2010 (12) TMI 820 - AT - Income Tax

Depreciation - Reopening - Rectification of mistakes - Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (2010 -TMI - 35201 - SUPREME COURT OF INDIA) held that reopening cannot be made on a mere change of opinion. Once the AO has formed an opinion that the asset in question is not goodwill but an intangible asset eligible for depreciation the notice given u/s 148 on a change of opinion cannot be sustained - Decided in favour of the assessee

Summary

Issues:
1. Validity of initiating proceedings u/s 148 of the Income Tax Act, 1961.
2. Disallowance of depreciation on intangible assets as commercial rights u/s 32.

Analysis:

Issue 1: Validity of initiating proceedings u/s 148:
The appeal challenged the initiation of proceedings u/s 148 by the Assessing Officer (AO). The counsel for the assessee argued that the reopening was based on a change of opinion, citing relevant case laws. The counsel contended that the depreciation claimed on intangible assets had been allowed in the original assessment, and thus, reopening was unjustified. The AO had earlier raised a query on the depreciation claim, which was duly responded to by the assessee. The Tribunal observed that the reopening based on a change of opinion was not permissible under the law. Citing precedents, including the Bombay High Court and the Supreme Court judgments, the Tribunal held that the AO's action was a mere change of opinion, rendering the reopening invalid. Consequently, the Tribunal quashed the assessment on this ground.

Issue 2: Disallowance of depreciation on intangible assets:
The second ground of appeal contested the disallowance of depreciation on intangible assets acquired as commercial rights under section 32. The counsel for the assessee argued that the amount paid for the transfer of business included elements such as marketing database, network use, and human resources transfer, qualifying as intangible assets eligible for depreciation. The counsel emphasized that the payment was not for goodwill but for specific commercial rights, justifying the depreciation claim. On the contrary, the Departmental Representative contended that the claim was erroneous as it pertained to goodwill. However, after considering all submissions and examining the agreement between the parties, the AO had initially allowed the depreciation claim. Subsequently, attempts were made to disallow the claim through a notice u/s 154 and a reopening u/s 148, both of which were challenged and deemed invalid by the Tribunal. As a result, the Tribunal allowed the appeal filed by the assessee, thereby upholding the claim for depreciation on intangible assets.

In conclusion, the Tribunal's judgment addressed the issues of the validity of initiating proceedings u/s 148 and the disallowance of depreciation on intangible assets comprehensively, ensuring adherence to legal principles and precedents. The decision emphasized the importance of proper assessment procedures and the inadmissibility of reopening assessments based on mere changes of opinion.