2016 (8) TMI 1602 - AT - Income Tax

Reopening assessment invalid due to change of opinion; additional depreciation allowed on vaporizers under section 32(1)(iia)

ITAT Mumbai held that reopening assessment under section 147 was invalid due to change of opinion without fresh tangible material. Assessee was entitled ... Additional depreciation under section 32(1)(iia) - reopening assessment under section 148 - change of opinion doctrine - deduction under section 80-IB - allowability of buy-back expenses as revenue expenditure - revised return filed under section 139(5) - consideration of claim - section 14A and rule 8D - computation of disallowance in respect of exempt income - admission of additional ground and remand to Assessing Officer for verificationAdditional depreciation under section 32(1)(iia) - Claim for additional depreciation on vaporizers installed at hospitals - HELD THAT: - The Tribunal examined the assessee's claim for additional depreciation on vaporizers which the assessee retained ownership of and installed free of cost at hospitals. Relying on the coordinate-bench decision in the assessee's own case for AY 2007-08, the Tribunal held that section 32(1)(iia) does not mandate operational connectivity between the new machinery and the particular article already manufactured; the provisos only exclude assets used before installation, assets installed in office/residential premises, office appliances and vehicles, or assets the whole cost of which is already deductible. Given that the vaporizers were owned by the assessee and not installed in office/residential accommodation, the Tribunal found the assessee eligible for additional depreciation and respectfully followed the earlier co-ordinate bench decision allowing the claim. [Paras 10, 11]Additional depreciation on vaporizers allowed; ground in assessee's favour.Reopening assessment under section 148 - change of opinion doctrine - deduction under section 80-IB - Validity of reassessment and allocation of R&D expenses for computing deduction under section 80-IB (AY 2006-07) - HELD THAT: - The Tribunal considered the reopening under section 148 which sought to allocate the entire research and development expenditure to the Goa manufacturing unit after the original assessment under section 143(3) had accepted the assessee's allocation (on a sales-turnover basis) and granted deduction under section 80-IB. The Tribunal held that no fresh tangible material had been brought to bear to form a belief of escapement of income; the reassessment amounted to a change of opinion, which is impermissible under the law governing reopening. Relying on the principle that powers under section 147/148 are to reassess and not to review an original concluded assessment, the Tribunal deleted the addition and sustained the earlier allowance of the deduction as per the original assessment. [Paras 15]Reopening held to be impermissible change of opinion; deduction under section 80-IB upheld and addition deleted.Admission of additional ground and remand to Assessing Officer for verification - Admission of additional ground relating to advance payment of sales tax and appropriate forum for adjudication (AY 2008-09) - HELD THAT: - An additional ground was admitted concerning advance payment of sales tax allegedly paid in the previous year relevant to AY 2007-08 but pertaining to AY 2008-09. The Tribunal noted that the assessee had not pressed this point earlier in the Tribunal for AY 2007-08 and that the factual matrix required verification. In the interest of substantial justice, the Tribunal admitted the ground and directed that the claim be verified and decided on merits by the Assessing Officer after affording the assessee opportunity to be heard. [Paras 16, 19]Additional ground admitted; issue remitted to Assessing Officer for verification and decision on merits.Allowability of buy-back expenses as revenue expenditure - revised return filed under section 139(5) - consideration of claim - Claim for deduction of share buy-back expenses and failure to consider revised return (AY 2008-09) - HELD THAT: - The assessee filed a revised return within the time permitted by section 139(5) claiming buy-back expenses as revenue deduction. The Tribunal referred to its own decision in the assessee's case for AY 2007-08 where buy-back expenses were held to be revenue in nature and allowable under section 37(1). Given that the authorities below had not examined the claim on merits in this assessment, the Tribunal directed restoration to the file of the Assessing Officer for verification and adjudication in light of the Tribunal's earlier findings, with opportunity to the assessee to produce evidence and explanations. [Paras 21, 23]Matter restored to Assessing Officer for verification and de novo decision on allowability of buy-back expenses and consideration of the revised return.Section 14A and rule 8D - computation of disallowance in respect of exempt income - Disallowance under section 14A read with rule 8D in respect of exempt dividend income (AY 2008-09) - HELD THAT: - The Assessing Officer applied rule 8D to compute disallowance; the Commissioner (Appeals) recorded satisfaction and confirmed part of the disallowance under rule 8D(2)(iii) after deleting items he treated as not attributable. The Tribunal observed that section 14A(2) requires computation having regard to the accounts and that the Assessing Officer had not recorded requisite satisfaction before invoking rule 8D; further, the assessee had not furnished complete details. In these circumstances the Tribunal set aside the appellate conclusion and remitted the matter to the Assessing Officer for de novo determination of the quantum of disallowance under section 14A after affording the assessee a full opportunity and considering the assessee's accounts and evidences. [Paras 28]Order set aside; issue remitted to Assessing Officer for de novo determination of disallowance under section 14A/rule 8D.Final Conclusion: The Tribunal partly allowed the appeals: additional depreciation on vaporizers was allowed; the reopening and consequent allocation disallowing deduction under section 80-IB (AY 2006-07) was held to be a change of opinion and deleted. For AY 2008-09, the Tribunal admitted an additional ground (advance sales tax) and remitted it to the Assessing Officer for verification; directed the Assessing Officer to examine and decide afresh the claims for buy-back expenses and the revised return; and set aside the section 14A/rule 8D conclusion and remitted that issue for de novo determination. The matters remitted are to be decided by the Assessing Officer after giving the assessee adequate opportunity in accordance with law. Issues Involved:1. Validity of reassessment proceedings.2. Additional depreciation on vaporizers claimed as a deduction under section 32(1)(iia).3. Computation of deduction under section 80-IB.4. Non-consideration of the revised return of income.5. Non-allowance of share buy-back expenses.6. Additional disallowance under section 14A.7. Deduction in respect of advance payment of sales tax.Detailed Analysis:1. Validity of Reassessment Proceedings:The assessee challenged the reopening of the assessment under section 148, arguing it was in excess of jurisdiction. The Tribunal did not specifically address this issue as the primary focus was on the substantive grounds of appeal.2. Additional Depreciation on Vaporizers:The assessee claimed additional depreciation on vaporizers installed in hospitals under section 32(1)(iia). The AO disallowed this, stating that the vaporizers were related to trading activity and not manufacturing. The CIT(A) upheld this view. However, the Tribunal, referencing its own decision in the assessee's case for AY 2007-08, held that the assessee is eligible for additional depreciation. The Tribunal noted that section 32(1)(iia) does not require operational connectivity between the new machinery and the manufactured article, thus allowing the depreciation claim.3. Computation of Deduction under Section 80-IB:The AO reduced the deduction under section 80-IB, arguing that research and development (R&D) expenses should be fully allocated to the Goa manufacturing unit. The CIT(A) upheld this. The Tribunal reversed this decision, stating that the R&D expenses were common costs and should be allocated based on the sales ratio. It emphasized that reopening the assessment on this basis constituted a change of opinion, which is not permissible.4. Non-Consideration of the Revised Return of Income:The assessee filed a revised return claiming deduction for share buy-back expenses, which was not considered by the AO or CIT(A). The Tribunal directed the AO to consider the revised return and verify the claim in light of its decision in the assessee's favor for AY 2007-08.5. Non-Allowance of Share Buy-Back Expenses:The assessee claimed share buy-back expenses as a revenue expenditure. The AO and CIT(A) did not allow this. The Tribunal, referencing its decision for AY 2007-08, held that such expenses are revenue in nature and allowable under section 37(1). The matter was remitted back to the AO for verification and allowance of the claim.6. Additional Disallowance under Section 14A:The AO applied rule 8D to disallow additional expenses related to exempt income. The CIT(A) provided partial relief but upheld a significant portion of the disallowance. The Tribunal remitted the issue back to the AO, directing a de novo determination after considering the assessee's accounts and providing an opportunity for the assessee to present evidence.7. Deduction in Respect of Advance Payment of Sales Tax:The assessee claimed a deduction for advance payment of sales tax made in the previous year. The Tribunal admitted this additional ground and remitted the issue back to the AO for verification and allowance of the claim on merits.Conclusion:The Tribunal provided relief to the assessee on several grounds, including the allowance of additional depreciation on vaporizers and the proper allocation of R&D expenses for section 80-IB deduction. It also directed the AO to consider the revised return and verify the claim for share buy-back expenses and advance sales tax payment. The issue of additional disallowance under section 14A was remitted back for a fresh determination. The Tribunal emphasized the need for the AO to provide the assessee with an opportunity to present relevant evidence and explanations.