2019 (1) TMI 1146 - HC - Income Tax

Reopening of assessment - petitioner's claim for expenses in respect of Colour Idea Store as a part of its advertisement and sales promotion expenses - validity of reasons to believe - Held that - During the regular assessment proceedings under Section 143(3) of the Act, the Assessing Officer had occasion to examine the petitioner's claim for expenses in respect of Colour Idea Store as a part of its advertisement and sales promotion expenses. Thus, there was a complete disclosure of all primary material facts on the part of the petitioner. (See Calcutta Discount Co. Vs. ITO - 1960 (11) TMI 8 - SUPREME COURT). Therefore, no failure to disclose all fully and truly material facts necessary for assessment. Thus, on the above ground itself the impugned notice is hit by the proviso to Section 147 of the Act and is without jurisdiction. The application of mind to these facts on the part of the AO can be inferred from the fact that the statement constituting the breakup of the total expenditure incurred on sales and promotions was considered in the assessment order as some of the expenses forming part of the breakup of sales and promotions expenses had been disallowed in the assessment order dated 18th March, 2015 passed under Section 143(3). This would clearly indicate that the impugned notice has been issued on account of change of opinion and it is an attempt to review the Assessment Order dated 18th March, 2015 passed under Section 143(3). AO is entitled to rely upon the order passed in assessment proceedings for the subsequent year, as tangible material to initiate reassessment proceedings. The tangible material so obtained must be processed i.e. its applicability to the assessee for the subject assessment year is to be examined so as to form a reasonable belief that income chargeable to tax has escaped assessment. The tangible material in the assessment order for A.Y. 2015 -16 was the agreement dated 6th March, 2014. This is an agreement post the period with which the impugned notice is concerned. This, by itself could not form the basis for the AO to have come to a reasonable belief that income chargeable to tax has escaped assessment for the subject assessment year 2011- 12. AO has not himself come to the reasonable belief that income chargeable to tax has escaped assessment Therefore, on this ground also the impugned notice is unsustainable. As the asset is not owned by the petitioner, the expenditure cannot be on capital account, is not examined in the context of the present facts. This as it is not necessary, as earlier submissions are sufficient to dispose of the petitioner's challenge to the impugned notice dated 28th March, 2018 seeking to reopen the assessment proceedings for Assessment Year 2011 -12 - the impugned notice is quashed as being without jurisdiction. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of the Assessing Officer to issue the notice under Section 148 of the Income Tax Act, 1961.
2. Validity of reopening the assessment for Assessment Year 2011-12 beyond the period of 4 years.
3. Whether there was a failure on the part of the petitioner to fully and truly disclose all material facts necessary for the assessment.
4. Whether the expenses incurred on "Colour Idea Stores" should be treated as capital expenditure or revenue expenditure.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer to issue the notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 28th March 2018 issued under Section 148 of the Income Tax Act, 1961 by the Assessing Officer, seeking to reopen the assessment for Assessment Year 2011-12. The court noted that the notice was issued beyond the period of 4 years from the end of the relevant assessment year, and the regular assessment proceedings were completed under Section 143(3) of the Act. The material forming the basis for the notice was an assessment order passed for Assessment Year 2015-16 based on an agreement dated 6th March 2014. The court found that the impugned notice was issued without jurisdiction as it was beyond the statutory period and based on a subsequent year's agreement.

2. Validity of reopening the assessment for Assessment Year 2011-12 beyond the period of 4 years:
The court observed that the impugned notice was issued beyond the period of 4 years from the end of the relevant assessment year, i.e., AY 2011-12. According to the first proviso to Section 147 of the Act, the notice would be valid only if there was a failure on the part of the petitioner to fully and truly disclose all material facts necessary for the assessment. The court found that there was no such failure on the part of the petitioner, as all primary material facts were fully disclosed during the original assessment proceedings.

3. Whether there was a failure on the part of the petitioner to fully and truly disclose all material facts necessary for the assessment:
The court noted that during the regular assessment proceedings under Section 143(3) of the Act, the Assessing Officer had examined the petitioner's claim for expenses in respect of "Colour Idea Stores" as part of its advertisement and sales promotion expenses. The petitioner had provided a breakup of the advertisement and sales promotion expenses, including expenses incurred towards "Colour Idea Stores." The court concluded that there was a complete disclosure of all primary material facts by the petitioner, and thus, no failure to disclose fully and truly all material facts necessary for the assessment.

4. Whether the expenses incurred on "Colour Idea Stores" should be treated as capital expenditure or revenue expenditure:
The court did not examine this issue in detail, as the earlier submissions were sufficient to dispose of the petitioner's challenge to the impugned notice. The court noted that the Assessing Officer had disallowed the expenses incurred on "Colour Idea Stores" as revenue expenditure and treated them as capital expenditure. However, since the notice itself was found to be without jurisdiction, the court did not delve into the merits of this issue.

Conclusion:
The court quashed the impugned notice dated 28th March 2018 as being without jurisdiction and allowed the petition. The court found that the notice was issued beyond the statutory period and based on subsequent year's agreement, and there was no failure on the part of the petitioner to fully and truly disclose all material facts necessary for the assessment. The court did not find it necessary to examine whether the expenses incurred on "Colour Idea Stores" should be treated as capital expenditure or revenue expenditure, as the notice itself was found to be invalid. The petition was allowed with no order as to costs.

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