2009 (2) TMI 55 - HC - Income Tax

Whether reopening of the assessment beyond four years is justified reassessment order on ground that goodwill is not an intangible asset and therefore not eligible for depreciation u/s 32(3)(b) since there was no failure on the part of the petitioner to disclose all facts the reopening of the assessment after the expiry of 4 years cannot be sustained - ingredients of section 147 are not fulfilled by revenue - notice issued u/s 148 after the expiry of four years is quashed and set aside

Summary

Issues:
Challenge to notice under section 148 of the Income Tax Act, 1961 for reopening assessment for AY 2002-03 based on depreciation of goodwill.

Analysis:
The petition challenged a notice issued under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for AY 2002-03 due to the allowance of depreciation on goodwill. The petitioner, a company engaged in automobile insulation business, had filed its return for the relevant year, which was duly assessed under section 143(3) of the Act. The notice for reopening the assessment was solely based on the contention that goodwill is not an intangible asset eligible for depreciation under section 32(3)(b) of the Act. The assessing officer argued that the petitioner failed to disclose fully and truly all material facts necessary for assessment, justifying the reassessment.

The petitioner objected to the reopening, asserting that all relevant facts regarding the claim of depreciation on goodwill were disclosed in the return of income and accompanying documents. The court noted that the nature of goodwill disclosure would only be relevant if depreciation eligibility depended on it. In this case, since the revenue's specific argument was that goodwill is not an intangible asset, the failure to disclose the nature of goodwill was deemed irrelevant. The court found that all facts related to the claim of depreciation on goodwill were fully disclosed by the petitioner, rejecting the revenue's contention of non-disclosure.

The court clarified that the issue of whether goodwill qualifies as a commercial right or an intangible asset was not decided in this case, focusing solely on the disclosure of material facts. Citing a Supreme Court decision, the court emphasized that for reopening an assessment, the conditions of section 147 must be met, which were not fulfilled in this instance. Consequently, the notice under section 148 issued after the statutory period was quashed, leading to the setting aside of the reassessment order passed based on the notice.

In conclusion, the court held that as there was no failure on the part of the petitioner to disclose all material facts regarding the claim of depreciation on goodwill, the reopening of the assessment for AY 2002-03 beyond the prescribed period could not be sustained. The court ruled in favor of the petitioner, quashing both the notice and the reassessment order, with no costs imposed.