2014 (12) TMI 1198 - AT - Income Tax

Reopening of assessment - disallowance of sundry expenses - Held that - From the perusal of the reasons recorded it can be seen that the AO is noting the facts from the accounts of the assessee that amount debited under the head sundry expenses on account of intangible assets interest charges return off for HVDC project. He held such an expenditure has to be treated as capital expenditure. Such a reasons definitely amount to change of opinion as the final account was very much available and examined by the AO at the time of the passing of the original assessment proceedings. It has a tribe law that u/s 147 and the assessing officer has no power to review completed assessment merely on the ground that its difference of opinion can be formed. Without there being any tangible material such a completed assessment cannot be reopened. The Hon ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA) has categorically held that merely on the change of opinion the assessment completed cannot be reopened thus the finding of the Ld.CIT(A) has noted above has based on settled legal proposition and accordingly the same is confirmed. - Decided in favour of assessee.

Summary

Issues:
Validity of reopening assessment under section 147 based on intangible asset interest charges written off for HVDC Project and treatment as revenue expenditure.

Analysis:
The appeal was filed by the Revenue against the order passed by the Ld.CIT-7, Mumbai, challenging the reopening of assessment under section 147 for the assessment year 2005-06. The main issue revolved around the treatment of intangible asset interest charges written off for HVDC Project as revenue expenditure. The Revenue contended that the reopening was justified, while the assessee argued against it.

The assessee initially filed a return of income showing losses, which was subject to scrutiny and assessed under section 143(3). Subsequently, the case was reopened under section 147 based on the claim of intangible asset interest charges as revenue expenditure resulting in under-assessment of income. The Assessing Officer disallowed the claimed amount and added it back to the total income of the assessee.

The assessee objected to the reopening, arguing that it was a change of opinion without any new material. The Ld.CIT(A) quashed the proceedings under section 147, stating that the reopening was unjustified based on the appellant's records and no new material was presented. The Ld.CIT(A) relied on legal precedents, including the decision in CIT Vs. Kelvinator of India Ltd., to support the annulment of the reassessment order.

During the appeal, the Revenue argued that the reopening was legally correct due to the failure of the assessee to capitalize the expenditure, leading to under-assessment. However, the tribunal upheld the decision of the Ld.CIT(A), emphasizing that the reopening lacked a live link nexus with any new material and amounted to a change of opinion, which is impermissible under the law. Citing the Supreme Court decision in CIT Vs. Kelvinator of India Ltd., the tribunal confirmed the annulment of the reassessment order.

In conclusion, the tribunal dismissed the appeal filed by the Revenue, affirming the decision to quash the reassessment under section 147 based on the treatment of intangible asset interest charges as revenue expenditure, in line with established legal principles.