COMMISSIONER OF INCOME TAX Vs. ELGI FINANCE LTD

JUDGEMENT

(1.) THE present Appeals are filed by the Revenue under Section 260a of the income-tax Act (hereinafter referred to as 'the Act'), against the order passed by the Income-tax Appellate Tribunal, Madras 'b' Bench, dated 12. 12. 2002 in ITA No. 355 and 356/mds/2002. These appeals came up before this court and this Court admitted the appeals on 17. 10. 2003 and formulated the following Substantial Question of Law:-"whether in the facts and circumstances of the case, the Tribunal was right in treating the reassessment under Section 147, as time barred?"

(2.) THE facts leading to the above question of law are as follows:-The assessee is a company engaged in the business of finance and leasing. The return filed by the assessee company for the assessment year 1992-93 was initially processed under Section 143 (1) (a) on 11. 11. 1 993. Thereafter it was converted into a scrutiny assessment and the said assessment was completed under Section 143 (3) by the order of assessment dated 07. 03. 1994. Later the assessment was rectified under Section 154 by a subsequent order dated 15. 04. 1996. In respect of assessment year 1993-94, the original assessment under Section 143 (3) was completed on 25. 03. 1996 and the said assessment order also was later rectified under Section 154 by order dated 18. 03. 1997. While the assessments for the impugned two assessment years 1992-93 and 1993-94 were resting so, the Assessing Officer issued notices under Section 148 dated 17. 07. 1998 calling for the assessee company to file returns of income for the impugned assessment years in response to the said notice. The reason stated by the Assessing Officer to issue notices under section 148 was that, depreciation at a higher rate was allowed in favour of the assessee company while completing the original assessments in respect of plant and machinery let out by the assessee company to other lessees, and also granting 100% depreciation on items, on the ground that individual value was less than Rs. 5,000/- per piece, in view of proviso to Section 32 of the Income tax Act, 1961. The Assessing Officer therefore held that the granting of excess depreciation allowance in the original assessments had resulted in escapement of income. It is for the above reason that he had issued notices under Section 148 for the purpose of reopening the assessments to withdraw the excess depreciation allowed to the assessee. The reopened assessments under section 147 were completed on 30. 03. 2001 by separate orders for the impugned two assessment years. The assessments were completed under Section 143 (3 ). In the revised assessments the Assessing Officer restricted the claim of depreciation made by the assessee company in its return of income and allowed by the Assessing Officer in the original assessments. The assessee company had leased out commercial vehicles and it had claimed a depreciation of 40% in computing its taxable income on the ground that the commercial vehicles leased out by the assessee company were used by the lessees for commercial purposes only i. e. , running on hire. The assessing officer held that the higher rate of 40% was available only to an assessee who itself carried on the business of running vehicles on hire and not for anybody else. The business of the assessee company was that of leasing alone. The assessee company by itself had not run the commercial vehicles on hire. Therefore the Assessing Officer held that the assessee company, being a leasing company, cannot claim the higher rate of depreciation at 40% on the commercial vehicles leased out by it. Hence, the Assessing Officer restricted the claim to the normal rate of 25%. In the original assessment, depreciation was granted at the rate of 100% under the proviso to Section 32 on the ground that the cost of individual item was less than Rs. 5,000/ -. In the revised assessment, the Assessing Officer found that the assessee had leased out those items as a bulk unit and all those items are functionally interrelated and did not have any independent status or identity as plant and machinery and therefore those items need to be considered in bulk, instead of considering as individual item. When those items listed are considered in bulk, obviously the cost of the bulk exceeds rs. 5,000/- and the Assessing Officer restricted the depreciation to the normal rate.

(3.) AGGRIEVED by the order, the assessee filed an appeal to the commissioner of Income Tax (Appeals ). The Commissioner of Income Tax (Appeals) agreed with the Assessing Officer and confirmed the action of the assessing Officer in restricting the depreciation to the normal rate. Aggrieved, the assessee filed an appeal before the Income Tax Appellate tribunal and also raised additional grounds for the said assessment year, which reads as follows:-