Reassessment Quashed as Assessee Had Fully Disclosed Depreciation Claim in Original Assessment.

By | November 12, 2025
0 Comment

Reassessment Quashed as Assessee Had Fully Disclosed Depreciation Claim in Original Assessment.

Issue

Whether a reassessment notice issued beyond four years from the end of the assessment year is legally valid, when the reason for reopening (disallowance of additional depreciation) is the exact same issue that was fully disclosed, supported by documents, and examined during the original scrutiny assessment.

Facts

  • The assessee’s return for Assessment Year 2011-12 was completed under a regular scrutiny assessment (Section 143(3)).
  • During this original assessment, the assessee had furnished all material facts regarding its claim for additional depreciation. This included:
    • The tax audit report with depreciation particulars.
    • Statements of fixed asset additions with supporting bills.
    • A specific letter justifying the claim for additional depreciation under Section 32(1)(iia).
  • The Assessing Officer (AO) had already considered this specific issue during the original assessment.
  • After the expiry of four years from the end of AY 2011-12, the AO issued a notice under Section 148 to reopen the assessment.
  • The reason given for the reopening was the exact same issue: the alleged wrongful claim of additional depreciation.

Decision

  • The High Court (implied) ruled decisively in favour of the assessee.
  • It held that the impugned notice issued for reopening the assessment was unjustified and invalid.
  • Since the reopening was initiated beyond four years, it could only be done if the assessee had failed to disclose all material facts.
  • The records clearly showed that the assessee had, in fact, fully and truly disclosed all material facts during the original assessment. The AO’s action was merely a “change of opinion” on the same set of facts, which is not a permissible ground for reassessment.

Key Takeaways

  • High Bar for Reopening After 4 Years: To reopen a completed assessment after four years, the AO must establish that the assessee failed to disclose all material facts. If there is no such failure, the reopening is barred by limitation.
  • Full Disclosure is a Shield: When a taxpayer provides all relevant documents and justifications for a claim during the original scrutiny, the department cannot use that same claim as a reason to reopen the assessment years later.
  • No “Change of Opinion”: An AO cannot issue a reassessment notice simply because they have a different view or a change of opinion on the same set of facts that were already on record and examined by a predecessor.
  • Jurisdictional Defect: A reopening based on a “change of opinion” after four years, without any failure to disclose by the assessee, is a fatal jurisdictional defect that renders the notice void.
HIGH COURT OF GUJARAT
Unique Tags (P.) Ltd.
v.
Asst. Commissioner of Income-tax *
N.V. Anjaria and BHARGAV D. KARIA, JJ.
R/SPECIAL CIVIL APPLICATION NO. 17802 of 2018
JULY  18, 2022
Tushar Hemani and Ms. Vaibhavi K. Parikh for the Petitioner. Manish Bhatt, Sr. Adv., Karan Sanghani and Munjaal Bhatt for the Respondent.
JUDGMENT
Bhargav D. Karia, J.- Heard learned Senior Advocate Mr. Tushar Hemani assisted by learned advocate Ms. Vaibhavi Parikh for the petitioner and learned Senior Advocate Mr. Manish Bhatt assisted by learned advocate Mr. Karan Sanghani and learned advocate Mr. Munjaal Bhatt for M.R. Bhatt and Co. for the respondents.
2. Having regard to the controversy involved in this petition, with the consent of the learned advocates for the respective parties, the petition is taken up for final hearing.
3. Rule returnable forthwith. Learned advocate Mr. Karan Sanghani waives service of notice of rule for the respondents.
4. The petitioner has preferred this petition under Article 226 of the Constitution of India challenging the impugned notice dated 19.02.2018 issued under section 148 of the Income Tax Act, 1961 (For short “the Act”) proposing to reopen the assessment for the Assessment Year 2011-2012. After filing of the petition, the respondent has passed the final assessment order dated 20.11.2018 under section 144 read with section 147 of the Act and therefore, the petitioner has also challenged the same.
5. Brief facts of the case are that the petitioner is a company incorporated under the Companies Act, 1956 and is engaged in the business of manufacturing woven labels and generation of power.
5.1 The petitioner filed return of income for the Assessment Year 2011-2012 on 24.09.2011 declaring total income at Rs.85,99,759/-. The return of income was later on revised on 26.09.2011 declaring total income at Rs.85,99,759/- after claiming depreciation of Rs. 3,69,42,979/-.
5.2 The case of the petitioner was selected for scrutiny assessment. Various details were called for by the Assessing Officer. It is the case of the petitioner that the petitioner had placed on record Tax Audit Report wherein Statement of Depreciation as per Act was appended and marked as Annexure “A” to such report from which it is evident that there was an addition of Rs.2,24,25,057/- to the Plant and Machinery during the year under consideration and total depreciation of Rs. 1,72,15,728/-was claimed on such Plant and Machinery which also included additional depreciation of Rs.41,00,144/- (i.e. Rs.37,03,276 + Rs.3,96,868). It is the case of the petitioner that the additions to Plant and Machinery included the following additions as well:
Addition to assetDateRemarks
Rs. 12,88,353/-08.09.10Before 30th September
Rs. 15,48,061/-08.01.11After 30th September

 

5.3 Accordingly, additional depreciation of Rs.41,00,144/- included additional deprecation on the above stated two additions as follows:
Addition to assetDateRemarks
Rs. 12,88,353/-Rs.2,57,670/-@20%(Full year)
Rs. 15,48,061/-Rs.1,54,808/-@10%(Half Year

 

5.4 It is further the case of the petitioner that there was an addition of Rs.3,34,18,860/- in the Wind Mill Project on 31.01.2011 on which, additional depreciation of Rs.33,41,886/- [i.e. @ 10% (Half year)] was claimed.
5.5 The Assessing Officer, thereafter issued notice dated 26.06.2013 under section 142(1) of the Act calling upon the petitioner to furnish the following details :
“Details of additions made to fixed assets along with copies of bills/vouchers exceeding Rs. 10 lakhs for such additions (Point No.11);
Details and justification of the claim under section 32(1)(iia) of the Act, if any (Point No. 13).”
5.6 The petitioner, vide letter dated 24.07.13, furnished the following information:
“Statement showing additions to fixed assets during the year under consideration along with bills of addition to fixed assets exceeding Rs. 10 lakhs (Point No.11).
Statement showing justification of claim of additional depreciation under section 32(1) (iia) was also furnished (Point No.13);”
5.7 The petitioner, vide letter dated 07.08.2013, further submitted that it had purchased plant and machinery in the form of windmill during the Financial Year 2010-2011 and it had complied with all the conditions for claiming additional depreciation under section 32(1)(a) of the Act. It is the case of the petitioner that the petitioner also filed a chart showing complete justification along with compliance of conditions stipulated under section 32(1)(a) of the Act.
5.8 It is the case of the petitioner that the Assessing Officer, after perusing all the above details and information furnished by us, consciously chose not to make any addition in respect of the additional depreciation claimed by the petitioner under section 32(1)(a) of the Act while framing assessment under section 143(3) of the Act vide order dated 11.10.2013.
5.9 However, thereafter, the respondent issued the impugned notice dated 19.02.2018 under section 148 of the Act seeking to reopen the case of the petitioner for the year under consideration.
5.10 The petitioner filed return of income on 23.05.2018 in response to the notice issued under section 148 of the Act.
5.11 The respondent supplied the copy of reasons recorded for reopening the case of the petitioner on 10.07.2018. The reasons recorded by the Assessing Officer for reopening the assessment read as under :
“The assessee company is engaged in the business of manufacturing of narrow woven labels & generation of powers. During the year the company had made addition in plant & machinery and aircondition of Rs. 2,24,25,057/- and depreciation & additional depreciation there on for full & half year accordingly of Rs. 1,72,15,728/-.
On verification of case records it is seen that the assessee has claimed the additional depreciation of Rs. 2, 57,670/- on Globle Airtech Machine system of 12,88,353/- for full year. On Dacion Airtech System of 15,48,061/-assessee had claimed additional depreciation of Rs.2,57,670/-. The Globle Airtech Machine Dacion Airtech System are not plant & machinery use for manufacture or production of any articles of things. The assessee has wrongly claimed the additional depreciation of Rs. 2,57,670/-+(1,54,808-4,12,478)- on these two items which was required to be disallowed.
It is further to state the during the year the assessee has made addition of new plant & machinery (wind mill) of Rs. 33,418,860/- at Navadara, dist Jamnagar and claimed half year depreciation and additional depreciation thereon of Rs. 13,367,544/- + 3,341,886/- =”1,67,09,430/-.
Provision of the I.T Act in respect of additional depreciation as per section 32(lia) are as under.

“In the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after 31st day of march 2005, by an assessee engaged in the business of manufacture or production of any article or thing.[or in business of generation or generation and distribution of power). a further sum equal to twenty percent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)–,”

Thus Provision for additional depreciation on assets acquired or installed in the business of generation and distribution of power are introduced by the Finance Act 2012 w.e.f 01-04-2013. Assesse’s claim of additional depreciation of Rs. 33, 41,886/- on such assets in F.Y. 2010-11 (A.Y.2011-12) was therefore not allowed.
Therefore excess depreciation allowed by the assessing officer of 2,57,670 +1,54,808/-& Rs.33,41,886//- =”37,54,354/-” has resulted under assessment of Income to the extent of Rs.37,54,354/- having the tax effect of 11,60,098/-+ interest 234B of the Act.
Further, while going through records, It is noticed that, In submission dated 24.07.2013, It is clear that assessee did not provide complete details w.r.to depreciation claim & specifics of the same. Documentary evidences were not provided at all in this regard. In view of the above facts, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the ac, for this assessment year by reason of the failure on part of the assessee to disclose fully & truly all material facts necessary for this assessment. As per the provisions of section 149(1) (b), the income chargeable to tax, which has escaped assessment for the AY 2011-12 is more than Rs 1 lakh.”
5.12 The petitioner, vide letter dated 10.10.2018, raised objections against reopening of the assessment.
5.13 The respondent, vide order dated 15.10.2018 disposed off the objections raised by the petitioner.
5.14 The Petitioner, after receiving the order disposing off the objections against reopening, filed the present writ petition which came up for hearing before this Court on 27.11.2018 and this Court issued notice to the respondent making it returnable on 07.01.2019. This Court, further directed that the respondent may proceed further pursuant to the impugned notice but shall not pass the final order without the permission of the Court.
5.15 It is the case of the petitioner that above referred order was served upon the respondent and Direct Service affidavit was filed with the Registry on 28.11.2018, however, despite the order passed by this Court directing the respondent not to pass the final assessment order without the leave of the Court, the respondent passed the impugned assessment order on 20.11.2018 under section 144 read with section 147 of the Act determining the petitioner’s total income at Rs. 1,23,66,100/- after making additions and also issued demand notice under section 156 of the Act. It is further the case of the petitioner that from the speed post cover in which order was received, it can be gathered that the said order was dispatched to postal authorities only on 02.12.2018 and on conducting online verification from the website enabling speed post tracking, it is further gathered that such order was booked by the postal authorities on 03.12.2018 and served upon the petitioner on 06.12.2018.
5.16 Being aggrieved by such action on part of the respondents, the petitioner has preferred the present petition.
6. Learned Senior Advocate Mr. Tushar Hemani for the petitioner submitted that the assessment for the year under consideration was framed under section 143(3) of the Act and the same is sought to be reopened beyond the period of four years. It was submitted that an assessment framed under section 143(3) of the Act can be reopened beyond the prescribed period of four years from the end of the relevant assessment year if and only if an income chargeable to tax has escaped assessment by reason of failure on the part of the petitioner to make a return under section 139 or in response to the notice issued under section 142(1) or section 148 or to disclose fully and truly all material facts necessary for assessment for that Assessment Year. It was submitted that all material facts pertaining to the issue on hand were duly disclosed by the petitioner in the form of Tax Audit Report, Statement showing additions to fixed assets during the year under consideration along with bills of addition to fixed assets exceeding Rs. 10 lakhs, Statement showing justification of claim of additional depreciation and a chart showing complete justification along with compliance of conditions stipulated under section 32(1)(iia) of the Act. It wsa therefore, submitted that there is no failure on part of the petitioner to disclose fully and truly all material facts necessary for assessment.
6.1 It was submitted that the respondent has acted illegally and without jurisdiction in issuing notice under section 148 of the Act inasmuch as notice can be issued under section 148 of the Act if and only if an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. It was submitted that it is well settled that the words “reason to believe” suggest that firstly, the belief must be that of the Assessing Officer secondly, it must be that of an honest and reasonable person based upon reasonable ground, not a mere change of opinion, suspicion, gossip or rumour and thirdly, there must be live link or close nexus between the material before Assessing Officer and the belief he has formed regarding escapement of income. Such belief must lead to a conclusion that income has escaped assessment. It was submitted that the petitioner’s case was selected for scrutiny and the issues on hand were already scrutinized by the then Assessing Officer which is evident from notice dated 26.06.2013 issued under section 142(1) of the Act, calling upon the petitioner to furnish various details and information regarding details of additions made to fixed assets along with copies of bills/vouchers exceeding Rs.10 lakhs for such additions, details and justification of the claim under section 32(1)(iia) of the Act, if any. The petitioner had vide letter dated 24.07.2013, furnished all such information which included statement showing additions to fixed assets during the year under consideration along with bills of addition to fixed assets exceeding Rs. 10 lakhs. The petitioner had also submitted that additional depreciation under section 32(1)(a) of the Act has been claimed on additions made to Plant and Machinery during the year under consideration at the prescribed rates and a statement showing justification of claim of additional depreciation under section 32(1)(ia) was also furnished by the petitioner. The petitioner, also vide letter dated 07.08.2013, further submitted that it had purchased plant and machinery in the form of windmill during the Financial Year 2010-2011 and it had complied with all the conditions for claiming additional depreciation under section 32(1) (a) of the Act. The petitioner also filed a chart showing complete justification along with compliance of conditions stipulated under section 32(1)(a) of the Act.
6.2 It was submitted that the then Assessing Officer, after minutely examining the issue on hand, consciously chose not to disturb the claim of additional depreciation while framing assessment under section 143(3) of the Act and now the respondent is attempting to reopen the very same issue which is nothing but change of opinion and therefore, the action of reopening the petitioner’s case under section 147 is merely based on change of opinion which is not tenable in the eye of law.
6.3 It was submitted that there is no new information or fresh evidence which has come into possession of the respondent which was not there when original assessment order was framed. The respondent has merely relied upon the documents furnished by the petitioner at the original assessment stage and therefore, the action of reopening is nothing but change of opinion and the same is not permissible.
6.4 Learned Senior Advocate Mr. Hemani submitted that it is well settled that an Assessing Officer cannot take any action under section 147 of the Act, merely because he happens to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. In the petitioner’s case, there is nothing to indicate that the respondent, in consequence of any information in his possession which came subsequent to framing of the original assessment, had reason to believe that income had escaped assessment. It was submitted that during the course of original assessment proceedings, the petitioner had submitted various details in respect of the issue on hand and having considered such details, the then Assessing Officer consciously built an opinion, did not call for any further information and clarifications, accepted the issue as it is and did not raise any objection at the time of original assessment proceedings. It was submitted that having formed an opinion, it is not open to now, change that opinion and take a different stand based on the very same set of facts and information.
6.5 It was submitted that despite the fact that the petitioner had already approached this Court for seeking appropriate relief by challenging the impugned notice under section 148 of the Act, which was granted by the Court vide its order dated 27.11.2018, the respondent passed the Assessment Order under Section 144 read with section 147 of the Act on 20.11.2018. It was submitted that the respondent was having sufficient time for the purpose of framing the assessment pursuant to the reassessment proceedings and the respondent ought not to have passed the assessment order and therefore, also the Assessment Order deserves to be quashed and set aside in the larger interest of justice.
6.6 It was submitted that the final assessment order, though apparently stated to have been passed on 20.11.2018, could only be dispatched on 02.12.18 (ie. after service of order dated 27.11.18 passed by this Court) which is quite unusual and it has been passed to circumvent the interim relief granted by this Court. In any case, by the time the assessment order was dispatched, this Court had already passed the order dated 27.11.2018 and hence, even on that score, the action of the respondent is not tenable in the eye of law.
7. On the other hand, learned advocate Senior Advocate Mr. Manish Bhatt for the respondent at the outset submitted that the petition is filed at a pre-mature stage inasmuch as only a notice under section 148 read with section 147 of the Act has been issued and in the event, the petitioner is aggrieved by the reassessment, alternative efficacious remedy is available by way of an Appeal before the CIT(Appeals) and thereafter before the Tribunal.
7.1 Referring to section 32(iia) of the Act, it was submitted that provision for additional depreciation on assets acquired or installed in the business of generation and distribution of power were introduced by the Finance Act, 2012 with effect from 01.04.2013 and therefore, the assessee’s claim of additional depreciation of Rs.33,41,886/- on such assets in Financial Year 2010-2011 is not Correct.
7.2 It was submitted that notice under section 148 of the Act can be issued till the end of six years from the end of the assessment years wherein income chargeable to tax has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. It was submitted that the Act itself provides many mechanisms which can be resorted to after assessment order is passed. Therefore, it cannot be said that once the assessment order is passed, no corrective action can be taken to safeguard the interest of the revenue. It was further submitted that section 147 itself covers the instances where the remedy under this section can be resorted to and calling for details relating to investment will not amount to forming of opinion by the Assessing Officer. It was submitted that in a case, where no opinion has been formed, there cannot be any change of opinion.
7.3 It was submitted that in the present case satisfaction was drawn with independent application of mind on the basis of material facts available on record and thereafter only the Assessing Officer has formed his reasons to believe and recorded the same and proceeded to reopen the case.
7.4 In support of his submission that audit objection on the point of fact can be a valid ground for reopening of assessment, reliance was placed on the decision of the Hon’ble Apex Court in case of CIT v. P. V. S Beedies (P.) Ltd. [1999] 103 Taxman 294/237 ITR 13 (SC) and on decision of this Court in case of N.K. Industries Ltd. v. ITO (OSD) [2014] 49 taxmann.com 216/226 Taxman 64/362 ITR 502 (Gujarat). It was submitted that in the present case, reopening has been done after independent application of mind on the basis of facts available on record. The reasons were duly recorded in compliance of legal provisions and judicial pronouncements by judicial forums regarding reopening of assessment. Facts have clearly brought out and conclusion regarding formation of belief regarding escapement of income clearly emanates from reasons recorded. The quantum of income escaping assessment has been duly provided in the reason for reopening. Therefore, this Court may not interfere at this stage.
8. Considering the facts of the case as well as submissions made by the learned advocates for both the sides, the assessment order under section 143(3) of the Act was passed on 11.10.2013 for the Assessment Year 2011-2012 after considering the issue of claim of depreciation under section 32(1)(iia) of the Act in regular assessment. Admittedly, the impugned notice dated 19.02.2018 issued under section 148 of the Act is beyond a period of four years from the end of relevant assessment year and there is no failure on part of the assessee to truly and fully disclose all the material facts. The assessee had filed all material facts which is evident from the materials placed on record of this petition i.e. Annexure-A to the tax audit report showing particulars of the depreciation allowable as per the provisions of the Act in respect of each asset or block of assets, statement showing addition to fixed assets with the bills of addition to fixed asset exceeding Rs. 10 lakhs along with letter dated 24.07.2013 and statement showing justification of claim of additional depreciation in the said letter. The petitioner has also furnished chart showing complete justification for compliance of the conditions stipulated under section 32(1) (iia) along with letter dated 7.08.2013 during the course of regular assessment.
9. In such circumstances, on perusal of the reasons recorded, it is apparent that the petitioner has disclosed truly and fully all material facts necessary for assessment. The alleged excess depreciation allowed to the petitioner amounting to Rs.37,54,354/-was already considered during the course of regular assessment. The Assessing Officer relying upon the provisions of section 32(1) (iia) of the Act held that additional depreciation on assets acquired or installed in the business of generation and distribution of power would be applicable with effect from 1.04.2013 whereas the claim of the assessee is for the Financial Year 2010-2011, i.e. for Assessment Year 20112012. Such issue is already considered in regular assessment by the Assessing Officer after scrutiny of the books of accounts as well as explanation tendered by the assessee in respect of additional depreciation claimed under section 32(1)(iia) of the Act. The assessee in reply to point no.13 in the notice issued under section 142(1) of the Act has given explanation along with statement for additional depreciation under section 32(1)(iia) of the Act. Thus there is no failure on part of the petitioner assessee to disclose truly and fully all material facts during the course of regular assessment, failure of which would enable the Assessing Officer to assume the jurisdiction to issue notice under section 148 of the Act beyond a period of four years from the completion of assessment year as per the proviso to section 147 of the Act.
10. With regard to the contention of the assessee that the assessment order allegedly passed on 20.11.2018 was sent to the assessee after order of this Court dated 27.11.2018 was served upon respondent Assessing Officer is concerned, it is required to be noted that when the impugned notice is without jurisdiction, the consequential order passed by the Assessing Officer would be of no consequence and therefore, such issue is not dealt with. Reliance is placed by learned Senior Advocate Mr. Hemani in case of Kanubhai M. Patel (HUF) v. Hiren Bhatt or his Successors to Office [2011] 12 taxmann.com 198/202 Taxman 99/334 ITR 25 (Gujarat) wherein this Court has analysed the word “issue” in respect of date of issuance of notice under section 148 of the Act in the said case which was admittedly beyond the period of six years. However, in facts of the case it is apparent from the record that the assessment order passed under section 144 read with section 147 of the Act dated 20.11.2018 was sent to the postal authority by the respondent Assessing Officer only after the order passed by this Court on 27.11.2018 was served by the petitioner assessee.
11. In view of the foregoing reasons, when the Assessing Officer has issued the notice without jurisdiction in view of the fact that there is no failure on part of the assessee to disclose truly and fully all material facts, the Assessing Officer would not have any jurisdiction to reopen the assessment as per the proviso to section 147 of the Act as there is no fresh material available on record with the Assessing Officer to form a reason to believe that income has escaped assessment.
12. The petition succeeds and is accordingly allowed. The impugned notice dated 19.02.2018 as well as assessment order dated 20.11.2018 are hereby quashed and set aside.
13. Rule is made absolute to the aforesaid extent. No order as to costs.