2022 (2) TMI 928 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - Capitalising the payment made - HELD THAT - We do not understand how this amount paid as compensation could ever be capitalised in the books of petitioner. Be that as it may, during the assessment proceedings the details have been provided to the Assessing Officer regarding surrender of the lease and payments made - To the petition is annexed a letter addressed by Petitioner to ACIT to explain why payment of ₹ 10 crores towards lease land at Valsad is to be considered as revenue in nature and allowable u/s 37(1) and also explaining the back ground regarding surrender of lease to Atul Ltd and also providing a copy of the lease agreement. In the said letter, petitioner has also referred to almost 7 replies addressed to the notices received from respondent no.1. Therefore, this has been a subject of consideration during the assessment proceedings. As held in Aroni Commercials Ltd. Vs. Deputy Commissioner of Income Tax 2014 (2) TMI 659 - BOMBAY HIGH COURT once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. Claiming 15% depreciation on the block of office equipments against allowable rate of 10% - There can be no non disclosure on the part of petitioner at all. The assessment order dated 29th December 2009 contains a computation of depreciation - there can never be a situation of failure to disclose truly and fully all material facts by petitioner. AO stated that claim of assessee is not acceptable and the depreciation is recomputed as per the stand taken by the Department in earlier years as the issue has not yet been decided at various appellate stages - The Hon ble Apex Court in Indian Eastern Newspaper Society 1979 (8) TMI 1 - SUPREME COURT has held that even if according to respondent no.1 there was an error discovered on a reconsideration of the same material (and no more) does not give power to the Assessing Officer to re-open the assessment Allowability of prior period expenses - Petitioner has addressed to the ACIT after referring to personal hearing as well as 7 earlier communications and notice issued by respondent no.1 under Section 142(1) of the Act, explained why the amount of ₹ 30,15,135/- reported by the Tax Auditor was part of the amount of ₹ 1,13,73,436/- as provisions for employee retention strategy and was rightly considered as disallowable in computing business income and hence the amount has not been separately disallowed as prior period expenditure. Therefore, once again this has been subject of consideration during the assessment proceedings and as noted earlier, once a query raised during the assessment proceeding and assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. Change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. Reopening notice quashed - Decided in favour of assessee.

Summary

Issues involved:
1. Amendment of petition post amalgamation with another company.
2. Reopening of assessment under Section 147 of the Income Tax Act.
3. Approval under Section 151 for issuing notice under Section 148.
4. Justification for reopening based on alleged escapement of income.
5. Assessment of specific issues related to capital payment, depreciation, and prior period expenses.

Amendment of Petition Post Amalgamation:
The petitioner, a pharmaceutical company, sought leave to amend the petition after amalgamating with another company. The amendment was allowed as it did not change the nature of the petition. The petitioner had filed returns for A.Y.-2006-2007, which were later revised. The scrutiny assessment was completed, and an order was passed assessing the total income. Subsequently, the petitioner received a notice for reopening under Section 147, which led to objections being filed and rejected by the respondent.

Approval for Reopening Notice:
The petitioner challenged the approval granted under Section 151 for issuing the notice under Section 148. The court found discrepancies in the approval date and the date of reasons recorded for reopening. The respondent's explanation was rejected, leading to the conclusion that the sanction was not properly obtained, warranting the quashing of the notice.

Reopening of Assessment and Alleged Escapement of Income:
The petitioner argued that the reopening, done more than four years after the relevant assessment year, should be barred unless there was a failure to disclose material facts. The reasons for reopening were scrutinized, and it was found that there was no indication of non-disclosure or a valid basis for reopening. The court held that a change of mind cannot justify reopening if all points were considered during the assessment proceedings.

Assessment of Specific Issues:
The reasons for reopening raised three issues related to capital payment, depreciation, and prior period expenses. The court analyzed each issue in detail. For the capital payment, the court noted that details were provided during the assessment proceedings, and the issue was considered. Regarding depreciation, the court found no non-disclosure as the assessment order contained a computation of depreciation. The court cited legal precedents to emphasize that a mere error does not justify reopening. For prior period expenses, the petitioner had explained the treatment during the assessment proceedings, indicating that the issue was already considered. The court concluded that change of opinion is not a valid reason to reopen assessments.

Judgment:
The court allowed the petition, quashing the notice and order, citing the lack of proper approval and the absence of valid reasons for reopening. The petition was disposed of accordingly.