2014 (11) TMI 184 - HC - Income Tax

Reopening of assessment u/s 148 Excess depreciation allowed or not - Jurisdiction for reopening Change of opinion - Whether during the survey proceedings u/s 133A of the Act certain facts emerged which give reason to believe that the claim for depreciation on intangible assets was based on incorrect valuation - Held that - The Assessment order u/s 143(3) of the Act for AY 2009-10 was passed on 26 December 2012 while Assessment Order under Section 143(3) of the Act for AY 2010-11 was passed on 12 December 2012 by the AO - The survey proceedings took place thereafter in September 2013 - During the survey proceedings under Section 133A of the Act statement of Managing Director of the petitioner as well as Chartered Engineer who valued the intangible assets were recorded - In his statement the Managing Director stated that he was ready to withdraw 50% of the claim for depreciation for AY 2009-10 and 2010-11 subject to fresh valuation of the intelligible assets - The acceptance of the Managing Director is itself sufficient tangible material for the AO to reopen the assessment for the purpose of considering the assessee s claim with regard to valuation of intangible assets and the claim for depreciation the notices have not been issued on the basis of change of opinion but on the basis of fresh tangible material obtained during the survey proceedings after the assessment orders u/s. 143(3) of the Act for A.Y.2009-10 and 2010-11 were passed thus, there was no reason to interfere with the notices Decided against assessee.

Summary

Issues:
1) Challenge to two notices dated 20 November 2013 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2009-10 and 2010-11.
2) Claim of depreciation on intangible assets and valuation discrepancies.
3) Reopening of assessment based on fresh tangible material obtained during survey proceedings.
4) Jurisdiction of Assessing Officer to proceed with reassessment.

Analysis:
1) The petitions challenged two notices issued under Section 148 of the Income Tax Act, seeking to reopen assessments for 2009-10 and 2010-11 within 4 years from the end of the assessment year. The petitions raised identical issues, with differences in figures claimed for depreciation. The focus was on the claim of depreciation on intangible assets, particularly Goodwill, for which no depreciation was claimed in 2009-10 but was claimed in 2010-11.

2) The petitioner filed its return of income for 2009-10 valuing intangible assets, including Goodwill, Product Research & Development, and Product Design & Drawing. Depreciation was claimed on research and development assets, but not on Goodwill. The Assessing Officer assessed income at a certain amount after accepting the depreciation claim. A survey under Section 133A in 2013 raised concerns about the valuation and existence of intangible assets, leading to the issuance of impugned notices.

3) The impugned notices were based on tangible material obtained during the survey, where discrepancies in valuation and existence of intangible assets were highlighted. The petitioner's objection that the notices were a mere change of opinion was rejected by the Assessing Officer, who found that the depreciation claim was based on incorrect valuation, justifying the reopening of assessments under Section 147.

4) The petitioner contended that the notices lacked jurisdiction due to being based on a change of opinion. However, the court upheld the validity of the notices, stating that tangible material from the survey proceedings provided grounds for reassessment. The court dismissed the petitions, allowing the Assessing Officer to proceed with reassessment for both years, emphasizing the need for proper valuation examination during reassessment without influence from the court's observations.