2021 (5) TMI 205 - AT - Income Tax

Reopening of assessment u/s 147 - foreign exchange fluctuation loss disallowance and R D expenses disallowance - HELD THAT - There is no case to have a different opinion on the basis of the details called for during the course of original assessment proceedings and even on facts there is no case as most the of the expenses are recurring and incurred by the appellant year after year as evident from certain agreements filed. While passing the original order u/s. 143(3), the AO did not ask for any further evidences from the appellant and proceeded not to take any adverse view in the matter as discussed above pertaining to R D expenses Therefore, it is very clear in view of the detailed explanation filed by the appellant the AO had formed an opinion before passing the original assessment order and the appellant had discharged the evidences to the satisfaction of the assessing officer. Therefore in view of the above compliance the appellant was not in default within the proviso to section 147 with regard to R D expenses. Therefore the second limb of the reasons recorded under section 147 for reopening fails the test of the said section. The assessee has claimed its objections to the notice u/s. 148 were not disposed off by the AO even after the onus cast on the AY by the Apex Court in the case of CIT Vs. GKN Drive shafts. 2002 (11) TMI 7 - SUPREME COURT No infirmity in the order of the CIT(A) in quashing the order of AO passed u/s. 147 of the Act, as the CIT(A) elaborately discussed and analysed the issue in dispute with various case law at length in his order. Accordingly, upholding the order of the CIT(A), we dismiss the grounds raised by the revenue.

Summary

Issues Involved:
1. Reopening of assessment u/s. 147 of the Income Tax Act, 1961 after 4 years.
2. Disallowance of foreign exchange fluctuation loss and R&D expenses.

Analysis:

Issue 1: Reopening of assessment u/s. 147 after 4 years
The Assessing Officer (AO) reopened the assessment u/s. 147 of the Act based on certain observations regarding the foreign exchange fluctuation loss and R&D expenses claimed by the assessee. The AO issued notices to the assessee and completed the reassessment, disallowing the claimed expenses. The assessee challenged the validity of the reopening before the CIT(A), who quashed the reassessment order. The CIT(A) held that the AO did not seek further evidence during the original assessment proceedings and the appellant had provided detailed explanations, satisfying the assessing officer. The CIT(A) also noted that the objections to the notice u/s. 148 were not disposed of by the AO. The ITAT upheld the CIT(A)'s decision, stating that the AO had formed an opinion before passing the original assessment order, and the appellant had complied with the requirements, thus not defaulting under section 147.

Issue 2: Disallowance of foreign exchange fluctuation loss and R&D expenses
The AO disallowed the foreign exchange fluctuation loss and R&D expenses claimed by the assessee, stating that the loss provision was for diminution in the value of the rupee and the R&D expenses provided enduring benefits. The reassessment added back these amounts to the income returned by the assessee. However, the CIT(A) quashed the reassessment order, emphasizing that most of the expenses were recurring and incurred by the appellant year after year. The CIT(A) also noted that the AO did not ask for further evidence during the original assessment proceedings regarding the R&D expenses. The ITAT upheld the CIT(A)'s decision, stating that the CIT(A) had elaborately discussed and analyzed the issues with reference to various case laws, leading to the dismissal of the revenue's appeal.

In conclusion, the ITAT dismissed the revenue's appeal, upholding the CIT(A)'s decision to quash the reassessment order passed by the AO u/s. 147 of the Act. The ITAT found no infirmity in the CIT(A)'s order and upheld it after thorough analysis and consideration of the submissions and evidence presented during the proceedings.