2014 (4) TMI 817 - AT - Income Tax

Validity of reassessment order u/s 147 of the Act - Treatment of technology expenses Mere change of opinion - Held that - Neither the AO nor the DR was able to pinpoint, as to what material was gathered or came to light, which was resulted or indicated that there was an escapement of income, to attract reassessment proceedings - The issue was examined by the AO thread bear, is apparent from the fact that the disallowance made by the AO on technological expenses traveled up to the ITAT, itself proves the issue against the revenue authorities that they were proceeding on the aspect with a different reasoning - the law does not allow proceedings based on change of opinion from one incumbent to the other Relying upon Kelvinator of India vs CIT 2002 (4) TMI 37 - DELHI High Court - the AO has traveled beyond the statutory accord Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income-tax Act, 1961.
2. Classification of technology expenses as capital or revenue expenditure.

Detailed Analysis:

Assessment Year 2002-03:

Issue 1: Validity of Reassessment Proceedings
- Appellant's Argument: The appellant argued that the reassessment proceedings initiated by the Assessing Officer (AO) were invalid as they were initiated beyond the four-year time limit stipulated under the proviso to Section 147. The appellant contended that all material facts were fully and truly disclosed during the original assessment, and the reassessment was based on a mere change of opinion.
- Tribunal's Finding: The Tribunal noted that the AO had thoroughly examined the technology expenses during the original assessment, and the issue had already traveled to the ITAT. The Tribunal held that the reassessment proceedings were initiated based on a change of opinion, which is not permissible under the law. Citing the Supreme Court's decision in CIT vs. Kelvinator of India, the Tribunal quashed the reassessment proceedings.

Issue 2: Classification of Technology Expenses
- Appellant's Argument: The appellant argued that the technology expenses were revenue in nature as they were incurred for maintaining and updating the existing website.
- Tribunal's Finding: Since the reassessment proceedings were quashed, the Tribunal did not delve into the merits of this issue.

Assessment Year 2004-05:

Issue 1: Validity of Reassessment Proceedings
- Appellant's Argument: Similar to the argument for AY 2002-03, the appellant contended that the reassessment proceedings were initiated based on a change of opinion and were therefore invalid.
- Tribunal's Finding: The Tribunal reiterated its findings from AY 2002-03, emphasizing that the AO had already examined the technology expenses during the original assessment. The reassessment proceedings were quashed on the grounds of being based on a change of opinion.

Issue 2: Classification of Technology Expenses
- Appellant's Argument: The appellant maintained that the technology expenses were revenue in nature.
- Tribunal's Finding: As the reassessment proceedings were quashed, the Tribunal did not address this issue on merits.

Assessment Year 2003-04:

Issue 1: Validity of Reassessment Proceedings
- Appellant's Argument: The appellant argued that the reassessment proceedings were invalid as they were initiated based on the same reasons as for AY 2002-03 and AY 2004-05, where regular assessments had been framed under Section 143(3).
- Tribunal's Finding: The Tribunal noted that the facts for AY 2003-04 were identical to those in the other years. The reassessment proceedings were quashed on the grounds that the AO did not bring any new material to light that indicated an escapement of income. The Tribunal emphasized that the burden of proof lies on the revenue authorities, which was not discharged.

Issue 2: Classification of Technology Expenses
- Appellant's Argument: The appellant argued that the technology expenses were revenue in nature.
- Tribunal's Finding: Since the reassessment proceedings were quashed, the Tribunal did not address this issue on merits.

Conclusion:
The Tribunal quashed the reassessment proceedings for all three assessment years (2002-03, 2003-04, and 2004-05) on the grounds that they were initiated based on a change of opinion, which is not permissible under the law. Consequently, the Tribunal did not address the merits of the classification of technology expenses as capital or revenue expenditure. All appeals filed by the assessee were allowed.