2006 (11) TMI 181 - HC - Income Tax

Reopening of the assessment - Validity notice issued u/s 148 - change of opinion - HELD THAT - It is quite clear that the petitioner was granted depreciation allowance on the intangible assets in the nature of know-how purchased by it. A regular assessment order was passed u/s 143(3) of the Income-tax Act. In reply to the director of audit the Assessing Officer had opposed the reopening. In spite of the same he has reopened the assessment. It is therefore difficult to say that he has formed his own opinion that the income has escaped assessment. Secondly it is not at all a case that the petitioner has not disclosed anything to the respondents. The petitioner has given full particulars of the intangible assets and it has maintained that it is eligible for the depreciation. We may not express our opinion on the merits of the claim of the petitioner. But the fact remains that as far as this assessment year 2003-04 is concerned the stand taken by the petitioner was accepted by the respondents on the merits and even after disagreeing with the audit objection as a second thought on the objections from the auditors he has reopened the assessment. In the reasons to reopen as well as in the decision on the objections he has nowhere stated as to how the income has escaped assessment. In our view reopening of the assessment without any basis and merely a change of opinion is not permissible while exercising the powers u/s 147 r/w section 148 of the Income-tax Act. Thus we have no option but to allow this petition. The petition is allowed in terms of prayer (a) whereby the notice dated March 2 2006 issued u/s 148 of the Income-tax Act the notice dated June 6 2006 issued u/s 142(1) and the decision on the objections dated October 6 2006 shall get quashed.

Summary

Issues:
1. Reopening of assessment based on alleged income escaping assessment.
2. Claim for depreciation on intangible assets.
3. Validity of reasons for reopening assessment.
4. Permissibility of change of opinion for reopening assessment.

Analysis:

Issue 1: Reopening of assessment based on alleged income escaping assessment
The petitioner, an asset management company, challenged the reopening of its assessment for the assessment year 2003-04. The Assessing Officer issued a notice under section 148 of the Income-tax Act, claiming that income had escaped assessment due to the depreciation claimed on intangible assets. The petitioner contended that there was no valid reason for reopening the assessment as it amounted to a change of opinion, which is impermissible under section 147 of the Act.

Issue 2: Claim for depreciation on intangible assets
The petitioner purchased intangible assets from a sister concern and claimed depreciation on them. The Assessing Officer initially accepted the claim and passed a regular assessment order under section 143(3) of the Act. However, later audit objections were raised regarding the depreciation claimed on intangible assets. The Assessing Officer then sought to reopen the assessment, citing that the intangible assets did not qualify for depreciation under section 32(1) of the Act.

Issue 3: Validity of reasons for reopening assessment
The reasons provided for reopening the assessment focused on the intangible assets not qualifying for depreciation. The petitioner argued that the same Assessing Officer had earlier approved the depreciation claim and that there was no valid basis for reopening the assessment. The court noted that the reasons did not demonstrate how income had actually escaped assessment, leading to doubts about the validity of the reassessment.

Issue 4: Permissibility of change of opinion for reopening assessment
The petitioner contended that the Assessing Officer's decision to reopen the assessment was based on a change of opinion rather than new information or valid reasons for reassessment. The court emphasized that reopening an assessment solely on a change of opinion without any substantive basis is not permissible under the provisions of section 147 read with section 148 of the Income-tax Act.

In conclusion, the court allowed the petition, quashing the notice for reopening the assessment, the notice issued under section 142(1), and the decision on objections. The judgment highlighted the importance of valid reasons and substantive grounds for reopening assessments, emphasizing that a mere change of opinion is not sufficient to warrant reassessment under the Income-tax Act.