2025 (7) TMI 508 - AT - Income Tax

Reopening of assessment - Reasons to believe - reopening was done based on the contents of Audit report - HELD THAT - The appellant has not filed any objections to reopen the assessment. As the matter goes to the root of the matter this ground of reopening can be taken subsequently also in view of the decision of Hon ble Supreme Court in the case of NTPC Ltd. 1996 (12) TMI 7 - SUPREME COURT (LB) and hence allowed. Section 148 clearly states that to reopen an assessment beyond four years there should be failure on the part of appellant to furnish the details. In this case the assessment is reopened beyond four years where the earlier assessment was completed u/s 143(3) of the Act. No fresh material was available to the Department to reopen the assessment. There are a catena of decisions against the Department like Kelvinator India Ltd. 2010 (1) TMI 11 - SUPREME COURT CIT(A) Delhi where it was held that to reopen the assessment after four years there should not be full and true disclosure of material. In this case the Tax Audit Report was available with Ld. AO from the beginning and hence the reopening of assessment is not valid and appellant succeeds in this ground. Entitlement of depreciation of 50% of eligible depreciation or full depreciation - asset put to use less than 180 days - as per CIT(A) appellant company should be the owner of asset and put to use and as the appellant is not the owner of asset for more than 180 days it is not entitled for the depreciation in full - HELD THAT - As observed from the assessment order that the appellant company has already paid part purchase consideration and got the office premises registered on 6.5.2014 itself and the remaining consideration was paid subsequently on 27.1.2015 through bank. Even though part of the consideration was paid during second half of F.Y. the appellant became the owner of property during first six months of F.Y. There is no dispute regarding the usage of property. As both the ingredients of ownership and usage were fulfilled for a period of more than six months the appellant company is entitled for full depreciation and 50% depreciation cannot be disallowed by the AO. The part depreciation disallowed by Ld. AO is incorrect and hence directed to delete the addition. Assessee appeal allowed.

Summary

The core legal questions considered by the Tribunal are:

1. Whether the appellant is entitled to claim full depreciation on the office premises purchased during the financial year, or only 50% depreciation due to the asset being put to use for less than 180 days.

2. Whether the reopening of the appellant's assessment beyond four years under section 148 of the Income Tax Act was valid, given that the reopening was based on information available from the Tax Audit report which was already in possession of the Assessing Officer (AO) at the time of the original assessment.

Issue 1: Entitlement to Full or 50% Depreciation

Relevant legal framework and precedents: The Income Tax Act allows depreciation on assets that are "used" by the assessee during the financial year. Generally, if an asset is put to use for less than 180 days in a financial year, only 50% of the eligible depreciation is allowed. The appellant relied on judicial precedents, including a decision of the Bombay High Court in Whittle Anderson Ltd. which held that even passive use of an asset entitles the assessee to full depreciation. The appellant also cited decisions supporting the proposition that depreciation is allowable even if the asset was not used for the entire year or in earlier years.

Court's interpretation and reasoning: The Tribunal examined the facts that the appellant had paid part of the purchase consideration and obtained registration of the office premises on 6.5.2014, which falls within the first six months of the financial year. The balance consideration was paid later in January 2015. The Tribunal found no dispute regarding actual usage of the property by the appellant. The Tribunal emphasized that both ownership and usage are essential for claiming depreciation. Since the appellant became the owner and put the asset to use for more than 180 days, the condition for full depreciation was met.

Key evidence and findings: The timing of payment and registration of the property was critical evidence. The appellant's payment of Rs. 1.5 crore and registration of the premises on 6.5.2014 established ownership in the first half of the financial year. The Tribunal accepted that the asset was put to use and hence eligible for full depreciation.

Application of law to facts: The Tribunal applied the statutory provision regarding depreciation and the judicial precedent that ownership and use for more than 180 days entitle the assessee to full depreciation. The Tribunal rejected the AO's disallowance of 50% depreciation on the ground that the asset was used for less than 180 days.

Treatment of competing arguments: The Revenue argued that since part of the consideration was paid in the second half of the year, only 50% depreciation was permissible. The Tribunal rejected this, holding that ownership and use from the first half sufficed for full depreciation. The appellant's reliance on judicial decisions regarding passive use was accepted as supporting the entitlement to full depreciation.

Conclusion: The Tribunal held that the appellant was entitled to full depreciation on the office premises and directed deletion of the addition made by the AO disallowing 50% depreciation.

Issue 2: Validity of Reopening Assessment Beyond Four Years

Relevant legal framework and precedents: Section 148 of the Income Tax Act permits reopening of assessment beyond four years only if there is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The reopening must be based on fresh material not previously available to the AO. Judicial precedents such as Kelvinator India Ltd. and NTPC Ltd. have held that reopening on the basis of information already available to the AO amounts to change of opinion, which is impermissible.

Court's interpretation and reasoning: The Tribunal noted that the reopening was based on the Tax Audit report, which was already in possession of the AO at the time of the original assessment under section 143(3). The appellant had not filed any objections to reopening and had not filed any Return of Income in response to the notice under section 148. However, since the reopening was beyond four years and no fresh material was available, the reopening was invalid.

Key evidence and findings: The Tax Audit report was the critical piece of material. It was undisputed that this report was available to the AO during the original assessment. The absence of any fresh material justified the conclusion that the reopening was a change of opinion.

Application of law to facts: The Tribunal applied the statutory provisions and judicial precedents to find that reopening beyond four years without fresh material or failure to disclose was invalid. The reopening was therefore quashed.

Treatment of competing arguments: The Revenue contended that reopening was justified based on the audit report. The Tribunal rejected this, emphasizing that the audit report was not new information and hence reopening was not permissible. The appellant's argument that reopening amounted to change of opinion was accepted.

Conclusion: The Tribunal held the reopening of assessment invalid and allowed the appeal on this ground as well.

Significant holdings:

The Tribunal held:

"As both the ingredients of 'ownership' and 'usage' were fulfilled for a period of more than six months, the appellant company is entitled for full depreciation and 50% depreciation cannot be disallowed by the Ld. AO."

Regarding reopening, the Tribunal stated:

"No fresh material was available to the Department to reopen the assessment. There are a catena of decisions against the Department like Kelvinator India Ltd. where it was held that to reopen the assessment after four years, there should not be full and true disclosure of material. In this case, the Tax Audit Report was available with Ld. AO from the beginning and hence the reopening of assessment is not valid and appellant succeeds in this ground."

The Tribunal also noted the principle that reopening beyond four years requires failure to disclose material facts and that reopening based on information already available to the AO amounts to impermissible change of opinion.

In conclusion, the Tribunal allowed the appeal both on merits (full depreciation entitlement) and on validity of reopening (reopening disallowed), thereby overturning the orders of the AO and CIT(A).