2009 (9) TMI 943 - HC - Income Tax

Reopening of assessment - Nature of expenses incurred - revenue or capital - HELD THAT - The scope of the proceedings u/s 147/148 are now well established by a catena of judicial precedents. By virtue of proceedings u/s 147/148 completed assessments cannot be reopened on a mere change of opinion i.e., on the basis of the same set of facts and material which were in the knowledge of AO, the AO cannot issue notices u/s 148 merely because it felt that a decision which has been taken earlier is not correct and needs to be corrected. The proceedings for reopening of assessment on the ground of income escaping assessment is an exception to the finality of the proceedings arrived at u/s 143(3) during the regular assessment proceedings of the assessment years. The facts clearly show that since this very issue of the expenditure being treated as revenue or capital with respect to the expenditure incurred in the lease hold premises was dwelt upon by the AO. The impugned notices are, therefore, clearly misconceived and bound to be quashed. A reference to the reasons for reopening of the assessments, the italics portions, shows that there is no new material for reopening of the assessments and the officer issuing the notices in fact relies upon the record and the correspondence on the very subject in the regular assessment proceedings. Clearly therefore, the notices are an abuse of the process of law because in the facts, such as those found in the present cases, if harassment to a citizen is allowed, then, the conclusiveness of the regular assessment proceedings will have no meaning because the very issue which was considered and mind applied, would lose its finality. Therefore, the present writ petitions are allowed quashing the impugned notices issued u/s 148 and all the proceedings emanating therefrom. In view of the facts of the present cases, costs of ₹ 25 ,000 are awarded in favour of the petitioner and against the respondent.

Summary

Issues:
1. Challenge to notices under section 148 of the Income-tax Act, 1961 for reopening assessment orders.
2. Determination of whether expenses incurred are revenue or capital in nature.
3. Scope of proceedings under section 147/148 of the Act.
4. Consideration of the same issue in regular assessment proceedings.
5. Validity of notices issued based on existing facts and material.

Analysis:
1. The petitioner challenged impugned notices under section 148 of the Income-tax Act, 1961 dated 3-10-2006 seeking to reopen assessment orders for the years 2002-03 and 2003-04. The reasons for reopening were identical for both years, focusing on the treatment of leasehold improvements as capital expenditure. The petitioner contended that the expenses were revenue in nature, disputing the reopening of assessments based on the same set of facts already considered during the regular assessment proceedings under section 143(3) of the Act.

2. The revenue argued that the expenses were capital in nature, justifying the reopening of assessments under section 147/148 of the Act. However, the court emphasized that assessments cannot be reopened merely due to a change of opinion by the Assessing Officer. The court highlighted that the proceedings for reopening assessments due to income escaping assessment are exceptions to the finality of regular assessment proceedings. In this case, the petitioner had already addressed the issue of leasehold improvements during the scrutiny assessment, providing all relevant details to the Assessing Officer.

3. The court noted that the Assessing Officer had extensively examined the issue of leasehold improvements during the regular assessment proceedings, as evidenced by the queries raised and responses provided by the petitioner. Since the same issue had been thoroughly considered and addressed during the initial assessment, the court deemed the impugned notices as misconceived and ordered their quashing. The court emphasized that the notices were an abuse of process as they were based on existing records and correspondence from the regular assessment proceedings.

4. Consequently, the court allowed the writ petitions, quashing the notices issued under section 148 of the Income-tax Act, 1961, and all proceedings stemming from them. Additionally, the court awarded costs in favor of the petitioner due to the abuse of the legal process. The judgment highlighted the importance of upholding the finality of regular assessment proceedings and preventing harassment of taxpayers based on issues already addressed and examined during initial assessments.