2011 (12) TMI 71 - HC - Income Tax

Re-opening of Assessment - Held That - Where Assessing Officer had considered and examined whether or not the non-compete fee payment was of capital or revenue nature. The Assessing Officer accepted the stand of the assessee and treated the non-compete fee as a revenue expenditure. The re-assessment proceedings cannot, therefore, be initiated on the ground that the Assessing Officer was legally wrong and had misapplied and wrongly understood the law/legal position.

Summary

Issues:
1. Validity of notice under Section 148 dated 01.02.2010
2. Dismissal of objections to re-opening in the order dated 16.9.2010
3. Failure to disclose fully and truly material facts for reassessment

Analysis:

Issue 1: Validity of notice under Section 148 dated 01.02.2010
The petitioner challenged the notice under Section 148 dated 01.02.2010 and the subsequent order dismissing objections to re-opening. The reasons for re-opening the assessment for the assessment year 2003-04 were based on the claim and allowance of a deduction of non-compete fees as revenue expenditure. The Assessing Officer believed that this should have been capitalized and added back to the income of the assessee. The petitioner contended that the taxability of the non-compete fee was examined before the original assessment order was passed.

Issue 2: Dismissal of objections to re-opening in the order dated 16.9.2010
The petitioner argued that the issue of taxability of the non-compete fee was specifically addressed before the original assessment order was finalized. The petitioner provided a detailed letter in response to queries raised by the Assessing Officer, explaining the tax treatment of the non-compete fee as per the relevant provisions of the Income Tax Act. The Assessing Officer had considered this issue during the original assessment proceedings, as evidenced by a detailed letter addressing the audit objection raised regarding the treatment of the non-compete fee as capital expenditure.

Issue 3: Failure to disclose fully and truly material facts for reassessment
The court emphasized that if the Assessing Officer had already considered and examined a particular aspect during the original assessment proceedings, reassessment cannot be initiated based on the same ground. The court held that the Assessing Officer had accepted the stand of the assessee regarding the treatment of the non-compete fee as a revenue expenditure during the original assessment. It was concluded that the reassessment proceedings were not validly initiated as there was no failure or omission to disclose fully and truly all material facts by the assessee.

In conclusion, the court allowed the writ petition, quashing the notice under Section 148 dated 01.02.2010 and the order dated 16.9.2010 passed by the Assessing Officer, as the reassessment proceedings were found to be invalid due to the absence of jurisdictional pre-conditions for re-opening the assessment.