2018 (1) TMI 1586 - AT - Income Tax

Reopening of assessment u/s 147 - validity of reason to believe - claim of depreciation on computer accessories - as per CIT AO in the original assessment order considered the issues which were the subject matter of reassessment order under section 143 read with section 147 - HELD THAT - There is no question posed by the Assessing Officer in the course of original proceedings as regards the eligibility of depreciation of computer accessories. The assessment order under section 143(3) also does not speak anything about depreciation claimed on computer accessories. There is nothing on record to suggest that there was examination by the Assessing Officer in the course of original assessment proceedings whether the asses see is entitled to depreciation on computer accessories at the rate of 60 per cent. There was no conscious opinion formed by the Assessing Officer while completing the original assessment under section 143(3) of the Income-tax Act to allow the claim of depreciation on computer accessories at the rate of 60 per cent. Since AO has not examined the issue, it cannot be stated that he had formed an opinion as regards the allowability of depreciation on computer accessories at the rate of 60 per cent. Since no opinion on the issue was formed by the Assessing Officer, the reopening of assessment cannot be stated to be a mere change of opinion. We uphold the reopening of assessment as valid. Commissioner of Income-tax (Appeals) is not justified in cancelling the reassessment. Technical know-how expenditure and royalty termination fee, whether it is to be allowed as revenue expenditure or capital expenditure and whether disallowance can be subject matter of reassessment has to be necessarily examined by the Commissioner of Income-tax (Appeals).It is for the Commissioner of Income-tax (Appeals) to conclude whether the additions are warranted on these three issues. - Decided in favour of revenue.

Summary

Issues Involved:
Reopening of assessment based on notice under section 148 within the prescribed time limit, validity of reassessment on various grounds, challenge to reopening of assessment as a mere change of opinion, consideration of specific issues in original assessment, and Commissioner of Income-tax (Appeals) decision.

Analysis:

1. Reopening of Assessment based on Notice under Section 148:
The appeal involved a case where the Department sought to reopen the assessment for the assessment year 2006-2007. The initial assessment was completed, but a notice under section 148 was issued for reassessment. The Commissioner of Income-tax (Appeals) held that the reopening of assessment was not valid, citing the judgment in the case of CIT v. Kelvinator of India Ltd. The Tribunal initially dismissed the appeal of the Revenue, stating that the notice under section 148 was issued after a lapse of four years. However, the Department filed a miscellaneous petition providing proof that the notice was served within the prescribed time. Consequently, the Tribunal recalled its earlier order, emphasizing the importance of adhering to the statutory time limit for issuing such notices.

2. Validity of Reassessment on Various Grounds:
The reassessment was challenged on multiple grounds, including other income not offered for tax, excess depreciation claimed on computer accessories, technical know-how disallowed as capital expenditure, and royalty termination fee disallowed as capital expenditure. The Tribunal examined each issue separately. While no addition was made for the income not offered for tax, the Tribunal found that the Assessing Officer had not examined the eligibility of depreciation on computer accessories during the original assessment. As a result, the reassessment was deemed valid, as it was not a mere change of opinion. The Tribunal directed the Commissioner of Income-tax (Appeals) to determine the validity of disallowances on technical know-how and royalty termination fee.

3. Challenge to Reopening of Assessment as a Mere Change of Opinion:
The assessee contended that the reassessment was merely a change of opinion, citing various judicial pronouncements to support their argument. However, the Tribunal upheld the validity of the reassessment, emphasizing that the Assessing Officer had not formed an opinion on the eligibility of depreciation on computer accessories during the original assessment. This decision was based on the provisions of Explanation 1 to section 147, which clarified the concept of disclosure of material facts for reassessment.

4. Consideration of Specific Issues in Original Assessment:
The Tribunal noted that the Assessing Officer had not examined certain issues during the original assessment, such as the eligibility of depreciation on computer accessories. This lack of examination led the Tribunal to conclude that the reassessment was not a mere change of opinion but a valid exercise of reassessment powers. The Tribunal differentiated between issues that were examined in the original assessment and those that were not, highlighting the importance of forming a conscious opinion on each matter.

5. Commissioner of Income-tax (Appeals) Decision:
The Commissioner of Income-tax (Appeals) had initially held that the reopening of assessment was invalid, primarily based on the judgment in the case of CIT v. Kelvinator of India Ltd. However, the Tribunal overturned this decision after considering the evidence presented by the Department regarding the timely issuance of the notice under section 148. The Tribunal directed the Commissioner of Income-tax (Appeals) to further examine the merits of the disallowances/additions challenged by the assessee.

In conclusion, the Tribunal allowed the appeal filed by the Revenue and the cross-objection filed by the assessee, emphasizing the importance of adherence to statutory timelines for issuing notices under section 148 and the necessity of forming a conscious opinion on specific issues during the assessment process.