the Revenue, and no costs were awarded in this case.