2021 (4) TMI 923 - HC - Income Tax

Reopening of assessment u/s 147 - HELD THAT - In view of the submissions made by the learned counsel on either side, following the ratio laid down by the Hon'ble Supreme Court of India in the judgment reported in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd 2010 (1) TMI 11 - SUPREME COURT the questions of law are decided against the Revenue and in favour of the assessee.

Summary

Issues:
Challenge to order passed in I.T.A.No.608/Mds/2012 for assessment year 2003-04 - Validity of re-opening assessment - Disallowance of expenses - Disallowance of depreciation on brand equity.

Analysis:
1. Re-opening of Assessment: The Revenue challenged the order passed by the Income Tax Appellate Tribunal regarding the validity of re-opening the assessment for the assessment year 2003-04. The Revenue contended that the re-opening was beyond four years from the relevant assessment years and did not show any failure on the part of the assessee, as required by Section 147. The Commissioner of Income Tax (Appeals) and the Appellate Tribunal both held that the re-opening of the assessment was not valid. The Hon'ble Supreme Court's judgment in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. clarified that post-1st April, 1989, the power to reopen assessments is wider, but it must be based on tangible material, not a mere change of opinion. The Court emphasized that the Assessing Officer cannot review but can reassess based on specific pre-conditions.

2. Disallowance of Expenses: The Revenue contested the disallowance of expenses claimed by the assessee towards commission of sale, consultancy charges, and other payments under Section 40(a)(i). The disallowance was based on the failure of the assessee to deduct tax under Section 195. The Appellate Tribunal dismissed the departmental appeal, upholding the disallowance. The Revenue argued that the Assessing Officer did not address these disallowances in the original assessment proceedings, questioning the validity of reassessment proceedings. However, the Court relied on the principle established in the Kelvinator case, emphasizing that the concept of "change of opinion" cannot be a sole reason for reassessment.

3. Disallowance of Depreciation on Brand Equity: The Revenue also raised concerns about the disallowance of depreciation claimed by the assessee on brand equity. The details of the agreement and terms and conditions were to be examined to verify the correctness of the depreciation claimed. The Revenue argued that the Assessing Officer did not consider this disallowance in the original assessment, questioning the basis for reassessment. However, the Court, guided by the Kelvinator case, reiterated that the Assessing Officer's power to reassess is not for review purposes but requires tangible material to establish income escapement.

In conclusion, the High Court dismissed the Tax Case Appeal, upholding the decisions of the lower authorities and following the principles laid down by the Hon'ble Supreme Court in the Kelvinator case. The judgment emphasized the importance of tangible material and the absence of a mere change of opinion as grounds for reassessment, ensuring the Assessing Officer acts within the legal framework and not arbitrarily.