2020 (8) TMI 764 - HC - Income Tax

Reopening of assessment u/s 147 - reassessment initiated after four years - Whether no fresh material on record for such reassessment proceedings? - product development expenses disallowance - HELD THAT - It is to be noted that in the present case, the return was filed on 13.11.2007 for the assessment year 2007-08, for which reassessment proceedings under sections 147 and 148 ought to have been initiated within the period of four years, which was over by 31.03.2012. But, the notice for reassessment proceedings under Section 148 was issued on 11.06.2013, beyond the period of limitation. Therefore, we do not find any error in the finding of the Income Tax Appellate Tribunal in this aspect. Product development expenditure incurred to the extent of ₹ 3.39 crore by the assessee, is entitled to be amortized over the period of three years as per the accounting practice adopted by the Company and the assessee has rightly amortized the same. Re-assessment provisions under Section 147 of the Act do not provide for reassessment on a mere change of opinion. The re-assessment on a mere of change of opinion is not permissible under law. Such change of opinion amounts to review of the order of the assessment, which is not permissible under law. In support of our opinion, we would like to press into service the Judgment of Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT . - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment order under Section 143(3) read with Section 147 of the Income Tax Act after four years without fresh material.
2. Consideration of Explanation 1 and Explanation 2(c) to Section 147 of the Income Tax Act.
3. Legitimacy of deleting reassessment when product development expenditure was amortized and claimed as deferred revenue expenditure but not debited in the profit and loss account.

Detailed Analysis:

1. Validity of Reassessment Order:
The appellant department issued a notice under Section 148 of the Income Tax Act on 11.06.2013 for reassessment under Section 147. The reassessment was initiated after the original assessment order dated 31.12.2010. The department argued that the reassessment was necessary due to excessive relief claimed by the assessee. However, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) found that the reassessment was based on a change of opinion without any new material evidence. The Tribunal held that reopening after four years from the end of the relevant assessment year was outside the scope of Section 147, as the assessee had provided all relevant details during the original assessment.

2. Consideration of Explanation 1 and Explanation 2(c) to Section 147:
The appellant department contended that Explanation 1 and Explanation 2(c)(iii) of Section 147 justified the reassessment. Explanation 1 states that merely producing account books does not amount to disclosure if material evidence could have been discovered with due diligence. Explanation 2(c) deems cases where income has been under-assessed or given excessive relief as cases of income escaping assessment. The reassessment order cited these provisions, but the Commissioner of Income Tax (Appeals) and the ITAT found that there was no failure on the part of the assessee to disclose material facts during the original assessment. The reassessment was deemed invalid as it was based on a change of opinion rather than new material evidence.

3. Legitimacy of Deleting Reassessment:
The department argued that the assessee amortized part of the product development expenditure and claimed the balance as deferred revenue expenditure, which was not debited in the profit and loss account. The reassessment disallowed the deferred revenue expenditure. However, the Commissioner of Income Tax (Appeals) and the ITAT found that the entire product development expenditure was disclosed during the original assessment, and the reassessment was merely a change of opinion. The Tribunal emphasized that reassessment provisions do not allow for reopening based on a mere change of opinion, citing the Supreme Court's judgment in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd., which states that reassessment must be based on tangible material indicating income escaping assessment.

Conclusion:
The High Court upheld the decisions of the Commissioner of Income Tax (Appeals) and the ITAT, dismissing the appeal by the department. The Court found no substantial question of law and affirmed that the reassessment was invalid as it was based on a change of opinion without new material evidence. The product development expenditure was correctly amortized and deducted by the assessee, and the reassessment was beyond the permissible period of four years. The appeal was dismissed, and the questions framed were answered in favor of the assessee.