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2019 (10) TMI 74 - AT - Income TaxReopening of assessment u/s 147 - validity of reasons to believe - HELD THAT - There is nothing on the basis of which it can be said that there was failure on the part of the assessee to disclose all material facts fully and truly. Infact we are unable to even find any allegation by the AO to the effect that there was failure on the part of the assessee to disclose all material facts fully and truly. Even at the time of hearing before us, it was not the case of the DR that the assessee has failed to disclose the material facts fully and truly. We hold that Revenue has failed to show that there was failure on the part of the assessee to disclose all material facts fully and truly. When the assessee has filed a return u/s 139 or in response to sections 142(1) or 148 of the I.T.Act and when an assessment order u/s 143(3) or u/s 147 has already been passed then the assessee enjoys statutory protection under proviso to section 147 from any action u/s 147 after the expiry of four years from the end of the relevant assessment years; unless income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to fully and truly disclose all material facts necessary for his assessment for that assessment year. Onus is on Revenue to show that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for his assessment for that assessment year and in the instant case, Revenue has failed to discharge this onus. When it is not the case of the Revenue that there was failure on the part of the assessee to disclose all material facts fully and truly, Revenue cannot violate the statutory protection enjoyed by the assessee under proviso to section 147 of the Act. Statutory protection enjoyed by the assessee under proviso to section 147 of the Act was wrongly violated by Revenue. Therefore, we dismiss all the grounds of appeal in this appeal filed by the Revenue, and hold that the assumption of jurisdiction u/s 147 and initiation of proceedings u/s 147 r.w.s. 148 of the Act was erroneous in law For Coming to this conclusion, we take support from the order of the Hon ble jurisdictional High Court in the case of Bharti Infratel Limited vs. DCIT 2019 (1) TMI 1072 - DELHI HIGH COURT held that when the proviso applies, the Assessing Officer must satisfy himself and state that there has been failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment - assessment proceedings u/s 147 / 148 cancelled - Decided in favour of assessee.
Issues Involved:
1. Validity of reassessment proceedings under sections 147/148 of the Income Tax Act, 1961. 2. Whether the franchise fee paid by the assessee should be treated as capital or revenue expenditure. Detailed Analysis: 1. Validity of Reassessment Proceedings under Sections 147/148 of the Income Tax Act, 1961: The Revenue appealed against the order of the Learned Commissioner of Income Tax (Appeals) [“Ld. CIT(A)”], which quashed the reassessment proceedings under sections 147/148 of the Income Tax Act, 1961. The original assessment was completed under section 143(3) on 29.12.2006, where the income was assessed at ?87,27,232/-. The assessment was reopened under section 147 by issuing a notice under section 148 on 22.03.2011, based on the reason that the franchise fee of ?2,40,00,000/- claimed by the assessee was of a capital nature and should have been disallowed. The Ld. CIT(A) quashed the reassessment proceedings, stating that the Assessing Officer (AO) did not allege any failure on the part of the assessee to disclose fully and truly all material facts, which is a precondition for taking action under section 148 after the expiry of four years. The AO had formed an opinion during the original assessment that the franchise fee was correctly claimed as revenue expenditure. The Ld. CIT(A) concluded that the reassessment was merely a change of opinion without any new facts or material on record. The ITAT upheld the Ld. CIT(A)’s decision, emphasizing that the reassessment proceedings were initiated more than four years after the end of the relevant assessment year. The ITAT noted that the Revenue failed to show any failure on the part of the assessee to disclose all material facts fully and truly. The ITAT referred to the proviso to section 147, which protects the assessee from reassessment after four years unless there is a failure to disclose material facts. The ITAT cited several judicial precedents, including the Supreme Court’s decision in CIT vs. Kelvinator of India Ltd., which held that a mere change of opinion is not a valid reason for reassessment. 2. Treatment of Franchise Fee as Capital or Revenue Expenditure: The AO treated the franchise fee of ?2,40,00,000/- paid by the assessee as capital expenditure, allowing depreciation of ?60,00,000/- and adding back the balance amount of ?1,80,00,000/- to the income. The assessee argued that the franchise fee was for the use of the superstructure of the Multiplex Cinema Building, plant and machinery, furniture, fixtures, and other assets for a period of seven years, and should be treated as revenue expenditure. The Ld. CIT(A) accepted the assessee’s contention, stating that the franchise fee was allowed as revenue expenditure in the original assessment and in the assessments for subsequent years. The Ld. CIT(A) noted that the AO had already formed an opinion during the original assessment that the franchise fee was revenue in nature, and there was no new material to justify a different view. The Ld. CIT(A) also referred to several judicial precedents supporting the assessee’s claim. The ITAT upheld the Ld. CIT(A)’s decision, agreeing that the reassessment was a result of a mere change of opinion without any new material facts. The ITAT emphasized that the AO had accepted the franchise fee as revenue expenditure in the original assessment and in subsequent assessments, and there was no justification for treating it as capital expenditure in the reassessment. Conclusion: The ITAT dismissed the Revenue’s appeal, upholding the Ld. CIT(A)’s order quashing the reassessment proceedings under sections 147/148 of the Income Tax Act, 1961. The ITAT held that the reassessment was based on a mere change of opinion without any new material facts and that the franchise fee paid by the assessee should be treated as revenue expenditure. The ITAT emphasized the statutory protection under the proviso to section 147, which prevents reassessment after four years unless there is a failure to disclose material facts fully and truly.
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