Rantnamani Metals and Tubes Ltd. vs Deputy Commissioner of Income Tax

Harsha Devani, J.—This petition under article 226 of the Constitution of India is directed against the notice dated March 27, 2013, issued by the respondent under section 148 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), seeking to reopen the assessment of the petitioner for the assessment year 2007-08. The petitioner is a company deriving income from manufacturing and trading in steel tube and pipes and in generation of electricity. The petitioner filed its return of income on October 30, 2007, declaring a total income of Rs. 64,39,65,903 along with return of fringe benefits, showing the taxable value of fringe benefits at Rs. 71,82,626. The return of income was accompanied by a tax audit report under section 44AB of the Act. The case was selected for scrutiny assessment by issuing notice under section 143(2) of the Act. After making detailed inquiry, the Assessing Officer by order dated October 29, 2009, framed assessment under section 143(2) of the Act assessing income at Rs. 64,44,57,439 after making addition of Rs. 4,91,536. Subsequently, by the impugned notice dated March 27, 2014, the assessment is sought to be reopened. Upon receipt of the notice, the petitioner requested for a copy of the reasons recorded for reopening the assessment, which came to be furnished on April 10, 2014. By a communication dated April 15, 2014, the petitioner objected to the reassessment proceedings with detailed submissions which came to be rejected by the respondent by an order dated April 16, 2014. Being aggrieved the petitioner has filed the present petition.

Mr. Hardik Vora, learned advocate for the petitioner, assailed the impugned notice by pointing out that the same has been issued on March 27, 2014, in relation to the assessment year 2007-08, which is clearly beyond a period of four years from the end of said assessment year. It was submitted that it is, therefore, not permissible for the Assessing Officer to reopen the assessment unless he entertained the belief that there is failure on the part of the petitioner to disclose fully and truly all material facts relevant for the assessment. Referring to the reasons recorded for reopening the assessment it was pointed out that the reason for reopening the assessment is that the windmill was utilised to generate electricity and not for manufacture of any article or thing and that there was failure to disclose fully and truly all material facts. However, from the reasons recorded as well as from the order disposing of the objections, there is nothing to show as to what is the nature of the failure on the part of the petitioner in disclosing all relevant facts necessary for the assessment. The attention of the court was invited to the statements submitted along with the return of the income filed by the petitioner to point out that additional depreciation of 10 per cent claimed in respect of the windmill was clearly stated therein. Thus, there being no failure on the part of the petitioner in disclosing fully and truly all material facts, the reopening of the assessment beyond a period of four years, is clearly without jurisdiction. Reliance was placed upon a decision of this court in the case of Vinay Printing Press v. Asst. CIT [2014] 45 Taxmann.com 255 (Guj) wherein the court in a similar set of facts had set aside the notice issued under section 148 of the Act.

2.1 On the merits of the case, it was pointed out that this court in the case of Commissioner of Income Tax-I Vs. Diamines and Chemicals Ltd., , has dismissed the appeal preferred by the Revenue against the order of the Income-tax Appellate Tribunal and held that the deduction claimed under section 32(1)(iia) of the Act in relation to windmill, has been upheld by this court. It was, accordingly, urged that the Assessing Officer has no reason to believe that income had escaped assessment on the ground that the petitioner had claimed additional depreciation on windmill and that the assumption of jurisdiction on the part of the Assessing Officer being invalid, the impugned notice is required to be quashed and set aside.

Vehemently opposing the petition, Mrs. Mauna Bhatt, learned senior standing counsel for the respondent, submitted that there is a clear failure on the part of the petitioner in disclosing fully and truly all material facts and, therefore, the assumption of jurisdiction under section 147 of the Act on the part of the Assessing Officer is valid and proper. According to the learned counsel, merely stating in the statement of depreciation claimed under the provisions of the Act, that additional depreciation had been claimed in respect of the windmill cannot by any stretch of imagination be said to be sufficient disclosure of the relevant facts on the part of the petitioner-assessee. It was argued that under section 32(1)(iia) of the Act, an assessee is entitled to claim additional depreciation of 20 per cent only in respect of plant and machinery acquired by an assessee engaged in the business of manufacturing or production of any article or thing. The windmill in question was utilised to generate electricity and not for the purpose of manufacturing any article or thing and, hence, the petitioner was not entitled to claim additional depreciation on the windmill. It was contended that the petitioner, at the relevant time, during the course of scrutiny assessment, has not drawn the attention of the Assessing Officer to the claim for additional depreciation under section 32(1)(iia) of the Act and thereby has failed to disclose fully and truly all material facts relevant for the assessment. Under the circumstances, the Assessing Officer is justified in assuming the jurisdiction under section 147 of the Act and reopening the assessment for the assessment year in question.

A perusal of the record of the case reveals that the return of income filed by the petitioner for the assessment year under consideration was accompanied by the requisite statements which are required to be furnished under the relevant statutory provisions. Annexure II to Form 3CD report furnished under section 44AB of the Act is a statement of the depreciation claimed by the petitioner under the provisions of the Act which contains separate columns in respect of the depreciation claimed by the petitioner for building, plant and machinery, vehicles, windmill, etc. The said statement clearly shows that the petitioner has claimed depreciation at the rate of 80 per cent and additional depreciation at the rate of 10 per cent in respect of the windmill. The case of the Assessing Officer is that the petitioner has failed to disclose fully and truly all material facts with regard to the claim for additional depreciation in respect of the windmill.

As noticed earlier, the assessment year is 2007-08, whereas the notice under section 148 of the Act has been issued on March 27, 2014, which is clearly beyond a period of four years from the end of the relevant assessment year. Under the circumstances, for the purpose of valid assumption of jurisdiction on the part of the Assessing Officer, there has to be a failure on the part of the assessee to disclose fully and truly all material facts.

From the facts narrated hereinabove, it is apparent that the petitioner, in the statement of depreciation claimed by it for the year under consideration had clearly shown that it had claimed additional depreciation of Rs. 613.51 lakhs on the windmill. Under the circumstances, in the facts of the present case, there was no reason for the Assessing Officer to form the belief that there is failure on the part of the petitioner to disclose fully and truly all material facts relevant for its assessment for the assessment year under consideration.

From the submissions advanced by the learned counsel for the respondent, primarily the case of the respondent is that the assessee had wrongly claimed the additional depreciation in respect of the windmill because the windmill was utilised to generate electricity and not for manufacture of any article or thing and that generation of electricity does not result into production or manufacture of article or thing. As the facts depict, the claim for depreciation had been allowed during the course of the scrutiny assessment after verification of all the details. As noted hereinabove, in the facts of the present case, the Assessing Officer could not have entertained the belief as to escapement of income chargeable to tax from the assessment for failure to disclose fully and truly all material facts relevant for assessment for the year under consideration. In the absence of any such failure on the part of the petitioner, the Assessing Officer could not have assumed valid jurisdiction to reopen the assessment under section 147 of the Act. Evidently, therefore, the reopening of assessment under section 147 of the Act is without any authority of law.

In so far as the merits of the claim of the petitioner for additional depreciation in respect of the windmill is concerned, having found that the assumption of jurisdiction on the part of the Assessing Officer is without authority of law, as there is no failure on the part of the petitioner to disclose fully and truly all material facts, this court does not deem it fit to enter into the larger question as to whether or not the claim of the petitioner could have been validly made under section 32(1)(iia) of the Act. In the result, the petition succeeds and is, accordingly, allowed. The impugned notice dated March 27, 2014, issued under section 148 of the Act is hereby quashed and set aside. Rule is made absolute accordingly. No order as to costs.