ITAT, ‘F’ BENCH MUMBAI Validity of reopening of assessment under section 147 of IT Act, 1961 without any additional information

Validity of reopening of assessment under section 147 of IT Act, 1961 without any additional information



Reopening under section 147 by the AO on the same set of facts, without there being any additional information, can only be considered as change of opinion.

ITAT, ‘F’ BENCH MUMBAI

Fluroscent Fixtures Pvt. Ltd.

v.

ITO

ITA No. 3826/Mum. 2008

August 17, 2009

RELEVANT EXTRACTS:

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7. As can be seen from the above the adjustment made by the assessee is according to the provisions of the Act. Since both the industrial galas fall within the block the WDV is increased by the actual cost of the asset falling within the block and reduced by the amount payable in respect of the asset sold. Accordingly we do not find any mistake in assessee's working of the block of assets which is according to the provisions of section 43(6)(c). The A.O.'s action in denying the inclusion of asset within the block is on the condition that the asset was not put to use. This condition was already negated by the ITAT in the above referred decision while considering the provisions of section 50 where in it was held as under: -

"Section 50 makes special provision for the computation of capital gains in the case of depreciable assets. The effect, in brief, of the section is to make certain modifications in the deductions to be allowed under section 48 and 49 from the consideration received as a result of the transfer. Thus, in the case of depreciable assets, instead of the deductions allowed by sections 48 and 49, the deductions permitted under section 50(l)(i), (ii) and (Hi) would be allowable. The section also says that even though the particular depreciable asset has been held by the assessee for more than 36 months, still the capital gains would be considered and dealt with as short-term capital gains only and not as long term capital gains. That is the effect of the non obstante clause which rules out the applicability of section 2(42A). Though some modifications or changes have been made in the computation of the capital gains or transfer of depreciable assets, the nature and content of the subject matter of taxation remains the same, viz., capital gains. The rules relating to the computation of business income are not incorporated or worked into the rules relating to the computation of capital gains.

Therefore while examining the applicability of the provisions of section 50, the Tribunal is not to be influenced by the rules relating to the computation of the business income.

Section 2(11) defines 'Block of assets' which does not speak of depreciation having been allowed in the assessments in respect of any asset falling within the block of assets but refers only to the depreciation rates being prescribed in the rules. Section 50 refers to a capital assets forming part of a block of assets in respect of which the depreciation has been allowed'. This means that the asset which is sold and the capital gains relating to which is the subject-matter of computation must have been used in a business carried on by the assessee. That condition was satisfied in the present case and there was no dispute about the same. The requirement for allowing deduction in respect of the new asset under section 50(l)(iii) is that it should be an asset falling within the block of assets which means that it should be an asset which falls within a class of buildings in respect of which the same percentage of depreciation is prescribed. There is no explicit requirement in the statutory provision to the effect that the new asset should also be used in a business carried on by the assessee and if there is no business carried on by him, the deduction cannot be given. Keeping in mind the difference between the -provisions relating to the computation of the business income and those _ relating to the computation of capital gains, as brought out by the Supreme Court in the case of CJT v. Express Newspapers Ltd. (1964] 53 ITR 250 it would be clear that the Court should not allow the provisions relating to section 50(l)(iii) to be interpreted in the manner suggested by the revenue. There is no explicit or express requirement that the new asset should be put to use in any business carried on by the assessee.

The CBDT Circular No. 469, dated 23-9-1986 shows that the main object of introducing the block of assets concept was only to reduce time and effort spent in detailed record maintenance. While giving effect to this object, there could have been no justification or warrant for prescribing a conditions that the new asset, in addition to being an asset in respect of which the same rate of depreciation is prescribed as in the case of the other assets within the class, should also be used in a business carried on by the assessee. In the case of a building, the new building purchased should be one in respect of which the same rate of depreciation, as is prescribed in respect of other buildings, has been prescribed by the rules. If the assessee carries on a business, in that case he would be also be eligible for an allowance on account of depreciation at that rate. In the case of an assessee who does not carry on a business, the result would be that he would not be entitled to any allowance in respect of the new asset, provided he satisfies the authorities that the new asset was used in that business. In the absence of any express requirement in the statutory provision or the justification to read into it a built in requirement, it is not possible to uphold the contention of the department that the assessee should be found to have been carrying on a business in the year in which the new asset was purchased.

8. Accordingly both on facts and as well as on law there is no merit in Assessing Officer's observation that capital gains has escaped assessment as the gala purchased has not been used for the purpose of business.

9. Be that as it may, even the order of the A.O. indicate non application of provisions of the Act. The A.O. has simply considered the entire amount under section 50 as short term capital gains by taking the sale price of the old asset and reducing the WDV. Section 50 will come into picture only when the sale price of the asset which is used in the business exceeds the cost of the asset. For this purpose the A.O. should necessarily enquire about the cost of the purchase and the difference between the cost of purchase and the WDV has to be brought to tax under the provisions of section 41 and the difference between the actual cost and the sale price is to be considered under section 50. Even though the mathematically the amount may be "same but these are to be brought under two (Efferent heads of income, one being business head, the other being: capital gains. No such action was taken by the A.O. while treating the entire amount as income under the head short term capital gains. It is expected that the A.O. should follow the law while doing reassessment, if original assessment is wrongly done. Now coming to the merits of the case, since the assessee's computation is according to the provisions of law and the A.O. while completing the assessment originally under section 143(3)(i) has accepted the computation in the assessment and had not disturbed the working made by the assessee, we are of the opinion that he has formed an opinion correctly according to the law and therefore reopening under section 147 by the present A.O. on the same set of facts, without there being any additional information, can only be considered as change of opinion. As there is no case for Revenue for reopening on facts and law, it is to be held that reopening is bad in law on the facts of this case. Accordingly grounds Nos. 3, 4 6 & 5 of the assessee are allowed.

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