2012 (10) TMI 437 - AT - Income Tax

Validity of re-opening of assessment u/s 147/148 - research and development expenditure - dis-allowance of technical assistance fee paid as capital in nature - Held that - It is seen that the assessee was asked to furnish the details of Research & Development expenses and the complete details including the break-up were provided by the assessee in the original assessment which was completed after considering the details and the reply of the assessee. Thus it is seen that the facts and issue involved in the present year of appeal are identical to the facts and issue involved in AY 2001-02 wherein the Tribunal has confirmed the order of the CIT(A) holding the re-assessment proceedings as invalid. Respectfully following the same in the present year of appeal also re-assessment proceedings are held to be invalid - Decided in favor of assessee

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act.
2. Classification of technical assistance fee as capital or revenue expenditure.
3. Alleged failure of the assessee to disclose material facts fully and truly.

Issue-wise Detailed Analysis:

1. Validity of reassessment proceedings under Section 147 of the Income Tax Act:

The primary issue in the appeal was the validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act. The Revenue challenged the order of the CIT(A) which held the reassessment proceedings as invalid. The CIT(A) noted that the reassessment was based on the same set of facts which were already available during the original assessment proceedings. The CIT(A) concluded that the reassessment was merely a change of opinion and was barred by limitation as it was initiated beyond four years from the end of the relevant assessment year without any failure on the part of the assessee to disclose fully and truly all material facts.

The Tribunal upheld the CIT(A)'s decision by referencing a similar issue in the assessee's case for the assessment year 2001-02, where the reassessment proceedings were also held invalid. The Tribunal emphasized that the reasons recorded for reopening the assessment were based on facts already considered during the original assessment, thus constituting a change of opinion, which is not permissible for initiating reassessment proceedings.

2. Classification of technical assistance fee as capital or revenue expenditure:

The reassessment proceedings were initiated on the ground that the technical assistance fee paid by the assessee to AVL List GMBH for the development of SJ Series Engines was capital in nature and not revenue expenditure. The CIT(A) and the Tribunal found that the assessee had provided all necessary details and explanations regarding the technical assistance fee during the original assessment proceedings. The Assessing Officer had accepted these details and treated the expenditure as revenue in nature.

The Tribunal reiterated that the reassessment was based on the same facts and there was no new material to justify the change in classification from revenue to capital expenditure. The Tribunal referenced the Supreme Court's decision in CIT v. Kelvinator of India Limited, which held that reassessment can only be initiated if there is "tangible material" indicating escapement of income and not merely on a change of opinion.

3. Alleged failure of the assessee to disclose material facts fully and truly:

The Revenue contended that the assessee had not disclosed material facts fully and truly, leading to the escapement of income. However, the CIT(A) and the Tribunal found that the assessee had provided detailed explanations and break-ups of the product development expenses, including the technical assistance fee, during the original assessment proceedings. The Assessing Officer had considered these details before completing the assessment.

The Tribunal concluded that there was no failure on the part of the assessee to disclose material facts, and the reassessment proceedings were invalid. The Tribunal upheld the CIT(A)'s decision, which was based on the principle that reassessment beyond four years is not permissible unless there is a failure to disclose fully and truly all material facts necessary for the assessment.

Conclusion:

The Tribunal dismissed the Revenue's appeal, holding that the reassessment proceedings were invalid as they were based on a mere change of opinion and were initiated beyond the permissible time limit without any failure on the part of the assessee to disclose material facts. The technical assistance fee was rightly classified as revenue expenditure during the original assessment, and there was no new material to justify the reassessment.

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