2014 (8) TMI 8 - HC - Income Tax

Notice for reopening of assessment u/s 148 Income escapement Change of opinion - Whether the income of the assessee had escaped assessment on account of failure on the part of the assessee to disclose, fully and truly, the material facts necessary for the assessment Held that - The depreciation on computer software is either to be charged at 60% or in certain cases, expenditure on computer software is treated as revenue expenditure - it is apparent that the dispute raised with regard to rate of depreciation by the AO merely indicates a change of opinion and there has been no failure on the part of the assessee to disclose any material fact in this regard - with respect to the sum received as non-refundable advance from Energy Ventures, the assessee had furnished clarifications with regard to the claim of deduction made by the assessee in respect of this sum received from Energy Ventures as nonrefundable advance - assessee had made full and complete disclosure with regard to the deduction claimed on account of the sum. The AO has sought to reopen the assessment not on account of failure on the part of the assessee to disclose any material particulars, but on account of the change of opinion with regard to certain deductions claimed and allowed by the assessee - assessment cannot be reopened on mere change of opinion relying upon CIT v. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT OF INDIA - a mere change of opinion cannot form the basis for reopening of assessment. Although the AO has recorded that he has reasons to believe that income chargeable to tax exceeding ₹ 1 lac. had escaped assessment, as the assessee had not disclosed, fully and truly, all material facts necessary for his assessment for the relevant assessment year, there is no allegation made in the reasons as furnished by the AO that there had been a failure on the part of the assessee to disclose, fully and truly, any particular fact that was necessary for the assessment - thus, the proceeding initiated by the AO for reopening the assessment for the AY 2006-2007 is without authority of law Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment.
2. Whether the petitioner failed to fully and truly disclose all material facts necessary for the assessment.
3. Justification for the reopening of the assessment on the grounds provided by the Assessing Officer (AO).

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged a notice dated 28.03.2013 issued under Section 148 for reopening the assessment for the Assessment Year (AY) 2006-2007. The petitioner also contested an order dated 10.02.2014 by the Deputy Commissioner of Income Tax, which rejected the objections against the notice. The court noted that the assessment year in question was 2006-07, and the original assessment order under Section 143(3) was passed on 23.12.2008. The impugned notice was issued on 28.03.2013, after the expiry of four years from the end of the assessment year. According to the proviso to Section 147, no action can be taken after four years unless the income chargeable to tax escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment.

2. Whether the Petitioner Failed to Fully and Truly Disclose All Material Facts Necessary for the Assessment:
The principal controversy was whether the petitioner failed to disclose fully and truly all material facts necessary for the assessment, leading to income escaping assessment. The AO's reasons for reopening the assessment included depreciation claimed on computer software, a non-refundable advance received from Energy Ventures, allocation of expenses, and depreciation relating to the pre-production period. The court found that the petitioner had disclosed all material facts during the original assessment proceedings. Specifically:
- The depreciation on computer software was scrutinized by the AO during the original assessment.
- The non-refundable advance from Energy Ventures was disclosed in the audited accounts and clarified in a letter dated 16.05.2007.
- The allocation of expenses and depreciation relating to the pre-production period was considered by the AO, who disallowed part of the expenses during the original assessment.

3. Justification for the Reopening of the Assessment on the Grounds Provided by the AO:
The AO's reasons for reopening the assessment were based on a change of opinion regarding the deductions claimed and allowed by the assessee. The court referred to the Supreme Court's decision in CIT v. Kelvinator of India Limited, which held that a mere change of opinion cannot justify the reopening of an assessment. The court found that there was no allegation that the petitioner failed to disclose fully and truly any material fact necessary for the assessment. The absence of such an allegation made the reopening of the assessment after four years impermissible under the proviso to Section 147. The court cited previous judgments, including Wel Intertrade P. Ltd. v. ITO and Haryana Acrylic Manufacturing Company v. CIT, which held that reopening an assessment beyond four years requires a failure on the part of the assessee to disclose all necessary material facts.

Conclusion:
The court concluded that the AO's proceedings to reopen the assessment for AY 2006-2007 were without authority of law. The petition was allowed, and the impugned notice dated 28.03.2013 and the impugned order dated 10.02.2014 were set aside. The parties were left to bear their own costs.