2017 (1) TMI 519 - HC - Income Tax

Reopening of assessment - depreciation on goodwill disallowed - Held that - Subsequently with respect to the assessment for AY 2003-04, 2004-05, 2005-06 and 2007-08 while passing the reassessment order the Assessing Officer disallowed the depreciation on goodwill, however it is reported that subsequently the Tribunal has set aside the addition made by the Assessing Officer while disallowing the depreciation on goodwill. It is reported by Shri Shah, learned advocate appearing on behalf of the petitioner that the orders passed by the learned Tribunal has not been challenged. Apart from the above, now the issue with respect to depreciation of goodwill is now not res integra in view of the decision of the Hon ble Supreme Court in the case of Smifs Securities Ltd. (2012 (8) TMI 713 - SUPREME COURT) and the decision of the Division Bench of this Court in case of Swastik Industries (2016 (4) TMI 169 - GUJARAT HIGH COURT ). Under the circumstances also, it cannot be said that any income chargeable to tax has escaped the assessment. Under the circumstances also, the impugned notice under Section 148 of the IT Act and the reassessment proceedings deserve to be quashed and set aside.

Summary

Issues:
1. Validity of notice under Section 148 of the Income Tax Act for reopening assessment for AY 2006-07.
2. Jurisdiction of the Assessing Officer to disallow depreciation on goodwill.
3. Application of the principle of change of opinion in reassessment proceedings.
4. Interpretation of the law on depreciation of goodwill based on previous court decisions.

Analysis:
1. The petitioner sought to quash the notices under Section 148 of the Income Tax Act for reopening the assessment for AY 2006-07. The petitioner argued that the Assessing Officer had already considered and allowed the depreciation on goodwill during the scrutiny assessment under Section 143(3) of the IT Act. The court observed that the reopening was merely a change of opinion by the subsequent Assessing Officer, which is not permissible as per legal precedents. The court held that the impugned notice was not valid due to the Assessing Officer's prior consideration of the depreciation issue.

2. The petitioner contended that the Assessing Officer had allowed depreciation on goodwill since 1999 without any dispute. Additionally, in previous assessments, where the depreciation on goodwill was disallowed, the Tribunal had set aside the disallowance, indicating a consistent allowance of the depreciation. The court noted that the issue of depreciation on goodwill was no longer debatable based on relevant court decisions, and thus, no income chargeable to tax had escaped assessment. Consequently, the court found that the jurisdiction to disallow the depreciation on goodwill was not justified.

3. The court emphasized the principle that reassessment proceedings based solely on a change of opinion of the subsequent Assessing Officer are impermissible. It highlighted that the Assessing Officer had already allowed the depreciation on goodwill after considering the issue during the scrutiny assessment. The court further noted that the orders of the Tribunal, which set aside disallowances of depreciation on goodwill in previous assessments, had not been challenged. Therefore, the court concluded that the reassessment proceedings were not valid due to the application of the change of opinion principle.

4. Referring to the decisions of the Hon'ble Supreme Court and the Division Bench of the Court regarding the depreciation of goodwill, the court established that the issue was no longer res integra. The court cited specific cases where the Tribunal had overturned disallowances of depreciation on goodwill, indicating a settled legal position on the matter. Based on these legal precedents, the court determined that the impugned notice and reassessment proceedings should be quashed and set aside. As a result, the Special Civil Application succeeded, and the impugned notices were declared invalid, with the reassessment proceedings being quashed.