2022 (1) TMI 488 - HC - Income Tax

Reopening of assessment u/s 147 - eligibility of reasons to believe - basis for reassessment is to disallow store launching expenses incurred during the year on the ground that these are classifiable as capital expenditure - HELD THAT - No new or fresh information or fact that has come to the notice of the JAO subsequent to the assessment so as to initiate proceedings under section 148 of the Act. It is quite obvious that the reopening is based on the material which was already on record at the time of passing the assessment order under Section 143 - Once, the Assessment Officer, on consideration of the material on record, and the explanation offered, arrived at a final conclusion that the assessee is entitled to the deduction as claimed, then on the basis of the very same material, the AO cannot form a prima-facie opinion that the deduction is not allowable and, accordingly, reopen the assessment on the ground that income chargeable to tax has escaped assessment. A Division Bench of this Court in Cartini India Limited, (Formerly Godrej Appliances Ltd. 2009 (3) TMI 28 - BOMBAY HIGH COURT has observed that where on consideration of the material on record, one view is conclusively taken by the assessing officer, it would not be open to the assessing officer to reopen the assessment based on the very same material with a view to take another view. There is a mistake in the reasons recorded for reopening and according to respondents it is a typographical error that the figure of ₹ 3.02 lakhs was mentioned instead of ₹ 293.24 lakhs. In our view, this mistake demonstrates non-application of mind by respondent No.1 at the time of recording of the reasons for reopening the assessment. Though we do not find the approval under section 151 of the Act in the record and proceedings, we can certainly hazard a guess that even the Approving Authority would not have applied its mind or read the reasons recorded before granting approval. If it had only been read, these errors would have come to light at that stage itself. Therefore, for all the aforesaid reasons, we quash the impugned notice under section 148 - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under section 148 of the Income Tax Act,1961 for reopening assessment for Assessment Year 2004-05 based on change of opinion and non-application of mind.

Analysis:
The petitioner, a retail company, challenged a notice dated 31st March 2009 under section 148 of the Income Tax Act,1961, seeking to reopen the assessment for Assessment Year 2004-05. The petitioner argued that the notice lacked jurisdiction as it was issued without a valid belief that income had escaped assessment, relying on the same set of material and alleging a change of opinion. The petitioner contended that the reasons for reopening showed a lack of application of mind, and even the approval under section 151 of the Act seemed to be granted without proper consideration. The reassessment was proposed to disallow "store launching expenses" as capital expenditure based on material from subsequent years.

The petitioner had debited revenue expenses incurred before opening new stores under "store launching expenses" in its accounts. These costs included advertisement, promotion, employee recruitment, and training. Initially, the expenses were treated as "deferred revenue expenses" until 31st March 2003, as per the accounting policy explained in the annual accounts. The petitioner amortized certain expenses in the year under review, claiming them as revenue expenditure, which the Assessing Officer now sought to disallow as capital expenditure.

During the assessment, the Assessing Officer raised queries regarding a change in the accounting policy for store launching expenses from 1st April 2003, to which the petitioner provided explanations. The Court noted that there was a full and true disclosure by the petitioner, and the Assessing Officer had no valid reason to conclude that income had escaped assessment. The Court cited previous judgments emphasizing that if an assessee responds to queries during assessment, it indicates the Assessing Officer's consideration of the matter, even if not explicitly mentioned in the assessment order.

The Court found that there was no new information or fact prompting the reassessment, as it was based on material already on record during the original assessment. Reopening the assessment on the same material to take a different view amounted to a change of opinion, which is impermissible. The Court referred to previous decisions holding that reassessment cannot be initiated solely on a change of opinion. The Court also noted errors in the reasons recorded for reopening, indicating a lack of application of mind by the Assessing Officer and the Approving Authority.

Ultimately, the Court quashed the notice under section 148 of the Act and the order dealing with objections, ruling in favor of the petitioner due to the non-application of mind in recording reasons for reopening and the errors in the process. The Court held that the entire proceedings were required to be set aside, emphasizing the importance of proper application of mind in such matters.

The judgment concluded by making the rule absolute with no order as to costs, providing a comprehensive analysis of the issues raised by the petitioner regarding the notice for reassessment under the Income Tax Act,1961.