Income Tax Appellate Tribunal - Ahmedabad
Sharp Metal Overseas, Mumbai vs Assessee on 23 July, 2015
आयकर अपीलीय अिधकरण, अिधकरण अहमदाबाद यायपीठ 'बी बी' बी अहमदाबाद।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, AHMEDABAD BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI KUL BHARAT, JUDICIAL MEMBER आयकर अपील सं./ ./ ITA Nos. 628, 629 & 630/Ahd/2012 िनधा रण वष /Assessment Year: 1999-2000, 2000-01 and 2002-03 respectively Sharp Metal Overseas, V/s. ACIT, C/o. Surendrakumar Agarwal, Vapi Circle, 191 Kika Street, Gogate Vapi Mansion, 5th Floor, Mumbai PAN : AAMFS 3472 G अपीलाथ / अपीलाथ / (Appellant) ू यथ यथ / थ / (Respondent) Assessee(s) by : Shri V.H. Jariwala, AR Revenue by : Shri Narendra Singh, Sr. DR सुनवाई क# तार%ख/ / Dateof Hearing : 20/07/2015 घोषणा क# तार%ख / Date of Pronouncement: 23/07/2015 आदे श/O R D E R PER G.D. AGRAWAL, VICE PRESIDENT:
These are the three appeals filed by the assessee against separate orders of the Commissioner of Income Tax (Appeals), Valsad, dated 29.11.2010 for Assessment Years 1999-2000 and dated 29.11.2011 for Assessment Years 2000-01 & 2002-03.
2. The first ground of the assessee's appeal in all the years is against re-
opening of assessment u/s 147/148. Since the reasons recorded for re- opening of assessment and the facts of the case for all the years are identical, we shall consider the details as given in assessee's appeal for Assessment Year 2000-01.
3. For the year under consideration, i.e, Assessment Year 2000-01, the assessee had filed the return on 19.10.2000, which was accepted u/s 143(1) ITA Nos.628 to 630/Ahd/2012 Sharp Metal Overseas vs. ACIT For AYs 1999-00, 2000-01& 2002-03 2 of the Act. Subsequently, the case was re-opened by invoking the provisions of Section 147. Notice u/s 148 was issued on 09.03.2006. The reasons recorded for re-opening of assessment reads as under:-
"Return of income was filed on 19.10.2000 declaring total income of Rs.22,500/- after claiming deduction u/s 80IA/80IB amounting to Rs.40,78,581/-. Same was processed u/s 143(1) on the same day. Subsequently on going through the case records, it is noticed that the assessee has not claimed the depreciation as the entire income of the industrial undertaking located in the backward area of Daman / Silvassa was fully exempt U/s. 80IA/IB of the Act and thus the depreciation is deferred for future. It is seen that out of all industrial undertakings located in the backward area of Daman and Silvassa and enjoying benefits of section 80IB of the Act, certain assessees are claiming depreciation right from the inception of the unit, whereas, certain assessees are seen to be not claiming depreciation. Law cannot be different for a same class of assessees claiming deduction u/s.80IB of the Act. Such a tactic has led to undue benefit of the assessees not claiming depreciation. It is seen that these assessees have not forgone their claim of depreciation. The modus operandi adopted by them is that they start claiming depreciation on the original cost of fixed assets from the sixth year onwards. As per the provisions of section 80IB of the Act, the manufacturing profits of this class of assessees are eligible for deduction only @ 25%; whereas, the remaining 75% of the profits is liable to be taxed, from the sixth year. As such, the quantum of depreciation in the sixth year, in those cases where depreciation was not claimed in the earlier years, becomes a huge amount. As a result of claim of depreciation in. the sixth year, the assessee succeeds in reducing its profits from manufacturing activity by a huge sum. This indirectly leads to a huge loss to the Government ex-chequer, since 75% of the profits is taxable from the 6th year onwards. Such a modus operandi is not within the meaning of tax planning. This clearly amounts to avoidance and evasion of tax. It is a fact that Government has introduced benefit of Section 80IB to develop a backward area, which was put upon the shoulders of industrialists by giving them tax incentives. The intention of this legislature was never to give these industrialists such a freedom that they could bend the provisions of law to suit their needs. By adopting such tactics, the assessees' not claiming depreciation for the initial five years has not taken the legislation in its correct spirit and stride. The aforesaid modus operandi adopted by such assessees cannot be in any means being considered as tax planning. The same view is upheld by the Hon'ble Supreme Court in the case of Mc. Dowell & Co. Ltd vs. Commercial Tax Officer, 154 ITR 48, wherein it was held that colourable devises cannot be a part of tax planning and it is wrong to encourage avoidance of tax by dubious methods.
ITA Nos.628 to 630/Ahd/2012 Sharp Metal Overseas vs. ACIT For AYs 1999-00, 2000-01& 2002-03 3 Accordingly, in this context, the matter regarding allowance of depreciation is to be considered at length in the instant case. Deduction u/s. 80IA/80IB is a special deduction and hence total income is to be computed in accordance with the provisions of the Act. Computation of total income is not only based on the provisions of the Act but also on the accounting standards. By not claiming depreciation, the assessee has inflated its tax free profits and has failed to disclose fully and truly all material facts necessary for its assessment and has claimed excessive relief U/s. 80IA/80IB of the Act. This view is also affirmed by the decision of the Hon'ble Supreme Court in the case of Cambay Electric Supply Co. v/s. C.I.T. (1978) 113 ITR 84 and the Hon'ble Bombay High Court in the case of Indian Rayon Corporation Ltd. v/s C.I.T. (2003) 261 ITR 98.
The above view of the department has been confirmed by the three members Special Bench of the Tribunal vide its consolidated order for almost 52 assessees passed on 09.11.2005 on the issue of allowance of depreciation.
In. view of the above discussion, I have reason to believe and am satisfied that the assessee has claimed excess deduction of depreciation and failed to disclose fully and truly all material facts necessary for its assessment within the meaning of section 147 of the Act and hence income chargeable to tax more than Rs. 1 lacs has escaped assessment.
Issue notice U/s. 148 of the Act."
4. In response to notice issued u/s 148, the assessee vide letter dated 27.04.2006 requested that the original return filed may be treated as filed in response to notice u/s 148. Thereafter, the Assessing Officer completed the assessment at Rs.23,260/-. On appeal, the CIT(A) upheld the order of the Assessing Officer; hence, this appeal by the assessee.
5. We have heard both the parties and perused the material placed before us. After reading of the reasons recorded, we find that the Assessing Officer in detail has discussed that the assessee is entitled to deduction u/s 80IA/80IB. In the return of income, it did not claim depreciation which will entitle the assessee to claim more depreciation from sixth year onwards when the assessee would not be entitled to deduction u/s 80IB. However, ITA Nos.628 to 630/Ahd/2012 Sharp Metal Overseas vs. ACIT For AYs 1999-00, 2000-01& 2002-03 4 after recording these facts, the Assessing Officer recorded the conclusion "in view of the above discussion, I have reason to believe and am satisfied that the assessee has claimed excess deduction of deprecation". Thus, as per conclusion of the Assessing Officer, he was of the opinion that the excess claim of deprecation by the assessee is the reason for re-opening of assessment. However, this conclusion of the Assessing Officer is contrary to his own finding in the entire reasons recorded by him. In the reasons recorded, the Assessing Officer has mentioned that the assessee did not claim any depreciation. Once the assessee did not claim depreciation in the year under consideration, how it can be said that the assessee claimed excess depreciation so as to arrive at the conclusion that there was escapement of income in the year under consideration.
6. Again, in the concluding paragraph, the Assessing Officer further recorded that "the assessee failed to disclose fully and truly all material facts necessary for its assessment within the meaning of Section 147 of the Act". This conclusion of the Assessing Officer is also contrary to the detailed reasons given by him in the earlier paragraph which reads "subsequently on going through the case records, it is noticed that the assessee has not claimed the depreciation". Thus, the facts of not claiming of depreciation were already on the record. If the Assessing Officer who accepted the return u/s 143(1) did not go through the records, it cannot be said that the assessee failed to disclose fully and truly all material facts necessary for its assessment. Thus, the conclusions recorded by the Assessing Officer are contrary to the facts recorded by him in the reasons recorded itself.
7. At the time of hearing before us, the ld. Counsel has relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Orient Craft Ltd ITA Nos.628 to 630/Ahd/2012 Sharp Metal Overseas vs. ACIT For AYs 1999-00, 2000-01& 2002-03 5 vide ITA No.555 of 2012, wherein the Hon'ble Delhi High Court held as under:-
"14. Certain observations made in the decision of Rajesh Jhaveri (supra) are sought to be relied upon by the revenue to point out the difference between an "assessment" and an "intimation". The context in which those observations were made has to be kept in mind. They were made to point out that where an "intimation" is issued under section 143(1) there is no opportunity to the assessing authority to form an opinion and therefore when its finality is sought to be disturbed by issuing a notice under section 148, the proceedings cannot be challenged on the ground of "change of opinion". It was not opined by the Supreme Court that the strict requirements of section 147 can be compromised. On the contrary, from the observations (quoted by us earlier) it would appear clear that the court reiterated that "so long as the ingredients of section 147 are fulfilled" an intimation issued under section 143(1) can be subjected to proceedings for reopening. The court also emphasised that the only requirement for disturbing the finality of an intimation is that the assessing officer should have "reason to believe" that income chargeable to tax has escaped assessment. In our opinion, the said expression should apply to an intimation in the same manner and subject to the same interpretation as it would have applied to an assessment made under section 143(3). The argument of the revenue that an intimation cannot be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh Jhaveri (supra) would also appear to be self- defeating, because if an "intimation" is not an "assessment" then it can never be subjected to section 147 proceedings, for, that section covers only an "assessment" and we wonder if the revenue would be prepared to concede that position. It is nobody s case that an "intimation" cannot be subjected to section 147 proceedings; all that is contended by the assessee, and quite rightly, is that if the revenue wants to invoke section 147 it should play by the rules of that section and cannot bog down. In other words, the expression "reason to believe" cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements.
ITA Nos.628 to 630/Ahd/2012 Sharp Metal Overseas vs. ACIT For AYs 1999-00, 2000-01& 2002-03 6
14. In the present case the reasons disclose that the Assessing Officer reached the belief that there was escapement of income "on going through the return of income" filed by the assessee after he accepted the return under Section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer, both strongly deprecated by the Supreme Court in CIT vs. Kelvinator (supra). The reasons recorded by the Assessing Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-à-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147."
8. The above decision would be squarely applicable to the facts of the assessee's case; because, the facts of the assessee's case are identical to the facts before the Hon'ble Delhi High Court in the case of Orient Craft Ltd (supra). No contrary decision is brought to our knowledge. It was also pointed out by the ld. Counsel that the Hon'ble Apex Court has rejected the SLP filed by the Revenue against the decision of Hon'ble Delhi High Court. Copy of the SLP rejection is filed before us, wherein the Hon'ble Apex Court rejected the SLP observing "we find no reason to entertain this Special Leave Petition, which is accordingly dismissed." In view of above, we, relying upon the decision of Hon'ble Delhi High Court in the case of Orient Craft Ltd (supra), hold that the conditions for re-opening of assessment u/s 147 were not satisfied. We, therefore, quash the re-opening of assessment. Since the facts in all the three years are identical, we quash the re-opening of assessment for all the three years under appeal before us, i.e., Assessment Years 1999-2000, 2000-2001 and 2002-03.
ITA Nos.628 to 630/Ahd/2012 Sharp Metal Overseas vs. ACIT For AYs 1999-00, 2000-01& 2002-03 7
9. Since we have already quashed the re-opening of assessment, the other grounds raised by the assessee with regard to merits of the addition need no adjudication.
10. In the result, assessee's appeals are allowed.
Order pronounced in the Court on 23rd July, 2015 at Ahmedabad.
Sd/- Sd/-
(KUL BHARAT) (G.D. AGRAWAL)
JUDICIAL MEMBER VICE-PRESIDENT
Ahmedabad; Dated 23/07/2015
Biju T., PS
षत Copy
आदे श क# ूितिल+प अमे+षत/ of the Order forwarded to :
1. अपीलाथ / The Appellant
2. ू यथ / The Respondent.
3. संबंिधत आयकर आयु- / Concerned CIT
4. आयकर आयु-(अपील) / The CIT(A)
5. +वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
/ BY ORDER, आदे शानु सार TRUE COPY Dy./Asstt.Registrar) उप/सहायक पंजीकार ( उप/ अिधकरण, अहमदाबाद / आयकर अपीलीय अिधकरण, ITAT, Ahmedabad