2020 (9) TMI 278 - AT - Income Tax

Validity of reopening of assessment - non independent satisfaction regarding escapement of income - borrowed satisfaction - disallowing business development and marketing expenses holding the same to be capital expenditure, as against revenue expenditure claimed by the assessee - HELD THAT - We find that in the reasons, the Assessing Officer himself has mentioned The scrutiny of assessment revealed . This itself shows that the details were very much available in the assessment record. We find that in the original assessment proceedings, the Assessing Officer raised a query asking the assessee to give details of expenditure of more than ₹ 10 lakhs. The assessee filed complete list of expenses which were more than ₹ 10 lakhs. Expenses are found to be debited in the Profit and Loss Account under Schedule 15 which is demonstrated at page 17 of the paper book. Under Schedule 17 of the financial statement, which is exhibited at page 20 of the paper book, the assessee has shown professional service expenses incurred during the relevant Assessment Year under the head Expenditure in foreign currency . In the tax audit report, in clause 17 relating to expenditure of capital nature, it is mentioned as NIL . This means that even the auditors were of the opinion that no capital expenditure was incurred during the year under consideration, which is debited to the profit and loss account. Since this reimbursement of professional expenses tantamount to international transactions, the assessee has, in Form 3CEB, which relates to particulars relating to International Transactions required to be furnished u/s 92E of the Act, furnished complete details in relation to transactions with NIIT Technologies INC UK and US. In column 10 of Form No. 3CEB, it was stated that amount has been paid to the sister concerns in lieu of services rendered by them and further, such transactions have been entered into at Arm s Length price Surprisingly, no adverse inference has been drawn in so far as the payments made in the months of December and March are concerned and adverse inference has only been drawn in the months of June 2004 and September 2004, as exhibited elsewhere. Reasons for reopening the assessment do not specify any failure on the part of the assessee to disclose truly and fully all material facts. On the contrary, we find that full and true disclosure was duly made by the assessee. All material information was duly filed and was available on record before the Assessing Officer. Therefore, on perusal of reasons, it cannot be comprehended as to what more information remained to be disclosed by the assessee and moreover, no instance of any non disclosure has been pointed out by the Assessing Officer in the reasons recorded. The Revenue has heavily relied upon Explanation 1 to section 147 of the Act. In our considered opinion, the onus is also on the Assessing Officer to show that primary disclosure was not sufficient for further investigation by the Assessing Officer. Entire attempt of the assessing officer was to hold that the expenditure incurred, in respect of which details are already available on record and was examined in original assessment, as capital expenditure and such opinion is solely based out of the opinion of the audit party, which in itself is not permissible. The reassessment is bad in law and, therefore, no interference is called for. - Decided in favour of assessee.

Issues Involved:
1. Justification of reopening assessment proceedings under Section 148 of the Income Tax Act, 1961.
2. Validity of reassessment proceedings under Section 147 of the Act.
3. Classification of business development and marketing expenses as capital expenditure versus revenue expenditure.
4. Allowance of depreciation under Section 32 of the Act if expenses are considered capital expenditure.

Issue-wise Detailed Analysis:

1. Justification of Reopening Assessment Proceedings Under Section 148:
The Revenue's contention was that the reassessment proceedings were justified based on audit objections. The Assessing Officer (AO) issued a notice on 24.09.2007 and later on 23.03.2012, citing audit objections regarding business development and marketing expenses being treated as capital expenditure. The Tribunal found that the AO had already scrutinized these expenses during the original assessment, indicating that the details were available in the assessment record. The Tribunal emphasized that the reasons for reopening did not specify any failure on the part of the assessee to disclose material facts fully and truly, thus making the reopening unjustified.

2. Validity of Reassessment Proceedings Under Section 147:
The Tribunal held that the reassessment proceedings were invalid as they were based on a mere change of opinion. The original assessment had already considered the expenses, and no new tangible material was brought to light. The Tribunal referenced several judicial decisions, including the Hon'ble Supreme Court's ruling in New Delhi Television Ltd., which highlighted that reassessment based on change of opinion is impermissible. The Tribunal also noted that the reassessment was barred by the limitation period of four years as prescribed in the proviso to Section 147.

3. Classification of Business Development and Marketing Expenses:
The AO had disallowed the business development and marketing expenses amounting to ?1.71 crores, treating them as capital expenditure. The Tribunal found that these expenses were debited in the Profit and Loss Account under "Professional Charges" and were related to international transactions with NIIT Technologies INC UK and US. The Tribunal noted that similar expenses for other months were not disallowed, indicating inconsistency in the AO's approach. The Tribunal concluded that the reassessment proceedings were an attempt to reappraise the material already on record, which is not permissible.

4. Allowance of Depreciation Under Section 32:
The assessee had raised a ground that if the expenses were to be treated as capital expenditure, depreciation should be allowed under Section 32 of the Act. However, since the Tribunal quashed the reassessment proceedings, it did not find it necessary to delve into the merits of this issue. Consequently, the cross objections raised by the assessee became otiose and were dismissed.

Conclusion:
The Tribunal upheld the CIT(A)'s order quashing the reassessment proceedings, stating that they were based on a change of opinion and were barred by the limitation period. The Tribunal dismissed the Revenue's appeal and the assessee's cross objections, emphasizing that the reassessment was bad in law. The order was pronounced in the open court on 31.07.2020.

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