2015 (11) TMI 1298 - AT - Income Tax

Tribunal Upholds Reopening of Assessments, Allows Higher Depreciation on Reclassified Assets

LIC Housing Finance Limited Versus DCIT, Circle-2 (2), Mumbai

LIC Housing Finance Limited Versus DCIT, Circle-2 (2), Mumbai - TMI Issues Involved:1. Reopening of assessment under Section 147.2. Disallowance of deduction under Section 36(1)(viii).3. Disallowance of depreciation on certain assets.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 147:The assessee contested the reopening of assessments for the years 2004-05 and 2005-06, arguing that all material facts were fully disclosed during the original assessment under Section 143(3). The assessee claimed that the reopening was based on a mere change of opinion without any tangible material. The Tribunal found that the notice under Section 148 was issued within four years, and there was a prima facie case of income escapement due to excess claims of deductions under Section 36(1)(viii) and depreciation. The Tribunal upheld the reopening, referencing the deeming provisions of clause (c) of Explanation 2 to Section 147 and relevant case law, including IPGA Laboratories vs DGIT.2. Disallowance of Deduction under Section 36(1)(viii):The assessee argued that the deduction claimed under Section 36(1)(viii) was in accordance with the law, and the amendment to the section was prospective. The Tribunal analyzed the proviso to Section 36(1)(viii), which restricts the deduction to twice the amount of the paid-up share capital and general reserves. It was found that the assessee had claimed an excess deduction of Rs. 20,47,92,181/- for the year 2004-05. The Tribunal noted that the amount carried to the reserve must be considered for deduction, and the proviso's conditions were not met. However, the Tribunal remanded the matter back to the AO to verify if the amount withdrawn from the reserve was offered for taxation under Section 41(4A).3. Disallowance of Depreciation on Certain Assets:The AO reclassified certain assets (Air Conditioners, ECR, Printers, Typewriters, Mobile Phones, Refrigerators, Water Coolers, Photocopiers, EPBX, Fax) from 'Plant and Machinery' to 'Furniture & Fittings', reducing the depreciation rate from 15% to 10%. The Tribunal found that the assessee's classification was in accordance with the New Appendix to the IT Rules, which specifies the depreciation rates. The Tribunal held that these items should be classified under 'Plant and Machinery' and allowed the depreciation at 15%.Conclusion:The appeals were partially allowed. The Tribunal upheld the reopening of assessments and the disallowance of excess deduction under Section 36(1)(viii) but directed the AO to verify the taxation of the withdrawn reserve amount. The Tribunal allowed the assessee's claim for higher depreciation on the reclassified assets. The order was pronounced on 09/10/2015.