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2016 (12) TMI 119 - GUWAHATI HIGH COURT

2016 (12) TMI 119 - GUWAHATI HIGH COURT - TMI - Validity of reopening of assessment - income from collection of parking fee from the trucks attribution - Held that:- The reason to believe to conclude that tax has escaped assessment is not at all reflected, in the order passed by the assessing officer. The Assessing Officer has not said that income from collection of parking fee from the trucks is attributable to building and not to the parking facility provided for the trucks. Even if the order .....

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at the Gotanagar Truck Terminus is a plant and not building, for the purpose of claiming depreciation under Section 32 read with Section 43 of the IT Act. Consequently the assessee is held entitled to depreciation at the rate of 25% as prescribed for plant and not at 10%, as applicable for building. - ITA No. 7/2014 & ITA No. 8/2014 - Dated:- 22-11-2016 - MR. HRISHIKESH ROY & MR. JUSTICE NELSON SAILO JJ. For the Appellant: Mr. U.K. Borthakur & Mr. D. Nath.…. Advocates. For the Res .....

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au/2011 respectively of the Income Tax Appellate Tribunal, Guwahati Bench, whereby the Appeals preferred by the assessee were dismissed by declaring that the Assessing Officer was justified in re-assessing the tax, for excess claim towards depreciation, since the Gotanagar Truck Terminus (hereinafter referred to as the Truck Terminus ) cannot be considered as a plant (deserving 25% depreciation), but it should be treated as a building attracting the lower rate of depreciation (10%). 3. The Appea .....

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iation under Section 32 read with Section 43 of the Income Tax Act, 1961 and, therefore, the assessee was entitled to claim depreciation at the rate of 10 per cent applicable to buildings and not at the rate of 25 per cent, as prescribed for plant ? 4. The assessee is a local authority and acts as a nodal agency for the State Government for various developmental activities in Guwahati. They filed their return of income for the concerned assessment years and declared their total income. For the t .....

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xed to claim depreciation @25%, for the truck terminus by considering the same to be plant for the purpose of quantifying the applicable rate of depreciation. 5. The above claim, in the understanding of the Assessing Officer, was found to be an excess claim towards depreciation and thus the Asstt. Commissioner of Income Tax opined that he has reason to believe that income has escaped assessment, within the meaning of Section 147 of the I.T. Act. Thus notice for re-assessment was issued Section 1 .....

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uck washing, dormitory for the truck drivers, lavatory to be used by the trucks drivers with an intention to earn income by way of parking fees from the trucks to be parked there. Around 300 trucks can be parked at a time there in the truck terminus. To earn the said income we made some investments like construction of ticket counter and office room measuring approximately 100 sq. mtr. We are earning income by way of parking fee only and not rent. Thus, the asset under the head Gotanagar Truck T .....

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e claimed, in respect of the assets used for the purpose of business and that the word plant will not include a truck terminus for the I.T. Act. Thus it was held that depreciation allowance for the truck terminus should be taken at the lesser rate, applicable for buildings. 8. The aggrieved assessee approached the Commissioner of Income Tax (Appeals) but the Appellate Authority observed that the Assessing Officer bonafide believed that excessive depreciation was claimed and thus income chargeabl .....

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lt but functional test would be unreasonable and unjustified and therefore the depreciation for the truck terminus should be @10%, by considering it to be a building and not plant. It was accordingly declared that the truck terminus can t be treated as a plant and consequently the lesser depreciation determined by the Assessing Officer at 10%, by treating the facility as a building was upheld by the Appellate Authority, by dismissing the Appeal filed by the assessee. On the legality of the re-as .....

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;…………………………. 13. In the assessment years under consideration, the AO has reopened the assessment under Section 147 of the Act and there is amendment in section 147 of the Act with effect from 01.04.1989 and as per the amended provisions, it requires fulfillment of one condition namely the AO has reason to believe that income has escaped assessment. Once, the said condition is fulfilled, the AO has the jurisdiction to take acti .....

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the Act that there is escapement of income chargeable to tax. In the instant case, only intimation under Section 143(1) was received which are not orders of assessment. The proceeding under Section 147 of the Act, which was initiated by the AO on 10.04.2007 within four years from the end of the relevant assessment year, and the AO was satisfied that he has reason to believe that profit and gain chargeable to tax has escaped assessment in view of Explanation 2(b) to Section 147 of the Act. &hell .....

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ramps used for washing of trucks, dormitories to accommodate the truck drivers, lavatories, ticket counters and office rooms are complementing the main object to allow open space to be used for parking. The entire super structure is constructed on open land of 27bighas. Building has been defined in the Act; therefore, one has to go to the meaning of building as per ordinary grammatical sense. Building is now generally used, a fabric of edifice, framed or constructed, deigned to stand more or le .....

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dominant part of such structure. The income earned from the parking facilities does not involve any machinery or industrial process. The assessee has earned income by way of parking fees by allowing its open space for use of parking of trucks. The truck terminus is parking yard. Therefore, it cannot be considered as plant. ………………………….. …………………………… 16. .....

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the income tax officer and there has to be live link between the materials under consideration and the belief reached by the Assessing Officer. In the instant case no reasons are disclosed by the Assessing Officer to proceed under Section 147/148 of the I.T. Act and therefore the entire proceeding is contended to be without jurisdiction. 10.2 Referring to the order passed by the assessing officer on 10.04.2007, the learned counsel for the assessee submits that what exactly was the basis of the .....

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nless the relevant material is discernable on the face of the order passed by the assessing officer, the same cannot be supplemented thereafter, through additional reasoning. 10.4 The appellant contends that income is earned from the truck terminus for which parking fee is collected and therefore the tangible asset from which earning is made is the parking facility provided to the truck drivers and therefore such income cannot be construed to be earnings generated by the toilets and resting faci .....

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toilets provided for the truck drivers, the higher rate of depreciation for plant is attracted and the conclusion made to the contrary in the reassessment proceeding, is incorrect. 10.6 On the other hand, Mr. S Sarma, the learned Standing Counsel for the Income Tax Department submits that initiation of reassessment proceeding was made after due consideration of the relevant materials and it is not a case of proceeding without reasonable basis or material. 10.7 The Revenue contends that the truck .....

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10.8. The learned counsel for the Revenue relies on CIT Vs. Anand Theatres, reported in (2000) 244 ITR 192 (SC) to contend that separate rates of depreciation are envisaged for plant and building, under Section 32 of the IT Act and since plant with its exclusive meaning under Section 43 (3), does not include building, the depreciation in the present case for the truck terminus has to be related to income earned from building and not from plant, which has higher rate of depreciation. 11. We have .....

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o act against a particular assessee. Therefore it is relevant to determine whether relevant materials existed on which reasonable person could have formulated the requisite belief to conclude prima facie that, income for the concerned assessment year, has escaped assessment. 12. When the assessing officer takes action under Section 147 of the IT Act and issues notice for reassessment under Section 148, he has to record his reasons and such reasons is subject to judicial scrutiny. The expression .....

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apex court in Sheo Nath Singh [1971] 82 ITR 147, has observed that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person, based upon reasonable grounds and though the Assessing Officer may act on direct or substantial evidence but he cannot act on mere suspicion, gossip or rumour. It has further been observed that the Assessing Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does .....

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pement of income of the assessee from assessment. Once there exist reasonable grounds for the Assessing Officer to form the belief, that would be sufficient to clothe him with the jurisdiction to issue notice. It has further been observed that the expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Assessing Officer and the "reason to believe" must be held in good faith and it cannot be merely a pretence and should not be based on .....

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the assessee had escaped assessment. ………………………………….. 13. The analysis of the judicial pronouncement as extracted above reflects that there must be a live connection between the materials on which conclusions are reached by the assessing officer in formation of his belief that income chargeable to tax has escape assessment. The reasons must be based on bonafide belief and cannot be based upon extraneous mat .....

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equent explanation/affidavit. The validity of the action under Section 147 should therefore be construed objectively from reasons disclosed in the order itself and not with any supplementary explanation. 14. The Supreme Court while examining the power for ordering re-assessment in Commissioner of Income Tax Vs. Kelvinator of India Ltd. reported in (2010)320 ITR 561(SC), referred to the CBDT Circular No. 549 dated October 31, 1989 and observed that the power conferred upon the Assessing Officer t .....

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of Income-Tax Vs. Karnataka Power Corporation reported in (2001)247 ITR 268(SC). Here the Supreme Court analyzed the earlier decision in Anand Theatre (supra) which was cited by the counsel for the Revenue. In that context, the later judgment noted that the question in Anand Theatre (supra) was for building that was used as hotel or cinema theatre and the rate of allowable depreciation. In this backdrop, the Supreme Court concluded that the structures which are used as hotel or cinema theatre, .....

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ighas of land. The trucks are parked in the truck terminus for which parking fee is collected by the assessee and in order to encourage the truck drivers to park their vehicles in the truck terminus, resting and toilet facility are provided in the appurtenant building in the truck terminus. The definition of the term plant is of wide magnitude and when it is clear enough that the buildings are not let out by the assessee to earn rent, the parking fee income generated by the truck terminus cannot .....

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d this itself makes it clear that the facility or the tools used for generating income, can be a plant and need not connote only factories or require use of machineries. Of course buildings are excluded from the definition of plant, under Section 43(3) of the IT Act. 18. In the above context, the Madhya Pradesh High Court in Babul Agrawal Vs. Commissioner of Income-Tax reported in (2005)272 ITR 454(MP) was considering whether depreciation on open plinth godowns provided by the assessee, to store .....

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of the term "plant" is of a wide magnitude. In the instant case, as is perceptible, the assessee is not involved in letting out the premises to earn rent. It is evincible from the analysis made by the first appellate authority, the assessee is trading with godowns, structure is a temporary measure, it is like a platform as is apparent, the duration is short and the purpose is different. If one goes by the conception of functional test and the activity involved, there can be no scintil .....

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he contract and the activity are understood in proper perspective, there can be no iota of doubt that the assessee is dealing in business with this kind of platform, but not letting them as buildings. It may apparently so appear but on deeper probe and closer scrutiny, something a different picture gets frescoed from where it becomes clear that it is utilised for the business purposes. 19. In the present case, when we examine the order recorded by the assessing officer to start the reassessment .....

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or the nexus on the basis of which, the reasonable belief is reached, for ordering the reassessment proceeding. Therefore in our understanding, the action initiated against the assessee under Section 147/148 appears to be without any jurisdiction and it is declared so accordingly. 20. As the learned counsel for the Revenue has raised the question on whether the jurisdictional issue can be questioned before the High Court in a proceeding under Section 260A of the IT Act, we may note here that th .....

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ion of law formulated by the High Court when the appeals were admitted on 24.06.2014 touches on the jurisdictional question for reopening of assessment under Section 147/148 of the IT Act, this being an important question of law going to the very foundation of the reassessment proceeding. Therefore in our considered understanding, this question cannot be left out of consideration in the proceeding under Section 260A of the IT Act. Moreover, the relevant facts pertaining to the jurisdictional que .....

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