Court rules that reopening of income tax assessment based on alleged depreciation miscalculation is impermissible, as it constitutes a mere change of opinion.
The Gujarat High Court has quashed the reassessment proceedings initiated by the Assistant Commissioner of Income Tax against Pandesara Infrastructure Limited. The proceedings were based on claims that the company had incorrectly applied depreciation rates on its assets, allegedly leading to an escapement of income chargeable to tax.
The division bench comprising Justices A.S. Supehia and Vaibhavi D. Nanavati held that the reopening of the assessment under Section 147 of the Income Tax Act, 1961, was not permissible as it was based on a mere change of opinion and not on any actual escapement of income. The court emphasized that the company's original assessment had been completed with all relevant depreciation details on record, and the reopening amounted to reconsidering the same information without any new material evidence.
The court observed that even if the higher depreciation rates were applied, it would not affect the total income due to the company's entitlement to 100% deduction under Section 80IA(4)(i) for its eligible infrastructure facility business. Furthermore, since the company had already paid tax under the Minimum Alternate Tax (MAT) provisions on its book profit, any recalculations of depreciation would have no impact on its tax liability under Section 115JB.
The judgment relied on previous decisions, including the case of India Gelatine and Chemicals Ltd. v. Assistant Commissioner of Income Tax, which established that a reassessment cannot be justified when there is no actual change in tax liability, as the book profits remain unaffected.
The court concluded that the income had not escaped assessment, and the proceedings should be dropped as they were initiated on a mere change of opinion without any substantive basis. The ruling reinforces the principle that reassessment proceedings under the Income Tax Act must be backed by tangible evidence of escaped income, beyond mere differences in interpretation of the applicable depreciation rates.
Bottom line:-
Reopening of assessment under Section 147 of the Income Tax Act cannot be sustained if it is based on a mere change of opinion and there is no escapement of income chargeable to tax.
Statutory provision(s): Sections 147, 148A, 115JB, 80IA(4)(i), 143(3), 144B, 152(2) of the Income Tax Act, 1961.
