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2018 (9) TMI 425 - HC - Income TaxReopening of assessment - change of opinion - contention of the petitioner that the very same issue came up for adjudication for the Assessment Year 2007-08 - conceptual difference between the power to review and power to reassess - Held that - It cannot be disputed that the original assessment order dated 31.08.2009 under Section 143 3 of the Act was in consonance with the view taken in the preceding as well as succeeding year. It is clear that the audit query raised, influenced the AO to take a contrary view against the decision arrived at in so far as allowing the revenue expenditure claimed by the Assessee towards licence fee/logo. These material facts supports the case of the petitioner-Assessee that the reassessment proceedings initiated under Section 147 is without jurisdiction and requires to be set aside. Assessee has furnished detailed material on the query made by the AO. If such query made is answered by the Assessee, but the AO does not deliberate on that point in the assessment order and does not make any addition in the assessment order, would show that the issue was examined by the AO, but do not find out any ground or reason to make addition or reject the stand of the Assessee. In the circumstances, it must be presumed that the AO had formed an opinion while framing the assessment under Section 143(3) of the Act. The arguments of the learned Counsel for the Revenue that the issue was not addressed by the AO, is a case of no opinion cannot be countenanced. The assessments concluded in preceding/subsequent years and the implication in the assessment order under Section 143(3) establishes the opinion formulated by the AO on the subject matter. No re-assessment proceedings can be opened based on the Audit objections sans application of mind. It is manifest that the AO had no reason to believe , any escapement of income to assessment. Hence, assumption of jurisdiction by the AO to invoke section 147 is unjustifiable. Notice dated 11.02.2014 and the order dated 01.07.2015 are unsustainable. - Decided in favour of assessee.
Issues Involved:
1. Assumption of jurisdiction under Section 147/148 of the Income Tax Act, 1961 for reopening the assessment. 2. Whether the reopening of the assessment was based on a mere "change of opinion." 3. Consideration of the expenditure towards logo commission as "revenue expenditure" or "capital expenditure." 4. Consistency in the assessment orders for different years. 5. The validity of the reassessment proceedings initiated based on an audit query. Detailed Analysis: 1. Assumption of Jurisdiction under Section 147/148: The petitioner challenged the notice issued under Section 148 and the order rejecting the objections to the notice for reopening the assessment for the Assessment Year 2009-10. The court emphasized that the crucial issue was the assumption of jurisdiction by the respondent in issuing the notice under Section 147 read with Section 148 for reopening the assessment completed under Section 143(3). 2. Reopening Based on "Change of Opinion": The petitioner contended that the reopening was based on a mere "change of opinion" as the same issue had been adjudicated in the Assessment Year 2007-08 and accepted by the respondent. The court referred to various judgments, including "COMMISSIONER OF INCOME-TAX vs. KELVINATOR OF INDIA LTD." and "COMMISSIONER OF INCOME TAX vs. USHA INTERNATIONAL LTD.," to emphasize that reopening based on a change of opinion is not permissible. The court noted that the Assessing Officer (AO) had previously accepted the logo fee as revenue expenditure and reopening the assessment without new tangible material constituted a change of opinion. 3. Expenditure Towards Logo Commission: The petitioner argued that the logo commission paid was not capital expenditure but revenue expenditure, as it was a recurring business expense based on turnover. The court noted that the AO had previously accepted this expenditure as revenue in nature for other assessment years, including 2007-08, 2010-11, and 2011-12. The court referred to the judgment in "I.A.E.C. (PUMPS) LTD." to highlight that payments for licenses to use logos do not constitute capital expenditure but revenue expenditure. 4. Consistency in Assessment Orders: The court emphasized the need for consistency in quasi-judicial functions, noting that the AO had allowed the logo commission as revenue expenditure for other years. The court found it arbitrary to take a different stand for the Assessment Year 2009-10, especially when the same expenditure was allowed in subsequent years. 5. Validity of Reassessment Based on Audit Query: The court scrutinized the original records and found that the AO had initially objected to the audit query, stating that the expenditure was correctly treated as revenue expenditure. The court observed that the reasons recorded for reopening were a verbatim repetition of the audit objections, indicating no independent application of mind by the AO. The court referred to the judgment in "P.C. PATEL AND CO. vs. DEPUTY COMMISSIONER OF INCOME TAX" to emphasize that reassessment proceedings initiated solely based on audit objections without the AO's independent reason to believe are invalid. Conclusion: The court concluded that the AO had no "reason to believe" that there was an escapement of income to justify reopening the assessment under Section 147. The court held that the reassessment proceedings were based on a mere change of opinion and were influenced by audit objections without independent application of mind. Consequently, the court quashed the notice dated 11.02.2014 and the order dated 01.07.2015, deeming them unsustainable.
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