2018 (3) TMI 295 - AT - Income Tax

Reopening of assessment - change of opinion - eligibility of reasons to believe - reduction of entertainment tax subsidy from the cost of assets for the purpose of depreciation - Held that - From the reasons recorded for re opening of assessment under section 147 it is evident that the formation of belief for escapement of income is on the reason that the entertainment tax subsidy received by the assessee should be reduced from cost of assets, thereby, no depreciation is allowable to the assessee on such assets. From the reasons recorded, it is very much evident that at the time of recording of reasons for re opening of assessment no fresh tangible material was available with the Assessing Officer. On mere re visit and re appraisal of the materials already available on record and considered by the Assessing Officer in original assessment proceedings, the Assessing Officer formed an opinion that income has escaped assessment. Re opening of assessment is on a mere change of opinion. AO in the original assessment proceedings, has not expressed any opinion with regard to the applicability of Explanation 10 to section 423(1), however, it is evident that he had examined the issue in the original assessment proceedings. If he had any doubt he certainly would have mentioned in the assessment order that in the event of the receipt being held as capital in nature, the subsidy received should have been reduced from the actual cost for computing depreciation. Having not stated so in the original assessment order cannot lead to the conclusion that the Assessing Officer has considered the issue at all. That being the case, in the absence of any fresh tangible material, the re opening of assessment under section 147 in the present case is invalid. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice under section 148 r/w section 147 of the Income Tax Act.
2. Treatment of entertainment tax subsidy as a capital receipt and its impact on the Written Down Value (WDV) of assets for depreciation purposes.

Detailed Analysis:

Issue 1: Validity of Notice under Section 148 r/w Section 147

The assessee challenged the validity of the assessment order passed under section 143(3) r/w section 147 of the Income Tax Act, arguing that it was based on a mere change of opinion and lacked fresh tangible material. The original assessment was completed on 10th December 2010, with the Assessing Officer treating the entertainment tax subsidy as revenue in nature. The reassessment was initiated on the belief that the subsidy should reduce the cost of assets per section 43(1), resulting in disallowed depreciation. The Tribunal found that the original assessment had already examined the nature and applicability of section 43(1) and that the reassessment was based on a mere reappraisal of existing records without new material. Citing decisions such as CIT v/s Kelvinator of India and others, the Tribunal held that the reassessment was invalid due to being based on a change of opinion.

Issue 2: Treatment of Entertainment Tax Subsidy

The assessee argued that the entertainment tax subsidy should be treated as a capital receipt and not reduce the WDV of assets for depreciation. The Tribunal noted that the issue had been previously decided in favor of the assessee in the assessment year 2010-11, where it was held that the subsidy should not reduce the cost of assets for depreciation purposes. The Tribunal also referenced the Supreme Court's decision in CIT v/s Chaphalkar Brothers, which classified such subsidies as capital receipts. Consequently, the Tribunal upheld the assessee's claim for depreciation without reducing the subsidy from the WDV of assets.

Judgment Summary:

The Tribunal allowed the assessee's appeals for the assessment years 2008-09, 2009-10, and 2011-12, quashing the reassessment orders and confirming that the entertainment tax subsidy should not reduce the WDV of assets for depreciation purposes. The Revenue's appeal for the assessment year 2011-12 was dismissed, affirming that the subsidy is a capital receipt and not taxable as revenue.

Conclusion:

The Tribunal's consolidated order addressed the validity of reassessment notices and the treatment of entertainment tax subsidies, ultimately ruling in favor of the assessee on both counts. The reassessment was deemed invalid due to the lack of new material and being based on a change of opinion. Additionally, the entertainment tax subsidy was confirmed as a capital receipt, not affecting the WDV of assets for depreciation.