Gujarat High Court Sets Aside Reassessment Notice Due to Lack of New Tangible Evidence in Additional Depreciation Case
Overview of the Case
In the matter of Adani Power Limited Vs ACIT, the Gujarat High Court examined the validity of a reassessment notice issued under Section 148 of the Income Tax Act, 1961, pertaining to AY 2014-15. The assessee contested the reopening of an assessment that had already undergone scrutiny and was finalized under Section 143(3). The core dispute centered on whether the Revenue could reopen the assessment in the absence of fresh material evidence.
The power generation company operated in developing, maintaining, and operating power generation facilities while trading electricity. For the relevant financial period, the company had submitted its income return declaring losses both under regular provisions and under Section 115JB. The Revenue had originally conducted detailed scrutiny through multiple rounds of queries and responses before completing the assessment on 7 December 2017.
Background Facts
Original Assessment Proceedings
The company filed its return for AY 2014-15 on 29 November 2014, showing a total loss of ₹2,041.13 crore under normal provisions and ₹327.21 crore under Section 115JB of the Income Tax Act, 1961.
The assessment was selected for detailed examination, and the Assessing Officer issued multiple questionnaires and notices on various dates including 8 June 2016, 24 August 2016, 25 July 2017, and 13 November 2017. The assessee responded comprehensively to these notices on 23 June 2016, 16 October 2017, and 23 November 2017.
During the original assessment examination, specifically regarding depreciation claims, the Assessing Officer disallowed excess depreciation amounting to ₹5.80 crore through an assessment order dated 7 December 2017.
Appellate Proceedings
The assessee challenged the assessment order before the Commissioner (Appeals), which resulted in partial relief through an order dated 12 March 2020. Subsequently, an order giving effect to the appellate decision was issued on 28 July 2020.
Issuance of Reopening Notice
The Revenue then issued a notice under Section 148 on 31 March 2021, seeking to reopen the assessment for AY 2014-15. The recorded reasons were communicated to the assessee through a letter dated 12 May 2021.
Revenue's Reasons for Reopening
The Assessing Officer's recorded reasons indicated that upon verification of case materials including:
- Balance sheet
- Profit and loss account
- Notes on accounts
- Tax audit report under Form 3CD
- Computation of income
It was observed that the assessee had claimed total depreciation of ₹3,049.91 crore. The detailed analysis revealed that depreciation of ₹2,991.11 crore was claimed on plant and machinery.
Specific Grounds for Reopening
The Revenue's analysis pointed to the following breakdown of depreciation claims:
Regular depreciation at 15% on ₹18,001.48 crore consisting of opening written down value of ₹16,978.10 crore plus plant and machinery of ₹4.67 crore installed before 30 September 2013 plus ₹1,017.23 crore representing enhanced liability due to exchange rate fluctuation less ₹0.53 crore reduction = ₹2,700.22 crore
Depreciation at 7.5% on ₹496.07 crore being plant and machinery of ₹459.57 crore put to use after 1 October 2013 plus ₹36.49 crore exchange rate liability increase = ₹37.20 crore
Additional depreciation at 20% claimed on ₹1,021.90 crore comprising ₹4.67 crore put to use before 30 September 2013 plus ₹1,017.23 crore exchange rate liability increase = ₹204.38 crore
Additional depreciation at 10% claimed on ₹496.07 crore being plant and machinery of ₹459.57 crore put to use after 1 October 2013 plus ₹36.49 crore exchange rate liability increase = ₹49.60 crore
The Assessing Officer concluded that additional depreciation had been wrongly claimed on exchange rate fluctuation of ₹1,017.23 crore arising on 29 September 2013 relating to earlier years' imported plant and machinery. Since only ₹4.67 crore of new plant and machinery was acquired and installed before 30 September 2013, this resulted in alleged excess additional depreciation of ₹203.11 crore.
Legal Analysis by Revenue
The Revenue's analysis was based on combined reading of: