2011 (9) TMI 160 - HC - Income Tax

Reassessment u/s 147 / 148 - re-opening on the basis of claim of excess deduction - change of opinion - The issue that needs examination is whether the question that royalty payable was in the nature of revenue expenditure, and not capital expenditure, was examined during the original assessment proceedings. - held that - In the objections the petitioner had referred to the reply filed during the course of the original assessment proceedings. Nothing prevented the Assessing Officer from examining the said aspect and stating that no reply was filed by the petitioner in the course of the original assessment proceedings. The new Assessing Officer could have also asked and verified facts from the earlier Assessing Officer who had passed the original assessment order, as the documents/papers were missing. On the other hand, a cryptic order was passed without specifically dealing with the said contention and fact stated by the petitioner. - Decided in favor of assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act, 1961.
2. Examination of royalty payments as revenue or capital expenditure.
3. Inclusion of Rs.10,44,276/- in the computation of income for earlier assessment years.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147/148:
The petitioner challenged the reassessment proceedings initiated via notice dated 18th April 2007, for the assessment year 2003-04, and sought quashing of the order dated 15th October 2007, which rejected their objections. The petitioner argued that the reassessment was based on a mere change of opinion, which is not a valid ground for reassessment. The court noted that the original assessment records were scanty and relevant documents were missing. The court held that the reasons recorded for reassessment showed only a change of opinion, making the reassessment proceedings invalid.

2. Examination of Royalty Payments as Revenue or Capital Expenditure:
The petitioner contended that during the original assessment proceedings, they had submitted a reply regarding royalty payments, claiming them as revenue expenditure. The Assessing Officer, in the order dated 15th October 2007, did not refer to any such reply and stated that no explanation was available on record. The court observed that the original records were missing and the respondents failed to specifically deny the petitioner's claim that the reply on royalty payments was filed during the original assessment. The court concluded that the reassessment proceedings could not be initiated based on a change of opinion regarding the nature of royalty payments.

3. Inclusion of Rs.10,44,276/- in the Computation of Income for Earlier Assessment Years:
The petitioner argued that the amount of Rs.10,44,276/- had already been added back in the computation of income for the assessment years 2001-02 and 2002-03. The Assessing Officer, in the reassessment order dated 5th November 2007, added this amount back, stating that the petitioner failed to substantiate its inclusion in earlier years. The court found that the Revenue had no material to show that this amount was not added back in the earlier assessment years, making the reassessment on this ground baseless and without foundation.

Conclusion:
The court allowed the writ petition, quashing the notice under Section 147/148 dated 18th April 2007, and the order dated 15th October 2007, rejecting the petitioner's objections. The court held that the reassessment proceedings were based on a mere change of opinion and were therefore invalid. There was no order as to costs.