2016 (8) TMI 1602 - AT - Income Tax

Validity of reopening of assessment u/s 147 - Additional depreciation claimed u/s 32(1)(iia) on vaporizers which are installed in the hospital/medical institutions and which are continued to be owned by the assessee - HELD THAT - As decided in own case for the assessment year 2007-08 section 32(1)(iia) does not state that setting up of a new machinery or a plant which was acquired and installed after March 31 2005 should have an operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore the reasoning of the learned Assessing Officer that the vaporizers has nothing to do with the manufacturing of articles etc. is totally not germane to the specific provision contained in section 32(1)(iia) of the Act - assessee is eligible for additional depreciation on vaporizers under section 32(1)(iia) of the Act. Deduction u/s 80-IB - Assessee claimed deduction being 30 per cent. of the profits of the Goa unit - tenth year of claim - HELD THAT - In our considered view the assessee has made claim under section 80-IB of the Act which was allowed by the Revenue after detailed enquiry wherein the assessee duly submitted the detailed explanation as to manner of computing deduction u/s 80-IB of the Act which was accepted by the Revenue after scrutiny while framing original assessment under section 143(3) of the Act and no fresh tangible material has come into possession of the Revenue which has live link/nexus with the formation of belief that income has escaped assessment warranting reopening of the concluded assessment has been brought on record by the Revenue to disturb the claim of the assessee which was earlier accepted in original assessment proceedings under section 143(3) read with section 143(2) of the Act after detailed scrutiny rather it is a case of change of opinion which is not permissible in proceedings under section 147/148 of the Act as the powers of reopening the concluded assessment under section is to reassess and not to review the concluded assessments. The assessee has made a claim of deduction u/s 80-IB on the basis that the same was common costs which should be allocated between manufacturing and trading activities based on the ratio of sales turnover which was accepted by the Revenue after detailed scrutiny in original assessment proceedings u/s 143(3) which culminated into assessment order passed by the AO under section 143(3) of the Act. Although the reopening has been done within a period of 4 years but still the same is not permissible in the instant case as the concluded assessment has been reopened merely due to change of opinion. Hence the addition is ordered to be deleted. Non-consideration of the revised return of income - Non- allowance of the share buy-back expenses - This matter needs to be restored to the file of the Assessing Officer for verification of the claims and contentions of the assessee to have incurred expenses towards expenses for buy-back of shares and then to decide the claims and contentions of the assessee in the light of decision of the Tribunal in the assessee s own case for the assessment year 2007-08. Disallowance u/s 14A of the Act read with rule 8D - relatable expenses to the exempt income - HELD THAT - Although recorded satisfaction that the disallowance offered by the assessee cannot be accepted as no proper basis of disallowance was specified by the assessee but went on to apply rule8D(2)(iii) of the Income-tax Rules 1962 while the learned Commissioner of Income-tax (Appeals) ought to have identify the disallowance at the first instance having regards to the accounts of the assessee. Assessee also did not come forward with the complete details of expenses incurred in relation to the earning of exempt income. Matter needs to be set aside and restored to the file of the AO for de novo determination of the issue on merits after considering the submissions of the assessee having regard to the accounts of the assessee as to the quantum of disallowance to be made under section 14A of the Act.

Summary

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.