2015 (8) TMI 1350 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decision on Reassessment & Depreciation, Rejects Revenue's Appeal

The Asstt. Commissioner of Income Tax, Circle-6, Pune Versus Suma Shilp Limited

The Tribunal upheld the CIT(A)'s decision to quash the reassessment proceedings under section 147 of the Income Tax Act, citing that the Assessing ... Validity of reopening of assessment - depreciation on windmills - Held that:- The relevant facts and material concerning the depreciation on windmills etc. was admittedly placed before the Assessing Officer in the original assessment proceedings and the Assessing Officer after due indulgence passed the assessment order. The only reason for reopening is audit objection received by the Assessing Officer which led to issuance of notice under section 154 initially, followed by notice under section 148 of the Act. The Hon’ble Bombay High Court in the case of M/s Jet Speed Audio Pvt. Ltd. (2015 (2) TMI 766 - BOMBAY HIGH COURT) affirming the order of the Tribunal held that re-assessment without mention of any tangible material in the reasons recorded is unjustified. On merits, the Ld. Authorized Representative for the assessee contended that the civil construction work and electrical installation is vital and integral part of the windmills and cannot be isolated. The civil construction and electrical work are specifically designed for operation of the windmills and are not separable. Therefore, depreciation on these structures/fittings have to be applied at the same rate, as is available to the principle asset i.e. windmill. For this proposition, he relied on the decision of Hon’ble Bombay High Court in the case of CIT vs. Cooper Foundary Pvt. Ltd. [2011 (6) TMI 837 - BOMBAY HIGH COURT ]. It was held by the Hon’ble High Court in that case that findings recorded by the Tribunal that RCC foundation forms integral part of the windmill is a finding of fact and no question of law arises from the same. Thus, on merits as well the assessee has prima facie case in its favour. Since the appeal of the Revenue is dismissed on the issue of jurisdiction assumed by the Assessing Officer under section 147, the issue on merit has become academic. Issues Involved:1. Legality of reassessment proceedings under section 147 of the Income Tax Act, 1961.2. Grant of depreciation at 80% on civil construction work and electrical installations related to windmills.Detailed Analysis:1. Legality of Reassessment Proceedings under Section 147:The primary issue is whether the reopening of assessment under section 147 of the Income Tax Act, 1961, by the Assessing Officer (AO) was justified. The AO issued a notice under section 148 based on the belief that excess depreciation was claimed by the assessee on civil construction work and electrical installations related to windmills. The original assessment was completed under section 143(3) of the Act. The AO's belief was primarily based on an audit objection, which led to the issuance of notice under section 154 initially, followed by notice under section 148.The CIT(A) quashed the reopening proceedings, holding that the AO's action was based on a 'change of opinion,' which is not permissible for invoking section 147. The CIT(A) relied on the decision of the Hon'ble Delhi High Court in the case of CIT vs. Kelvinator of India, affirmed by the Hon'ble Supreme Court, which held that mere change of opinion does not constitute 'reasons to believe' for reopening an assessment. The CIT(A) also observed that all relevant facts concerning the depreciation claim were placed before the AO during the original assessment, and the AO had allowed the depreciation after due consideration.The Tribunal upheld the CIT(A)'s decision, noting that the AO had applied his mind to the depreciation claim during the original assessment, and there was no new material to justify the reopening. The Tribunal emphasized that reopening on the basis of an audit objection without any new tangible material is not permissible.2. Grant of Depreciation at 80% on Civil Construction Work and Electrical Installations:The second issue pertains to the grant of depreciation at 80% on civil construction work and electrical installations related to windmills. The AO had disallowed the higher rate of depreciation on these components, arguing that they should be depreciated at lower rates applicable to civil and electrical works.The CIT(A) allowed the higher depreciation rate, holding that the civil and electrical works were integral to the operation of the windmills and could not be separated. The Tribunal noted that the assessee had a prima facie case in favor of the higher depreciation rate, relying on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Cooper Foundary Pvt. Ltd., which held that RCC foundation forms an integral part of the windmill. The Tribunal also referred to a similar decision by the Pune Bench of the Tribunal in the case of DCIT vs. Sushant M. Jadav.Since the Tribunal dismissed the Revenue's appeal on the issue of jurisdiction under section 147, the issue of depreciation on merits became academic.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to quash the reassessment proceedings under section 147 and affirming the grant of higher depreciation at 80% on civil construction work and electrical installations related to windmills. The Tribunal emphasized that reopening an assessment based on a mere change of opinion without new tangible material is not permissible.