2023 (8) TMI 97 - HC - Income Tax

Validity of reopening of assessment u/s 147 - reliance on audit objection - tangible material to trigger reassessment - Tribunal ruled in favour of the assessee as AO had not recorded his satisfaction that income chargeable to tax had escaped assessment. HELD THAT - The respondent/assessee had made full disclosure relating to why it had debited the expenses incurred by it, i.e., on software development for business purposes, in the note appended to the computation of income in the return of income filed qua the relevant AY. There is no dispute about the fact that the original assessment was completed under Section 143(3) of the Act, via order dated 24.04.2005. Given this factual position, we are in agreement with the view taken by the Tribunal, that this was a case of change of opinion and, therefore, the reassessment proceeding could not have been triggered merely on the basis of audit objection, without any fresh tangible material. No substantial question of law arises for our consideration.

Summary

Issues involved:
The judgment concerns the Assessment Year 2002-03. The main issue is whether the Tribunal erred in ruling that the reassessment proceeding was not validly triggered under the Income Tax Act, 1961.

Details of the Judgment:

Issue 1: Validity of Reassessment Proceeding
The Assessing Officer (AO) initiated the reassessment based on two grounds: non-deposit of contributions with statutory authorities and writing off capital work-in-progress in the Profit and Loss account. The AO alleged an enhanced loss by the respondent. The Tribunal found that the AO did not have tangible material to reopen the assessment and had not recorded satisfaction of income escaping assessment. The Tribunal held in favor of the respondent, quashing the reassessment notice and the consequent demand.

Issue 2: Capital Work-in-Progress Write-Off
The Tribunal ruled in favor of the respondent regarding the write-off of capital work-in-progress in the Profit and Loss account. The respondent had disclosed the reason for expensing the software development costs in the return of income. The Tribunal found this to be a case of change of opinion and held that the reassessment could not be based solely on an audit objection without fresh tangible material.

Conclusion:
The Tribunal's decision was based on the lack of valid reasons for reassessment and the respondent's full disclosure regarding the expenses incurred. The High Court agreed with the Tribunal's view that no substantial question of law arose for consideration. The appeal was closed, directing parties to act based on the digitally signed copy of the order.