2021 (3) TMI 770 - AT - Income Tax

Combined order - Reopening of assessment u/s 147 - reassessment beyond the period of 4 years - initiation of reassessment proceedings was made based on audit objection - Earlier, ITAT remanded the matter back requesting the AO to provide reasons for initiating reassessment proceedings - CIT(Appeals) upheld the TP adjustment made by the AO, however, he directed the AO to grant depreciation at the prescribed rate applicable to furniture fittings in respect of server racks, however with regard to depreciation on networking equipment/active components etc. decided the issue in favour of assessee allowing depreciation @ 60% against which the revenue filed appeal before the Tribunal - HELD THAT - With regard to non-grant of depreciation on the basis of additional ground in respect of depreciation on goodwill which was acquired by NXP India from Philips Electronics India Ltd. and Conexant India at the time of slump sale, the assessee filed appeal before the Tribunal. Tribunal vide order dated 12.8.2015 and 22.7.2015 remanded the matter back to the file of AO for fresh consideration. In the meanwhile, the AO vide notice dated 22.3.2016 initiated reassessment proceedings u/s. 148 of the Act for this AY 2009-10, pursuant to which the assessee filed return of income on 23.4.2016 requesting the AO to provide reasons for initiating reassessment proceedings. AO vide letter dated 27.10.2016 informed the assessee that reassessment proceedings were initiated as per BTA dated 22.7.2008 between the assessee and NF India, goodwill is not treated as part of consideration, hence the assessee made a wrong claim of deducting the goodwill from the sale consideration received. The assessee filed objections against the reassessment proceedings vide letter dated 13.12.2016 questioning the validity of the proceedings. AO overlooking the objection of the assessee, passed combined assessment order giving effect to the ITAT Order dated 22.7.2015 and 12.8.2015 and the reassessment order on 29.12.2016. Against this, the assessee filed appeal before the CIT(Appeals). The CIT(Appeals) also disposed of the appeal by the impugned order dated 22.2.2018. The assessee is in appeal before the Tribunal. AO passed a combined order giving effect to earlier orders of Tribunal with regard to original assessment and also reassessment order u/s. 143(3) r.w.s. 147 of the Act which is incorrect. AO must have passed distinct and separate orders giving effect to the Tribunal s orders which is emanating from the assessment order passed u/s. 143(3) and fresh reassessment order which is emanating from reassessment notice dated 23.3.2016. As such, we vacate the combined assessment order dated 29.12.2016 passed u/s. 143(3) r.w.s. 147 r.w.s. 254 of the Act and direct the AO to pass distinct and separate assessment orders one in respect of order giving effect to the Tribunal s orders emanating from the assessment order u/s. 143(3) and another in respect of reassessment order u/s. 143(3) r.w.s. 147 of the Act. Accordingly, the issue in dispute is remitted in its entirety to the file of Assessing Officer to pass separate assessment orders as directed above, after giving opportunity of being heard to the assessee. Appeal by the assessee is allowed for statistical purposes.

Issues Involved:
1. Initiation of reassessment proceedings under section 147 of the Income Tax Act.
2. Admission of additional grounds by the assessee.
3. Validity of reassessment based on audit objection.
4. Non-grant of depreciation on goodwill.
5. Requirement for separate assessment orders.

Detailed Analysis:

1. Initiation of Reassessment Proceedings under Section 147:
The assessee challenged the initiation of reassessment proceedings under section 147, arguing that it was without authority of law and jurisdiction. The reassessment was initiated beyond the period of 4 years despite the assessee having disclosed all requisite facts during the original assessment proceedings under section 143(3). The assessee contended that the reassessment was based on an audit objection, amounting to a change of opinion, which is not permissible under the law. The CIT(A) upheld the action of the AO, applying principles from the case of Kalyanji Mavji & Co vs CIT (102 ITR 287), stating that the AO had jurisdiction to reopen the assessment due to the belief that income had escaped assessment.

2. Admission of Additional Grounds:
The assessee filed a petition for the admission of additional grounds, which included the non-allowance of short-term capital loss and the arbitrary addition of the apportioned cost of goodwill to the income. The Tribunal admitted these additional grounds for adjudication, following the Supreme Court decision in National Thermal Power Corporation v. CIT (229 ITR 383), as there was no necessity for investigating fresh facts.

3. Validity of Reassessment Based on Audit Objection:
The assessee argued that the reassessment was invalid as it was based on an audit objection, which is considered a change of opinion. The reassessment was initiated on the grounds that the assessee made a wrong claim of goodwill deduction in the computation of capital gains on slump sale. The Tribunal noted that reassessment based on audit objection is void ab initio, referencing multiple judicial decisions, including Indian and Eastern Newspaper Society vs CIT (119 ITR 996) and CIT vs Kelvinator of India Ltd (320 ITR 561).

4. Non-Grant of Depreciation on Goodwill:
The assessee's appeal included the non-grant of depreciation on goodwill acquired during the slump sale. The Tribunal noted that the AO passed a combined order, which included adjustments related to the Tribunal’s previous orders and the reassessment order. The Tribunal directed the AO to pass distinct and separate orders for the original assessment and the reassessment.

5. Requirement for Separate Assessment Orders:
The Tribunal found that the AO erred by issuing a combined assessment order for both the original assessment and the reassessment. It directed the AO to pass separate orders: one for giving effect to the Tribunal’s previous orders related to the original assessment and another for the reassessment. This separation ensures clarity and proper adjudication of each issue.

Conclusion:
The Tribunal vacated the combined assessment order dated 29.12.2016 and remitted the issue to the AO to pass distinct and separate assessment orders, providing the assessee an opportunity to be heard. Consequently, the appeal by the assessee was allowed for statistical purposes.

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