2016 (2) TMI 801 - HC - Income Tax

Change of opinion - Validity of reopening of assessment - Held that - Having regard to the audit objection having been addressed by the assessing officer, there would remain no basis for reassessment four years after the assessment order, when the audit objection has been met by the assessing officer as per the letter referred. Incidentally, it is pointed out that one other contention by the respondents is that the assessment order does not indicate that the assessing officer had dealt with the issue at length and hence it cannot be said that it was present to the mind of the as sessing officer. The learned Senior Advocate would point out that it is the settled law that if the assessee has brought the issue to the attention of the assessing officer and even though there may be no consideration in the course of the assessment order on the issue which is highlighted by the assessee, it is deemed to have been considered by the assessing officer. In this regard, reliance is placed on a full bench decision of the Delhi High Court in the case of Commissioner of Income-tax vs. Usha International Limited, (2012 (9) TMI 767 - DELHI HIGH COURT). - Decided in favor of assessee.

Summary

Issues:
1. Reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961.
2. Jurisdiction to re-open the assessment questioned by the petitioner.
3. Contention regarding provision for accrued liability versus contingent liability.
4. Audit objection raised subsequent to the assessment order.
5. Assessment order's consideration of the petitioner's claim.
6. Legal proposition concerning accrued liability in loyalty programs.
7. The impact of audit objection on reassessment proceedings.

Analysis:

1. The judgment dealt with the initiation of reassessment proceedings under Section 147 of the Income-tax Act, 1961, beyond the stipulated period of four years from the end of the relevant assessment year. The petitioner argued that all facts regarding the provision for unredeemed loyalty points were known to the assessing officer during the original assessment and subsequent audit objection, thus questioning the validity of reopening the assessment.

2. The petitioner challenged the jurisdiction of the first respondent to re-open the assessment, contending that all relevant details were disclosed during the original assessment process. The rejection of the petitioner's objections by the first respondent was based on the assertion that the assessing officer had not examined the issue diligently, a claim refuted by the petitioner.

3. A key contention revolved around whether the provision for unredeemed loyalty points should be treated as an accrued liability or a contingent liability. The department argued that such a liability only arises when a customer makes a claim for redemption, making it contingent. The petitioner, however, maintained that it should be considered an accrued liability based on past experience and scientific methodology.

4. The impact of an audit objection raised subsequent to the assessment order was a crucial aspect of the judgment. The petitioner argued that the assessing officer had addressed the audit objection by explaining the business model and revenue recognition process, indicating that the objection was not valid. The court considered this response in evaluating the justification for reassessment.

5. The judgment highlighted the importance of the assessing officer's consideration of the petitioner's claim during the original assessment. The petitioner emphasized that even if there was no explicit mention in the assessment order, if the issue was brought to the attention of the assessing officer, it should be deemed as considered, citing a precedent from the Delhi High Court.

6. The legal proposition regarding accrued liability in loyalty programs was discussed, with the department contending that the liability arises only upon redemption claims, making it contingent. The petitioner's argument was based on the provision being made based on certain liabilities and past experiences, justifying it as an accrued liability.

7. Ultimately, the court allowed the petitions, quashing the impugned orders for reassessment. The judgment emphasized the importance of addressing audit objections and considering all relevant facts during the assessment process to avoid unwarranted reassessment proceedings. The court's decision was influenced by the assessing officer's response to the audit objection and the petitioner's contentions regarding the assessment process.