Advocate Akhilesh Kumar Sah
Controversy is continuing in different matters relating to re-opening of the assessment. Recently, in DCIT vs. Yamaha Motor India Sales Pvt. Ltd. & vice-versa [ITA No. 992/DEL/2014 and ITA No. 1095/DEL/2014, A.Y. 2006-07, decided on 22.10.2018], in the above case two cross appeals by the assessee and Revenue were preferred against the very same order dated 06.01.2014 framed under section 143(3) read with section 144C(4) of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’] pertaining to A.Y 2011-12. Both these appeals were heard together and were disposed of by the common order for the sake of convenience and brevity.
In addition to the challenge of the disallowance, the assessee had also challenged the reopening of the assessment under section 147 of the Act.
The original assessment was framed under section 143(3) of the Act vide order dated 30.12.2008. Subsequently, vide notice dated 14.09.2011, the Assessing Officer (AO) sought to reopen the assessment. The reasons recorded for reopening of assessment read as under:
“Reasons recorded for re-opening u/s 147/148 of the IT Act, 1961 in the case of M/s. Yamaha Motor India Sales Pvt. Ltd. for the assessment year 2006-07 are as under
1. During the year the assessee had claimed depreciation on goodwill amounting to Rs. 27,03,40,000/- treating it as intangible asset. As per accounting standards goodwill was not considered as an intangible asset for the purpose of amortization. Further, goodwill cannot be considered as any other business or commercial right and depreciation cannot be allowed. Section 32 of the IT Act, provided that from 1st April 1999, depreciation would be allowed on tangible assets which include copyrights, patents, technical know-how, franchise charges or any other commercial rights. Intangible assets, therefore, cannot include goodwill, stock exchange membership fees, intellectual property rights or investment in shares
2. The assessee had claimed and allowed advertisement expenses of Rs. 23,31,91,930/-to the P&L A/c. Advertisement expenditure was incurred by the assessee company on behalf of Yamaha Motor Co., Japan on reimbursable basis. Out of the above advertisement expenses the assessee already reimbursed Rs. 10,97,55,358/- and balance of Rs. 11,50,38,160/- shown under the head loan and advances recoverable toward0 reimbursement . As the advertisement expenditure was incurred on behalf of Yamaha Motor Co., Japan the same should have been disallowed.”
Before ITAT, Delhi, the AR for the assessee vehemently contended that the issues, which prompted the AO to reopen the assessment were specifically considered by the AO during original assessment proceedings by raising specific queries to which the assessee has not only furnished specific reply, but also relevant supporting evidences.
The ITAT observed that in so far as other issue relating to the claim of depreciation on good will treated as intangible asset was concerned, the same is by now well settled in favour of the assessee and against the revenue by the decision of the Hon’ble Supreme Court in the case of CIT vs. Smith Securities ltd. 348 ITR 302.
Considering the facts of the case in totality, the learned Members of the ITAT, Delhi were of the view that the AO, during the course of original assessment proceedings, had made specific queries to which the assessee not only gave specific replies, but the reply of the assessee was well supported by the evidences/details. If the action of the AO is accepted then it would confer arbitrary power upon the AO to reopen the proceedings on the slightest pretext. Mere change in the opinion would not confer jurisdiction upon the AO to initiate a proceeding under section 147 of the Act. There was no new tangible material evidence which prompted the AO to issue notice for reopening of the assessment. For this proposition, support was derived from the decision of the Hon’ble Jurisdictional High Court of Delhi in the case of Kelvinator of India Ltd 256 ITR 1 which was affirmed by the Hon’ble Supreme Court in 320 ITR 561.
The AO in his reasons for reopening the assessment, had observed that the assessee had claimed and allowed advertisement expenses of Rs. 23.31 crores out of which the assessee was reimbursed Rs. 10.97 crores and balance of Rs. 11.50 crores has been shown under the head “Loan and Advance” recovered towards reimbursement. This observation of the AO for reopening the assessment was factually incorrect. Advertisement and Publicity expenses were at Rs. 10.66 crores and selling and distribution expenses were at Rs. 24.76 crores. The balance of advertisement and publicity expenses was covered by financial support of Rs. 10.97 crores received from AE Yamaha Motor Company, Japan. Probably, the AO took the figure from the balance sheet.
Exhibit 56, Schedules to the Accounts Schedule 5 “Loans and Advances” showed Rs. 1339.90 lakhs, the details of the same were at page 197 of the paper book and in the bifurcation, the assessee had to receive Rs. 11.50 crores from Yamaha Motor Company, Japan as amount recovered towards reimbursement of advertisement expenses and other financial support provided by Yamaha Motor Company, Japan. This amount had never been claimed as expenditure by the assessee. Thus, the AO had proceeded to reopen the assessment on wrong assumption of facts in so far as claim of advertisement expenditure are concerned and wrong assumption of law in so far as claim of depreciation is concerned. In any case, there was no new tangible material evidence brought on record by the AO. Assessment was reopened only on the basis of details available on record and wrongly interpreted by the AO.
The learned Members of the ITAT, Delhi were of the considered opinion that reopening of assessment was bad in law and they accordingly quashed the reopening proceedings.