10. Section 147 of the Act empowers the assessing officer to reopen the assessment in respect of any assessment year, if he has reason to believe that any income chargeable to tax has escaped assessment. The object of reassessment is to assess the correct income. Under section 147 of the Act, the assessing officer can assume jurisdiction to reopen the assessment only if there exists tangible material on the basis of which he forms a reasonable belief that the income chargeable to tax has escaped assessment.
16. In the present case, admittedly, the reopening of the assessment is based on the materials which were already on record at the time of passing the assessment order under Section 143(3) of the Act. In fact, during the assessment proceedings, the assessing officer was initially of the opinion that the deduction on the two items in question were not allowable and accordingly had called upon the petitioner to explain as to why deduction on the two items in question should not be disallowed in view of the accounting system maintained by the petitioner. The petitioner submitted a detailed note and explained that tools, dies, jigs & moulds have been regarded as inventory items in the books of account as per the Accounting Standard 2 issued by the Institute of Chartered Accountants of India. It was explained that although the petitioner is entitled to claim deduction of the entire cost of tools, dies, jigs & moulds in the year of acquisition, in view of the fact that the tools, dies, jigs & moulds being inventory items as per the Accounting Standards, the petitioner had debited the cost of acquisition of the said items to ‘purchase account’ and valued the same at the end of the year at the lower of cost or net realizable value determined on the basis of the estimated life of the inventory items. The closing inventory was then carried forward to the next year and the process continued till the value became Nil. Thus, the petitioner had explained that irrespective of the method of accounting followed, the deduction was allowable on the value of the inventory items such as, tools, dies, jigs & moulds as allowed in the past.
17. Similarly, it was explained that the expenditure incurred by way of advertisements on television, newspaper advertisements, hoardings, seminars, exhibitions, etc. to promote the products launched by the petitioner being revenue in nature were allowable in full in the year in which those expenses were incurred. It was explained that the effect of the advertisements would ordinarily be in the mind of the public approximately for three years and, therefore, the advertisement expenses are spread over for a period of three years in the books of account. It was explained that by advertising, no tangible asset is acquired by the petitioner which could be considered to be of enduring nature. Moreover, there is no concept of deferred revenue expenditure in computing the income liable to tax. Therefore, irrespective of the fact that the petitioner in its books of accounts had spread over the product launch expenses over a period of three years, the assessing officer was bound to allow the entire cost of the product launch expenses in the assessment year in question.
18. After considering the aforesaid explanation the assessing officer arrived at a conclusion that the petitioner is entitled to the deduction as claimed and accordingly allowed the deduction in the assessment order passed under section 143(3) of the Act. Thus, in the present case, specific query was raised by the assessing officer as to why the two claims in question should not be disallowed on the basis of the accounting system adopted by the petitioner. Detailed explanation given by the petitioner to the assessing officer are all to be found at pages 148 to 173 of the affidavit in rejoinder. It is only after considering the explanation given by the petitioner and arriving at a conclusion that the petitioner was entitled to the relief, the assessing officer had allowed deduction on the two items in question.
19. In such a case, after having arrived at a conclusion on the basis of the material on record that the petitioner was entitled to the deduction on the two items in question and accordingly having allowed the claim by passing assessment order under section 143(3) of the Act, was it open to the assessing officer to entertain a reasonable belief on the basis of the very same material that income chargeable to tax has escaped assessment and reopen the assessment ?
20. In our opinion, once the assessing officer at the time of original assessment entertains a prima facie belief that the deduction claimed cannot be allowed in view of the accounting system adopted by the assessee and after considering the explanation given by the assessee deems it fit to allow deduction as claimed by passing an assessment order under section 143(3) of the Act, then, it will not be open to the assessing officer to form a contrary opinion based on the very same material and reopen the assessment. In other words, once the assessing officer on consideration of the material on record and the explanation offered, arrives at a final conclusion that the assessee is entitled to the deduction as claimed then, on the basis of the very same material, the assessing officer cannot form a prima facie opinion that the deduction is not allowable and accordingly reopen the assessment on the ground that income chargeable to tax has escaped assessment.