2010 (1) TMI 909 - AT - Income Tax

Income escaping assessment u/s 147 / 148 - Depreciation - Assessing Officer completed the assessment by disallowing the claim of depreciation on stock exchange card - Held that - In fact the Jurisdictional High Court has upheld the view of the A.O. The reopening was within 4 years and there is no order passed u/s 143(3). The reason recorded is a possible reason and can be said to be a reason which can lead to the A.O. to believe that income has escaped amount. Thus we are unable to accept the contention of the assessee and hold that the reopening is valid in law. - assessee is not entitled to depreciation on Bombay Stock Exchange card Techno Shares and Stocks Limited (2006 -TMI - 99594 - ITAT of Mumbai Disallowances on account of software expenses business promotion expenses and amortization of investments - assessee had given certain advances i.e. 30% for development of software - copy of the bill is placed in the paper book and a perusal of this copy reflects that this is simply an advance - Held that - expenditure has been incurred wholly and exclusively for the purpose of business and as the amount paid is loss it is a business loss and hence the claim of the assessee should be allowed.

Issues Involved:
1. Validity of reopening the assessment under Section 147.
2. Disallowance of software expenses.
3. Entitlement to depreciation on Bombay Stock Exchange (BSE) membership card.
4. Allowance of business promotion expenditure.
5. Allowance of diminution in the value of investments.
6. Cross objection regarding the scope of inquiry upon reopening of assessment.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The assessee argued that the reopening of the assessment was invalid as the jurisdictional conditions prescribed under Section 147 were not satisfied. The Commissioner of Income Tax (Appeals) upheld the reopening, stating that the Assessing Officer (A.O.) had "reasons to believe" that income chargeable to tax had escaped assessment. The assessee contended that the A.O. could not have had such reasons based on the decisions available at the time of reopening. However, the Tribunal held that the reopening was valid, noting that the A.O.'s belief was based on the disallowance of depreciation on the BSE membership card, which was a bonafide reason. The Tribunal emphasized that the formation of belief is within the subjective satisfaction of the A.O., as supported by the Supreme Court's decision in Rajesh Jhaveri Stock Broking Ltd. [291 ITR 500 (SC)].

2. Disallowance of Software Expenses:
The assessee claimed that the software expenses should be allowed as a business loss. The Tribunal found that the assessee had given a 30% advance for developing software, which was ultimately scrapped as it could not be integrated with the existing system. The Tribunal allowed the claim, considering the expenditure as a business loss, as it was incurred wholly and exclusively for the purpose of business. The Tribunal rejected the Revenue's contention that further evidence was required, noting that the bill provided sufficient proof of the advance payment and the purpose of the expenditure.

3. Entitlement to Depreciation on BSE Membership Card:
The Revenue's appeal challenged the allowance of depreciation on the BSE membership card. The Tribunal noted that the issue was concluded in favor of the Revenue by the jurisdictional High Court in Techno Shares and Stocks Limited, which held that the assessee is not entitled to depreciation on the BSE card. Respectfully following this judgment, the Tribunal allowed the Revenue's appeal on this ground.

4. Allowance of Business Promotion Expenditure:
The Revenue contested the allowance of business promotion expenditure, arguing that the bill was raised in the name of Tata Finance Limited, not the assessee-company. The Tribunal upheld the first appellate authority's decision to allow the expenditure, noting that the bill was later rectified to reflect the correct name and that the expenditure was incurred by the Director of the assessee-company.

5. Allowance of Diminution in the Value of Investments:
The Revenue's appeal also challenged the allowance of diminution in the value of investments. The Tribunal found that the assessee had consistently disclosed profits on the sale of investments as business profits, and the A.O. had always assessed them as such. The Tribunal upheld the first appellate authority's decision to allow the claim, citing the Supreme Court's judgment in Investment Ltd. vs. CIT, which supports the consistent method of accounting adopted by the trader.

6. Cross Objection Regarding the Scope of Inquiry upon Reopening of Assessment:
The assessee's cross objection argued that the A.O. should not make a fishing inquiry to probe other potential escaped incomes upon reopening. The Tribunal noted that it had already dealt with the disallowances on merits and allowed the claims of the assessee. Therefore, the issue raised in the cross objection was deemed academic and did not require further adjudication.

Conclusion:
The assessee's appeal was partly allowed, with the Tribunal validating the reopening of the assessment and allowing the claim for software expenses as a business loss. The Revenue's appeal was also partly allowed, with the Tribunal denying the depreciation on the BSE membership card but upholding the allowance of business promotion expenditure and diminution in the value of investments. The cross objection by the assessee was disposed of as academic.

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