2017 (2) TMI 631 - AT - Income Tax

Tribunal dismisses Revenue's appeal, deems assessment reopening invalid. Assessee granted additional depreciation and deduction for statutory liabilities.

The Tribunal dismissed the Revenue's appeals, ruling the reopening of the assessment under section 147 invalid due to being a mere change of opinion. The ... Reopening of assessment - disallowance of claim of additional depreciation and claim of deduction u/s 43B - Held that:- In the instant case, the assessee has claimed depreciation on power plant and windmill @ 80% on written down value basis under section 32(1)(ii) of the Act. The Assessing officer has not challenged such claim of depreciation under section 32(1)(ii), however, on the same assets, the claim of additional depreciation under section 32(1)(iia) has now been challenged by issuance of notice u/s 148 of the Act. The basis of formation of belief by the AO that the assets falls under clause (i) and not clause (ii) and hence, claim of additional depreciation on such assets is not allowable, cannot therefore be accepted. More so, when the claim of depreciation on such assets under section 32(1)(ii) has been allowed by the Revenue in original assessment proceedings and also in the instant reassessment proceedings which are under challenge before us. There cannot be a situation where the additional claim of depreciation is disputed stating that the original claim of depreciation has been wrongly claimed but without disturbing (rather accepting) such original claim of depreciation. We are therefore of the considered view that the reasons recorded are self-contradictory and cannot form the basis to initiate reassessment proceedings. On this ground alone, the reopening of assessment u/s 147 cannot be held valid in law and is liable to be quashed. As far as the issue of claim of deduction u/s 43B of the Act we agree with the contentions of the ld. AR that the issue has been duly examined by the AO during the course of original assessment proceedings and to this extent there is clearly a change of opinion which has been rightly upheld by the ld. CIT(A). - Decided against revenue. Disallowance on account of additional depreciation on the assets of power generating units - CIT(A) allowed the claim - Held that:- It is now a settled position that the process of generation of electricity is akin to manufacture of an article or thing, the assessee in the instant case satisfy the requirement that it is engaged in the business of manufacture or production of an article or thing. Now coming to the amendment which has been brought-in by the Finance Act 2012 w.e.f. A.Y. 2013-14 whereby the assessee engaged in the business of generation or generation & distribution of power have specifically been included and held eligible for claim of additional depreciation. In our view, the said amendment cannot be held to disentitle the assessee to claim of the additional depreciation. Various Coordinate Benches have held that even prior to the amendment brought in by the Finance Act 2012, the assessees engaged in generation or generation and distribution of electricity were held eligible for additional depreciation. In light of above, the assessee is held entitled to the additional claim of depreciation on the power plant and the windmill installed during the year. Hence the ground of the department is dismissed. Disallowance u/s 43B - CIT(A) allowed the claim - Held that:- The service tax and land tax are statutory liabilities which are paid during the year as per the orders of the CESTAT and Hon’ble Rajasthan High Court. These are statutory liabilities which pertain to the business carried on by the assessee. The assessee cannot be denied a deduction in respect of these payments merely on account of the fact that these are payments in respect of matters which are contested before the authorities and no expenditure is book in the profit and loss account. The decision of Hon’ble Delhi High Court in case of Dharampal Satyapal Sons (2010 (11) TMI 993 - DELHI HIGH COURT) supports the case of the assessee. In light of above, we upheld the order of the ld CIT(A) in deleting the disallowance u/s 43B - Decided in favour of assessee Issues Involved:1. Legality of reopening of assessment under section 147 of the Income Tax Act.2. Disallowance of additional depreciation on assets of power generating units.3. Disallowance under section 43B of the Income Tax Act.Detailed Analysis:1. Legality of Reopening of Assessment under Section 147:The primary issue was whether the reopening of the assessment under section 147 was justified. The original assessment was completed under section 143(3) on 31.12.2010, and a notice under section 148 was issued on 17.08.2012. The assessee argued that the reopening was merely a change of opinion, which is not permissible under the law.The Tribunal referred to several precedents, including CIT Vs. Hindustan Zinc Ltd., Ashwamegh Co.Op. House Soc. Ltd., and CIT vs. Usha International Ltd., which established that reassessment based on a mere change of opinion is not valid. The Tribunal found that the Assessing Officer (AO) had examined the issues of additional depreciation and deduction under section 43B during the original assessment proceedings. Therefore, the reassessment proceedings initiated by the AO were based on a change of opinion, making them illegal and bad in law.2. Disallowance of Additional Depreciation on Assets of Power Generating Units:The AO disallowed the additional depreciation claimed by the assessee on the grounds that the assets of power generating units were not eligible for additional depreciation under section 32(1)(iia) for the assessment year 2008-09. The AO argued that the amendment allowing additional depreciation for power generation units was effective from the assessment year 2013-14.The Tribunal noted that the assessee was engaged in the business of manufacturing cement and had installed new plant and machinery (P&M) for power generation for captive consumption. The Tribunal referred to several cases, including Principal CIT Vs. Kanishk Steel Industries and CIT Vs. Diamines & Chemicals Ltd., which held that additional depreciation is allowable if the assessee is engaged in the business of manufacturing or production of any article or thing. The Tribunal concluded that the assessee was eligible for additional depreciation under section 32(1)(iia) as the power generated was used for manufacturing cement, which is considered an article or thing.3. Disallowance under Section 43B:The AO disallowed the deduction claimed by the assessee under section 43B for payments made towards service tax and land tax, arguing that these payments were not allowable as they were not debited to the Profit & Loss account.The Tribunal observed that the payments were statutory liabilities and allowable on a payment basis under section 43B, regardless of whether the expenditure was booked in the accounts. The Tribunal cited several cases, including Associated Pigments Ltd. Vs. CIT and CIT Vs. Dharampal Satyapal Sons, which supported the claim that statutory liabilities are deductible when paid, even if they are not recorded in the books. The Tribunal upheld the CIT(A)'s decision to delete the disallowance under section 43B.Conclusion:The Tribunal dismissed the appeals filed by the Revenue, holding that the reopening of the assessment under section 147 was invalid as it was based on a change of opinion. Additionally, the assessee was entitled to claim additional depreciation on the assets of power generating units and the deduction under section 43B for the payments made towards statutory liabilities.