2015 (7) TMI 690 - HC - Income Tax

Reopening of assessment - disallowance of Software Licence Fee in part - Held that - In the facts of the present case, we find that the petitioner had clearly claimed Software Licence Fee of ₹ 31.69 crores as revenue expenditure. That had been disallowed in part and an amount of ₹ 25.36 crores was capitalized and depreciation was allowed at the rate of 60%. The assessment was done under Section 143 (3) read with Section 144C (13) of the said Act. The draft assessment order had made the aforesaid capitalization, which was disputed by the petitioner and, therefore, the matter went before the Dispute Resolution Panel, which confirmed the draft assessment order and thereafter the final assessment order was passed on 28.10.2010. We have already indicated that insofar as the part disallowance as revenue expenditure is concerned, the petitioner has filed an appeal which is pending before the Income Tax Appellate Tribunal. Insofar as we are concerned, we find that the petitioner had made a full and true disclosure of the material facts and, in any event, there is no allegation in the purported reasons that the petitioner did not make a full and true disclosure of the material facts at the time of the original assessment. That being the position, following the decision in Haryana Acrylic Manufacturing Co. (2008 (11) TMI 2 - DELHI HIGH COURT ) and several other decisions of this Court in the same vein, we find that the invocation of the re-assessment proceedings is not sustainable in law. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for assessment year 2006-07 regarding Software Licence Fee disallowance as revenue expenditure.

Analysis:
The judgment concerns a writ petition challenging a notice under Section 148 of the Income Tax Act, 1961, issued for the assessment year 2006-07 regarding the treatment of Software Licence Fee. The original assessment allowed only a portion of the fee as revenue expenditure, capitalizing the rest and allowing depreciation at 60%. The petitioner objected to this treatment, leading to an appeal before the Income Tax Appellate Tribunal. The notice under Section 148 was issued after four years from the assessment year, citing the disallowance of the Software Licence Fee as revenue expenditure and proposing to allow depreciation at 25% instead of 60%. The petitioner's objections were rejected, prompting the writ petition.

The court analyzed the reasons provided for invoking Section 147 and found no failure on the petitioner's part to disclose material facts necessary for assessment. Referring to precedent, the court emphasized that for income escapement to justify reassessment, there must be a failure to fully and truly disclose material facts. As the petitioner had disclosed the Software Licence Fee as revenue expenditure during the original assessment, and there was no allegation of non-disclosure, the court held the reassessment proceedings unsustainable in law. The court noted the ongoing appeal before the Income Tax Appellate Tribunal and set aside the notice under Section 148 and the order disposing of objections.

In conclusion, the court ruled in favor of the petitioner, setting aside the notice under Section 148 and the order disposing of objections. The judgment highlighted the importance of full and true disclosure of material facts by the assessee for justifying income escapement in reassessment proceedings under Section 147 of the Income Tax Act, 1961.