2012 (5) TMI 287 - HC - Income Tax

High Court affirms Tribunal decision, invalidating reassessment for lack of tangible material

COMMISSIONER OF INCOME TAX, CHENNAI Versus M/s HIGH ENERGY BATTERIES INDIA LTD

The High Court dismissed the Revenue's appeals, affirming the Tribunal's decisions. It held that the reassessment for the year 1995-96 was invalid as it ... Reopening of an assessment u/s 147/148 - Depreciation - possession - hire purchase of the machinery - held that:- while for one year it had accepted the transactions as a genuine one, viz., 1998-99, in respect of assessment years 1995-96 to 1997-98, it took a different stand that it is a colourable transaction. On a perusal of the documents produced, we have no hesitation in confirming the order of the Tribunal, both on the question of jurisdiction to reopen the assessment for the assessment year 1995-96 and on the merits of the claim in respect of the three assessment years viz., 1995-96 to 1997-98. - Decided in favor of assessee. Issues Involved:1. Reopening of assessment for the years 1995-96 and 1996-97.2. Entitlement to depreciation.3. Genuineness of hire purchase and lease transactions.4. Valuation of assets for depreciation purposes.Issue-Wise Detailed Analysis:1. Reopening of Assessment for the Years 1995-96 and 1996-97:The Tribunal held that the reopening of assessment by the Assessing Officer under Section 147 of the Income Tax Act for the assessment year 1995-96 was bad in law. The Tribunal found that the reassessment was based on a mere change of opinion without any new tangible material. The High Court affirmed this view, referencing the Supreme Court decision in Commissioner of Income Tax (Appeals) Vs. Kelvinator of India Ltd., which emphasized that reassessment must be based on 'tangible material' and not merely a change of opinion. The Court noted that the original assessment had already considered the relevant documents, and the reassessment order did not point to any new material justifying the reopening.2. Entitlement to Depreciation:The Tribunal ruled in favor of the assessee, holding that the assessee was entitled to claim depreciation on the igni-fluid boiler. The High Court upheld this decision, stating that the transaction involving the purchase and leaseback of the boiler was genuine. The Court noted that the assessee had taken constructive delivery of the machinery and that the transaction had commercial substance. The Court also pointed out that the Revenue had not provided sufficient evidence to prove that the transaction was a sham.3. Genuineness of Hire Purchase and Lease Transactions:The Tribunal found that the hire purchase and lease transactions were genuine. The High Court supported this finding, emphasizing that the transactions had been placed before financial institutions like ICICI and IDBI, which had given their clearance. The Court rejected the Revenue's argument that the transactions were merely financial accommodations to a sister concern, noting that there was no material evidence to support this claim. The Court also referenced the Supreme Court decision in Vodafone International Holdings B.V. Vs. Union of India, which stated that genuine strategic tax planning is permissible and that the Revenue must provide substantial evidence to prove that a transaction is a sham.4. Valuation of Assets for Depreciation Purposes:The Tribunal allowed the depreciation as claimed by the assessee, rejecting the Revenue's contention that the value of the asset should be the written down value in the books of the seller as per explanation 3 to Section 43(1). The High Court upheld this decision, noting that the valuation of the boiler at Rs.2.50 crores was reasonable and supported by a valuation report. The Court found that the Revenue had not provided any material evidence to dispute this valuation.Conclusion:The High Court dismissed the Revenue's appeals, confirming the Tribunal's decisions on all issues. The Court held that the reopening of the assessment for the year 1995-96 was invalid, the assessee was entitled to claim depreciation, the hire purchase and lease transactions were genuine, and the valuation of the assets for depreciation purposes was appropriate. The Court emphasized the need for tangible material to justify reassessment and rejected the Revenue's claims as lacking sufficient evidence.