HC quashes reassessment proceedings under Section 148 for 100% depreciation on temporary structures

Delhi HC quashed reassessment proceedings under Section 148 of Income Tax Act. The petitioner had claimed 100% depreciation on temporary structures, which was initially accepted by the Assessing Officer after examination of books and supporting documents. Revenue later sought to reopen assessment arguing excessive depreciation claim. Court held that once structures are categorized as temporary, 100% depreciation rate under Rule 5 of Appendix I is prescribed and cannot be deemed excessive. The reassessment constituted impermissible change of opinion rather than discovery of new material facts. Explanations under Section 147 were inapplicable to case facts. Writ petition allowed.

---

---

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings were triggered based on a change of opinion.
3. Applicability of the first proviso to Section 147 of the Income Tax Act.
4. Timeliness of the notice issued under Section 148.

Summary:

Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 12.02.2019 issued by the Assessing Officer (AO) under Section 148 of the Income Tax Act, 1961, concerning the Assessment Year (AY) 2012-13. Additionally, the petitioner contested the orders dated 01.07.2019 and 26.07.2019 related to the objections raised against the reassessment proceedings.

Change of Opinion:
The court noted that the petitioner had filed its Return of Income (ROI) on 28.11.2012, declaring a total income of Rs. 57,37,84,404/-. During the scrutiny assessment, the AO had raised a specific query regarding the depreciation claimed on temporary structures, which was conceded to be at a rate of 100%. The AO had even deputed an officer to inspect the temporary structure before framing the Assessment Order under Section 143(3) on 15.02.2016. Despite this, a notice under Section 154/155 was issued on 12.01.2017 based on an audit objection, which eventually became moribund.

The court emphasized that the reassessment notice dated 12.02.2019 did not allege that the petitioner had failed to disclose all material facts fairly and truly. The petitioner argued that the reassessment was a clear case of change of opinion without any new material, making the proceedings barred under the first proviso to Section 147.

Applicability of the First Proviso to Section 147:
The court found that the AO had already raised and addressed the issue of depreciation on temporary structures during the original assessment proceedings. The AO's reasons to believe, recorded on 05.02.2019, did not refer to any fresh material, relying instead on Explanation 1 and Explanation 2 (c) (iv) appended to Section 147. The court ruled that this constituted a change of opinion, which is not permissible for triggering reassessment proceedings.

Timeliness of the Notice:
The court noted that the reassessment notice was issued after more than four years from the end of the relevant AY. Since the AO did not claim that the petitioner had failed to disclose all material facts, the court concluded that the notice was barred by time.

Conclusion:
The writ petition was allowed, and the impugned notice dated 12.02.2019, along with the orders disposing of objections dated 01.07.2019 and 26.07.2019, were quashed. The court held that the reassessment proceedings were invalid as they were based on a change of opinion and were time-barred.

---