The Commissioner of Income-tax, Chennai v. Neyveli Lignite Corporation Ltd
[Citation -2020-LL-0713-8]

Citation 2020-LL-0713-8
Appellant Name The Commissioner of Income-tax, Chennai
Respondent Name Neyveli Lignite Corporation Ltd.
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 13/07/2020
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags disallowance of depreciation • substantial question of law • computation of disallowance • depreciation on building • escapement of assessment • reopening of assessment • depreciation allowance • manufacturing company • recording of reasons • rate of depreciation • original assessment • scrutiny assessment • excess depreciation • depreciation claim • change of opinion • reason to believe • valuation report • material facts • income escaping assessment
Bot Summary: After about a month, the Assessing Officer issued the notice dated 28.3.2013 under Section 147 of the Act stating that he had reasons to believe that the assessee s income chargeable to tax for the assessment year 2008-09 escaped assessment within the meaning of Section 147 of the Act. In 11 reasons to believe that income eligible to tax escaped assessment and accordingly, the assessment needed to be reopened under Section 147 of the Act. In 13 assessed to make a return under Section 139 or in response to a notice issued under Sub- section of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Since under the new scheme of assessment, introduced by the Amending Act, 1987, returns filed will now be accepted as such and passing of assessment orders will not be necessary, it follows that in the majority of cases there would not be any application of mind by the Assessing Officer after the returns are filed, unless the case is picked up for scrutiny and a regular assessment order is passed under Section 143(3). A proviso to the new section provides that an assessment, which has been completed under Section 143(3) or 147, i.e. a scrutiny assessment, can be reopened after the expiry of 4 years from the end of the relevant assessment year only if income has escaped assessment due to the failure on the part of the assessed to file a return of income or to disclose fully and truly all material facts necessary for his assessment. Sub- section of Section 148 of the Act mandates that before jurisdiction under Section 147 of the Act is invoked by the Assessing Officer he is to record his reasons for doing so or before issuing any notice under Section 147 of the said Act. If the very same reasons were the subject matter of the proceedings under Section 143(3) of the Act or the proceedings under Section 263 of the Act, once again, for the very same reasons, the power under Section 147 cannot be invoked and having done so, the CIT(A) as well as the Tribunal were right in coming to the conclusion that the reopening was bad in law.


1 IN HIGH COURT OF JUDICATURE AT MADRAS Reserved on 06.7.2020 Delivered on 13.7.2020 CORAM HONOURABLE MR.JUSTICE T.S.SIVAGNANAM AND HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Appeal No.353 of 2016 (heard through video conferencing) Commissioner of Income Tax, Chennai ...Appellant Vs M/s.Neyveli Lignite Corporation Ltd., Neyveli-607801. ...Respondent APPEAL under Section 260A of Income Tax Act, 1961 against order dated 23.9.2015 made in ITA.No.254/Mds/2015 on file of Income Tax Appellate Tribunal, Madras Bench for assessment year 2008-09. For Appellant : Mrs.R.Hemalatha, SSC For Respondent: Mr.Raghavan Ramabadhran & Ms.G.Janane for M/s.Lakshmi Kumaran Associates JUDGMENT http://www.judis.nic.in 2 T.S.SIVAGNANAM,J This appeal by Revenue is directed against order dated 23.9.2015 passed by Income Tax Appellate Tribunal, Madras Bench (hereinafter called Tribunal) in ITA.No.254/Mds/2015 for assessment year 2008-09. 2. We have elaborately heard Mrs.R.Hemalatha, learned Senior Standing Counsel appearing for appellant - Revenue and Mr.Raghavan Ramabadhran and Ms.G.Janane, learned counsel appearing for respondent assessee. 3. appeal has been admitted on 06.6.2016 on following substantial question of law : Whether, on facts and in circumstances of case, Tribunal was right in holding that reopening of assessment was bad in law ? 4. respondent assessee filed their return of income for assessment year in question on 20.9.2008 declaring income of Rs.14,26,99,69,690/-. return was processed under Section 143(1) of Act. Thereafter, case was selected for scrutiny and notice under Section 143(2) of Act was issued, which culminated in order under Section 143(3) of Act dated 28.12.2010 returning total income of Rs.16,02,04,51,970/-. http://www.judis.nic.in 3 5. By notice dated 28.3.2013 issued under Section 148 of Act, Assessing Officer reopened assessment under Section 147 of Act stating that income escaped assessment since assessee claimed depreciation on block of assets water supply and drainage at 15% and said asset was shown separately and not in plant and machinery. decision of Hon ble Supreme Court in case of CIT Vs. Gwalior Rayon Silk Manufacturing Company Limited [reported in 196 ITR 149] and decision of Delhi High Court in case of CIT Vs. Modi Industries Limited [reported in 197 ITR 517] were referred to and it has been stated that in those decisions, depreciation on water supply and drainage should be restricted to 10% only and that in fact, some of items of additions under this block viz., raw water storage, construction masonry drain from toe, etc., were all civil works and were, as such, eligible for depreciation only at rate of 10% under head buildings . 6. According to Assessing Officer, restriction of depreciation to 10% was for small portion of block of assets and 5% on Rs.32.20 lakhs was to be disallowed and this had resulted in short computation of disallowance of depreciation. Therefore, in assessment order passed under Section 143(3) of Act, income had http://www.judis.nic.in 4 escaped assessment within meaning of provisions of Section 147 of Act. 7. assessee objected to reopening stating that it was change of opinion. However, objection was rejected vide order dated 12.8.2013. Thereafter, Assessing Officer proceeded to complete assessment and disallowed excess depreciation vide order dated 31.1.2014. Aggrieved by that, assessee preferred appeal before Commissioner of Income Tax (Appeals)-LTU, Chennai-1 by filing ITA.No.28/13-14. appeal was allowed by order dated 14.11.2014. Challenging same, Revenue preferred appeal before Tribunal and it was dismissed by order dated 23.9.2015, which is impugned in this appeal. 8. Mrs.R.Hemalatha, learned Senior Standing Counsel appearing for Revenue has pointed out that re-assessment done by Assessing Officer was not change of opinion because it pertains to escapement of assessment, which would include depreciation allowance also, that question of change of opinion would not apply, that case of assessee being one where assessment was reopened within four years, First Proviso to Section 147 of Act will have no application and that therefore, theory of change of opinion can never be applied to instant case. http://www.judis.nic.in 5 9. In support of her contention, learned Senior Standing Counsel appearing for Revenue has referred to following decisions : (i) of Hon ble Supreme Court in case of CIT Vs. Sun Engineering Works Private Limited [reported in (1992) 64 Taxman 442]; (ii) of Division Bench of High Court of Gujarat in Aquagel Chemicals Private Limited Vs. ACIT [reported in (2013) 35 Taxmann.com 611]; and (iii) of Hon ble Supreme Court in case of Girilal & Co. Vs. ITO, Mumbai [reported in (2016) 75 Taxmann.com 172]. 10. It is further submitted by learned Senior Standing Counsel appearing for Revenue that CIT(A) as well as Tribunal erred in referring to decision of Hon ble Supreme Court in case of CIT Vs. Kelvinator of India Ltd. [reported in 320 ITR 561], which would have no application, as assessee s case was case of reopening within four years and that question of change of opinion will not arise. http://www.judis.nic.in 6 11. learned counsel appearing for respondent assessee submits that decision of Hon ble Supreme Court in case of Kelvinator of India Ltd., will squarely apply to facts of present case and that said decision does not make any distinction with regard to escaped assessment or under assessment. According to learned counsel, common thread is that Assessing Officer should have reasons to believe and that such reasons cannot be merely based on change of opinion. It is further submitted that decision relied upon by Assessing Officer in order rejecting objections for reopening namely Bawa Abhai Singh Vs. DCIT [reported in (2001) 117 Taxman 12 (Delhi)] was considered and overruled in Full Bench decision of Delhi High Court in case of Kelvinator of India Ltd. [reported in 256 ITR 1], as confirmed by Hon ble Supreme Court in decision reported in 320 ITR 561. 12. It is further submitted by learned counsel for respondent assessee that on facts, very same reasons were put against assessee during assessment under Section 143(3) of Act and assessee had given their reply. Thereafter, assessment was completed and subsequently, notice under Section 263 of Act dated 31.10.2012 was issued wherein one of issues http://www.judis.nic.in 7 related to depreciation claim, for which, assessee submitted their reply and that Commissioner of Income Tax, LTU passed order dated 21.2.2013 dropping proceedings. It is thereafter notice under Section 148 of Act came to be issued for very same reasons and therefore, it is clear case of change of opinion. It is also submitted by learned counsel for respondent assessee that even in cases where reopening is done within four years, it cannot be done based on change of opinion. 13. We have carefully considered above contentions of learned counsel on either side. 14. original assessment was completed under Section 143(3) of Act by order dated 28.12.2010. Among various issues, one of issues pertains to disallowance of excess depreciation on building . Assessing Officer pointed out that it has been observed from income tax depreciation statement submitted by respondent - assessee that it had claimed depreciation at 15% on water supply and drainage instead of treating same under block building . Therefore, assessee was directed to show cause and explain as to why claim of depreciation on water supply and drainage should not be restricted to 10% based on decision of Delhi High Court in case of Modi Industries Limited and http://www.judis.nic.in 8 decision of Hon ble Supreme Court in case of Gwalior Rayon Silk Manufacturing Company Limited. assessee submitted their reply stating that on verification of asset addition, it was found that non productive asset for value of Rs.32.20 lakhs was erroneously included under water supply and electrical footing and that since value of such items was very less when comparing total asset addition, depreciation claim might be permitted. 15. Assessing Officer considered reply given by respondent assessee and claim of excess rate of depreciation on non productive assets to tune of Rs.32.20 lakhs was restricted to 10% instead of 15%. Accordingly, excess depreciation claimed by respondent assessee to tune of Rs.1,61,000/- was disallowed and added to total income of current year. Subsequently, Commissioner of Income Tax, LTU issued notice dated 31.10.2012 under Section 263 of Act. There were two issues and here, we are concerned with second issue wherein Commissioner stated that assessee claimed income tax depreciation on block of assets water supply and drainage at 15% instead of eligible depreciation at rate of 10%. However, depreciation was restricted to 10% only on small portion of asset i.e on value of non productive asset instead of applying such rate http://www.judis.nic.in 9 of depreciation on entire block. 16. assessee submitted their reply dated 30.11.2012 stating that during assessment under Section 143(3) of Act, Assessing Officer classified asset value at Rs.34,19,617/- as non productive asset and restricted depreciation to 10% and that all other assets blocked under water supply and drainage blocks were related to productivity. 17. After receiving reply from assessee, Commissioner of Income Tax, LTU, by order dated 21.2.2013, ordered that proceedings initiated under Section 263 of Act for assessment year 2008-09 on 31.10.2012 were dropped. After about month, Assessing Officer issued notice dated 28.3.2013 under Section 147 of Act stating that he had reasons to believe that assessee s income chargeable to tax for assessment year 2008-09 escaped assessment within meaning of Section 147 of Act. 18. assessee, by letter dated 16.4.2013, requested to furnish reasons for reopening. 19. By reply dated 16.7.2013, reasons were furnished stating that assessee claimed income tax depreciation on block of assets water supply and drainage at 15% and that asset was shown as separate block of assets and was not included in plant http://www.judis.nic.in 10 and machinery by assessee in income tax depreciation statement. It has been further stated that in scrutiny assessment under Section 143(3) of Act, it was held that based on decision of Delhi High Court in case of Modi Industries Limited and decision of Hon ble Supreme Court in case of Gwalior Rayon Silk Manufacturing Company Limited, depreciation on water supply and drainage should be restricted to 10% and in fact, some of items of additions under this block were only civil works that were eligible for depreciation only at 10% under head buildings . It has also been stated that depreciation was, however, restricted to 10% only on small portion of block of assets namely value of non productive asset to tune of Rs.32.20 lakhs, depreciation was restricted to 10% and amount of Rs.1,61,000/- was disallowed. It has been further stated that having taken stand in assessment order that water supply and drainage was eligible for depreciation at 10% as applicable to buildings, such rate of depreciation should have been applied on entire block of water supply and drainage and should not be restricted only to small portion of asset. Therefore, Assessing Officer stated that there was short computation of disallowance of depreciation in assessment order under Section 143(3) of Act and that he had http://www.judis.nic.in 11 reasons to believe that income eligible to tax escaped assessment and accordingly, assessment needed to be reopened under Section 147 of Act. 20. assessee submitted their reply dated 31.7.2013 objecting to reopening firstly contending that it was clear case of change of opinion, that there was no new material and that in assessment order under Section 143(3) of Act, specific disallowance was made after scrutinizing list of assets. assessee relied upon decision of Hon ble Supreme Court in case of Kelvinator of India Limited and another decision of Hon ble Supreme Court in case of ACIT Vs. ICICI Securities Primary Dealership Limited [reported in 24 Taxman 310]. Without prejudice to jurisdiction point, which was canvassed and on merits also, assessee submitted reply. 21. Assessing Officer rejected contention of respondent assessee and pointed out that it was not case of change of opinion and that decisions of Hon ble Supreme Court in case of Kelvinator of India Limited and ICICI Securities Primary Dealership Limited would not have any application. 22. For arriving at decision, we need to take note of following paragraphs in Full Bench decision of Delhi http://www.judis.nic.in 12 High Court in case of Kelvinator of India Limited (reported in 256 ITR 1) : 16. Section 147 of Act as it stands w.e.f. 1st April 1989 reads as follows: "147. If Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in course of proceedings under this section, or recomputed loss or depreciation allowance or any other allowance, as case may be, for assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as relevant assessment year) : Provided that where assessment under Sub- section (3) of Section 143 or this section has been made for relevant assessment year, no action shall be taken under this section after expiry of four years from end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of http://www.judis.nic.in 13 assessed to make return under Section 139 or in response to notice issued under Sub- section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 17. scope and effect of newly substituted Section 147 w.e.f. 1st April 1989 by Direct Tax Laws (Amendment) Act, 1987 as subsequently amended by Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1st April 1989 as also of Sections 148 to 152 have been elaborated in departmental Circular No. 549 dated 31st October 1989, which is as under: "Income escaping assessment: 7.1 Simplification of provisions relating to assessment or reassessment of income escaping assessment (Section 147) - Under old provisions of Section 147 of Income-tax Act, separate Clauses (a) and (b) laid down circumstances under which income escaping assessment for past assessment years could be assessed or reassessed, as follows:- (i) Clause(a) empowered Income-tax Officer to assess or reassess income escaping assessment, if he had reason to http://www.judis.nic.in 14 believe that income had escaped assessment on account of omission or failure on part of assessed to file return of income for assessment year or to disclose fully and truly all material facts necessary for assessment for that year. (ii) Clause (b) empowered Income- tax Officer to reopen assessment, notwithstanding fact that there had been no omission or failure, as mentioned in Clause (a), on part of assessed if Income- tax Officer, on basis of information in his possession, had reason to believe that income had escaped assessment for relevant assessment year. Since under new scheme of assessment (refer to para 5.1 of these Explanatory Notes), introduced by Amending Act, 1987, returns filed will now be accepted as such and passing of assessment orders will not be necessary, it follows that in majority of cases there would not be any application of mind by Assessing Officer after returns are filed, unless case is picked up for scrutiny and regular assessment order is passed under Section 143(3). Amending Act, 1987, has, therefore, rationalized http://www.judis.nic.in 15 provisions of Section 147 and other connected sections to simplify procedure for bringing to tax income which escapes assessment, especially in non-scrutiny cases. Thus, Amending Act, 1987, has substituted new Section 147 which contains simplified provisions as follows:- (i) Separate provisions contained in Clauses (a) and (b) of old section have been merged into single new section, which provides that if Assessing Officer is of opinion that income chargeable to tax for any assessment year has escaped assessment, he can assess or reassess same after recording in writing reasons for doing so. (ii) requirements in old provisions that Income-tax Officer should have "reason to believe" or "information" in possession before taking action to assess or reassess income escaping assessment, have been dispensed with. (iii) existing legal interpretation that once assessment has been reopened, any other income that has escaped assessment and comes to notice of Assessing Officer subsequently during course of proceedings under this section can also be included in assessment, has been http://www.judis.nic.in 16 incorporated in new section itself. (iv) proviso to new section provides that assessment, which has been completed under Section 143(3) or 147, i.e. scrutiny assessment, can be reopened after expiry of 4 years from end of relevant assessment year only if income has escaped assessment due to failure on part of assessed to file return of income or to disclose fully and truly all material facts necessary for his assessment. 7.2 Amendment made by Amending Act, 1989, to reintroduce expression "reason to believe" in Section 147.- number of representations were received against omission of words "reason to believe" from Section 147 and their substitution by "opinion" of Assessing Officer. It was pointed out that meaning of expression, "reason to believe" had been explained in number of court rulings in past and was well settled and its omission from Section 147 would give arbitrary powers to Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, Amending Act, 1989, has again amended Section 147 to reintroduce expression "has reason to believe" in place of http://www.judis.nic.in 17 words "for reasons to be recorded by him in writing, is of opinion". Other provisions of new Section 147, however, remain same. 7.3 Deemed cases of income escaping assessment (Explanation 2 to Section 147)- Under old provisions of Explanation 1 to Section 147, income chargeable to tax was deemed to have escaped assessment if it had been under-assessed or assessed at too low rate or if any, excessive relief or loss or depreciation allowance had been allowed. new provisions in this respect, as contained in Explanation 2 to new Section 147, are more elaborate and cover those cases where assessments have been completed (called as scrutiny cases) as well as those cases where no assessments have been completed (called as non-scrutiny cases). Thus, new Explanation 2 to section clarifies that following shall be deemed to be cases of income escaping assessment:- (i) Where no return of income has been furnished by assessed, although total income is above taxable limit. (ii) Where return of income has been furnished, but no assessment has been made (i.e. in non-scrutiny case)- if assessed is http://www.judis.nic.in 18 found to have understated his income or claimed excessive loss, deduction, allowance or relief in return. (iii) Where assessment has been made (i.e. in scrutiny case)- if income chargeable to tax has been under-assessed or assessed at too low rate or if any excessive relief or loss or depreciation allowance or any other allowance under this Act has been allowed." 18. From bare perusal of provisions contained in Section 147 of said Act, as it stood up to 31st March 1989, it is evident that to confer jurisdiction under Section 147 of Act two conditions were required to be satisfied viz.; (i) Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment; and (2) he must also have reason to believe that such escapement occurred by reason of either; (a) omission or failure on part of assessed to make return of his income under Section 139 or (b) omission or failure on part of assessed to disclose fully and truly all material facts necessary for his assessment for that year. afore-mentioned requirements of law must be held to be conditions precedent for invoking jurisdiction of Assessing http://www.judis.nic.in 19 Officer to re-open assessment under Section 147 of said Act. It is trite that both conditions afore-mentioned are cumulative. It is also well settled principle of law that, in event, it is found that any of said two conditions is not fulfilled notice issued by Assessing Officer would be wholly without jurisdiction. expression "reason to believe" finds place both in Clause (a) and (b) of Section 147 of Act. Sub- section (2) of Section 148 of Act mandates that before jurisdiction under Section 147 of Act is invoked by Assessing Officer he is to record his reasons for doing so or before issuing any notice under Section 147 of said Act. Therefore, formation of reason to believe and recording of reasons were imperative before assessment officer could re-open completed assessment. Since assessment has been re-opened on 20th April 1990, Section 147 as amended w.e.f. 1st April 1989 would apply. 23. On reading of above extracted paragraphs, it is evidently clear that Assessing Officer, to reopen assessment, should have reasons to believe that any income chargeable to tax escaped assessment for any assessment year. reason to believe has to be recorded by Assessing Officer, which is basis to http://www.judis.nic.in 20 proceed further. 24. In earlier paragraph, we have pointed out about scrutiny assessment under Section 143(3) of Act, query raised by Assessing Officer, reply given and decision taken thereon. In fact, reasons for issuing notice under Section 147 are identical to query raised by Assessing Officer in proceedings under Section 143(3) of Act, for which, assessee gave explanation, which was accepted by Assessing Officer and claim of excess rate of depreciation was restricted to non productive assets alone. For very same reasons, Commissioner issued notice dated 31.10.2012 under Section 263 of Act. respondent assessee submitted their reply dated 30.11.2012, after which, proceedings were dropped by order dated 21.2.2013. 25. learned Senior Standing Counsel appearing for appellant - Revenue may be right in stating that there cannot be estoppel on part of authorities to invoke their power under Section 263 of Act. 26. We wish to clarify that we do not say that it is case of estoppel as there can be no estoppel against statute. But, what we wish to point out is that issue cannot be permitted to be raised more than once. Not stopping with that, upon change of officer, http://www.judis.nic.in 21 Department, once again, issued notice dated 28.3.2013 to reopen assessment and in that notice, finding was rendered that relevant portion of order under Section 143(3) of Act was restricted and Assessing Officer stated that restriction of depreciation to 10% only to small portion of block of assets was incorrect. In fact, this was very same reason, which was posed to respondent - assessee in proceedings under Section 143(3) of Act. Therefore, it is evidently clear that reopening was case of change of opinion. 27. learned Senior Standing Counsel appearing for appellant - Revenue has drawn our attention to Explanations 2(c) (iii) and (iv) to Section 147 of Act. It is her submission that where assessment has been made, but such income has been made subject of excessive relief under Act or excessive loss or depreciation allowance or any other allowance under Act has been computed, Authority is entitled to reopen assessment under Section 147 of Act and question of change of opinion does not arise. 28. bare reading of Section 147 of Act will clearly show that in all contingencies of reopening, Assessing Officer should have reasons to believe that income chargeable to tax escaped http://www.judis.nic.in 22 assessment. If very same reasons were subject matter of proceedings under Section 143(3) of Act or proceedings under Section 263 of Act, once again, for very same reasons, power under Section 147 cannot be invoked and having done so, CIT(A) as well as Tribunal were right in coming to conclusion that reopening was bad in law. 29. decision of Hon ble Supreme Court in case of Sun Engineering Works Private Limited may not assist case of Revenue, as it was much prior to amendment, which came into force from 01.4.1998. decision of Hon ble Supreme Court in case of Girilal & Co., pertains to value of plot and Court found that information can be of no help to assessee, as Assessing Officer was not expected to go through said information available in valuation report for purpose of ascertaining actual construction of plot. This decision is clearly distinguishable on facts. 30. Thus, by applying decision of Full Bench of Delhi High Court in case of Kelvinator of India Ltd., as confirmed by Hon ble Supreme Court in decision reported in 320 ITR 561 where case pertains to assessment before 01.4.1989 or thereafter, mere change of opinion cannot confer jurisdiction upon http://www.judis.nic.in 23 Assessing Officer to initiate proceedings under Section 147 of Act, we hold that judgment under appeal does not call for interference. 31. Accordingly, above tax case appeal is dismissed and substantial question of law framed for consideration is answered against Revenue. No costs. 13.7.2020 Index : Yes Internet : Yes To Income Tax Appellate Tribunal, Madras Bench. RS http://www.judis.nic.in 24 T.S.SIVAGNANAM, J AND V.BHAVANI SUBBAROYAN, J RS T.C.A.No.353 of 2016 13.7.2020 http://www.judis.nic.in Commissioner of Income-tax, Chennai v. Neyveli Lignite Corporation Ltd
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