2010 (7) TMI 157 - HC - Income Tax

Reopening of a completed assessment - Main contention of the assessee was that all the relevant facts in this behalf were placed before the AO when the assessment was carried out in the first instance and the AO had taken a categorical view that the entire expenditure was in the nature of revenue expenditure and therefore, liable for deduction Held that - the learned counsel for the Revenue has made altogether different submission before us. She argued that in the reasons to believe recorded by the AO while reopening the assessment, three aspects were noted. Apart from the aforesaid question relating to the expenditure in the assessee s plan to expand its product range into higher horse power tractor segment, higher horse power tractors, etc. and the part of the expenditure thereupon, revenue or capital in nature, she pointed out that there were two more reasons given by the AO in his reasons to believe - it is not permissible for the learned counsel for the Revenue to now raise such a contention.

Summary

Issues:
Reopening of assessment under Section 148 of the Income Tax Act based on capital expenditure treatment, validity of notice under Section 148, consideration of additional grounds for reopening assessment.

Analysis:
1. The respondent-assessee filed an income tax return for the Assessment Year 1999-2000, declaring income under Section 115JA of the Income Tax Act. The assessment was completed under Section 143(3) at an income of Rs.44,13,247/- under normal provisions and Rs.10.17 Crores under Section 115JA. The Assessing Officer (AO) sought to reopen the assessment within two years, adding an income of Rs.15,662,632/- as capital expenditure on expansion. The CIT (A) quashed the notice and the second assessment order, finding the expenditure to be revenue in nature.

2. The Department appealed to the Income Tax Appellate Tribunal (Tribunal), challenging the CIT (A) orders. The Tribunal upheld the CIT (A) decision, emphasizing that the AO had already allowed the expenditure in the original assessment. The Tribunal dismissed the appeal, stating that reassessment based on a mere change of opinion is not valid under Section 148.

3. The Department argued before the High Court that the Tribunal did not consider additional grounds mentioned in the "reasons to believe" for reopening the assessment. These grounds included excess gratuity provision and excise duty calculation issues. However, the High Court rejected this argument, noting that these grounds were not raised before the Tribunal or CIT (A).

4. The High Court further observed that the appellant had annexed an "office note" explaining why no additions were made on the first two grounds during the original assessment. The note clarified that the provisions were already accounted for or were not debited due to accounting policies. Consequently, the High Court found no valid basis for reopening the assessment on these grounds.

5. Ultimately, the High Court held that no substantial question of law arose for determination, and the appeal was dismissed. The judgment emphasized the importance of raising all relevant grounds at lower levels and established that a notice under Section 148 cannot be sustained if additional reasons for reopening were not previously raised.

In conclusion, the judgment highlights the procedural and substantive requirements for reopening assessments under Section 148 of the Income Tax Act, emphasizing the need for valid grounds and proper consideration at each stage of the appeals process.