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2016 (5) TMI 1177 - AT - Income TaxValidity of reopening of assessment - Held that - Re-assessment proceedings are initiated based on the same set of information as was available at the time of original assessment proceedings and therefore it amounts to mere change of opinion which cannot be a valid ground for re-opening assessment as held by the Hon ble Supreme Court in CIT vs. Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA ). In the above circumstances we hold that formation of belief by the AO that income escaped assessment is not based on material and the substratum for the reopening was not laid down in the reasons recorded. Therefore the condition precedent i.e. reason to belief that income escaped assessment is totally absent. This is a jurisdictional condition which requires to be satisfied for assumption of jurisdiction u/s 147. Non-satisfaction of this condition renders all the proceedings initiated u/s 147 null and void. Therefore we have no hesitation to hold that the re-assessment proceedings initiated by AO are illegal and cannot be sustained in law. - Decided in favour of assessee
Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income-tax Act. 2. Disallowance of commission on sales. 3. Disallowance of depreciation on goodwill. Issue-wise Detailed Analysis: 1. Validity of Reassessment Proceedings under Section 147 of the Income-tax Act: The primary issue was whether the reassessment proceedings initiated under Section 147 were valid. The assessee argued that the reassessment was based on the same set of facts available during the original assessment, thus constituting a change of opinion by the succeeding Assessing Officer (AO). The reassessment was prompted by the AO's suspicion that the assessee's expenses on Info Tracking and Delivery Schedule were not genuine, which came to light during a survey conducted on 5/11/2009. The AO believed that the Managing Director's evasive replies and the lack of substantial evidence regarding the agreement with South Elegant Ltd. justified the reassessment. However, the Tribunal found that the reasons recorded by the AO did not constitute tangible material necessary for forming a belief that income had escaped assessment. The Tribunal emphasized that an opinion or suspicion cannot be the basis for reassessment, as established by the Supreme Court in ACIT vs. Dhariya Construction Co. (328 ITR 515). The Tribunal concluded that the reassessment proceedings were invalid as they were based on the same material available during the original assessment, amounting to a mere change of opinion, which is not permissible under law. 2. Disallowance of Commission on Sales: The AO disallowed the commission payments of Rs. 16,23,91,847/- made to South Elegant Ltd., Hong Kong, and Gruyter Agenture B.V., Netherlands, on the grounds that the payments were not genuine and were not wholly and exclusively necessary for earning business income. The AO's disallowance was based on the lack of substantial evidence proving the existence and services rendered by these foreign entities. The Tribunal noted that the assessee had provided agreements, audited financial statements, invoices, and proof of payment through banking channels. The Tribunal found that the AO's disallowance was based on conjectures and surmises without valid reasons. The Tribunal highlighted that the necessity of expenditure cannot be questioned by the AO, as established by the Supreme Court in Eastern Investment Ltd. v. CIT (20 ITR 1) and CIT vs. EKL Appliances Ltd. (345 ITR 241). The Tribunal concluded that the disallowance of commission expenditure was unwarranted. 3. Disallowance of Depreciation on Goodwill: The AO disallowed the depreciation on goodwill amounting to Rs. 6,56,25,000/-. The CIT(A) upheld this disallowance, stating that the assessee had not acquired any rights of commercial nature. However, the Tribunal referred to the Supreme Court's judgment in CIT vs. Smifs Securities Ltd. (348 ITR 302), which held that goodwill is an intangible asset entitled to depreciation under Section 32(1)(ii) of the Act. The Tribunal found that the CIT(A) had erred in not following the Supreme Court's decision and other relevant High Court decisions. Therefore, the Tribunal concluded that the disallowance of depreciation on goodwill was unjustified. Conclusion: The Tribunal quashed the reassessment proceedings, holding them to be illegal and unsustainable in law. Consequently, the Tribunal did not find it necessary to address other grounds of appeal. The appeal filed by the assessee was allowed, and the reassessment order was set aside.
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