Case Law Details
CGS-CIMB Securities (India) P. Ltd. Vs CIT (Appeals), NFAC Mumbai (ITAT Mumbai)
ITAT Mumbai held that re-opening of assessment under section 148 of the Income Tax Act on account of mere change of opinion is bad-in-law and liable to be quashed.
Facts- In ROI, the Assessee had claimed software expanses of 2.61 crore, as revenue expenditure. AO held that the software expenses are capital in nature and the accordingly, disallowed the above said claim. However, AO allowed depreciation thereon@ 60%, which amounted to Rs.1.57 crore. The Assessee had challenged the above said disallowance by filing appeal before Ld.CIT(A). In fact, the Assessee had settled above said dispute under VSV scheme.
Subsequently, AO re-opened the assessment by issuing notice u/s 148 of the Act on 09.03.2020, that is after expiry of four years from the end of the present assessment year. The reason for re-opening is that the depreciation on software expenses should have been allowed @ 25% instead of 60% in the original assessment order and it has resulted in excess of allowance of depreciation resulting in escapement of income.
Conclusion- We hold that the assessing officer has reopened the assessment of the year under consideration on mere change of opinion only and the same is not permitted under the law. Accordingly, we hold that the reopening of assessment is bad in law and accordingly the impugned assessment order is liable to be quashed. Accordingly, we quash the orders passed by the tax authorities.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The assessee has filed this appeal challenging the order dated10.08.2022, passed by Ld.CIT(A),National Faceless Appeal Centre(NFAC), Delhi and it relates to the AY 2013-14. The Assessee is aggrieved by the decision of Ld.CIT(A) in dismissing the appeal of the Assessee under wrong impression that the Assessee has settled the dispute under Vivad se Vishwas scheme.
2. The Ld. AR submitted that the Assessee has also raised a legal ground challenging the re-opening of the assessment u/s 148 of the Act. Accordingly, he prayed the legal ground may kindly be heard and the adjudicated by the bench.
3. The Ld.AR submitted that the assessment for the year under the consideration was originally completed by the Assessing Officer u/s 143(3) of the Act on 18.06.2016. In the return of income the Assessee had claimed software expanses of 2.61 crore, as revenue expenditure. The Assessing Officer held that the software expanses are capital in nature and the accordingly, disallowed the above said claim. However, the Assessing Officer allowed depreciation thereon@ 60%, which amounted to Rs.1.57 crore. The Assessee had challenged the above said disallowance by filing appeal before Ld.CIT(A). In fact, the Assessee had settled above said dispute under VSV scheme.
4. Subsequently, the Assessing Officer re-opened the assessment by issuing notice u/s 148 of the Act on 09.03.2020, that is after expiry of four years from the end of the present assessment year. The reason for re-opening is that the depreciation on software expenses should have been allowed @ 25% instead of 60% in the original assessment order and it has resulted in excess of allowance of depreciation resulting in escapement of income. The Ld. AR submitted that the Assessing Officer completed the reassessment by disallowing excess depreciation of Rs. 91.71 lacs.
5. The Ld. AR submitted that the Assessing Officer has examined the issue of allowing depreciation on software at the time of original assessment proceedings and he has taken the conscious decision to allow depreciation @ 60%. The re-assessment proceeding has been initiated only to restrict the rate of depreciation to 25%, which is mere change of opinion. Accordingly, the Ld AR contended that the Assessing Officer was not justified in re-opening the assessment on mere change of opinion. In support of this contention the Ld.AR placed reliance on the decision rendered by Hon’ble High Court of Bombay in the case of Indian Energy Exchange Ltd vs. ACIT (2022) 140 taxmann.com 369. Accordingly, he prayed the impugned reopening assessment order may be held as bad.
6. The Ld. DR, on the contrary, submitted that the Assessing Officer has re-opened the assessment on proper reasoning.
7. We heard rival contentions and perused the record. We notice that the only reason for reopening of assessment is to revise the rate of depreciation allowable on the software capitalized by the AO. As noticed earlier, the AO had allowed depreciation @ 60% in the original assessment proceedings and the reopening of assessment was done only to restrict the rate of depreciation to 25%. The question is whether the decision of AO to revise the depreciation can be said to be mere change of opinion. If the answer is Yes, then the reopening of assessment is liable to be quashed. If the answer is No, then the reopening of assessment is justified.
8. We notice that an identical issue has been examined by the jurisdictional Bombay High Court in the case of Indian Energy Exchange Ltd (supra). In this case also, the AO reopened the assessment to restrict the depreciation rate to 25% as against 60% originally allowed on software. The Hon’ble jurisdictional High Court held as under:-
“2. Petitioner thereafter received a notice under section 148 of the Act stating that there are reasons to believe that petitioner’s income chargeable to tax for A.Y. 2013-14 has escaped assessment within the meaning of section 147 of the Act. At petitioner’s request reasons for reopening was provided vide communication dated 12th August, 2021.
3. Before we go into the reasons, we have to note that this is a case where re-opening is proposed after expiry of four years from the end of the relevant assessment year and the assessment has been completed under section 143(3) of the Act. Therefore, proviso to section 147 of the Act would apply which bars re-opening after four years unless Revenue show that there has been failure on the part of assessee to disclose truly and fully material facts required for assessment. The onus is certainly on the Revenue.
4. It is also trite that the assessment cannot be re-opened on change of opinion as held by various courts including this court as well as the Hon’ble Supreme Court of India.
5. Now, coming to the reasons, the reasons recorded clearly indicate that re-opening is proposed on the basis of change of opinion which is not permissible and the reasons do not disclose that there were non disclosure of material fact by petitioner though there is general statement made that petitioner’s income has escaped assessment on account of failure on the part of petitioner to disclose truly and fully all material facts. In our view, it is only made with an attempt to overcome restrictions in re-opening as per proviso to section 147 of the Act
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7. In paragraph no. 2, the Assessing Officer admits that in the Note 8 list of fixed assets show that during the year computer software was added and classified under the category intangible asset. According to the Assessing Officer because it is intangible asset, assessee could have claimed depreciation only at 25% and not 60%. We ask ourselves what is not disclosed?. The Assessing Officer states it has been disclosed in the note to the Balance Sheet and it has been shown as intangible asset and after considering that the Assessing Officer allowed depreciation during the original assessment proceeding at 60%. During the assessment proceedings petitioner even provided, vide letter dated 1st July, 2014, details of addition to fix assets with copies of invoices for the purchase of fixed assets. The details include the software which is the subject matter of the reopening.
8. Suresh Kumar submitted that simply disclosing it in the notes to Balance Sheet is not enough and in the assessment order passed under section 143(3) of the Act there is no discussion regarding computer software. As held by the Apex Court in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 that there is no doubt that the duty of disclosing all primary facts relevant to the decision of the question before the Assessing Officer lies on the assessee. To meet the possible contentions that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered the legislature has put in the explanation to Section 34(1) of the Act. The duty however, does not extend beyond the full and truthful disclosure of all primary facts. Once all the primary facts are before the assessing authority, he requires further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. The explanation does not have the effect of enlarging the section, by casting a duty on the assessee to disclose inferences, to draw proper inferences being the duty imposed on the Income-tax Officer. Therefore, since the details of computer software has been disclosed and classified under the category of intangible asset in the note to Balance Sheet, it can be reasonably concluded that the duty of the assessee to disclose fully and truly all primary relevant facts has been met and it cannot extend beyond that.
9. Moreover, once the details have been provided to the Assessing Officer during the assessment proceedings, certainly it has to be taken as having been subject of consideration during the assessment proceedings. In any case from the reasons recorded itself we are satisfied that there has been no failure on the part of assessee to disclose material facts. In paragraph no. 4 of the reasons recorded the Assessing Officer admits that it is his change of opinion based on the same primary facts which have been considered by the Assessing Officer to complete original assessment and we say this because in paragraph no. 4 of the reasons it is stated “Assessee has claimed and department allowed depreciation @ 60 percent ……………”.
10. In the circumstances, we allow the petition in terms of prayer clause – (a) which reads as under :
“(a) that this Hon’ble Court may be pleased to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records of the case leading to the issue of the notice under section 148 of the Act dated 31st March, 2021 (Ex. ‘E’) and the order dated 20th December, 2021 rejecting the objections of the Petitioner (Exh. ‘I’) and after going through the same and examining the question of legality thereof to quash, cancel and set aside the impugned notice u/s. 148 of the Act dated 31st March, 2021 (Ex. ‘E’) and the order dated 20th December, 2021 rejecting the objections of the Petitioner (Ex. ‘I’).”
11. Petition disposed.”
9. Facts being identical, following the above said decision of the jurisdictional High Court, we hold that the assessing officer has reopened the assessment of the year under consideration on mere change of opinion only and the same is not permitted under the law. Accordingly, we hold that the reopening of assessment is bad in law and accordingly the impugned assessment order is liable to be quashed. Accordingly, we quash the orders passed by the tax authorities.
10. In the result, the appeal of the assessee is allowed on the legal ground discussed above.
Orders pronounced in the open court on, 22.02.2023.
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