2018 (1) TMI 683 - AT - Income Tax

Reopening of assessment - assessee has claimed the depreciation on stock exchange membership cards considering them as intangible assets - Held that - The issue of depreciation has neither been considered by the AO nor any question was raised nor any adjudication has taken place in this regard. There was no occasion for the AO to form an opinion. In our view, the situation before us clearly falls within the four corners of Section 147 r.w.s.148, as the assessee has failed to disclose all the material facts necessary for assessment and therefore the case of the assessee falls within the proviso to Section 147 of the Act. In view thereof, there is no illegality or irregularity in the order passed by the AO for reopening the case It is beyond cavil that the block assets included intangible assets, licences, franchises or any other business or commercial rights of similar nature. The assessee in Schedule VI claimed the same investment, whereas now the assessee is claiming depreciation by treating the investment as fixed assets. It is to be analysed by the AO if the assessee was claiming it to be a fixed asset, then what was the value of acquisition at the time of acquiring the membership and how the WDV of the assets have been worked out after its acquisition and also whether the assessee after acquiring it as investment has claimed any expenditure / deduction / claim against the said acquisition or not. We remand the matter to the file of the AO to adjudicate after consider the following i) The date of acquisition of the membership with NSE / BGSE ii) The consideration, if any, for which the membership was acquired iii) What were the rights of the members of the stock exchange as per the rules and regulations prevalent at the time of acquisition and at the time of claim of depreciation iv) Whether the assessee has claimed any expenditure / deduction / claim etc., on the investment made in NSE / BGSE membership cards v) Effect of the decisions of the Mumbai Tribunal in Pavak Securities P. Ltd (2013 (9) TMI 608 - ITAT MUMBAI) and Sino Securities P. Ltd (2011 (11) TMI 535 - ITAT MUMBAI) vi) Whether the rules and regulations of BGSE / NSE relevant for the impugned assessment years were similar to the rules and bye-laws of BGSE for the assessment year involved in the judgment of Techno Shares & Stocks Ltd (2006 (1) TMI 236 - ITAT of Mumbai). Appeals of the assessee are allowed for statistical purpose.

Summary

Issues Involved:
1. Allowability of depreciation on BGSE and NSE cards as intangible assets.
2. Legality of invoking provisions of section 147 of the Income Tax Act for reopening the assessment.

Issue-wise Detailed Analysis:

1. Allowability of Depreciation on BGSE and NSE Cards as Intangible Assets:

The primary contention of the assessee was that BGSE and NSE cards are intangible assets eligible for depreciation under Section 32 of the Income Tax Act. The assessee argued that these memberships confer a right to trade, which qualifies as a "business or commercial right" similar to a license or franchise, thus falling under the definition of "block of assets" as per Section 2(11) of the Act. The assessee relied on the Supreme Court judgment in Techno Shares & Stocks Ltd v. CIT, which held that BSE membership cards are intangible assets eligible for depreciation. However, the Tribunal noted that this judgment was explicitly confined to the rules and bye-laws of the BSE during the relevant assessment years and did not automatically apply to BGSE or NSE memberships.

The Tribunal directed the assessee to produce the rules and bye-laws of NSE and BGSE for the relevant assessment years to determine if they were similar to those of BSE. The Tribunal observed that the assessee failed to provide complete rules and regulations for BGSE and NSE, making it difficult to conclude whether the memberships conferred similar rights as those considered in the Techno Shares case. Additionally, the Tribunal noted that the memberships were shown under investments in the financial statements, not as fixed assets, which further complicated the claim for depreciation.

The Tribunal remanded the matter to the Assessing Officer (AO) to examine:
- The date and consideration of acquiring the memberships.
- The rights conferred by the memberships as per the rules and regulations at the time of acquisition and at the time of claiming depreciation.
- Whether the assessee claimed any expenditure or deduction on the investment in the memberships.
- The applicability of the Mumbai Tribunal decisions in Pavak Securities P. Ltd v. ITO and Sino Securities P. Ltd v. ITO, which concluded that BGSE trading rights are not akin to a license and thus not eligible for depreciation.

2. Legality of Invoking Provisions of Section 147 for Reopening the Assessment:

The assessee challenged the reopening of the assessment under Section 147, arguing that the original assessment had already considered and allowed the depreciation claim, and reopening was based on a mere change of opinion, which is not permissible. The assessee cited the Supreme Court decisions in CIT v. Kelvinator of India Ltd and Eicher Ltd, which held that a mere change of opinion does not justify invoking Section 147.

However, the Tribunal found that the original assessment order did not discuss or adjudicate the issue of depreciation on BGSE and NSE cards. Therefore, it concluded that there was no formation of opinion by the AO on this matter during the original assessment. The Tribunal held that the assessee failed to disclose all material facts necessary for the assessment, falling within the proviso to Section 147, thus justifying the reopening of the case.

Conclusion:

The Tribunal dismissed the grounds challenging the reopening of the assessment under Section 147. On the merits of the depreciation claim, the Tribunal remanded the matter to the AO for further examination, directing a detailed inquiry into the rights conferred by the memberships and the rules and regulations governing them during the relevant assessment years. The appeals were allowed for statistical purposes, pending the AO's re-examination.