TMI Blog2016 (8) TMI 1511X X X X Extracts X X X X X X X X Extracts X X X X ..... the original assessment and the replies of the petitioner would show that all these details were very much part of the record. Reduction on account of withdrawal of interest and the additional depreciation claimed - As question of additional depreciation in ground (2b), the Assessing Officer had not inquired into the nature of reduction of interest - It may be that such interest though paid during the assessment year 2009-2010 was later on withdrawn. Withdrawal of the interest happened during the assessment year 2010-2011. The Assessing Officer therefore, would be prima facie, correct in questioning the assessee in reducing such interest for the assessment year in question namely, 2009-2010. Computation of income being specific to the period pertaining to the previous year relevant to the assessment year under consideration, a legal question would arise whether for a later withdrawal of interest, the assessee could have claimed effect thereof during the earlier year. Being at a stage where the assessment is yet to be framed, we would not give our conclusive opinion on this aspect. Suffice it to say, this issue was not examined by the Assessing Officer in the original assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings scrutinised such issue are not in dispute. That being the position it would not be open for the Assessing Officer to revisit such a claim in reassessment. Short deduction of tax at source on freight charges - In the order of assessment, the Assessing Officer had made a detailed discussion on the payment made to clearing and forwarding agent without TDS and whenever necessary, Assessing Officer made disallowance. Thus the entire issue was examined by the Assessing Officer during the scrutiny assessment. Disallowance of interest expenditure under section 14A r.w.r. 8D - This issue also was pointedly in focus before the Assessing Officer during the scrutiny assessment. Non deduction of tax on export commission paid by the assessee - AO noted that such expenditure was allowed without deduction of tax in view of the earlier circulars of CBDT dated 23.7.1969 and 7.2.2000 - assessee had while disclosing that foreign commission was paid to non residents, no TDS was deducted in view of circular dated 7.2.2000. The assessee produced copy of such circular. It was after such inquiry that Assessing Officer made no disallowance, as can be seen from the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed examination of various documents, he framed assessment under section 143(3) of the Act on 29.12.2011 assessing the petitioner's gross income at ₹ 61.28 crores (rounded off). 3. To reopen such assessment, the Assessing Officer issued impugned notice which, as can be seen, was done within a period of four years from the end of relevant assessment year. In order to do so, he had recorded the following reasons : Reasons for issue of notice u/s. 148 of the IT Act, 1961 In this case, the assessment was finalized u/s.143(3) on 29/12/2011 assessing the total income at ₹ 61,10,65,280/- . 1. There were information with the department that Shri Ashwin Kumar B Patel, has sold immovable property exceeding ₹ 3O Lakhs more. As a consequence to the enquiry conducted by ITO Ward2 Anand, certain information regarding the assessee Elecon Engineering Ltd. has come to his knowledge, The Income Tax Officer, Ward- 2. Anand forwarded the said information alongwith documents that during the year under consideration, the assessee had executed exchange sale agreement dated 17/11/2008, which shows that the assessee has transferred the land at survey No.159 and 155 hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be disallowed. 4. On verification, it is noticed that the assessee has claimed depreciation of ₹ 15,47,30,488/- ( ₹ 13,79,30,488/- being 80% normal depreciation on wind mill + ₹ 3,09,46,098/- being 20% additional depreciation) on the addition of assets in the form or wind turbine generators (WTG) of ₹ 15,47,30.488/- prior to 1 Oct 2008. It was also noticed that the investment in assets contained three items viz i. windmill of ₹ 13,79,30,488/- ( added on 30 Sept 2008). ii. ₹ 84,00,000/- of power evacuation facility for 4 nos windmills ₹ 84,00,000/- of power evacuation facility for 4 nos windmills (added on 30 Sept 2008). It was further noticed that, there was no opening balance of WTC as on 1st Apr 2008. The assessee also did not purchase any WTG during the year and it manufactured only 2 WTG during the year which too were sold during the year. This indicates that 4 WTG which were claimed to be commissioned in earlier years were not commissioned in those years and assessee commissioned those in this AY 2009-10 on 30 Sept 2008. This is also substantiated from the fact that assessee has claimed expenditure of ₹ 84,00,000/- on p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakh in respect of payment to be made by assessee. Therefore on payment of ₹ 19,34,642/- ( ₹ 20,34,642/- ₹ 1,00,000/- ) the TDS was required to be made at normal rate. Thus, after giving credit of TDS made by the assessee, it is noticed that assessee had not made TDS in respect of payment of ₹ 18,86,230/- . Accordingly claim of expenditure of ₹ 18,86,230/- is not an allowable expenditure in view of provisions of section 40(a)(ia) of the IT Act and requires to be disallowed. 8. On examination, it was found that while computing disallowance u/s14A, the assessee excluded interest payment on term loan, vehicle loan etc. from the total interest payment amount and calculated disallowance of ₹ 34.36,054/- . As per provisions of section 14A of the IT Act read with rule 8D(ii) proportionate interest expenditure is to be disallowed in the ratio of average investment to the average total assets. However, there is nothing in rules to exclude interest pertaining to the term loans for computation of disallowance u/s.14A of the IT Act. As per rule 8D of the IT Act, the disallowance u/s. 14A worked out to ₹ 67,96,000/- as against disallowance of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2011. The assessee therefore, wrongly reduced the interest income by ₹ 71.60 lacs. (2b) The assessee had also revised the claim of depreciation of ₹ 21.90 lacs (rounded off), out of which ₹ 11.87 lacs (rounded off) was on account of increase in opening WDV of various assets which was at variance with the report made by the Chartered Accountant in Form3CD. (3) The assessee had received total interest of ₹ 2.00 crores (rounded off) on the income tax refund, against which, the assessee had paid interest of ₹ 31.39 lacs (rounded off) under section 234B of the Act, which was adjusted against the interest income which was not allowable. (4) The assessee had claimed depreciation of ₹ 15.47 crores(rounded off) on wind turbine generators. The assessee claimed that these were commissioned on 30.9.2008. It was noticed that no power evacuation facility for four windmills was added as on 30.9.2008. (5) The assessee had claimed depreciation on turbo ventilators as energy saving devices at 80% of the investment. These machines were not included in the list of qualified machinery for higher depreciation and that higher depreciation was therefore, wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the original assessment had raised multiple queries in writing. All such queries were replied by the Assessing Officer. Examination of these questions and answers would establish that all grounds on which the Assessing Officer now wishes to reopen the assessment were minutely scrutinised by the Assessing Officer. Counsel submitted that there was no new material available on record which would permit the Assessing Officer to reexamine such issues. Counsel submitted that some of these grounds were legally also invalid and untenable. Counsel lastly contended that the entire exercise of reopening is being undertaken at the behest of the audit party. Notice of reopening has not been issued by the Assessing Officer on his own account but was under compulsion by audit party to reopen the assessment. The petitioner's objection in this regard were not dealt with by the Assessing Officer. The specific averments made in the petition have not been denied by the respondents. Learned counsel placed reliance on the decision of this Court in case of Gujarat Power Corporation Ltd. v. Assistant Commissioner of Income Tax reported in (2013) 350 ITR 266 (Guj), to contend that once the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that during the assessment, if certain claim is not examined by the Assessing Officer, it cannot be stated that he had formed an opinion with respect to such a claim. If therefore, the Assessing Officer has tangible materials on the basis of which he formed a belief that income chargeable to tax has escaped assessment, it would be open for him to do so in exercise of powers under section 147 of the Act. It was held that such tangible materials need not be alien to the record. While saying so, the Court also considered the question of accepting certain claim of the assessee after scrutiny but without recording reasons in the final order of assessment. In this context, it was held and observed as under : 41. The powers under section 147 of the Act are special powers and peculiar in nature where a quasijudicial order previously passed after full hearing and which has otherwise become final is subject to reopening on certain grounds. Ordinarily, a judicial or quasijudicial order is subject to appeal, revision or even review if statute so permits but not liable to be reopened by the same authority. Such powers are vested by the Legislature presumably in view of the highl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. Merely because he chooses not to assign his reasons in the assessment order would not alter t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land. Both these agreements are registered on 17112008 with the office of sub registrar, Anand vide registration number 8192 and 9194. Subsequently, both these agreements for mutual exchange of land have been cancelled on 12032009 and registered with the office of sub registrar, Anand vide registration number 1667 and 1669. As such there was no legal and valid transfer during the year and therefore cognizance of this transfer is not required. It is therefore, submitted that we have not made any transaction for sale of land on this count during the year. We enclose herewith copies of all above agreements. Kindly refer to Annexure37. The copies of the agreements mentioned in this reply were also produced. Thus during the original assessment itself, the Assessing Officer had desired to know from the assessee the details of all transactions of immovable properties. In fact, in the queries itself, the Assessing Officer pointed out that the assessee had purchased immovable property of ₹ 50.72 lacs and sold such property for ₹ 66.34 lacs. It was in response to such a query that the assessee replied pointing out that two different agreements of mutual exchange of land were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on withdrawn. Withdrawal of the interest happened during the assessment year 2010-2011. The Assessing Officer therefore, would be prima facie, correct in questioning the assessee in reducing such interest for the assessment year in question namely, 2009-2010. Computation of income being specific to the period pertaining to the previous year relevant to the assessment year under consideration, a legal question would arise whether for a later withdrawal of interest, the assessee could have claimed effect thereof during the earlier year. Being at a stage where the assessment is yet to be framed, we would not give our conclusive opinion on this aspect. Suffice it to say, this issue was not examined by the Assessing Officer in the original assessment. Ground (2b) 13. Ground (2b) pertains to higher depreciation of ₹ 11.87 lacs made by the assessee. According to the Assessing Officer, in the revised return, out of additional depreciation of ₹ 21.90 lacs, ₹ 11.87 which was on account of increase in opening WDV did not match the figures contained in the report of the Chartered Accountant. In this context, we may notice that in the letter dated 30.6.2011, the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 2.00 crores against which it had paid interest to the department to the tune of ₹ 31.39 lacs which could not have been adjusted against the interest income. In this respect counsel for the petitioner pointed out that though such adjustment was claimed in the return, the Assessing Officer disallowed the same. He took us through the order of assessment and pointed out that such amount of ₹ 31.39 lacs was not allowed to be reduced from the interest income. Learned counsel for the Revenue was unable to controvert this aspect. This ground thus was based on inaccurate factual premise. Ground (4) 15. Ground no.(4) pertains to depreciation of windmill. The assessee had claimed such depreciation for a total investment of 15.47 crores. The Assessing Officer was of the opinion that four wind turbine generators were not commissioned on 30.9.2008. The depreciation relatable to such investment was not allowable. Under letter dated 30.6.2011, the Assessing Officer, as noted, in para 12 and 13 called for full details of fixed assets above ₹ 10 lacs acquired during the year under consideration and also to justify the claim of additional depreciation on such inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. In the context of energy saving device, the assessee had in reply dated 11.7.2011 along with a detailed justification for depreciation on wind turbine generators brought full facts of the energy saving device to the notice of Assessing Officer and further contended as under : b. Energy Saving Device. Energy saving device is covered under the item (3)(8)(ix) under the heading of machinery and plant. As provided in section 32(1)(iia) additional deprecation is allowed in case of machinery and plant. It is submitted that it is fulfilling all the conditions narrated in section 32(1)(iia) and therefore it is eligible for additional deprecation. Thus it was after a minute scrutiny that Assessing Officer did not disturb the income of higher depreciation on this investment. Reopening on such basis would not permissible. Ground (6) 17. Ground (6) pertains to expenditure of ₹ 10.32 lacs towards notified area tax. It is not in dispute that such tax was paid by the assessee but the receipt was issued in favour of M/s. Emtici Hotel Resort. The Assessing Officer was therefore, of the opinion that such expenditure could not have been claimed by the assessee. 31.08.2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herewith details of packing forwarding Distribution expenses. Kindly refer to Annexure15. We may further notice that in the order of assessment, the Assessing Officer had made a detailed discussion on the payment made to clearing and forwarding agent without TDS and whenever necessary, Assessing Officer made disallowance. Thus the entire issue was examined by the Assessing Officer during the scrutiny assessment. Ground (8) 19. Ground (8) pertains to disallowance of interest expenditure under section 14A of the Act read with Rule 8D of the Income Tax Rules. According to the Assessing Officer, such disallowance was short by ₹ 33.59 lacs. In this respect, the Assessing Officer in his letter dated 30.6.2011 had required the following information from the assessee : 20. Details of income claimed exempt with nature and expenditure incurred for earning such income. Please furnish the working of disallowance of expenditure in respect of exempt income in terms of provisions of section 14A of the Act rwr 8D. The assessee replied to such query in the letter dated 11.7.2011 as under : 8. Reply to your point no.20 Income claimed exempt and expenditure incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments, as was pointed out by the assessee, that no TDS was deducted and the reason why the same was done. 21. The culmination of above discussion would be that all issues except ground (2a) recorded by the Assessing Officer in the reasons, there was detail scrutiny during the original assessment. On such issues, therefore, reopening even within a period of four years would not be permissible. However, as is well settled, even if one ground succeeds, as in the present case, reopening would have to be permitted. It is in this context, the question of notice of reopening having been issued by the Assessing Officer at the behest of the audit party assumes significance. The law on the point laid down by the Supreme Court in judgement in case of Commissioner of Income-tax v. P.V.S. Beedies Pvt. Ltd. reported in (1999) 237 ITR 13 and in case of Indian and Eastern Newspaper Society v. Commissioner of Income-tax reported in (1979) 119 ITR 996 is well settled. We also have the decision of this Court in case of Adani Exports v. Deputy Commissioner of Income Tax reported in (1999) 240 ITR 224(Guj) on this issue. In case of Indian and Eastern Newspaper Society (supra), the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is clear distinction between a situation where the Assessing Officer acts on an information supplied by the audit party and issues a notice for reopening the assessment. In some cases, we have also noticed that the Assessing Officer is himself convinced that the audit objection do not form valid reasons to form a belief that income chargeable to tax has escaped assessment. He nevertheless, issues a notice for reopening clearly indicating compulsion to do so. In such cases, decision in case of Indian and Eastern Newspaper Society (supra) and Adani Exports (supra) would squarely apply. However, situations may also arise where the audit party merely brings to the notice of Assessing Officer, a certain element having relation to the income of the assessee. If the Assessing Officer on the basis of such information forms an independent belief that income chargeable to tax has escaped assessment, there is nothing preventing him from exercising power of reassessment, as was held by the Supreme Court in case of P.V.S. Beedies Pvt. Ltd. (supra) and also noted in judgement in case of Adani Exports (supra). It would therefore, be necessary for us to ascertain in which category the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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