2017 (9) TMI 462 - AT - Income Tax

Reopening of assessment - Disallowance of depreciation on product development expenditure and technical know how fees - reason to believe - Held that - We find that the assessee has given all the particulars of product development expenses and also reconciliation of capitalization of fixed assets before the Assessing Officer during the course of the original assessment proceedings which included the product development expenditure also. This fact is clearly borne out from the letter dated 15.12.2006 filed before the Assessing Officer in response to the notice/query raised by the Assessing Officer. All the particulars and details of capitalization and claim of depreciation were also shown in the audited balance sheet filed along with the return of income. Once the assessee has made full and true disclosures of material fact, then the onus cast upon the assessee stands discharged and it is upon the Assessing Officer to draw proper legal and factual inference. Assessing Officer has neither ascribed any failure on the part of the assessee to disclose fully and truly all material facts nor has brought anything on record to show that product development expenses under the law can never be treated as an asset or a capital expenditure on which depreciation is allowable. In absence of such finding, we are unable to hold that in terms of proviso to section 147, the Assessing Officer has no jurisdiction to reopen the case beyond the period of four years from the end of the relevant assessment years, where assessment has been finalized under section 143(3). Thus, the reopening of the assessment on the aforesaid reasons is clearly bad in law and accordingly, impugned assessment order is quashed. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening assessment proceedings under section 147 beyond the four-year period.
2. Failure to disclose material facts fully and truly by the assessee.
3. Jurisdiction of the Assessing Officer in reopening the assessment.

Analysis:

Issue 1: Validity of reopening assessment proceedings under section 147 beyond the four-year period:
The case involved an appeal and cross objection against an order dated 20.01.2014, regarding the quantum of assessment for the A.Y. 2004-05. The Assessing Officer issued a notice under section 147 beyond the four-year period, based on the belief that an amount had escaped assessment due to the treatment of product development expenses as capital expenditure. The Tribunal found that the Assessing Officer did not provide any new information or tangible material justifying the reassessment beyond the four-year period. The Tribunal held that the reopening of the assessment based on the provided reasons was legally unsound and quashed the assessment order.

Issue 2: Failure to disclose material facts fully and truly by the assessee:
The assessee contended that it had fully disclosed all material facts during the original assessment proceedings, including details of product development expenses and justification for claiming depreciation. The Tribunal observed that the assessee had submitted all relevant information and particulars, fulfilling its obligation to disclose fully and truly all material facts. The Tribunal noted that the Assessing Officer did not allege any failure on the part of the assessee to disclose material facts. Therefore, the Tribunal concluded that the assessee had discharged its disclosure obligations, and the reopening of the assessment was unjustified.

Issue 3: Jurisdiction of the Assessing Officer in reopening the assessment:
The Tribunal analyzed various decisions cited by both parties to determine the validity of the Assessing Officer's jurisdiction in reopening the assessment. The Tribunal distinguished the facts of the present case from the precedents cited by the Revenue, emphasizing the absence of any failure or omission on the part of the assessee to disclose material facts. The Tribunal highlighted the requirement for the Assessing Officer to establish a failure to disclose material facts in the reasons recorded for reopening the assessment, especially when done beyond the four-year period. Relying on relevant case law, the Tribunal concluded that the Assessing Officer lacked jurisdiction to reopen the assessment in this case. As a result, the revenue's appeal was dismissed, and the assessee's cross objection was allowed.

In conclusion, the Tribunal held that the reopening of the assessment beyond the four-year period was unjustified as the assessee had fulfilled its disclosure obligations, and the Assessing Officer failed to provide sufficient grounds for reassessment. The judgment emphasized the importance of establishing a failure to disclose material facts in the reasons recorded for reopening assessments, especially when done beyond the statutory period.