2018 (10) TMI 1184 - AT - Income Tax

Reopening of assessment u/s 147 - arbitrary power upon the Assessing Officer to reopen the proceedings - validity of reasons to believe - advertisement expenses disallowance - Held that - AO during the course of original assessment proceedings, had made specific queries to which the assessee not only gave specific replies, but the reply of the assessee was well supported by the evidences/details. If the action of the AO is accepted, then it would confer arbitrary power upon the Assessing Officer to reopen the proceedings on the slightest pretext. Mere change in the opinion would not confer jurisdiction upon the Assessing Officer to initiate a proceeding u/s 147. A perusal of the reasons for reopening shows that there was no new tangible material evidence which prompted the AO to issue notice for reopening of the assessment. Kelvinator of India Ltd 2010 (1) TMI 11 - SUPREME COURT OF INDIA to be followed. In his reasons for reopening the assessment AO had observed that the assessee had claimed and allowed advertisement expenses of ₹ 23.31 crores out of which the assessee was reimbursed ₹ 10.97 crores and balance of ₹ 11.50 crores has been shown under the head Loan and Advance recovered towards reimbursement. This observation of the AO for reopening the assessment is factually incorrect. Advertisement and Publicity expenses are at ₹ 10.66 crores and selling and distribution expenses are at ₹ 24.76 crores. The balance of advertisement and publicity expenses is covered by financial support of ₹ 10.97 crores received from AE Yamaha Motor Company, Japan. It appears that the AO has taken the figure from the balance sheet. Exhibit 56, Schedules to the Accounts Schedule 5 Loans and Advances showing ₹ 1339.90 lakhs, the details of the same and in the bifurcation, the assessee has to receive ₹ 11.50 crores from Yamaha Motor Company, Japan as amount recovered towards reimbursement of advertisement expenses and other financial support provided by Yamaha Motor Company, Japan. This amount has never been claimed as expenditure by the assessee. Thus, it can be seen that the Assessing Officer had proceeded to reopen the assessment on wrong assumption of facts in so far as claim of advertisement expenditure are concerned and wrong assumption of law in so far as claim of depreciation is concerned. Thus reopening is bad in law. - Decided in favour of assessee.

Summary

Issues:
Reopening of assessment under section 147 of the Income-tax Act, 1961 and challenge of disallowance.

Analysis:
The judgment involves cross-appeals by the assessee and the Revenue against an order framed under section 143(3) read with section 144C(4) of the Income-tax Act, 1961 for the assessment year 2011-12. The main issue addressed is the challenge of reopening the assessment under section 147 of the Act. The original assessment was conducted on 30.12.2008, and later, the Assessing Officer sought to reopen the assessment based on certain reasons related to depreciation on goodwill and advertisement expenses. The assessee vehemently contended that the issues prompting the reopening were already considered during the original assessment proceedings, with specific queries raised by the Assessing Officer and detailed responses provided by the assessee, supported by relevant evidence.

During the original assessment proceedings, the Assessing Officer had raised queries regarding various expenses, including advertisement and sales promotion, and the assessee had provided detailed responses and evidence to support the claims. The Tribunal noted that the issue of claiming depreciation on goodwill as an intangible asset had been settled in favor of the assessee by a decision of the Supreme Court. The Tribunal also observed that the Assessing Officer's reasons for reopening the assessment lacked new tangible material evidence and were based on incorrect assumptions of facts and law.

The Tribunal held that the reopening of the assessment was arbitrary and lacked jurisdiction, as there was no substantial new evidence to warrant such action. Citing precedents, the Tribunal emphasized that a mere change in opinion does not empower the Assessing Officer to initiate proceedings under section 147 of the Act. The Tribunal quashed the reopening proceedings and consequently nullified the assessment order.

As a result, the Tribunal allowed the appeal of the assessee and dismissed that of the Revenue. The judgment highlights the importance of substantial new evidence and correct legal interpretation in justifying the reopening of assessments under section 147 of the Income-tax Act, 1961.

This detailed analysis of the judgment provides insights into the legal reasoning and considerations involved in challenging the reopening of assessments and addressing issues related to depreciation on goodwill and advertisement expenses under the Income-tax Act, 1961.