TaxTMI 
TaxTMI 
2020 (11) TMI 66
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....t and there was no failure on the part of assessee to disclose fully and truly all the material facts during the course of original assessment. According to him it is only a mere change of opinion without any new material or information so as to reopen the concluded assessment. 3. The Brief facts relevant to this issue are that the assessee filed the Return of Income for the Assessment Year 2005-06 on 30.10.2005 and the assessment was completed under Section 143(3) of the Act on 31.8.2007 determining the Book Profit at Rs. 1,21,01,885 again the returned Book Profit of Rs. 1,16,98,788. In the original assessment, there was an addition to the Book Profit towards provision for warranty. On appeal the addition was deleted by the CIT(Appeals). The assessment was reopened by issue of Notice under Section 148 of the Act on 7.6.2011 by recording the reason for reopening as follows : Regarding reopening of assessment, the learned Authorised Representative submitted that the reopening of assessment is bad in law. He relied on the following judgments : (i) Dell India Pvt. Ltd. Vs. JCIT 64 Taxman.com 68 (Kar) (ii) CIT Vs. Hewlett Packard Digital Global Soft Ltd. in ITA 406 & 407 of 2007 ....
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....owers to Assessing Officer to reopen the concluded assessment merely only on the basis of mere change of opinion and cases can be reopened only if there is "tangible material" to come to conclusion that there is escapement of income from assessment. He relied on the judgment of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. 320 ITR 561 (SC). According to ld. AR during the course of original assessment proceedings, the information regarding provision towards liquidated damages and R&D expenses were called for and filed before the Assessing Officer vide letter dt.15.06.2007 and 18.07.2007. These were scrutinized by the Assessing Officer and certain expenses were allowed. No action under Section 147 of the Act was taken, the said assessment cannot be reviewed without any tangible or fresh material before the A.O. so as to reopen the assessment. He submitted that the judgment of CIT Vs. Kelvinator of India Ltd. (supra) was valid in the following cases : i) CIT Vs. Hewlett Packard Globalsoft (P) Ltd. 79 taxmann.com 387 (Kar H C) ii) GMR Holdings (P) Ltd. Vs. DCIT 18 taxmann.com 153 (Bangalore - Trib.) iii) Asteroids Trading and Investments (P) Ltd. Vs. D....
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....e Act and is not to revise assessment in terms of Section 147 of the Act. She has relied on the Hon'ble Kerala High Court in the case of Popular Vehicles & Services Ltd. 191 taxman 333 (Ker). She also relied on the judgements of Hon'ble jurisdictional High Court in the case of Rinku Chakraborthy 20 taxman.com 09 (Kar) wherein it was held that if in the original assessment the income liable to tax has escaped assessment due to oversight and inadvertence or a mistake committed by the ITO, the ITO has the jurisdiction to reopen the original assessment. It is not necessary that for such reopening of such assessment the information is to be derived from external source of any kind or disclosure of new and important matters subsequent to the original assessment. Even if the information is obtained from the record of the original assessment after a proper investigation from the material on record or the facts disclosed thereby or from any enquiry or research into facts or law, reassessment is permissible. The income may escape assessment as a result of lack of vigilance of the ITO or due to perfunctory performance of his duties without due care and caution. Even in a case where re....
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....ls produced subsequent to the reopening will not make an inherently defective reassessment order valid. (v) The crucial link between the information made available to the Assessing Officer and the formation of the belief should be present. The reasons must be self evident, they must speak for themselves. (vi) The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. To put it in other words, something therein, which is critical to the formation of the belief must be referred to. Otherwise, the link would go missing. (vii) The reopening of assessment under Section 147 is a potent power and should not be lightly exercised. It certainly cannot be invoked casually or mechanically. (viii) If the original assessment is processed under Section 143(1) of the Act and not Section 143(3) of the Act, the proviso to Section 147 will not apply. In other words, although the reopening may be after the expiry of four years from the end of the relevant assessment year, yet it would not be necessary for the Assessing Officer to show that there was any failure to disclose....
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....her facts may come to light. There is no ban or any legal embargo under Section 147 for the Assessing Officer to take into consideration such facts which come to light either by discovery or by a fuller probe into the matter and reassess the assessee in detail if circumstances require. (xv) The test of jurisdiction under Section 143 of the Act is not the ultimate result of the inquiry but the test is whether the income tax officer entertained a "bona fide" belief upon the definite information presented before him. Power under this section cannot be exercised on mere rumours or suspicions. (xvi) The concept of "change of opinion" has been treated as a built in test to check abuse. If there is tangible material showing escapement of income, the same would be sufficient for reopening the assessment. (xvii) It is not necessary that the Income Tax Officer should hold a quasi judicial inquiry before acting under Section 147. It is enough if he on the information received believes in good faith that the assesee's profits have escaped assessment or have been assessed at a low rate. However, nothing would preclude the Income Tax Officer from conducting any formal inquiry under Sec....
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.... provisions of Section 147 of the Act. 147. Income escaping assessment.-- If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." 6.3 Considering the above, the Apex Court in the case of Kelvinator of India Ltd. (320 ITR 561) (SC) observed and held in para 4 as under :- "4. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect fro....
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....9; had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs." 6.4 The reopening of assessment being based on a mere change of opinion, the assumption of jurisdiction on the part of the A.O. lacks validity and the notice u/s 148 of the Act cannot be sustained. 6.5 The Assessing Officer has power to reopen the assessment, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment and the reasons must have a live link with the formation of belief. In the present case, there is no tangible material. The issuance of the impugned noti....
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....urt after making a reference to the decision of the Hon'ble Bombay High Court in the case of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 137 Taxmann 479 (Bom.) observed as follows:- "7. It is observed in the said judgment that the reason recorded by the Assessing Officer no where state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is for the Assessing Officer to disclose and open his mind through reasons. He has to speak through his reasons. It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the-concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose, his mind. The reasons are the manifestation of the mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee gue....
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....ng/2018 is allowed. ITA Nos.2182 to 2189/Bang/2018. 9. The first common ground in ITA Nos.2183 to 2189 is with regard to disallowance of expenditure relating to design and development expenses. Considering it as capital expenditure the said expenditure brings value addition and benefit of enduring nature to the business of the assessee. The assessee incurred expenditure towards R & D to meet the specific requirements of the customer. It mostly comprised of training and statutory expenses, audit fees for performance review, travelling, telephone and checking charges. The said expenses said to be incurred for the sale of products and to maintain quality standards. Though the expenditure specified under the head 'Design and Development', these expenditure are not in the nature of capital expenditure and these expenses were incurred to maintain the quality of the product sold by the assessee. These expenditure are allowable expenditure under Section 37(1) of the Act as it is incurred wholly and exclusively laid out or expended for the purpose of running the business of the assessee. He submitted that it fulfill all the conditions laid down in Section 37 of the Act and it has to be al....
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....uct which raised the value of the product. This expenditure was capitalized and reflected in work in progress and ready for use and depreciation may be subsequently claimed when it is ready to use. 13. The learned Authorised Representative submitted that the R & D expenditure was incurred for the purpose of business and they pertain to the salary paid to the employees. Accordingly these expenditure are to be allowable as revenue expenditure under Section 137 of the Act and as does not include any capital expenditure incurred for the purpose of capital equipments. This expenditure does not brought in any enduring benefit to the assessee or creating any new asset. This expenditure was incurred so as to survive in the assessee's business and the assessee require to make continuous efforts on design and development in order to keep pace with the technical changes that are taking place every day and strive for improvement in the performance of the existing product for better capability and quality. According to him there is a rapid change in technology on day to day basis and being so the assessee is forced to incur R & D expenditure on day to day basis and no capital asset by the ....
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....ments. The Assessing Officer has allowed the revenue portion of the R & D expenditure claimed by the assessee, however not allowed capital portion of the R & D expenditure. He has gone by the treatment given by the assessee towards R & D expenditure in its financial statements. Now the contention of the assessee that these Books of Accounts cannot be conclusive for the purpose of Income Tax assessment and the entire R & D expenditure is in the revenue filled and entire expenditure has to be allowed. However, the assessee is not able to substantiate the above expenditure on in-house is related to carrying out day to day business of the assessee. Being so, in our opinion the capital portion of the R & D expenditure cannot be allowed as revenue expenditure. However the assessee has raised alternative contention that it is regarded as a capital expenditure, the same has to be allowed as deduction under Section 35(1)(iv) of the Act, the same be allowed as deduction or grant depreciation on the said expenditure. Regarding deduction under Section 35(1)(iv) of the Act, the assessee has not placed any evidence in support of the claim. The same is rejected. However we consider the alternativ....