2012 (10) TMI 611 - AT - Income Tax

Tribunal Upholds Reassessment Validity Under Income Tax Act

The Tribunal upheld the validity of reassessment under Section 147 of the Income Tax Act, ruling that it was not a case of change of opinion but based on ... Depreciation on expenditure incurred towards obtaining Right of Way (ROW) - Reopening of assessment u/s 147 - depreciation on capitalized expenses incurred in acquiring the Right of use, crop compensation & Right of way for laying on pipeline - Held that:- It is not a case of “change of opinion” on the part of the A.O. as he has not specifically applied his mind during the original assessment proceedings on the depreciation claimed by the assessee. - reopening held as valid. Crop compensation is payable only to those land owners on whose land there was any standing crop or standing trees. In the process of laying down the pipeline by using the land acquired by the assessee, the crop and trees standing on such land get destroyed and hence, the assessee was required to compensate the land owner in respect of such crop or trees standing on the land in addition to the land compensation. Thus the compensation for such damage to the land owner cannot be added to the cost of land because even after acquiring land, the assessee could have waited till the crop was harvested by the land owner or by the assessee and in that situation, no compensation would have been required to be paid because there would have been no loss or damage to the crop or the assessee could have realized back by selling the crop but it would have resulted in delay of the project and to avoid this, assessee agreed to pay compensation for damage to the crop etc. hence, such compensation should be added to the cost of pipeline and not to the cost of land. No infirmity in the order of CIT(A) on this aspect. The grounds taken by the Revenue in respect of deletion of disallowance on depreciation claimed on crop compensation is dismissed and the ground in respect of deletion of disallowance of depreciation claim on Right of Way (ROW) other than security and cost of crop is allowed. Issues Involved:1. Reopening of the assessment under Section 147 of the Income Tax Act.2. Disallowance of depreciation on cost incurred for acquiring limited rights to use land for laying down the pipeline.3. Classification and depreciation eligibility of crop compensation and Right of Way (RoW) expenses.Issue-wise Detailed Analysis:1. Reopening of the assessment under Section 147 of the Income Tax Act:The assessee contended that the reassessment was invalid as it was based on a change of opinion and no new tangible material was found post the original assessment under Section 143(3). The CIT(A) dismissed this contention, stating that the Assessing Officer (A.O.) had a definite belief based on findings from a subsequent assessment year regarding the capitalization of expenses for acquiring the right of use for laying pipelines. The Tribunal upheld this view, noting that no specific enquiry was made about the depreciation claim during the original assessment, thus it was not a case of change of opinion. The Tribunal relied on precedents such as CIT Vs. N. Kishore Settlement and CIT Vs. United Trading & Construction Co., which support the validity of reopening based on findings from subsequent assessments.2. Disallowance of depreciation on cost incurred for acquiring limited rights to use land for laying down the pipeline:The assessee argued that the compensation paid for acquiring limited rights to use land should be eligible for depreciation as part of the cost of the pipeline (plant & machinery). The CIT(A) rejected this, holding that such expenses were in the nature of acquiring rights in land and thus not subject to depreciation. The Tribunal agreed with the CIT(A), emphasizing that the right to use land does not equate to ownership and thus does not qualify for depreciation under plant and machinery. The Tribunal also dismissed the alternative claim that these rights should be classified as intangible assets eligible for depreciation.3. Classification and depreciation eligibility of crop compensation and Right of Way (RoW) expenses:The CIT(A) had differentiated between various types of expenses related to laying pipelines:- Crop compensation was deemed to enhance the value of plant and machinery and thus eligible for depreciation.- Compensation for right of use in land was not eligible for depreciation.- Right of Way (RoW) expenses, excluding security deposits, were included in the value of plant and machinery and eligible for depreciation.The Tribunal upheld the CIT(A)'s decision, following its own precedent from the assessee's case for the assessment year 2006-07. It confirmed that crop compensation should be added to the cost of the pipeline and eligible for depreciation, while compensation for right of use in land should not be. The Tribunal dismissed the Revenue's appeal regarding the deletion of disallowance on crop compensation depreciation but allowed the appeal concerning the disallowance of depreciation on RoW other than security deposits and crop costs.Conclusion:The Tribunal dismissed the assessee's appeals and partly allowed the Revenue's appeals, confirming the validity of the reassessment proceedings and the classification of expenses for depreciation purposes.