2014 (5) TMI 1167 - HC - Income Tax

Reopening of assessment - legal expenses and charges allowability - expenditure incurred towards filing of patent applications should have been treated as capital expenditure - failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment - Held that - All material facts with reference to the deductions claimed by the Petitioner in respect of the legal expenses and charges, were disclosed by the Petitioner not only during the original assessment proceedings but also during the scrutiny assessment, which culminated in the assessment order dated 30th December 2008. We therefore find that in fact there had been no failure on the part of the Petitioner to disclose fully and truly all material facts as required under the first proviso to section 147 of the Act. On a perusal of the reasons for initiating to assessment proceedings, we find that it is not even the case of Respondent No. 1 that any new tangible material was brought to his notice which led him to believe that income had escaped assessment. As stated earlier, all material facts were disclosed by the Petitioner in proceedings that were undertaken under sections 142(1) r/w 143(2), which finally culminated in the assessment order dated 30th December 2008 under section 143(3). It is therefore evident that Respondent No. 1 after passing the original assessment order dated 30th December 2008 has changed his opinion and issued the impugned notice under section 148. The reasons for the impugned notice as well as the impugned order proceed on the basis that a patent is a capital asset and hence expenditure incurred towards filing of patent applications should have been treated as capital expenditure. Since it was treated as a revenue expenditure, there was computation of excessive loss which resulted in income escaping assessment. Therefore now, despite the fact that in the original assessment order this very expenditure was allowed as a revenue expenditure, Respondent No. 1 now seeks to treat the same as a capital expenditure. This to our mind is nothing but a change of opinion , and hence Respondent No.1 had no jurisdiction to re-open the assessment proceedings. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the Notice under Section 148 of the Income Tax Act, 1961.
2. Alleged failure to disclose fully and truly all material facts necessary for assessment.
3. Whether the re-assessment proceedings were based on a "change of opinion".

Detailed Analysis:

1. Validity of the Notice under Section 148 of the Income Tax Act, 1961:
The Petitioner sought quashing of the Notice dated 28th March, 2012 issued under Section 148 of the Income Tax Act, 1961, arguing that it was issued beyond the permissible period of four years from the end of the relevant Assessment Year 2005-06. The court noted that under Section 147, no action for re-assessment can be initiated after four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The court found that the Assessing Officer (Respondent No. 1) did not provide specific details of any such failure, thus rendering the notice invalid.

2. Alleged failure to disclose fully and truly all material facts necessary for assessment:
The court examined the record and found that the Petitioner had disclosed fully and truly all material facts during the original assessment proceedings. The Petitioner had provided detailed information regarding legal and professional charges, including those related to patent applications filed outside India. The court emphasized that the reasons for re-opening the assessment must be clear and specific, highlighting which facts were not disclosed. In this case, the court found no such specific details in the reasons recorded by the Assessing Officer, deeming the assertion of non-disclosure as a mere bald assertion.

3. Whether the re-assessment proceedings were based on a "change of opinion":
The court observed that the original assessment order, passed under Section 143(3) on 30th December 2008, had considered all material facts, including the legal and professional charges. The re-assessment notice issued on 28th March 2012 was based on the same material facts and did not introduce any new tangible material. The court concluded that the re-assessment proceedings were merely based on a "change of opinion" by the Assessing Officer, which is impermissible in law. The court held that the Assessing Officer had no jurisdiction to re-open the assessment on this basis.

Conclusion:
The court ruled in favor of the Petitioner, quashing the Notice dated 28th March, 2012 and the subsequent Order dated 25th February, 2013. The court found that there was no failure on the part of the Petitioner to disclose all material facts necessary for assessment and that the re-assessment proceedings were based on a "change of opinion." The writ petition was granted in terms of the prayer clauses (a) and (c), with no order as to costs.