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2016 (1) TMI 129 - ITAT AHMEDABAD

2016 (1) TMI 129 - ITAT AHMEDABAD - TMI - Penalty u/s 271(1)(c) - Reopening of assessment - lower appellate order deleting depreciation disallowance - Held that:- A perusal of the case file reveals that the installation report of this asset. Page 41 of the paper book reveals lease rent income therefrom in assessee’s P & L account. Page 43 is sales tax challan of the asset. It transpires from the case file that this Kanpur entity went into liquidation. The assessee filed company application befor .....

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ive with all these overwhelming evidence. He sought time to produce the search inventory. The same stands submitted in the courses of hearing. Page 53 thereof reveals that the very air pollution control equipment was found during the course of search. We observe on the basis of these facts and evidence that the assessee has been able to prove genuineness of its depreciation claim qua the air pollution control equipment in question leased out to M/s Rajendra Steels Ltd, Kanpur. The Revenue’s argu .....

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is allowed since the main disallowance/addition does not survive. - Decided in favour of assessee. - ITA No. 3465/Ahd/2004, ITA No.3386/Ahd/2004, ITA No.2342/Ahd/2006, ITA No.3416/Ahd/2008 - Dated:- 30-11-2015 - Pramod Kumar, AM And S. S. Godara, JM For the Appellant : Shri R K Gupta, Sr. DR For the Respondent : Shri S N Soparkar, AR ORDER Per S. S. Godara, Judicial Member This is a batch of four appeals. The assessee and Revenue have filed quantum appeals in Assessment Year 1996-97 against CIT( .....

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ar wise. It is to be seen that former assessment year 1996-97 involves three appeals i.e. quantum cross appeals filed at assessee and Revenue s behest ITAs 3386 and 3465/Ahd/2004. This is followed by assessee s appeal in consequential penalty proceedings bearing ITA no. 3416/Ahd/2008. We take first of all above stated quantum cross appeals. 3. The assessee in its appeal 3386/Ahd/2004 raises solitary ground of depreciation of ₹ 1,71,92,701/- on assets sold and leased back. The CIT(A) relies .....

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n on lease to M/s Rajendra Steels Ltd., Kanpur. 4. The assessee-company is in the business of leasing and hire purchase with trading in shares and other investments. It filed its return admitting income of ₹ 61,11,200/- along with audit report, balance sheet and P & L account. The Assessing Officer completed a regular assessment on 24-03-1999 determining the same very income. Thereafter, he formed reasons to believe that assessee s income liable to be assessed had escaped assessment. H .....

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its income in respect of machinery that either did not exist or the real worth of these machinery was only 10% to 20% of the value recorded in the books. In this way, the assessee has claimed bogus depreciation on non-existent machinery. Since the above amount of income has appears to be escaped from taxable income for A.Y. 1996-97, it is mandatory to issue notice u/s. 148 of the I.T. Act to cover the above income and tax the same. Accordingly, a notice u/s. 148 is therefore issued to the asses .....

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em having cost of ₹ 76,56,687.50 in case of M/s. Rajendra Group of Companies, Kanpur. There is no dispute that exact depreciation claim figure is ₹ 38,28,244/- @ 50% of the latter figure. The remaining depreciation claim is of ₹ 1,71,96,071/- hereinabove. 6. The assessee preferred appeal inter alia raising four substantive grounds challenging validity of reopening as well as correctness of the above stated disallowances on merits. The CIT(A) upholds the Assessing Officer s acti .....

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late order. The assessee thereafter argued in lower appellate proceedings that all disallowances hereinabove have to be deleted since impugned reopening itself is not sustainable in view of the fact that the sole reason recorded resulting in corresponding disallowance stands deleted. The CIT(A) declines the same by observing that the Assessing Officer is very much competent in the courses of reassessment to open any claim not correctly worked out earlier in regular assessment. This backdrop of f .....

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uphold lower appellate order to this effect, the entire reopening deserves to be quashed. Case law of CIT vs. Mohmed Juned Dudani (2014) 355 ITR 172 (Guj), CIT vs. Living Media India Ltd (2013) 35 taxmann.com 105 (Del), Asha Kanshal Vs. ITO Agra (2014) 62 SOT 146 (Agra) and that of Amritsar bench of the tribunal in ITA No.222/ASR/2014 decided on 11-06-2015 is quoted in support. The Revenue s arguments strongly back the lower appellate findings under challenge qua this issue. 8. We have heard ri .....

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o depreciation of ₹ 1,71,92,701/- (supra). The CIT(A) has revered Assessing Officer s action on the issues of depreciation claim of ₹ 38,44,244/- and loss hereinabove. The question that arises for our consideration in these circumstances is as to whether the entire reopening has to be quashed on assessee s legal plea in case we affirm CIT(A) s findings on the sole reason of reopening on merits or not. We seek guidance from the above stated case law in deciding this question. The hon .....

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ound followed by additional reasons B & C later on. This A ground was the issue of bad debts. The Assessing Officer disallowed/added various amounts under all of these grounds. The CIT(A) deleted the one pertaining to bad debts. Both assessee and Revenue filed cross appeals before the tribunal. A co-ordinate bench therein affirmed CIT(A) s order in Revenue s appeal and reversed the corresponding findings on B & C grounds hereinabove. The Revenue filed appeal before the hon ble Delhi high .....

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ppears to be similar to above stated judicial precedents. The Assessing Officer reopened assessment on the issue of capital gains of ₹ 3,98,950/-. He added the same along with two other heads of ₹ 3,98,593/- and ₹ 3,97,955/-. The CIT(A) deleted the first addition forming sole reason of reopening. The assessee preferred appeal. The Revenue did not challenge the CIT(A) s order therein qua the first addition. The ld. co-ordinate bench in these facts and circumstances quashes reope .....

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eopening. 9. This leaves us with decision of the Amritsar bench of the tribunal (supra). The Assessing Officer in said case reopened assessment alleging assessee s loan repayment in favour of outgoing partners of a dissolved firm to be more than his income. He framed reassessment making additions under various other heads as well. The assessee preferred appeal challenging legality of reopening as well correctness of all additions. The CIT(A) inter alia rejected legal ground, deleted addition for .....

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C) for observing that it is open for an assessee to object to reopening reason at the very first stage or during reassessment. It propagates assessing authority s dual adjudication accordingly as under:- "14. There cannot possibly be any two opinions with regard to the enunciation of law by Their Lordships in Majinder Singh Kang's case (supra). However, we find that the reliance by the learned Departmental Representative on this decision, on the facts of this case, to be inapt. In Majin .....

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r Singh Kang's case (supra) has not been shown to have altered, even sub silientio, the well settled legal position that the validity of reassessment proceedings is a sine qua non for any additions being made to the income of the assessee, during the course of the reassessment proceedings-whether in respect of the reasons recorded for reopening the assessment or in respect of the reasons other than the reasons recorded for reopening the assessment. 15. Moreover, particularly in the light of .....

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Officer proceeding with the reassessment proceedings and after he has issued notice for reopening the assessment. In a situation in which the assessee can convince the Assessing Officer that these reasons are not good enough to make the additions, the reassessment proceedings are to be dropped anyway. 17. There is no bar on the nature of material that the assessee may seek to rely upon, even at the first stage, to demonstrate that the reasons for reopening are unsustainable in law and even this .....

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with the reassessment proceedings, and the other at the point of time when, during the reassessment proceedings, the Assessing Officer has to take a call on additions to be made in respect of these reasons. That is where there is a paradigm shift in the scheme of things post GKN Drivershaft decision. In a situation in which, during the reassessment proceedings, the Assessing Officer finds these reasons to be so incorrect that he concludes that no income has escaped the assessment and the additi .....

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when the Assessing Officer is satisfied that no additions can be made on the basis of the reasons of reopening, as recorded by him, he has to drop the reassessment proceedings at this initial stage itself. When the examination of correctness of the reasons recorded come up for adjudication before the appellate authorities, the approach, therefore, cannot be any different, either. 18. In the case before Hon'ble jurisdictional High Court, as evident from the extracts from the CIT(A)'s orde .....

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assessee, did not hold good law, as Their Lordships made clear in no uncertain words. The correctness of the reasons of reopening was not an issue before Their Lordships. The correctness of the reasons for reopening was not, directly or indirectly, in challenge. 19. As is evident from the discussions earlier in this order, here is a case in which the very reasons on account of which the CIT(A) has deleted the quantum additions were also good enough to hold that the initiation of reassessment pro .....

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thus reached finality, and are not even in dispute before us. If such be the facts, there can be no justification for taking these findings to its logical conclusions and, based on these uncontroverted findings, quash the reassessment itself. What held good for deleting the additions on the basis of the reasons recorded the assessment, on the fact of this case and in our humble understanding, was good enough to hold the reasons for reopening the assessment to be incorrect as well. We are unable .....

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r adjudication." It is accordingly been held that entire reopening as well as other additions not forming reopening reasons are not sustainable in the eyes of law in view of the fact that the one based on which reopening itself was initiated stands deleted. We revert back to facts of the instant case before us. A slight variation is noticed since the Revenue is already in appeal qua the sole reason of reopening on depreciation issue. We hold in these facts and circumstances that if lower ap .....

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its second substantive ground challenging the CIT(A) s action in deleting depreciation disallowance of ₹ 38,24,344/- on air pollution control equipment purchased and leased back to M/s. Rajendra Steels, Kanpur forming sole reason of reopening. The lower appellate findings decide the issue in assessee s favour as follows:- "Ground No. 3 : This relates to depreciation claim of ₹ 38,24,344/- in respect of assets leased to M/s. Rajendra Steels Ltd., Kanpur by the appellant. This ha .....

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er dated 4.2.2002 and 19.3.2002 as referred above. The assessment is also reopened primarily on account of non-existence of the said assets as per physical inventory prepared at the premises of Rajendra Steels Ltd. during the course of search u/s. 132 at Kanpur by DDIT (Inv) Unit-2. This has been referred in the reasons recorded for reopening in the opening paragraphs. The AO has rejected the claim as per para 3.1 of the order giving the following reasons. "3.1 I have carefully considered t .....

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e, Shri N B Shah has strongly reiterated, the contents of the letter dated 4.2.2002 and 19.3.2002 and also the evidences produced before the AO during reassessment proceedings. The same have been reiterated in the course of hearing. It is pleaded that the said concern M/s. Rajendra Steels Limited has since gone into liquidation and the appellant company alongwith 18 other companies have taken up the matter before the High Court of Allahabad for winding up of the company. It has also been prayed .....

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ses of the said assets and delivery and installation at the premises of Rajendra Steels Ltd. The lease agreement was also submitted as per Armexure-4 to letter dated 4.2.2002 and a certificate from various persons of Rajendra Steels Limited was also submitted as per Annexure-2 to letter dated 4.2.2002. I have carefully perused the submissions and also the case laws narrated and cited by the appellant's representative and find that the AO has not given any finding on the issues raised, namely .....

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ow the depreciation claim made in respect of the above assets and direct the AO to accordingly allow the same for the respective period." 11. We have given our thoughtful consideration to rival arguments. The Revenue s contention is that it had carried out a search in case of Kanpur entity which did not reveal any such asset subject matter of the impugned depreciation claim. A perusal of the case file reveals that page 40 is the installation report of this asset. Page 41 of the paper book r .....

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at page 147 of the paper book issuing necessary directions to the official liquidator. He issued intimation to assessee on 08-01-2003 appointing a valuer for inspecting the factory site. This valuer visited the factory site. His report is at pages 202 specifically to be duly located there. His identification report is at page 203. We confronted ld. department representative with all these overwhelming evidence. He sought time to produce the search inventory. The same stands submitted in the cour .....

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