2012 (6) TMI 238 - AT - Income Tax

Annulling the assessment passed u/s 147/143(3)by CIT - assessment reopened return declaring nil income after claiming set off of unabsorbed depreciation & book profits - addition of Rs.10,70,000/- being the 25% of royalty capitalized - Held that - the AO reopened the assessment completed on 24.3.2003 u/s 143(3) of the Act merely on the basis of facts already available before him at the time of original assessment proceedings there is nothing to suggest that all the primary facts were not disclosed by the assessee at the time of original assessment nor any failure on the part of the assessee to disclose fully and truly all the material facts has been ascribed in the circumstances - It is well-settled that if a notice under section 148 of the Act has been issued after four years from the end of relevant assessment year there being no proof of failure on the part of the assessee to disclose fully and truly all material facts and thus, liable to be struck down as during the course of assessment proceedings the AO raised a specific query relating to royalty expenses and indisputably, the assessee submitted a detailed reply no point of hiding any information against revenue.

Summary

Issues Involved:
1. Validity of the reassessment proceedings initiated under sections 147/148 of the Income-tax Act.
2. Deletion of the addition of Rs. 10,70,000 being 25% of royalty capitalized.

Detailed Analysis:

1. Validity of the reassessment proceedings initiated under sections 147/148 of the Income-tax Act:
The appeal concerns the reassessment proceedings initiated by the Assessing Officer (AO) under sections 147/148 of the Income-tax Act. The AO reopened the assessment on the grounds that 25% of the royalty expenses should be considered as capital expenditure based on the Supreme Court judgment in Southern Switchgear Ltd. The CIT(A) annulled the reassessment order, stating that the issue of royalty was already examined during the original assessment proceedings, and there was no failure on the part of the assessee to disclose fully and truly all material facts. The Tribunal upheld the CIT(A)'s decision, emphasizing that the reopening of the assessment was based on a mere change of opinion and not on any new tangible material. The Tribunal cited several precedents, including the Hon'ble Supreme Court's decision in Kelvinator of India Ltd., which held that reassessment based on a mere change of opinion is not permissible.

2. Deletion of the addition of Rs. 10,70,000 being 25% of royalty capitalized:
The AO disallowed 25% of the royalty paid by the assessee, treating it as capital expenditure. The CIT(A) deleted this addition, and the Tribunal upheld this deletion, stating that the reassessment proceedings themselves were invalid. The Tribunal noted that the AO had already examined the royalty expenses during the original assessment, and there was no new material to justify the reassessment. Consequently, the addition of Rs. 10,70,000 was rendered infructuous.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to annul the reassessment proceedings and delete the addition of Rs. 10,70,000. The Tribunal emphasized that the reassessment was based on a change of opinion without any new tangible material, which is not permissible under the law. The Tribunal also noted that the assessee had fully and truly disclosed all material facts during the original assessment proceedings.