2022 (4) TMI 636 - HC - Income Tax

Reopening of assessment u/s 147 - Notice after expiry of four years from the end of the relevant assessment year - change of opinion - Depreciation on computer software - HELD THAT - Coming to the reasons, the reasons recorded clearly indicate that re-opening is proposed on the basis of change of opinion which is not permissible and the reasons do not disclose that there were non disclosure of material fact by petitioner though there is general statement made that petitioner s income has escaped assessment on account of failure on the part of petitioner to disclose truly and fully all material facts. In our view, it is only made with an attempt to overcome restrictions in re-opening as per proviso to Section 147 of the Act. AO admits that in the Note 8 list of fixed assets show that during the year computer software was added and classified under the category intangible asset. According to the AO because it is intangible asset, assessee could have claimed depreciation only at 25% and not 60%. We ask ourselves what is not disclosed? - AO states it has been disclosed in the note to the Balance Sheet and it has been shown as intangible asset and after considering allowed depreciation during the original assessment proceeding at 60%. During the assessment proceedings petitioner even provided, vide letter dated 1st July, 2014, details of addition to fix assets with copies of invoices for the purchase of fixed assets. The details include the software which is the subject matter of the re-opening. Once all the primary facts are before the assessing authority, he requires further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. The explanation does not have the effect of enlarging the section, by casting a duty on the assessee to disclose inferences, to draw proper inferences being the duty imposed on the Income Tax Officer. Therefore, since the details of computer software has been disclosed and classified under the category of intangible asset in the note to Balance Sheet, it can be reasonably concluded that the duty of the assessee to disclose fully and truly all primary relevant facts has been met and it cannot extend beyond that. Once the details have been provided to the Assessing Officer during the assessment proceedings, certainly it has to be taken as having been subject of consideration during the assessment proceedings. In any case from the reasons recorded itself we are satisfied that there has been no failure on the part of assessee to disclose material facts. Reasons recorded the Assessing Officer admits that it is his change of opinion based on the same primary facts which have been considered by the Assessing Officer to complete original assessment and we say this because in paragraph no.4 of the reasons it is stated Assessee has claimed and department allowed depreciation @ 60 percent - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment under Section 147 of the Income Tax Act, 1961 for A.Y. 2013-14 after the expiry of four years.
2. Permissibility of reopening assessment based on change of opinion.
3. Disclosure of material facts by the assessee during the original assessment proceedings.

Analysis:

1. The petitioner, an energy exchange operator, filed its income tax return for A.Y. 2012-13, declaring total income. The assessment order passed under Section 143(3) of the Act determined the income. Subsequently, a notice under Section 148 was issued for A.Y. 2013-14, stating that income had escaped assessment. The proviso to Section 147 was invoked, which restricts reopening after four years unless there is a failure to disclose material facts by the assessee.

2. The court emphasized that assessment cannot be reopened merely on a change of opinion. The reasons for reopening must demonstrate a failure on the part of the assessee to disclose material facts. In this case, the reasons provided indicated a change of opinion without specific non-disclosure by the petitioner, attempting to circumvent the restrictions of Section 147.

3. The Assessing Officer's reasons for reopening focused on the depreciation claimed on computer software, alleging excess claim based on the classification of the software as an intangible asset. The court noted that the petitioner had disclosed all primary facts, including the software details in the balance sheet notes. The duty to disclose fully and truly all relevant facts was met, as the Assessing Officer had considered the information during the original assessment.

4. The court cited the duty of the assessee to disclose primary facts relevant to assessment, as established in legal precedents. Once all primary facts are before the assessing authority, the duty does not extend to disclosing inferences. Since the details of the software were disclosed and classified correctly, the duty of the assessee to disclose relevant facts was fulfilled. The court concluded that there was no failure on the part of the assessee to disclose material facts, as the reasons for reopening were based on the same primary facts considered during the original assessment.

5. Ultimately, the court allowed the petition, quashing the notice under Section 148 and rejecting the objections raised by the petitioner. The judgment highlighted the importance of disclosing all primary facts relevant to assessment and emphasized that reopening assessments based on mere change of opinion is impermissible under the law.

This detailed analysis of the judgment from the Bombay High Court provides insights into the legal principles governing the reopening of assessments and the duty of the assessee to disclose material facts during the assessment process.