2012 (8) TMI 992 - AT - Income Tax

Appeal partially allowed: Re-examination directed on grant receipt & Explanation 6 application

The Tribunal partly allowed the Assessee's appeal, directing the CIT(A) to re-examine issues related to the receipt of grants and the correct application ... - Issues Involved:1. Reopening of Assessment u/s 147.2. Reference to Special Audit u/s 142(2A).3. Calculation of Written Down Value (WDV) of assets and depreciation.Summary:Reopening of Assessment u/s 147:The Assessee objected to the reopening of the assessment, arguing that the issue had already been addressed in the original assessment, and no new tangible material was presented. The CIT(A) upheld the reopening, relying on the Supreme Court decision in CIT Vs. PVS Beedies P. Ltd., which validates reopening based on an Internal Audit Party's report. The Tribunal confirmed the CIT(A)'s decision, citing the Supreme Court's ruling in ACIT Vs. Rajesh Jhaveri Stockbrokers Pvt. Ltd., which allows reopening if excessive relief or deduction is claimed.Reference to Special Audit u/s 142(2A):The Assessee contended that the reference to a special audit was invalid as it violated the provisions of the IT Act by recalculating the WDV from 01/04/1989. The CIT(A) rejected this argument, stating that the correct WDV needed to be recalculated from the inception of the Board. The Tribunal noted that the CIT(A) did not examine whether the grants received were used for acquiring assets and did not consider the retrospective application of Explanation 6 to section 43(6)(c), which applies to entities not taxable before AY 2003-04.Calculation of WDV and Depreciation:The Assessee argued that the AO incorrectly reduced the grants from the cost of assets to calculate the WDV, without proving that the grants were used for asset acquisition. The CIT(A) upheld the AO's calculation based on the special audit report, which found the Assessee's books incorrect. The Tribunal restored the issue to the CIT(A) for re-examination, emphasizing the need to analyze the receipt of grants and the implications of Explanation 6 to section 43(6)(c).Conclusion:The Tribunal partly allowed the Assessee's appeal for statistical purposes, directing the CIT(A) to re-examine the issues concerning the receipt of grants and the correct application of Explanation 6 to section 43(6)(c) with a reasonable opportunity for the Assessee to be heard. The decision was pronounced on 6th August 2012.