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2013 (3) TMI 463 - AT - Income TaxReopening of assessment - purchase of designs and drawings treated as revenue are of Capital nature - Held that - It is evident that in the original assessment, the assessee claimed certain expenses which are in the nature of purchase of designs and drawings to be revenue expenditure and the same were disallowed as such. Now, in the opinion of the AO it is in the nature of capital expenditure. Thus, as per the AO himself, there is no failure on the part of the assessee to disclose any material fact necessary for assessment. It is a clear case of change of opinion wherein the succeeding AO is of the opinion that the expenditure which was allowed in the original proceedings as revenue expenditure is in the nature of capital expenditure. However, as per the proviso to Section 147, unless there is any failure on the part of the assessee to disclose any material fact, the assessment cannot be reopened. See Atma Ram Properties Pvt.Ltd. Vs. DCIT (2011 (11) TMI 51 - DELHI HIGH COURT) if AO had failed to apply legal provisions/section of the Income-tax Act, 1961, the fault cannot be attributed to the assessee - in favour of assessee.
Issues Involved:
Reopening of assessment under Section 147/148 beyond four years from the end of the relevant assessment year without failure to disclose material facts necessary for assessment. Detailed Analysis: Issue 1: Reopening of Assessment The appeal by the Revenue challenged the order of the learned CIT(A)-XII, New Delhi dated 30th April, 2012 for the AY 2004-05. The Revenue raised several grounds against the quashing of the reopening of assessment under Section 147/148. Issue 2: Proviso to Section 147 The Proviso to Section 147 states that when the original assessment is completed under Section 143(3), reopening cannot be done beyond four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to furnish the return of income or to disclose all material facts necessary for assessment. Issue 3: Failure to Disclose Material Facts The reasons recorded for reopening of assessment highlighted that the assessee had purchased "Designs & Drawings" claimed as revenue expenditure, which the Assessing Officer believed should have been treated as capital expenditure. However, it was noted that there was no failure on the part of the assessee to disclose any material fact necessary for assessment. Issue 4: Change of Opinion The case presented a scenario of a change of opinion by the Assessing Officer regarding the nature of the expenditure claimed by the assessee. The subsequent Assessing Officer considered it to be capital expenditure, which was initially allowed as revenue expenditure. However, as per the proviso to Section 147, reopening of assessment requires a failure on the part of the assessee to disclose material facts. Issue 5: Legal Precedent The decision of the Hon'ble Jurisdictional High Court in the case of Atma Ram Properties Pvt. Ltd. Vs. DCIT was cited, emphasizing that to initiate reassessment after four years, there must be a failure on the part of the assessee to disclose material facts necessary for assessment. Mere failure of the Assessing Officer to apply legal provisions cannot be attributed to the assessee. Judgment: In line with the legal precedent and interpretation of the relevant provisions, the Tribunal upheld the order of the learned CIT(A) and dismissed the appeal filed by the Revenue, concluding that there was no failure on the part of the assessee to disclose material facts, and the assessment could not be reopened beyond the specified period. Conclusion: The judgment focused on the necessity of a failure on the part of the assessee to disclose material facts for the reopening of assessment beyond the prescribed timeline, highlighting the importance of adhering to legal provisions and precedents in such matters.
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