2018 (2) TMI 307 - HC - Income Tax

Reopening of assessment - depreciation claim on vendor and dealer network rights and the goodwill - eligible reasons to believe - Held that - AO while completing the assessment under Section 143(3) of the Act took into consideration both the aforementioned decisions and considered what would be business or commercial rights of similar nature . The assessing officer was fully justified in holding that the vendor and dealer network rights and the goodwill acquired by the petitioner pursuant to the Business Transfer Agreement dated 26.04.2007, would qualify for depreciation under Section 32 of the Act. The assessment was completed after considering the claim for depreciation after seeking for clarification from the petitioner and thereafter, the assessment was completed. Thus, the reasons assigned by the respondent to reopen the assessment is nothing but a clear case of change of opinion. It is pertinent to note that when reopening proceedings were initiated pursuant to the audit report of the CAG, the assessing officer had the conviction to stand by what decision he had taken. This could be seen from the information secured by the petitioner under the Right to Information Act. Though this pertains to the earlier assessment years, find that the response given by the assessing officer to the Director General of Audit, vide proceedings dated 05.12.2013, is elaborate and he had stated on what basis the depreciation shall be liable. However, for reasons best known the assessments have been reopened that to after there was a change of officer. The decision in M/s.Larsen Tubro Ltd. (2017 (3) TMI 1064 - SUPREME COURT OF INDIA), would apply with full force to the case on hand, as it is manifestly clear that the assessing officer had to issue the impugned reassessment notice on the ground of direction issued by the audit party. Thus, this Court being fully satisfied that the impugned reopening of the assessment is contrary to law, the question of directing the petitioner to avail alternate remedy of appeal before the Commissioner of Income Tax does not arise, especially when the case is one of change of opinion - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening assessment under Section 147 of the Income Tax Act, 1961.
2. Claim for depreciation on vendor and dealer network and goodwill.
3. Allegation of change of opinion by the assessing officer.
4. Impact of audit objections on reopening of assessment.
5. Requirement to await decision of pending appeals before the Division Bench.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessment under Section 147 of the Income Tax Act, 1961:
The petitioner challenged the reopening of the assessment for the year 2010-11 under Section 147, arguing that it was based on a change of opinion and lacked new tangible material. The court noted that the reasons for reopening, furnished by the assessing officer, pertained to the claim for depreciation on the dealer and vendor network. However, the counter affidavit by the respondent focused on depreciation on goodwill, showing a discrepancy and manifest error. The court emphasized that reopening cannot be based on a mere change of opinion without fresh tangible material, as per the Supreme Court's decision in Commissioner of Income-tax v. Kelvinator of India Ltd.

2. Claim for Depreciation on Vendor and Dealer Network and Goodwill:
The petitioner claimed depreciation on the vendor and dealer network and goodwill, which was initially accepted in the scrutiny assessment for 2010-11. The assessing officer, after considering the petitioner's submissions and relevant judicial precedents, allowed the claim. The court referred to the decisions in CIT v. Smifs Securities Limited and Areva T and D India Ltd. v. Deputy Commissioner of Income-Tax, which supported the claim for depreciation on intangible assets like goodwill and vendor and dealer networks.

3. Allegation of Change of Opinion by the Assessing Officer:
The petitioner argued that the reopening was based on a change of opinion, which is impermissible. The court agreed, noting that the assessment was completed after considering the claim for depreciation and seeking clarifications from the petitioner. The court found that the reasons for reopening were a clear case of change of opinion, as the assessing officer had already accepted the claim in the original assessment.

4. Impact of Audit Objections on Reopening of Assessment:
The petitioner contended that the reopening was based on audit objections from the Comptroller and Auditor General (CAG), not an independent view of the assessing officer. The court referred to the Supreme Court's decisions in Indian & Eastern Newspaper Society v. Commissioner of Income-tax and M/s. Larsen & Tubro Ltd. v. State of Jharkhand, which held that audit objections cannot form the basis for reopening assessments. The court found that the assessing officer issued the reassessment notice due to the audit party's direction, not personal satisfaction, making the reopening invalid.

5. Requirement to Await Decision of Pending Appeals before the Division Bench:
The respondent argued that the writ petition should await the decision of pending appeals before the Division Bench regarding the assessment orders for 2008-09 and 2009-10. The court noted that each assessment year is independent and the validity of the impugned reopening proceedings can be considered independently. The court decided to proceed with the case, emphasizing that the reopening was a clear case of change of opinion and did not require waiting for the Division Bench's decision.

Conclusion:
The court allowed the writ petition, quashing the impugned proceedings. It concluded that the reopening of the assessment was contrary to law, based on a change of opinion, and influenced by audit objections rather than new tangible material. The court emphasized that the assessing officer's decision in the original assessment was justified and supported by relevant judicial precedents.

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