2023 (8) TMI 1025 - HC - Income Tax

Reopening of assessment u/s 147 - claim for depreciation on goodwill arisen as a result of the amalgamation of ETPL with itself - HELD THAT - As held by the Hon ble Apex Court in case of Indian Eastern Newspaper Society 1979 (8) TMI 1 - SUPREME COURT even if it is an error that the AO discovered, still the error discovered on a reconsideration of the same material does not give him power to reopen the assessment. Though the primary facts necessary for assessment are fully and truly disclosed, the A.O. is not entitled on change of opinion to commence proceedings for reassessment. Even if the A.O. who passed the assessment order, may have raised too many legal inferences from the facts disclosed, on that account the A.O., who has decided to reopen the assessment, is not competent to reopen assessment proceedings. Where on consideration of material on record, one view is conclusively taken by the A.O., it would not be open to reopen the assessment based on the very same material with a view to take another view. As held by the Division Bench of this court in Aroni Commercials Ltd. 2014 (2) TMI 659 - BOMBAY HIGH COURT it is not necessary that the assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. Admittedly, as recorded in the assessment order petitioner s case was selected for scrutiny under CASS and accordingly notice dated 19th September 2018 u/s 143(2) of the Act and further notice dated 14th November 2018 under Section 142(1) of the Act alongwith questionnaire were issued and served on assessee. Petitioner was asked to furnish details from time to time. Petitioner has submitted all the details and also attended personal hearing. In the assessment order petitioner s submission regarding ESOP was rejected. The fact that the Assessment Order does not contain any reference or discussion relating to depreciation claimed by petitioner on the goodwill that it had paid while applying the shares of ETPL would mean that the query raised was considered by the A.O. while completing the assessment and the A.O. was satisfied with the explanation offered in respect of the query raised. We are satisfied that it is merely on the basis of change of opinion from that held earlier during the course of assessment proceedings that reopening of the assessment by the impugned notice is proposed. This change of opinion does not constitute justification and the reasons to believe that income chargeable to tax has escaped assessment. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Allegation of income escaping assessment.
3. Claim of depreciation on goodwill.
4. Reassessment based on change of opinion.
5. Role of audit objections in reassessment proceedings.

Summary:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 27th March 2021 issued under Section 148 of the Income Tax Act, 1961, alleging that the income chargeable to tax for Assessment Year 2016-17 had escaped assessment. The court found that the reasons for reopening the assessment indicated a clear change of opinion by the Assessing Officer (A.O.), which does not constitute a valid reason for reopening under Section 148.

2. Allegation of income escaping assessment:
The notice was based on the claim that the petitioner's income had escaped assessment due to the depreciation claimed on goodwill arising from the amalgamation of Elitecore Technologies Pvt. Ltd. (ETPL) with the petitioner. The court noted that the A.O. had already scrutinized and allowed this claim during the original assessment proceedings.

3. Claim of depreciation on goodwill:
The petitioner claimed depreciation on goodwill amounting to Rs. 38,15,17,889/- resulting from the amalgamation. During the original assessment, detailed inquiries were made, and the A.O. was satisfied with the explanations provided by the petitioner. The court held that the A.O. had already considered and allowed the depreciation claim, and reopening the assessment on the same grounds was not justified.

4. Reassessment based on change of opinion:
The court emphasized that reopening an assessment based on a mere change of opinion is not permissible. It cited the judgment in Aroni Commercials Ltd. vs. Deputy Commissioner of Income Tax, stating that once a query is raised and answered during the assessment proceedings, it is assumed to have been considered by the A.O. The court concluded that the reopening was merely a change of opinion and not based on any new tangible material.

5. Role of audit objections in reassessment proceedings:
The petitioner argued that the reassessment was initiated based on audit objections, which were initially defended by the A.O. The court referred to the judgment in Indian & Eastern Newspaper Society vs. Commissioner of Income Tax, stating that the A.O. must independently determine the effect of the law and cannot rely solely on audit objections. The court found that the A.O. had not formed an independent opinion and was influenced by the audit objections, making the reassessment invalid.

Conclusion:
The court quashed the impugned notice dated 27th March 2021, the scrutiny notice dated 7th December 2021, and the order dated 24th January 2022, deeming them unsustainable and based on a change of opinion rather than new tangible material. The petition was allowed, and the reassessment proceedings were set aside.