2018 (8) TMI 988 - HC - Income Tax

Reopening of assessment - error committed by the original assessing officer (AO) - Prior period depreciation - Prepayment premium on IDFC Term Loan - Excess depreciation on Plant and Machinery - Excess depreciation on the intangible asset Brand Name by wrongly adopting the WDV - Held that - The depreciation Schedule as per the IT Rules was shown to us by the AO as available in the records. It contains the depreciation for plant and machinery and brand name is shown separately in the said Schedule. The AO admits that on a careful scrutiny definitely dis-allowance ought to have been made by the person who carried out the original scrutiny assessment under Section 141(3). The learned Senior Counsel for the Revenue supports the AO and points out that as per the decisions cited by him even an error committed by the AO would come within the ambit of a re-opening on valid grounds of escapement of income. It is also argued that the allowances were not specifically granted and there is no reasoning available in the order; which alone would reveal a definite opinion having been formed by the AO. True the AO could have found the wrong claims made by the assessee from the profit and loss account as also the depreciation Schedule filed under the IT Rules. However obviously there is no discussion nor is there any finding entered into in the assessment order at Ext.P2. We do not see any of the issues having been discussed by the AO nor is there an opinion expressed specifically with respect to the issues now sought to be reopened under Section 147. In such circumstances it cannot be said that there was a mere change of opinion in initiating the reassessment proceedings under Section 147 within the four year period by the new incumbent AO. Decided against the assessee.

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Prior period depreciation not disallowed in tax computation.
3. Prepayment premium on IDFC Term Loan treated as capital expenditure.
4. Excess depreciation claimed on Plant and Machinery.
5. Excess depreciation allowed on the intangible asset "Brand Name."

Issue-wise Detailed Analysis:

1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961:
The appellant challenged the reassessment proceedings initiated under Section 147 of the IT Act, asserting that the assessment was already completed under Section 143(3) and that all relevant issues were considered and disclosed during the original assessment. The appellant argued that the reassessment was merely a change of opinion, which is not permissible. The court referred to the Full Bench decision of the Delhi High Court in *Commissioner of Income Tax v. Kelvinator of India Ltd.*, upheld by the Supreme Court, which established that a mere change of opinion does not justify reassessment. The court also examined the principles laid down in *Usha International Ltd.*, emphasizing that reassessment is invalid if it is based on a change of opinion.

2. Prior period depreciation not disallowed in tax computation:
The appellant contended that the prior period depreciation amounting to ?2,886,370 was disclosed and considered during the original assessment. The court reviewed the records and found that the issue was indeed placed before the Assessing Officer (AO) but was not specifically discussed or disallowed in the assessment order. The court concluded that the absence of a specific discussion or disallowance does not constitute a change of opinion, thus allowing reassessment on this ground.

3. Prepayment premium on IDFC Term Loan treated as capital expenditure:
The appellant argued that the prepayment premium of ?1,500,000 was disclosed in the Profit and Loss Account and should not be treated as capital expenditure. The court found that this issue was mentioned in the explanatory note provided to the AO but was not specifically addressed in the assessment order. The court held that since there was no discussion or conclusion on this point in the original assessment, reassessment on this ground is permissible.

4. Excess depreciation claimed on Plant and Machinery:
The appellant claimed excess depreciation of ?875,240 on Plant and Machinery, which was not disallowed in the original assessment. The court examined the records and determined that the depreciation schedule was available to the AO, but the issue was not specifically addressed in the assessment order. The court ruled that the reassessment on this ground is valid as there was no prior opinion formed by the AO.

5. Excess depreciation allowed on the intangible asset "Brand Name":
The appellant claimed excess depreciation of ?2,541,250 on the intangible asset "Brand Name" by adopting the Written Down Value (WDV) as of the first day of the year of amalgamation instead of the last day. The court found that the depreciation schedule was available in the records, but the issue was not specifically discussed or disallowed in the assessment order. The court concluded that reassessment on this ground is valid as there was no prior opinion formed by the AO.

Conclusion:
The court upheld the reassessment proceedings under Section 147, finding no evidence of a mere change of opinion. The court emphasized that the absence of specific discussions or conclusions in the original assessment order on the issues now sought to be reopened justified the reassessment. The court rejected the appellant's contentions and dismissed the writ appeal.

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