2021 (7) TMI 1042 - HC - Income Tax

Reopening of assessment u/s 147 - third proviso - computation of period of limitation - deduction of franchise fee paid by the respondent to M/s Satyam Cineplex Limited was wrongly allowed as it gave an enduring benefit to the respondent and was an expense of capital nature - HELD THAT - The period of four years has to commence from the date of the decision in the appeal filed by the respondent against the earlier assessment order. For this purpose he has placed reliance on the third proviso to Section 147 which has been reproduced hereinabove. In our opinion the said proviso does not in any manner extend the period within which action under Section 147 of the Act can be initiated by the Department. It merely empowers the AO to assess or reassess such income which is not involved or is the subject matter of any appeal reference or revision and has escaped assessment. It does not grant any further extension of time to the Department to initiate a proceeding u/s 147 of the Act. As not disputed before us that for the assessment years 2003-04 to 2009-10 the claim of the respondent stood accepted. Though the learned counsel for the appellant has submitted that each assessment year would give a separate cause of action and decision taken in one assessment year cannot act as a res judicata in the other years the same would also have a vital bearing in the adjudication of the present appeal. In Commissioner of Income Tax v. Excel Industries Limited 2013 (10) TMI 324 - SUPREME COURT Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers money in pursuing litigation for the sake of it.

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Allegation of failure to disclose material facts.
3. Concept of "change of opinion" by the Assessing Officer.
4. Applicability of the third proviso to Section 147 of the Act.
5. Consistency in the treatment of the franchise fee in previous assessment years.

Issue-wise Detailed Analysis:

1. Validity of the notice under Section 148 of the Income Tax Act, 1961:
The appeal challenges the notice issued under Section 148 of the Income Tax Act on 22.03.2011, which was beyond the four-year period from the end of the relevant assessment year (2004-05). The ITAT dismissed the appellant's contention, stating that the notice was issued after the expiry of four years from the end of the relevant assessment year and that the Revenue failed to show which material facts were not disclosed by the assessee. The ITAT emphasized that no action under Section 147 could be taken unless income chargeable to tax had escaped assessment due to the assessee's failure to disclose all material facts fully and truly.

2. Allegation of failure to disclose material facts:
The CIT (Appeals) and ITAT both found that the Assessing Officer did not allege any failure on the part of the respondent to disclose truly and fully all material facts. The respondent had disclosed full details in the return of income, accompanied by audited accounts and a copy of the agreement during the assessment proceedings under Section 143(3). The ITAT observed that there was no failure on the part of the assessee to disclose all material facts fully and truly, and the Revenue failed to discharge the onus of proving such failure.

3. Concept of "change of opinion" by the Assessing Officer:
The CIT (Appeals) held that the reassessment was a case of "change of opinion" by the successor Assessing Officer. The original Assessing Officer had already scrutinized the details and formed an opinion that the franchise fee was correctly claimed as a revenue expense. The ITAT concurred, noting that the successor Assessing Officer merely recorded a different opinion without bringing any new facts or material on record.

4. Applicability of the third proviso to Section 147 of the Act:
The appellant argued that the four-year period should commence from the date of the decision in the appeal filed by the respondent against the earlier assessment order, relying on the third proviso to Section 147. However, the court clarified that the said proviso does not extend the period for initiating action under Section 147. It merely empowers the Assessing Officer to assess or reassess income not involved in any appeal, reference, or revision, but does not grant any extension of time.

5. Consistency in the treatment of the franchise fee in previous assessment years:
The CIT (Appeals) and ITAT noted that the franchise fee claimed by the respondent had been consistently accepted by the Department for the assessment years 2003-04 to 2009-10. The court referred to the Supreme Court's decision in Commissioner of Income Tax v. Excel Industries Limited, emphasizing that a consistent view taken in favor of the assessee in previous years should not be changed without convincing reasons. The court found no material change justifying a different view for the assessment year in question.

Conclusion:
The court dismissed the appeal, upholding the ITAT's decision that the reassessment proceedings under Section 147 were not maintainable due to the absence of failure on the part of the respondent to disclose material facts and the case being one of "change of opinion." The court also rejected the appellant's argument regarding the extension of the four-year period under the third proviso to Section 147. The appeal was dismissed, and the order was directed to be uploaded on the website and forwarded to the learned counsel through e-mail.

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