2012 (10) TMI 508 - AT - Income Tax

Validity of notice issued u/s 148 - Reopening of assessment u/s 147 AO made assessment u/s 143(3) and pass order on 28.02.2006 - AO issued notice u/s.148 dt.19.3.2008 after recording reason Assessee contended that no reopening lie on a mere change of opinion when an issue had been decided in the original assessment made u/s 143(3) - AO has reason to believe that due to some inherent defect in the assessment, the income chargeable to tax had been under assessed or assessed at too low rate or excessive relief was granted - Held that - The reopening of assessment based on the materials already considered and adjudicated would amount to reviewing the assessment order by re-appreciating the material already on record, which is not contemplated u/s.147. That initiation of reassessment proceedings by the AO is not valid as he has initiated reassessment proceedings only on re-appreciation of material already considered and thus it is a mere change of opinion. Therefore, action of AO to issue notice u/s.148 is not valid. In favour of assessee

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Disallowance of software charges as capital expenditure.
3. Addition of refund of interest under Section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147 of the Income Tax Act, 1961:
The primary issue in grounds 1 to 4 of the appeal was whether the initiation of reassessment proceedings under Section 147 of the Income Tax Act was valid. The assessee argued that the reassessment notice and proceedings were without jurisdiction and bad in law, asserting that there was no new tangible material other than what was already on record. The original assessment was completed under Section 143(3) after detailed examination of the facts, including software charges, long-term capital loss, and refund of interest under Section 234B. The reassessment was initiated based on the same material, which constituted a mere change of opinion, not permissible under Section 147. The Tribunal referred to various judicial precedents, including the Hon'ble Bombay High Court's decisions in Cartini India Ltd. and Asteroids Trading and Investments Pvt. Ltd., and the Hon'ble Supreme Court's decision in Kelvinator of India Ltd., emphasizing that reassessment on the basis of the same material amounts to a change of opinion, which is not allowed. Consequently, the Tribunal quashed the reassessment order, holding that the initiation of reassessment proceedings was not valid.

2. Disallowance of Software Charges as Capital Expenditure:
The second issue involved the disallowance of Rs. 4,40,85,941/- claimed by the assessee as software charges, which the Assessing Officer (AO) treated as capital expenditure. The AO initially allowed part of the software charges as revenue expenditure and capitalized the remaining amount, allowing depreciation. The reassessment proceedings aimed to capitalize the entire software expenditure, which the Tribunal found to be a revisitation of the same material already considered during the original assessment. The Tribunal held that reassessment on this ground was not justified as it was based on a mere change of opinion without any new tangible material.

3. Addition of Refund of Interest under Section 234B of the Income Tax Act:
The third issue was the addition of Rs. 6,97,50,863/- being the refund of interest under Section 234B, which was disallowed in earlier years. The assessee had disclosed this amount in the computation of income, and the AO had accepted the claim during the original assessment. The reassessment proceedings sought to disallow this refund, which the Tribunal again found to be based on the same material considered during the original assessment. The Tribunal reiterated that reassessment on the same material amounts to a change of opinion, which is not permissible under Section 147.

Conclusion:
The Tribunal concluded that the reassessment proceedings initiated by the AO were invalid as they were based on a mere change of opinion without any new tangible material. The reassessment order was quashed, and the appeal filed by the assessee was allowed. The Tribunal did not find it necessary to address the disallowances sustained by the CIT(A) in grounds 5 and 6, as the reassessment proceedings themselves were held to be invalid.