Audit Objection Cannot Reopen Assessment on Issues Already Examined by AO: Bombay HC

Asian Paints Ltd. Vs ACIT (Bombay High Court)

Summary: Bombay High Court quashed reassessment proceedings initiated against Asian Paints Ltd. for AY 2017-18, holding that the exercise was founded on an impermissible change of opinion and lacked new tangible material. The original assessment had been completed under Section 143(3) after detailed queries and replies concerning depreciation on computers and computer software, Section 80G deduction relating to CSR expenditure, depreciation on goodwill, short provision towards discount and additional depreciation on plant and machinery.

Subsequently, a Section 148 notice was issued on 27 March 2021 based substantially on audit objections. Applying the Supreme Court ruling in CIT v. Kelvinator of India Ltd. and Bombay High Court precedent in Aroni Commercials Ltd. v. DCIT, the Court reiterated that the AO has power to reassess but not to review a concluded assessment. Once a query is raised during original assessment and answered by the assessee, the issue must be regarded as having been considered even if the final assessment order contains no discussion about it. The Court examined all six recorded reasons separately and found that they either concerned matters specifically examined during original assessment or were contrary to the applicable statutory provisions.

It further held that audit objections expressing an opinion on matters already examined by the AO could not constitute tangible material permitting the AO to alter his earlier opinion. The Court accordingly quashed the Section 148 notice dated 27 March 2021 and the order dated 16 February 2022 rejecting Asian Paints’ objections, and made the Rule absolute without costs.

Cases Discussed

• SLP arising from Castrol India Ltd., (2025) 173 taxmann.com 686 (Supreme Court) — The source records that the special leave petition against the Bombay High Court decision in Castrol India Ltd. was dismissed.
• Castrol India Ltd. v. DCIT, (2024) 161 taxmann.com 75 (Bombay High Court) — Relied upon in support of the proposition that reopening based on audit objections concerning issues already examined in the original assessment cannot be sustained where it merely results in a change of opinion.
• CIT v. Jet Speed Audio Pvt. Ltd., 372 ITR 762 (Bombay High Court) — Relied upon for the requirement of tangible material and for the legal position concerning the observations in Kalyanji Mavji & Co. after the Supreme Court decision in Indian and Eastern Newspaper Society.
• Export Credit Guarantee Corporation of India Ltd. v. Additional Commissioner of Income-tax, 350 ITR 651 (Bombay High Court) — Relied upon by Revenue and distinguished. The Court accepted that tangible material need not necessarily be new where relevant material was plainly ignored, but found the decision inapplicable because the disputed issues in the present case had actually been examined during the original assessment.
• Direct Information P. Ltd. v. ITO, 349 ITR 150 (Bombay High Court) — Relied upon while dealing with depreciation on goodwill and recurring claims. The Court referred to the principle that where entitlement has been examined in the initial year, a recurring consequential claim cannot ordinarily be disturbed in a subsequent year without validly disturbing the underlying entitlement.
• CIT v. Usha International Ltd., 348 ITR 485 (Delhi High Court, Full Bench) — Relied upon for the principles governing change of opinion. The Full Bench held, inter alia, that where a query was raised and answered during the original assessment but no addition was ultimately made, the Assessing Officer is regarded as having formed an opinion on the issue.
• Aroni Commercials Ltd. v. DCIT, 362 ITR 402 (Bombay High Court) — Relied upon and followed for the proposition that once a query has been raised during assessment and answered by the assessee, the issue is treated as having been considered by the Assessing Officer even if the assessment order does not expressly discuss it.
• CIT v. Kelvinator of India Ltd., 320 ITR 561 (Supreme Court) — Relied upon and followed for the distinction between reassessment and review and for the principle that reopening cannot be based upon a mere change of opinion and requires tangible material having a live link with formation of the belief of escapement of income.
• Consolidated Photo & Finvest Ltd. v. ACIT, 281 ITR 394 (Delhi High Court) — Relied upon by Revenue, but the Court noted that the relevant observations had subsequently been disapproved by the Full Bench of the Delhi High Court in Usha International Ltd.
• Rajesh Jhaveri Stock Brokers (P.) Ltd. (Supreme Court) — Referred to in the passage reproduced from Usha International Ltd. while explaining the reassessment principles applicable where a return has merely been processed under Section 143(1).
• KLM Royal Dutch Airlines v. ACIT, [2007] 292 ITR 49 / 159 Taxman 191 (Delhi High Court) — Referred to through the Full Bench decision in Usha International Ltd.. The reproduced passage records that the Full Bench did not express approval or disapproval of the other issues dealt with in that decision.
• CIT v. Paul Bros., [1995] 216 ITR 548 / 79 Taxman 378 (Bombay High Court) — Referred to in the passage from Direct Information P. Ltd. as following the principle stated by the Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd.
• Saurashtra Cement & Chemical Industries Ltd. v. CIT, [1980] 123 ITR 669 (Gujarat High Court) — Referred to for the principle that relief granted in the initial year cannot ordinarily be withheld in a subsequent year without first disturbing the relief granted in the initial year on valid grounds.
• Indian and Eastern Newspaper Society v. CIT, 119 ITR 996 (Supreme Court) — Relied upon for holding that the relevant observations in Kalyanji Mavji & Co., concerning escapement resulting from oversight, inadvertence or mistake, did not lay down the correct law.
• Kalyanji Mavji & Co. v. CIT, 102 ITR 287 (Supreme Court) — Relied upon by Revenue. The Court held that the particular observations invoked by Revenue did not represent the correct legal position in view of the subsequent Supreme Court ruling in Indian and Eastern Newspaper Society.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Respondents waive service. With the consent of the parties, Rule made returnable forthwith, and the Petition is heard finally.

2. By this Petition, the Petitioner challenges notice dated March 27, 2021 (“the impugned notice”) issued by Respondent No.1 under Section 148 of the Income tax Act, 1961 (“the Act”) proposing to reopen the assessment for Assessment Year 2017-18 and order dated February 16, 2022 (“the impugned order”) passed by Respondent No.2, rejecting the objections of the Petitioner against reopening of the assessment for Assessment Year 2017-18.

3. The facts germane to the Petition, briefly stated, are as follows. The Petitioner is a public limited company and is, inter alia, engaged in the business of manufacturing and sale of paints, varnishes, primers, etc. The Petitioner filed its original Return of Income on November 29, 2017, declaring a total income of Rs. 23,45,41,30,700/-. During the course of assessment proceedings, the Petitioner, along with the computation of income, also filed a detailed note explaining the various deductions claimed in the return. In the notes to the computation of income, the Petitioner furnished a detailed explanation in relation to the following issues:

i. Deduction under Section 80G of the Act of Corporate Social Responsibility expenditure (‘CSR expenditure’);

ii. Additional depreciation under Section 32(1)(ii) of the Act carried forward to the year under consideration on plant and machinery added in the 2nd half of the financial year 2015-16 relevant to AY 2016-17;

4. Disclosures were made in the Tax Audit Report in Form No. 3CD furnished along with the Return of Income with respect to the following issues:

i. Depreciation on computer;

ii. Depreciation claimed under Section 80G of the Act;

iii. Balance additional depreciation carried forward to the year under consideration on plant and machinery added in the second half of financial year 2015-16;

iv. Depreciation claimed on computer software and goodwill.

5. The case of the Petitioner was selected for scrutiny assessment.

During the course of the assessment proceedings, the Assessing Officer, vide a notice dated July 12, 2019 issued under Section 142(1) of the Act, inter alia, sought details / justification / reconciliation on the large deduction under Chapter VI-A from total income.

6. The Petitioner, in response to the aforesaid notice, vide submission dated July 24, 2019, inter alia, submitted a statement giving details of donation made, on which deduction has been claimed under Section 80G of the Act. The Petitioner provided a list of Institutes to which donations were made, the dates of donation, the amounts of donation, and the amounts claimed as deductions under Section 80G of the Act.

7. The Assessing Officer thereafter issued another notice dated August 21, 2019, directing the Petitioner to submit, inter alia, the following details:

i. Copy of 80G certificate and the mode of payment. The Assessing Officer also directed the Petitioner to furnish whether demand has been claimed as CSR expenditure or not.

ii. A brief note on short provision made towards a discount in the year under consideration.

8. The Petitioner, in response, filed submission dated August 26, 2019, inter alia, submitting as under:

(i) The Petitioner furnished a certificate under Section 80G of the Act. It also submitted that CSR expenditure has been disallowed as a deduction.

However, the expenditure available under Section 80G of the Act has been claimed as a deduction.

(ii) In connection with a short provision on discount, the Petitioner submitted that it had created a provision in the month of March 2017 on an estimated basis. However, while filing the Return of Income, it realised that the actual discount was more than the provision made. Therefore, the Petitioner claimed the excess amount as a deduction in the year under consideration.

9. Thereafter, the Assessing Officer issued another notice dated October 31, 2019 under Section 142(1) of the Act, directing the Petitioner to submit the following details:

i. Details of all computers, computer software and its treatment in the block of assets.

ii. Details of plant and machinery with installation certificate. Further, the Assessing Officer directed the Petitioner to clarify in regard to additional depreciation as to whether the proviso to Section 32(1)(iia) / 32(1)(iib) of the Act has been complied with or not. The Assessing Officer also directed the Petitioner to show cause as to why additional depreciation claimed should not be disallowed, as disallowed in earlier years.

10. The Petitioner, in response, vide submission dated November 15, 2019, submitted the following details / explanation:

i. The Petitioner provided details of addition / sale of computers and computer software in a tabulated format, including the date of installation / asset put to use and whether the asset is used for more than or less than 180 days.

ii. In relation to balance additional depreciation claimed on plant and machinery, the Petitioner submitted that, based on the third proviso to Section 32(1)(ii) of the Act (effective from AY 2016-17), balance depreciation on additions made in the second half of FY 2015­16 had been claimed. Further, even prior to the insertion of the third proviso, learned Commissioner of Income Tax (Appeals) [‘CIT(A)’] had decided the matter in favour of the Petitioner in earlier years.

11. The Assessing Officer, thereafter, passed an Assessment Order dated December 16, 2019, under Section 143(3) of the Act, after making various additions and disallowances to the returned income of the Petitioner.

12. Subsequently, the Assessing Officer issued the impugned notice dated March 27, 2021 under Section 148 of the Act, stating that Respondent No.1 has reason to believe that income chargeable to tax has escaped assessment for the Assessment Year 2017-18. The Petitioner filed its Return of Income in response to the impugned notice on April 21, 2021 and, vide letter dated April 5, 2021, sought a copy of the reasons recorded for reopening. Respondent No.1, vide notice dated November 17, 2021, provided the extract of the reasons recorded for reopening, wherein Respondent No.1 alleged that income chargeable to tax has escaped assessment with respect to six issues.

13. The Petitioner, vide application dated December 10, 2021, requested Respondent No.1 to provide a copy of audit objections / observations made by the audit party and the reply filed against those audit objections for the relevant Assessment Year. The Petitioner, vide submission dated December 24, 2021, filed with the office of Respondent No. 1 on December 27, 2021, detailed objections, issue-wise, challenging the reopening of the assessment, inter alia, broadly raising the following contentions:

i. No reopening can be permitted merely on the basis of a change of opinion;

ii. Reopening is not permitted without any new tangible material on record;

iii. No reopening of assessment can be done without there being any bona fide reason to believe that income chargeable to tax has escaped assessment;

iv. No reopening is permissible merely on the basis of the dictates of audit objections.

14. Respondent No.2, thereafter, passed the impugned order dated February 16, 2022, rejecting the objections of the Petitioner.

15. Being aggrieved by the impugned notice and the impugned order rejecting the objections of the Petitioner, the Petitioner has filed the present Petition.

16. This Court, vide order dated March 14, 2022, granted ad-interim relief in terms of prayer clause (d) to the Petitioner, which was extended from time to time. The Respondents have filed an affidavit in reply affirmed on November 11, 2022 by one Dr. Deepak Shukla, Deputy Commissioner of Income tax, Circle 3(4), Mumbai.

17. Agrawal, learned Counsel appearing on behalf of the Petitioner, assailed the impugned reassessment proceedings on the following grounds:

(i) Mr. Agrawal contended that reopening of an assessment is not permissible based on a mere change of opinion. He contended that once the queries are raised during the course of assessment proceedings and the Petitioner has responded to the same, the Assessing Officer has considered the said issues while completing the assessment and any attempt of the Assessing Officer to reopen the said issues would clearly be a case of change of opinion which is not permissible under Section 147 of the Act. It was contended that the Assessing Officer has no jurisdiction to review his own Assessment Order. He placed reliance upon the decision of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (320 ITR 561). He further contended that it is not necessary that an Assessment Order should contain reference or discussion on the said issues to conclude that the Assessing Officer has considered the said issues. In support of this contention, he placed reliance upon the decision of this Court in the case of Aroni Commercials Ltd. v. DCIT (362 ITR 402). He took us through the notes to the Return of Income, disclosure in the tax audit report, the notices issued by the Assessing Officer during assessment proceedings, the replies filed by the Petitioner in response to the said notices, and the Assessment Order to buttress his submission that the issues which are now the subject matter of reopening were already considered by the Assessing Officer during the original assessment proceedings. With respect to the claim of depreciation on goodwill, where no specific notice was issued by the Assessing Officer to the Petitioner, Mr. Agrawal submitted that the depreciation on goodwill has been claimed on the opening written down value (“WDV”) of the block of assets and there was no addition to the said block during the year. Goodwill had arisen on acquisition of business in the earlier year and the Assessing Officer in the earlier year had already enquired on the claim of depreciation in the assessment proceedings, and after considering the submission of the Petitioner, allowed the claim. Hence, once the inquiry has been done in the year of transaction with respect to a claim of depreciation, which is a recurring issue, reopening in a subsequent year to disallow depreciation would be clearly a case of change of opinion even though there is no specific inquiry in the subsequent year, once the Officer has enquired in respect of the same in the year of transaction.

(ii) Mr. Agrawal further contended that, to validly initiate re­assessment proceedings under Section 147 of the Act, the Assessing Officer must have tangible material on the basis of which he believes that income chargeable to tax has escaped assessment. He contended that from the perusal of the reasons as recorded by the Assessing Officer, it is clear that there was no tangible material available with the Assessing Officer to initiate the reassessment proceedings. The reasons on all the issues start with “on perusal of record” or “it is observed that”, which itself shows that there was no new or tangible material to justify the reopening of the assessment. He placed reliance upon the decision of this Court in the case of CIT v. Jet Speed Audio Pvt. Ltd. (372 ITR 762).

(iii) Mr. Agrawal further contended that reopening of the assessment is not permitted merely on the basis of audit objections. From the reasons recorded for reopening as well as the averments made in the affidavit-in-reply filed by Respondent No.1, it is evident that reopening of the assessment is based on audit objections. He submitted that once detailed enquiries were made during the assessment proceedings, details were sought, clarifications were asked, and submissions have been filed, reopening of the assessment on the same issues based merely on the audit objections is not permissible. Audit objections cannot be considered as a new tangible material that has come into possession of Respondent No.1 pursuant to the completion of original assessment proceedings. He placed reliance upon the decision of this Court in the case of Castrol India Ltd. v. DCIT, (2024) 161 taxmann.com 75 (Bombay High Court), against which a special leave Petition has been dismissed by the Hon’ble (2025) 173 taxmann.com 686 (Supreme Court).

(iv) Mr. Agrawal further submitted that a plain reading of the provisions of the Act and the rules shows that some of the issues for which reopening is proposed are clearly contrary to the statute itself. He submitted that for (a) allowability of additional depreciation carried forward to the year under consideration, the third proviso to Section 32(1)(ii) of the Act has been inserted w.e.f. 1st April, 2016 and hence, applicable for the relevant year; (b) New Appendix I shows that computers come within the category of plant / machinery and hence, additional depreciation is allowable on computers; (c) the New Appendix provides for depreciation on computer software and computers at the same rate and (d) depreciation claimed on goodwill prior to the Amendment brought in by Finance Act, 2021 was in accordance with law.

18. Per contra, Mr. Sharma, learned Counsel for the Respondents, vehemently opposed the contention of the Petitioner. He contended as under:

i. The impugned notice was issued on March 27, 2021, which is within four years from the end of the Assessment Year 2017-18. The Assessing Officer, therefore, is not required to establish that there was failure on the part of the Assessee to disclose fully and truly all material facts necessary for his assessment, for that Assessment Year, in terms of the proviso to Section 147 of the Act.

ii. Respondent No.2 has passed the impugned order after extensively considering all the contentions of the Petitioner. It is a speaking order, which does not warrant any interference by this Court.

iii. Mr. Sharma further contended that audit objections raised by the audit department constitute new tangible material that has come into possession of the Respondents, permitting them to reopen the assessment. Audit objections point out mistakes/errors made by the Assessing Officer in the original assessment proceedings. He placed reliance upon the order in Export Credit Guarantee Corporation of India Ltd. v. Additional Commissioner of Income-tax (350 ITR 651) to contend that what is tangible need not be something which is new. An Assessing Officer who has plainly ignored relevant material in arriving at an assessment acts contrary to law. If there is an escapement of income in consequence, the jurisdictional requirement of Section 147 would be fulfilled on the formation of a reason to believe that income has escaped assessment. The reopening of the assessment within a period of four years is, in these circumstances, within jurisdiction.

iv. Reopening of assessment within a period of four years can be resorted to in order to remedy errors, either due to oversight or inadvertence, made in the original assessment proceedings, as there is no requirement to establish that there is a failure on the part of the Assessee in disclosing fully and truly all material facts. He pointed out that the Assessing Officer in the order disposing of the objections has placed reliance upon the decision of the Hon’ble Supreme Court in the case Kalyanji Mavji & Co. v. CIT (102 ITR 287) and particularly the following observations: “Where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer. This is obviously based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority”.

v. Mr. Sharma also placed reliance upon the decision of the Delhi High Court in the case of Consolidated Photo & Finvest Ltd. v. ACIT (281 ITR 394) to substantiate that reopening is permissible even based on material already on record. He submitted that this Court ought not to interfere in these reassessment proceedings initiated against the Petitioner.

19. Mr. Agrawal, in rejoinder, submitted that reliance placed by the Assessing Officer on the decision of the Hon’ble Supreme Court in the case of Kalyanji Mavji & Co. (supra) is completely misplaced inasmuch as the Hon’ble Supreme Court, in a subsequent decision in the case of Indian and Eastern Newspapers Society v. CIT (119 ITR 996) has categorically held that the observations in Kalyanji Mavji & Co. (supra) extracted above do not lay down the correct law. Further Mr. Agrawal drew our attention to the decision of this Court in the case of CIT v. Jet Speed Audio Pvt. Ltd. (372 ITR 762), wherein this Court, after referring to the decision of the Hon’ble Supreme Court in the case of Indian and Eastern Newspapers Society (supra), held that the view expressed in Kalyanji Mavji & Co. (supra) is not good law. Further, he contended that the decision of this Court in the case of Export Credit Guarantee Corporation of India (supra) is not applicable to the facts of the present case, as in the present case queries have been raised on the issues on which reopening is initiated, and submissions have been filed by the Petitioner. Further, he also drew our attention to the decision of the Full Bench of the Delhi High Court in the case of CIT v. Usha International Ltd. (348 ITR 485), wherein the Full Bench of the Delhi High Court has disapproved observations made in Consolidated Food & Finvest Ltd. (supra). In the case of Export Credit Guarantee Corporation of India (supra), the issues on which reopening was initiated, no query was raised by the Assessing Officer and, therefore, the Court upheld the reopening within a period of four years.

20. We have heard learned Counsel for the parties at length and perused the material on record, including the affidavits filed.

21. The present reopening for the Assessment Year 2017-18 by notice dated March 27, 2021, falls within the period of four years from the end of the relevant Assessment Year. Therefore, the first proviso to Section 147 of the Act, (as it stood at the relevant juncture), would not be applicable to the facts of the present case.

22. Section 147 of the Act, prior to its amendment with effect from April 1, 2021, provided that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income. The Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra) has held that the words “reason to believe” have to be given a schematic interpretation, failing which Section 147 of the Act would give arbitrary powers to the Assessing Officer. The Hon’ble Supreme Court held that the conceptual difference between the power to review and the power to reassess has to be kept in mind. The Assessing Officer has no power to review; he has the power to reassess. We may also gainfully refer to the decision of this Court in the case of Aroni Commercials Ltd. v. DCIT (supra), wherein this Court, after referring to the decision of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra), held that the power to reassess cannot be exercised on the basis of mere change of opinion. It was further held that the reopening must be based on tangible material. Most crucially, this Court held that

“The powers under Section 147 / 148 of the Act cannot be exercised to correct errors / mistakes on the part of the Assessing Officer while passing the original order of assessment. There is a sanctity bestowed on an order of assessment and the same can be disturbed by exercise of powers under Section 147 / 148 of the Act only on satisfaction of jurisdictional requirements…

We are of the view that 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. If an Assessing Officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under Section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice under Section 148 of the Act, during the original assessment proceedings.”

23. On the touchstone of the above tests, we have to examine whether the reopening has been undertaken on the basis of a mere change of opinion, or whether the Assessing Officer had in his possession new tangible material that enabled him to disturb an already concluded assessment. The only material relied upon as new tangible material is the Audit Party’s objections, as is evident from the reasons recorded and as accepted in the affidavit-in-reply. We propose to examine the reasons recorded for reopening on an issue-wise basis.

Issue No.1: Claim of excess depreciation on Computers:

24. In the reasons recorded for reopening, Respondent No.1 alleged that “The assessee claimed depreciation on computer at the rate 60% as per Income tax Act, 1961. As per the working, the assessee has claimed total depreciation of Rs.22,56,69,735/- on capitalisation of computers, as against the actual allowable depreciation of Rs.19,79,38,799/-. Thus the assessee has availed excess depreciation of Rs.2,77,30,937/-, which is required to be disallowed.”

In the reasons recorded for reopening, Respondent No. 1 has simply alleged that an amount of Rs. 2,77,30,937/- has been claimed as excess depreciation. However, no basis for such an allegation has been given. It is only when we perused, with the assistance of Counsel, the working of depreciation claimed on written down value as per the Act, it became apparent that Respondent No. 1 alleges escapement of income in two parts: first, the balance additional depreciation carried forward on computers added in the second half of FY 2015-16 amounting to Rs. 1,56,18,708/- and, second, computers are not eligible for additional depreciation aggregating to Rs. 1,21,12,228/-. The aggregate of both amounts is Rs. 2,77,30,936/- (the difference of Rs. 1 is apparently due to rounding off). In our view, such vague reasons where the Assessing Officer is not establishing any live nexus between the material and the reason to believe, cannot be sustained.

25. In any case, with respect to the aforesaid reasons, we notice that the Assessing Officer, vide notice dated October 31, 2019 issued under Section 142(1) of the Act, directed the Petitioner to submit details of additions / sale during the year in the block of assets pertaining to computers and computer software. The Petitioner, in response to the same, vide submission dated November 15, 2019, submitted a statement giving details of additions of computer and computer software during the year, including description, date of installation / the asset being put to use in the number of days and whether the asset was put to use for more or less than 180 days. The Petitioner also made disclosure in Annexure-11 to the notes to the computation of income and in Clause 18 of the tax audit report. Therefore, it is clear that the Assessing Officer had examined this issue in the original assessment proceedings and now, reopening of the same issue is clearly a change of opinion and hence, not permissible.

26. We also agree with the contention of Mr. Agrawal that, in view of the third proviso to Section 32(1) of the Act, inserted w.e.f 1^st April, 2016, i.e. Assessment Year 2016-17, the question of disallowing carried forward additional depreciation does not arise. The said proviso expressly provides that where during the previous year an Assessee acquired an asset and the same is put to use for the purposes of business for a period of less than 180 days in that previous year, the deduction under the sub-section in respect of such an asset is restricted to 50% of the amount. The deduction for the balance 50%, calculated at the prescribed rate, is then allowable in the immediately succeeding previous year in respect of such asset. The said proviso is, therefore, clearly applicable in the facts of the Petitioner’s case.

27. Further, we also agree with Mr. Agrawal that Computers are eligible for additional depreciation and Respondent No. 1 cannot have any bona fide reason to believe in this regard. Section 32(1)(i) of the Act itself, as pointed out by Mr. Agrawal, contemplates only four categories of tangible assets, i.e. buildings, machinery, plant or furniture. Naturally, computers would fall within the category of plant or machinery. This is further fortified by the plain reading of the New Appendix-I prescribed in Rule 5 of the Income-tax Rules, 1962, where a computer is included as a depreciable asset falling within the Plant and Machinery. Clause 5 provides for 60% depreciation for “computer including computer software” in the category of ‘Machinery And Plant’ in Part III of Part A, which provides for the rate of depreciation for tangible assets. Therefore, the legislature itself has prescribed the computer to be treated as plant and machinery. In view of the same, Respondent No.1 cannot have any reason to believe that computers were not eligible for additional depreciation since they are not plant and machinery. Therefore, on all the above three grounds, reasons for reopening cannot be sustained.

Issue No.2: Deduction under Section 80G of the Act of CSR expenditure:

28. In the reasons recorded for reopening, Respondent No.1 alleged that “Assessee claimed CSR expenses of Rs.51,47,80,309/-in the P&L account which was added back in the computation of income. It is found from para 9 of Notes to the Statement of Income, the assessee himself declared that, they have claimed deduction u/s 80G for the CSR expenses of Rs.51,47,80,309/- and made a further claim of deduction of Rs.13,09,46,072/- u/s 80G in its computation of income which was allowed in completion of assessment. Hence treating the same expense under two different heads would amount to double deduction which was not an allowable deduction claimed by assessee and allowed in assessment, which is required to be disallowed.”

With respect to the above reasons, the Assessing Officer, vide notice dated July 12, 2019, issued under Section 142(1) of the Act, in point No.13 of the notice, directed the Petitioner to furnish details / justification on large deduction under Chapter VI-A from total income. The Petitioner, in response to the same, vide submission dated July 24, 2019, in para-13 of the said submission, provided a statement giving details of donations made, for which deduction is claimed under Section 80G of the Act. In the statement, the Petitioner provided the list of institutes and their addresses, exemption number, the amount of donation, the amount of deduction claimed and the sub-section of Section 80G of the Act, under which the deduction has been claimed. The Petitioner also furnished PAN details of those institutes. Moreover, the Assessing Officer, vide notice dated August 21, 2019 issued under Section 142(1) of the Act, specifically directed the Petitioner to furnish copies of 80G certificates and the mode of payment. The Assessing Officer also directed the Petitioner to state as to whether the amounts have been claimed under CSR expenses or not. The Petitioner, in response, vide submission dated August 26, 2019, in paragraph 7 of the said submission, furnished the copy of the certificate under Section 80G of the Act. Further, the Petitioner clarified that it has disallowed CSR expenditure in its computation of income. However, out of the said disallowance, the expenditure, which is eligible for deduction under Section 80G of the Act, has been claimed in the Return of Income. The aforesaid queries and submissions leave no doubt that the Assessing Officer has considered this issue threadbare in the original assessment proceedings. Therefore, reopening of assessment on this issue is a mere review of the original assessment, which is not permissible.

Issue No.3: Excess claim of depreciation on computer software:

29. In the reasons recorded for reopening, Respondent No.1 alleged that

“The assessee had claimed depreciation on both the block of computers and computer software at 60 percent, whereas while claiming additional depreciation, it considered computers as plant and machinery but not on computer software. Total depreciation claimed on computer software was Rs.24,96,74,435/- Thus, in the assessee’s own treatment computer software is not same as computers however the depreciation thereon was being taken in the block of computers, which was not allowable. The correct depreciation rate should have been 25% instead of 60% which resulted in excess depreciation to the extent of difference of Rs.16,00,35,725/- (Rs.27,43,46,958 – Rs.11,43,11,233) which was required to be disallowed.”

With regard to the aforesaid reasons, it is seen that the same notice, which was issued by the Assessing Officer with respect to Issue No. 1, dealt with herein above, i.e. notice dated October 31, 2019 issued under Section 142(1) of the Act, also deals with this very issue and the response of the Petitioner, vide submission dated November 15, 2019, also covers the aforesaid issue. Therefore, on this issue as well, queries have been raised, and a reply has been furnished by the Petitioner. Reopening is nothing more than a change of opinion.

30. Further, as noted above, sub-clause (5) of clause III of part A of New Appendix-I prescribed in Rule 5 of the Income-tax Rules, 1962, treats computer and computer software to be of the same category. Therefore, in our view, Respondent No. 1 cannot have any bona fide reason to believe that income chargeable to tax has escaped assessment on the claim of depreciation @ 60% instead of 25% on computer software.

Issue No.4: Claim of Depreciation on Goodwill:

31. Respondent No.1, in the reasons recorded for reopening, observed that “The assessee had claimed depreciation on intangible assets @ 25 percent. The block of asset included Rs.31,19,00,408/- as goodwill on which depreciation was not allowable as goodwill does not fall under above category. The depreciation thereon was claimed at Rs.7,79,75,102/- @ 25 percent which was required to be disallowed.” In connection with this issue, we notice that goodwill had arisen on account of the transaction of acquisition in the earlier year and goodwill has entered into the block of assets in an earlier year. While deciding Writ Petition No. 5125 of 2022 for the Assessment Year 2016­17, we have held that the Assessing Officer, in the assessment proceedings for Assessment Year 2016-17, had in detail examined the issue of depreciation claimed on goodwill by the Petitioner and, thereafter, allowed the claim of depreciation in the Assessment Order. In our view, if the Assessing Officer has made a detailed inquiry with respect to the transaction of claim of depreciation in the year of acquisition of the asset, even if the Assessing Officer has not made inquiry on the issue of claim of depreciation in the succeeding year, it can be held that the reopening is a case of change of opinion. This is so because once goodwill has entered into the block of assets in an earlier year, and depreciation has been allowed thereon, it is only a matter of giving effect to the said claim in the subsequent year. There is no separate transaction in the subsequent year for the Assessing Officer to inquire into the same. We can draw a reference to the decision of this Court in the case of Direct Information P. Ltd. vs. ITO (349 ITR 150), paras 15 to 27, wherein while considering the reopening of the assessment for the Assessment Years 2006-07 and 2007-08 with respect to the claim of deduction under Section 10A of the Act, the Court referred to the inquiry done by the Assessing Officer for the Assessment Year 2003-04 being the first year of claim of deduction and noting that deduction under Section 10A is contemplated for 10 years. Para 17 reads as under –

“17. The order passed by the Assessing Officer on the objections of the Assessee adverts to two considerations. First, the Assessing Officer notes that IT enabled services necessitate a value addition, something which, according to him, the activity of a domain registry does not fulfill. This reason, is a mere change of opinion. As a matter of fact, in the assessment order for Assessment Year 2003-04, the Assessing Officer had taken the same view holding that the business of the Assessee in itself is a mere purchase and sale, the only value addition being the manual service of assessee. This view was reversed in appeal by the Commissioner (Appeals). The second consideration which has weighed with the Assessing Officer is that a decision taken in a particular year cannot bind the Assessing Officer for subsequent years. Now, it is true that each Assessment Year constitutes a separate unit in itself and the principles of res judicata as such are inapplicable. Equally, though the principles of res judicata do not strictly apply, as in the case of different Assessment Years, there is some value to be placed on the need for uniformity even in tax adjudication. Moreover, in the present case, the deduction is not a matter relating to independent Assessment Years in the strict sense of the term. Section 10A contemplates a deduction in respect of ten succeeding Assessment Years. A Division Bench of the Gujarat High Court, while considering the deduction under Section 80J held in Saurashtra Cement & Chemical Industries Ltd., v. CIT [1779] 2 Taxman 22/[1980] 123 ITR 669 as follows :-

“No doubt, the relief of tax holiday under s. 80J can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the ITO cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted.”

This view of the Gujarat High Court has been followed by this Court in CIT v. Paul Bros. [1995] 216 ITR 548 / 79 Taxman 378”

32. We also agree with the contention of Mr. Agrawal that prior to the amendment brought in by the legislature in Section 32(1)(ii) of the Act and Explanation 3(b) to Section 32(1) of the Act, vide Finance Act, 2021, with effect from April 1, 2021, goodwill will be treated as an intangible asset. Explanation 3(b) to Section 32(1) of the Act, after the amendment vide Finance Act, 2021, inter alia, provides that the expression “asset” shall mean intangible asset, being knowhow, patent, copyright, trademark, licences, franchises or any other business or commercial rights of similar nature not being goodwill of business or profession. Therefore, goodwill will not be regarded as an intangible asset only from the Assessment Year 2021-22. The Assessment Year under consideration, being Assessment Year 2017-18, is prior to the amendment and, therefore, the belief of Respondent No. 1 cannot be said to be a valid reason for reopening.

Issue No.5: Provision of unascertained liabilities:

33. Respondent No.1 in the reasons recorded for reopening, observed that “The assessee has reduced an amount of Rs.7,58,00,302/- from total income under head Short provision made in FY 2016-17 towards discount. This provision was made against the unascertained liability which is contingent in nature. Hence, the provision towards discount of Rs.7,58,00,302/- was not an allowable expense and was required to be disallowed.”

On this issue, the Assessing Officer, in the original assessment proceedings, vide notice dated August 21, 2019, in point No. 11 of the said notice, directed the Petitioner to furnish a brief note on the deduction held on the short provision made in financial year 2016-17 towards discount. In response thereto, the Petitioner, vide submission dated August 26, 2019, in point No. 8(v), clarified that the Petitioner had created provisions in March 2017 on an estimated basis with respect to the discount. However, the actual discount was more than the provisions created in March 2017 and hence, while filing the Return of Income, the excess amount has been claimed as a deduction.

Therefore, it is apparent that the Assessing Officer has examined this issue in the original assessment and satisfied himself. Clearly, the present reopening of this issue is merely a change of opinion, which cannot be permitted.

Issue No.6: Additional depreciation on plant and machinery:

34. In the reasons recorded for reopening, Respondent No.1 has observed that

“The assessee is claiming depreciation on Plant and Machinery at the rate of 15% and on Plant and Machinery – Energy saving equipments at the rate of 80% as per Income tax Act, 1961. The assessee has also claimed additional depreciation @ 20% on these blocks of assets which were added during year as well as on opening WDV of the assets. Total depreciation of Rs.217,66,65,347/- on Plant and Machinery and Rs.45,17,33,019/- on Plant and Machinery – Energy saving equipments were claimed alongwith additional depreciation on the assets added during the year and on opening WDV. As per provisions of Section 32(iia) of the Act additional depreciation on opening WDV of the assets is not allowable. Additional depreciation @20% is allowed on the assets installed for more than 180 days and @10% on the assets installed for less than 180 days during the year. The perusal of working of depreciation claimed, it is revealed that the actual allowable depreciation was Rs.1,76,58,45,289/- on Plant and Machinery and Rs.40,26,99,057/- on Plant and Machinery/ Energy saving equipments only. Thus the assessee has availed excess depreciation of Rs.45,98,54,021/-, which was required to be disallowed.”

35. On this issue, the Assessing Officer, vide notice dated October 31, 2019 under Section 142(1) of the Act, directed the Petitioner to clarify as to whether the condition of the proviso to Section 32(1)(iia) / 32(1)(iib) is complied with or not. The Assessing Officer also directed the Petitioner to furnish copies of installation certificates. The Petitioner, in response thereto, vide submission dated November 15, 2019, furnished a statement giving details of additions made to fixed assets during that year; also furnished the statement giving details of depreciation claimed under the Act. The Petitioner clarified that as per the third proviso to Section 32(i)(ii), effective from Assessment Year 2016-17, the balance 10% depreciation on additions made in the second half of financial year 2015-16 relevant to AY 2016-17 has been claimed. The Petitioner also clarified that it has complied with Section 32(1)(iia) / 32(1)(iib) of the Act. Similar disclosures were also made by the Petitioner in Annexure-11 to the notes to computation of income, and in paragraph 10 of the notes to computation of income. A detailed explanation was also furnished. In view of the above, the Assessing Officer has also made inquiries on this issue, and a view has been formulated. On the basis of the same and the material available on record, Respondent No.1 cannot seek to review the assessment.

36. Further, we have already held that in view of the third proviso to Section 32(1)(ii) of the Act, Respondent No. 1 cannot have any reason to believe that income chargeable to tax has escaped assessment.

37. Moreover, from the perusal of the reasons recorded for reopening on all the issues, it is evident that Respondent No. 1 is proceeding on the basis of material already available on record and there was no new tangible material with him to justify the reopening. We hold that, once the aforesaid issues have been enquired into by the Assessing Officer, reopening would not be justified in the absence of any new tangible material before the Assessing Officer.

38. Further, we agree with the contention of Mr. Agrawal that the decision of the Hon’ble Supreme Court in the case of Kalyanji Mavji & Co. (supra), to the extent it holds “Where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer. This is obviously based on the principle that the taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority”

does not lay down the correct law, as held by the Supreme Court in the case of Indian and Eastern Newspapers Society (supra). Our view finds support from the decision of this Court in the case of Jet Speed Audio Pvt. Ltd. (supra).

Further, the decision of the Delhi High Court in the case of Consolidated Food & Finvest Ltd. (supra), relied upon by Mr. Sharma, also does not come to his aid. The decision of the Delhi High Court in the case of Consolidated Food & Finvest Ltd. (supra) has been discussed and disapproved by the Full Bench of the Delhi High Court in the case of Usha International (supra), wherein the Full Bench of the Delhi High Court has observed as under:

“11. Accordingly, we hold that the following observations in Consolidated Photo & Finvest Ltd. (supra) do not reflect the correct legal position:……………

12. The said observations have been rightly held to be contrary to the Full Bench decision of the Delhi High Court in Kelvinator of India Ltd. (supra) in Eicher Ltd. (supra). The said decision in Eicher Ltd. (supra) makes reference to the decision of KLM Royal Dutch Airlines v. Asstt. CIT [2007] 292 ITR 49/159 Taxman191 (Delhi). KLM Royal Dutch Airlines case (supra) deals with some other issues on which we do not expressor make any observation approving or disapproving. Some of these aspects have been considered and explained in other decisions in light of the judgment of the Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra).

13. It is, therefore, clear from the aforesaid position that:

i. Reassessment proceedings can be validly initiated in case Return of Income is processed under Section143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion;

ii. Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by principle of “change of opinion”.

iii. Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons.”

40. We agree with Mr. Sharma that tangible material need not be something which is new. It is correct that an Assessing Officer who has plainly ignored relevant material in arriving at an assessment acts contrary to law, which may be a ground for reopening of the assessment within a period of four years as held by this Court in Export Credit Guarantee Corporation of India Ltd. (supra). However, in the present case, various queries have been raised during the original assessment proceedings and the response furnished by the Petitioner. It follows that the Assessing Officer has examined those issues and formulated an opinion. Subsequent audit objections raised by the audit party are merely the opinion of the audit party. Such audit objections on issues examined by the Assessing Officer during the assessment proceedings cannot be equated with the tangible material for the purpose of reopening of the assessment. The Audit Party is simply rendering its opinion and no new fact has been brought out. Hence, the Audit Party’s objections alone cannot permit the Assessing Officer to alter his opinion. It would still amount to mere change of opinion, which is impermissible. Mr. Agrawal, in this regard, has rightly placed reliance upon the decisions of this Court in the case of Castrol India Ltd. (supra) and Jet Speed Audio Pvt. Ltd. (supra).

41. In view of what is set out above, (i) the impugned notice dated March 27, 2021 issued by Respondent No.1 under Section 148 of the Act and (ii) the impugned order dated February 16, 2022 passed by Respondent No.2, rejecting the objections of the Petitioner against reopening of the assessment for Assessment Year 2017-18, cannot be sustained and accordingly, the same are quashed and set aside.

42. In these circumstances, Rule is made absolute in aforesaid terms and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.

43. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.