W.p.(C)/195/2016 Of Samco Machinery India Pvt Ltd v. Assistant Commissioner Of Income Tax,Circle-22(1), & Anr

$~55 *IN THE HIGH COURT OF DELHI AT NEW DELHI+W.P.(C) 195/2016SAMCO MACHINERY INDIA PVT LTD. ..... Petitioner Through: Dr. Rakesh Gupta, Mr. Somil Agarwal,Mr. Rohit Kumar Gupta and Ms. Monika Ghai,Advs. Versus ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-22(1),& ANR. ..... Respondent Through: CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE NAJMI WAZIRIO R D E R%18.01.2017 The petitioner is aggrieved by the reopening of its assessmentby the impugned notice dated 13.03.2015 in respect of AssessmentYear 2008-09. The re-assessment notice alleged inter alia as follows: "Reasonsrecordedforinitiatingproceedings u/s 147/148 Theoriginalassessmentu/s143(3)theassessmentwascompletedon10.12.2010determining the loss of the assessee at (-)`11 ,42,760/-. Perusal of records revealed that theassessee had claimed and allowed additionaldepreciation of `1 0,68,440/-@20% on accountW.P.(C) 195/2016Page 1 of 4 of Plant and Machinery. As the claim is allowableon New Plant and Machinery on a person, who isalready engaged in the business of manufacturingand not a person who is setting up new productioncapacity in the first year when the company hascommenced the business of manufacturing. Theprovision of section 32(1 )(iia) was inserted to theI.T. Act with a view to provide an incentive forexpansion of production capacity. As such theclaim of the additional depreciation should havebeen disallowed of `10,68,400/- and added backto income of the assessee. This has resulted inover assessment of loss of the assessee to the tuneof `1 0,68,400/-. I have therefore, reason to believe that anamount of `1 0,68,440/- has escaped assessmentwithin the meaning of section 147(c) of the I.T.Act, 1961." It is contended by the petitioner that the concerned assessmentswere completed in the relevant years after scrutiny under Section143(3) of the Act during which specific queries were made withrespect to the issue of determination after which the claim wasallowed. The petitioner relies upon a circular of the CBDT dated27.02.2006 which interprets Section 32(1)(iia) of the Act as under: “Enhancementoftherateofadditionaldepreciation on new machinery and plant andwithdrawal of certain conditions –3.6 Under the existing provisions of clause(iia) of sub-section (1) of section 32, additionaldepreciation is allowed at the rate of fifteen per centof the actual cost of the new machinery and plant(otherthanshipsandaircraft)acquiredandinstalled after the 31[st]day of March, 2002.W.P.(C) 195/2016Page 2 of 4 Additional depreciation is allowed in the case of anew industrial undertaking during any previous yearin which it begins to manufacture or produce anyarticle or thing on or after the 1[st]day of April, 2002,or to any industrial undertaking existing before thatdate if it achieves substantial expansion during theprevious year by way of increase in its installedcapacity by not less than ten per cent. In order to encourage investment, the FinanceAct, 2005, has amended section 32 to increase therate of additional depreciation to twenty per cent onnew machinery and plant other than ships andaircraft, acquired and installed after the 31[st]day ofMarch, 2005, and dispensed with the condition ofadditional depreciation to be allowed to a newindustrialundertakingandtheconditionofexpansion in installed capacity. Depreciationrateshavebeenmodifiedthrough a Notification, dated 28[th]February, 2005.The modified depreciation rates are effective fromthe assessment year 2006-07. Among other things,the rate of depreciation of plant and machinery hasbeen reduced from 25% to 15%. Applicability:From the assessment year2006-07 onwards [Section 8].” The Revenue resists the petition and contends that the condition inSection 32(1)(iia) is that for claiming additional depreciation the unit mustbe existing, i.e., it should not be a new industrial undertaking. Depreciationrateshavebeenmodifiedthrough a Notification, dated 28[th]February, 2005.The modified depreciation rates are effective fromthe assessment year 2006-07. Among other things,the rate of depreciation of plant and machinery hasbeen reduced from 25% to 15%. Applicability:From the assessment year2006-07 onwards [Section 8].” The Revenue resists the petition and contends that the condition inSection 32(1)(iia) is that for claiming additional depreciation the unit mustbe existing, i.e., it should not be a new industrial undertaking. This Court is of the opinion that the impugned notice cannot sustain.Needless to add that once the A.O. inquired into the claims and framed theassessment under Section 143(3) of the Act, in the absence of any tangiblematerial that can be valid “reasons to believe”, t he re-assessmentnoticeW.P.(C) 195/2016Page 3 of 4 could not have been issued. Even otherwise, in the light of the CBDT’sCircular of 27[th]February, 2006 (quoted above), the Revenue’s stand tojustify the re-assessment notice is unsustainable. The impugned notice andall further proceedings are hereby quashed. The writ petition is allowed. S. RAVINDRA BHAT, J JANUARY 18, 2017/acm NAJMI WAZIRI, J W.P.(C) 195/2016