2025 (2) TMI 545 - HC - Income Tax

Reassessment notice under Section 148 quashed for lack of jurisdiction and tangible material evidence

GTPL Hathway Limited Versus Deputy Commissioner Of Income Tax Circle 2 (1) (1) & Anr.

Gujarat HC quashed reassessment notice u/s 148 for lack of jurisdiction. Court held AO lacked tangible material to reopen assessment regarding lease ... Reopening of assessment u/s 147 - change of opinion - claims regarding lease payments, foreign currency transactions, and depreciation on goodwill HELD THAT:- Claim of lease rent which is stated to be principal plus interest is concerned, the petitioner has explained the same in the objections raised in response to the impugned notice and submitted that the same is in form of the financed lease transactions entered into by the petitioner with CISCO and such transactions are accepted by the Revenue as the petitioner has taken equipment on financial lease since 2012-13. Petitioner has also placed on record the notices issued during the regular course of assessment for AY 2012-13, 2013- 14 and 2014-15 and assessment orders for earlier years accepting the same as expenditure. Thus, the AO ought to have taken into consideration the nature of repetitive nature of transactions in form of the lease rent which is claimed by the assessee from year to year from 2012-13 onwards and no addition was made since then. Claim on account of the applicable gain / loss on foreign currency transactions, the petitioner has explained in detail in the objections with regard to the nature of claim by making to the effect that the petitioner had unrealized loss which was added as income and on the other hand, the petitioner has deducted the unrealized gain and also claimed net expenses in the profit and loss for computation of the book profit and it cannot be disputed that the petitioner has explained that the claim of the assessee for bank charges for raising foreign currency is required to be considered as a part of the revenue expenditure. Thus, in effect, the petitioner has claimed Rs. 46,45,115/-, i.e. Rs. 37,78,154 plus Rs.8,86,961 (Rs. 6,90,80,060 – Rs. 6,81,93,099) by giving effect to the said amount in the computation of income. Thus, it cannot be said that there is escapement of income on the part of the petitioner as the petitioner has neither claimed profit / gain or loss of unrealized foreign exchange and therefore, the reasons recorded by the respondent Assessing Officer to form prima facie conclusion that there is likelihood of any gain on account of revenue expenses incurred by the petitioner is also without any basis in the absence of any fresh tangible material available with the respondent Assessing Officer as the fact remains that the petitioner has unrealized gain and unrealized loss which is not claimed and duly reflected in the computation income as the petitioner has claimed only bank charges expenditure for hedging of foreign currency. Depreciation on goodwill, the provision of section 43 (6) (c) of the Act was not amended at the relevant point of time for AY 2017-18 and therefore, the amended provision denying the depreciation on goodwill which came into effect from 01.04.2021 could not have formed the basis for re-opening to come to the conclusion that there is escapement of income by claiming of depreciation on goodwill. AO could not have assumed the jurisdiction to re-open the assessment. Therefore, this petition succeeds and is accordingly allowed. The impugned notice issued u/s 148 is hereby quashed and set aside. Decided in favour of assessee. ISSUES PRESENTED and CONSIDEREDThe primary legal issue considered in this judgment was whether the reopening of the assessment for the Assessment Year (AY) 2017-18 under Section 148 of the Income Tax Act, 1961, was justified. The specific questions were: Whether the reopening was based on a mere change of opinion without any new tangible material. Whether the claims regarding lease payments, foreign currency transactions, and depreciation on goodwill were correctly assessed during the original assessment. Whether the amended provisions regarding depreciation on goodwill, effective from 01.04.2021, could apply retroactively to AY 2017-18.ISSUE-WISE DETAILED ANALYSIS1. Reopening Based on Change of OpinionRelevant Legal Framework and Precedents: The reopening of assessments under Section 148 requires the Assessing Officer to have a 'reason to believe' that income has escaped assessment. This belief must be based on tangible material and not merely a change of opinion.Court's Interpretation and Reasoning: The Court emphasized that the reopening of an assessment cannot be justified if it is merely based on a reevaluation of the same material already considered during the original assessment.Key Evidence and Findings: The petitioner argued that all issues raised in the reopening notice were already examined during the original assessment. The Court found that the Assessing Officer relied on the same materials available during the original assessment without any new tangible evidence.Application of Law to Facts: The Court applied the principle that reopening based on a change of opinion is impermissible, especially when no new material evidence is presented.Treatment of Competing Arguments: The respondent argued that the issues were not thoroughly examined initially. However, the Court found no evidence of new material or inquiry that would justify reopening.Conclusions: The Court concluded that the reopening was unjustified as it was based on a mere change of opinion without new tangible material.2. Claims Regarding Lease Payments and Foreign Currency TransactionsRelevant Legal Framework and Precedents: Deductions and claims must be substantiated and correctly classified under the Income Tax Act provisions. The claims must be examined during the original assessment process.Court's Interpretation and Reasoning: The Court noted that the petitioner provided detailed explanations and evidence during the original assessment, which were accepted by the Revenue.Key Evidence and Findings: The petitioner demonstrated that the lease payments were consistent with past assessments and that foreign currency transactions were accurately accounted for, with no effect on taxable income.Application of Law to Facts: The Court found that the petitioner had adequately explained and documented these claims during the original assessment, negating the assertion of income escapement.Treatment of Competing Arguments: The respondent's assertion of inadequate examination was countered by the petitioner's evidence of thorough documentation and acceptance in prior assessments.Conclusions: The Court held that there was no escapement of income, as the claims were correctly assessed and documented initially.3. Depreciation on GoodwillRelevant Legal Framework and Precedents: The provision denying depreciation on goodwill was amended effective 01.04.2021. Retroactive application to previous assessment years is not permissible unless explicitly stated.Court's Interpretation and Reasoning: The Court determined that the amended provision could not apply to AY 2017-18, as it was not effective during that period.Key Evidence and Findings: The petitioner claimed depreciation on goodwill based on the law applicable during AY 2017-18, which allowed such claims.Application of Law to Facts: The Court applied the principle that legal provisions cannot be applied retroactively unless explicitly stated, thus invalidating the basis for reopening on this ground.Treatment of Competing Arguments: The respondent's reliance on the amended provision was deemed inapplicable to the assessment year in question.Conclusions: The Court concluded that the claim for depreciation on goodwill was valid for AY 2017-18, and the reopening on this basis was unjustified.SIGNIFICANT HOLDINGSThe Court held that the reopening of the assessment for AY 2017-18 was unjustified and based on a mere change of opinion without any new tangible material. The Court emphasized the following principles: 'Reopening of an assessment cannot be justified if it is merely based on a reevaluation of the same material already considered during the original assessment.' 'The amended provision regarding depreciation on goodwill, effective from 01.04.2021, cannot be applied retroactively to AY 2017-18.'The final determination was that the impugned notice dated 27.03.2021 under Section 148 of the Income Tax Act, 1961, was quashed and set aside, along with the order disposing of objections. The Court ruled in favor of the petitioner, making the rule absolute to the extent of the issues discussed.