TaxTMI 
TaxTMI 
2026 (6) TMI 1339
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....pany and is, inter alia, engaged in the business of manufacturing and sale of paints, varnishes, primers, etc. The Petitioner filed its original Return of Income on November 26, 2016, declaring a total income of Rs. 21,30,56,12,790/-. During the course of assessment proceedings, the Petitioner, along with the computation of income, also filed a detailed note explaining the various deductions claimed in the return. In the notes to the computation of income, the Petitioner furnished a detailed explanation with relation to the following issues: (i) Deduction under Section 80G of the Act of Corporate Social Responsibility expenditure ('CSR expenditure'); (ii) Additional depreciation under Section 32(1)(ii)(b) of the Act carried forward to the year under consideration on plant and machinery added in the 2nd half of the Financial Year 2014-15 relevant to AY 2015-16; (iii) Deduction under Section 32AC of the Act; (iv) Deduction under Section 35(2AB) of the Act; and (v) Deduction claimed on club expenses incurred for employees above a certain designation. 4. Disclosures were made in the Tax Audit Report in Form No. 3CD furnished along with th....
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.... (iii) Details of obtaining balance of goodwill and brand shown under schedule of fixed assets as per the Companies Act; (iv) Supporting evidence and documentation to corroborate deduction under Section 35(2AB) of the Act; (v) Details of computer software purchased of Rs.40.54 Crores during the year; (vi) Details of legal and professional fees and sales promotion expenses deducted to the Profit & Loss Account. (vii) The Petitioner was also asked to explain as to why similar disallowances should not be made in the year under consideration as were made in the earlier year. 8. The Petitioner, in response, filed a submission dated November 19, 2018, provided the following details / expenses to the Assessing Officer: (i) Details of claim under Section 32AC of the Act. In the said details submitted in a tabular form, one of the categories was "assets acquired and installed in the Financial Year 2015-16 but not capitalised in the books of account". (ii) Details of expenditure incurred towards the fees paid to various clubs for obtaining corporate membership for certain grades of employees. (iii) With respect to depreciat....
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....respect to 10 issues. 13. The Petitioner, vide Application dated December 10, 2021, requested Respondent No. 1 to provide a copy of audit objections / observations made by the Audit Party and the reply filed against those audit objections for the relevant Assessment Year. 14. The Petitioner, vide letter dated December 23, 2021, filed detailed objections issue wise challenging the reopening of the assessment, inter alia, broadly raising the following contentions: (i) No reopening can be permitted merely on the basis of the change of opinion. (ii) Reopening is not permitted without any new tangible material on record. (iii) No reopening of the assessment can be done without there being any bona fide reason to believe that income chargeable to tax has escaped assessment. (iv) No reopening is permissible merely on the basis of the dictate of the audit objections. 15. Respondent No. 2, thereafter, passed the impugned order dated February 14, 2022, rejecting the objections of the Petitioner. 16. Being aggrieved by the impugned notice and order rejecting the objections of the Petitioner, the Petitioner filed the present Petition. This Court,....
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....he perusal of the reasons as recorded by the Assessing Officer, it is clear that there was no tangible material available with the Assessing Officer to initiate the reassessment proceedings. The reasons on all the issues start with "on perusal of record" or "it is observed that", which itself shows that there was no new or tangible material to justify the reopening of the assessment. He placed reliance upon the decision of this Court in the case of CIT v. Jet Speed Audio Pvt. Ltd. (372 ITR 762). (iii) Mr. Agrawal further contended that reopening of the assessment is not permitted merely on the basis of audit objections. From the reasons recorded for reopening as well as the averments made in the affidavit-in-reply filed by Respondent No. 1, it is evident that reopening of the assessment is based on objections. He submitted that once detailed enquiries were made during the assessment proceedings, details were sought, clarifications were asked, and submissions have been filed, reopening of the assessment on the same issues based merely on the audit objections is not permissible. Audit objections cannot be considered as a new tangible material that has come into possession of....
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....d. v. ACIT (350 ITR 651) to contend that what is tangible need not be something which is new. An Assessing Officer who has plainly ignored relevant material in arriving at an assessment acts contrary to law. If there is an escapement of income as a consequence, the jurisdictional requirement of Section 147 would be fulfilled on the formation of a reason to believe that income has escaped assessment. The reopening of the assessment within a period of four years is, in these circumstances, within jurisdiction. (iv) Reopening of assessment within a period of four years can be resorted to remedy errors, either due to oversight or inadvertence, made in the original assessment proceedings, as there is no requirement to establish that there is a failure on the part of the Assessee in disclosing fully and truly material facts. He pointed out that the Assessing Officer in the order disposing objections has placed reliance upon the decision of the Hon'ble Supreme Court in the case Kalyanji Mavji & Co. v. CIT (102 ITR 287) and particularly the following observations: "Where in the original assessment the income liable to tax has escaped assessment due to oversight, inadverte....
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....tood at the relevant juncture) would not be applicable to the facts of the present case. 22. Section 147 of the Act, prior to its amendment with effect from April 1, 2021, provided that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income. The Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra) has held that the words "reason to believe" have to be given a schematic interpretation, failing which Section 147 of the Act would give arbitrary powers to the Assessing Officer. The Hon'ble Supreme Court held that the conceptual difference between the power to review and the power to reassess has to be kept in mind. The Assessing Officer has no power to review; he has the power to reassess. We may also gainfully refer to the decision of this Court in the case of Aroni Commercials Ltd. v. DCIT (supra), wherein this Court, after referring to the decision of the Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra), held that the power to reassess cannot be exercised on the basis of mere change of opinio....
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....espondent No. 1 alleged that "Subsequently on perusal of the reasons it was observed that the assessee has added back in computation of income the amount of Rs. 39,49,86,201/-(34,44,33,626 + 5,05,52,575) pertaining to CSR expenses. However, an amount of Rs. 6,15,20,888/- was claimed as deduction under Section 80G of the Act. The same is also explained by the assessee in its note 9 to computation of income.....this resulted in underassessment to the extent of Rs. 6,15,20,888/-" 25. With respect to the aforesaid reason, we notice that the Assessing Officer, vide Notice dated September 21, 2018 under Section 142(1) of the Act, in point No. 48 of the notice, directed the Petitioner to furnish, inter alia, details and evidence in support of deduction under Chapter VI-A (Heading-C). The Petitioner, in response to the same, vide submission dated October 4, 2018, submitted in a tabular format the details of deduction under Chapter VI-A of the Act with name and address of the Institute, Receipt No., Date, Exemption No. of the Institute, amount of donation and the amount of deduction claimed under the relevant sub-Section of Section 80G of the Act. A similar disclosure was made by the Pet....
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.... continue with the 60% depreciation under computers; however the additional depreciation thereon (which was available particularly on Plant and Machinery only) was required to be disallowed. This allowance of the additional depreciation aggregating Rs. 6,21,20,241 (Rs. 3,38,32,915 + Rs. 2,82,87,326) resulted into underassessment to the same extent. 2.3 Therefore, I am of the view that income to the extent of amount of Rs. 6,21,20,241/-, as explained above, has escaped assessment." Issue No. 2: 28. With respect to this reason, Respondent No. 1, vide Notice dated September 21, 2018 issued under Section 142(1) of the Act, vide point No. 20 of the Notice, directed the Petitioner to furnish details of additions / deductions to the block of assets. The Petitioner, in response to the same, vide submission dated October 4, 2018, furnished a detailed chart of additions/deductions made to the block of assets, wherein details regarding additional depreciation claimed on additions in the 2nd half of the Financial Year 2014-15 were also captured in a separate column. Further, the Assessing Officer issued a subsequent Notice dated November 12, 2018 under Section ....
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....sessing Officer in the course of original assessment proceedings. Therefore, it is a mere review of the original assessment, which is not permissible. 31. We also agree with the contention of Mr. Agrawal that Section 32(1)(i) of the Act itself contemplates only four categories of tangible assets, i.e. buildings, machinery, plant or furniture. Naturally, computers would fall within the category of plant or machinery. This is further fortified by the plain reading of the New Appendix-I prescribed in Rule 5 of the Income-tax Rules, 1962, where a computer is included as a depreciable asset falling within Plant and Machinery. Clause 5 provides for 60% depreciation for "computer including computer software" in the category of 'Machinery And Plant' in Part III of Part A, which provides for the rate of depreciation for tangible assets. Therefore, the legislature itself has prescribed the computer to be treated as plant and machinery. In view of the same, Respondent No. 1 cannot have any reason to believe that computers were not eligible for additional depreciation since they are not plant and machinery. Issue No. 4: Deduction under Section 32AC of the Act: 32. In the reasons recor....
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....ion thereon was being taken in the block of computers, which was not allowable. The correct depreciation rate should have been 25% instead of 60% as detailed below: Opening WDV (A) Addition in 1^st half (B) Depreciation on both (A+ B) @25% Addition in 2^nd half (C) Depreciation on C. @12.5% Total Depreciation 14,10,87,847 14,47,29,642 7,14,54,372 26,08,17,409 3,26,02,176 10,40,56,548 Thus, there was excess depreciation to the extent of difference of Rs.14,56,79,268 (24,97,35,816 - 10,40,56,548). This allowance resulted into underassessment to the same extent. 2.7 Therefore I am of the view that income to the extent of Amount of Rs. 14,56,79,268/-, as explained above, has escaped assessment." The Assessing Officer, in the original assessment proceedings, vide Notice dated November 12, 2018, in point No. 15 of the said notice, directed the Petitioner to furnish details of computer software purchased during the year. The Petitioner, in response to the aforesaid notice, vide submission dated December 6, 2018, in point No.9 of the submission, furnished the details of computer software purchased and capitalised during the year in a....
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....ndment brought in by the legislature in Section 32(1)(ii) of the Act and Explanation 3(b) to Section 32(1) of the Act, vide Finance Act, 2021, with effect from April 1, 2021, goodwill will be treated as an intangible asset. Explanation 3(b) to Section 32(1) of the Act, after the amendment vide Finance Act, 2021, inter alia, provides that the expression "asset" shall mean intangible asset, being knowhow, patent, copyright, trademark, licences, franchises or any other business or commercial rights of similar nature not being goodwill of business or profession. Therefore, goodwill will not be regarded as an intangible asset only from the Assessment Year 2021-22. The Assessment Year under consideration, being Assessment Year 2016-17, is prior to the amendment and, therefore, the belief of Respondent No. 1 cannot be said to be a valid reason for reopening. Issue No. 7:Deduction under Section 35(2AB) of the Act: 39. In the reasons recorded for reopening, Respondent No. 1 observed that "Subsequently on perusal of the records it was observed that the assessee had claimed weighted deduction on capital expenses which included certain items which was either not related directly to R&D o....
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....espondent No. 1, vide Notice dated November 12, 2018, issued under Section 142(1) of the Act, in point No. 28 of the said notice, directed the Petitioner to submit details of legal and professional fees. The Petitioner, vide submission dated November 19, 2018, submitted details of expenses exceeding Rs. 1,00,000/- and provided the name, amount and PAN, wherever available, of 218 consultants aggregating to Rs. 28,06,36,029/-. Evidently, Respondent No. 1 formed an opinion during the course of the original proceedings with respect to the professional expenses incurred by the Petitioner. This too amounts to nothing more than a review of a concluded assessment. Issue No. 9: Disallowance of non-target based gifts: 43. Respondent No. 1, in the reasons recorded for the reopening, alleged as under: "2.14 Furthermore, it was observed from Advertising and sales promotion expenses that the assessee had spent Rs. 37,83,00,000 on Gifts-Non-Target based whereas Rs. 77,88,00,000 was indicated as target based Gifts expenses. It could be seen vide para no. 5 of the Assessment Order that Gifts expense which was appearing in miscellaneous expenses was disallowed to the extent of 50 perc....
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.... dated November 12, 2018, raised a specific query on this issue in point No.5 of the said notice and directed the Petitioner to furnish details of club fees paid by the Petitioner for its employees and sought explanation as to why the same should not be disallowed. The Petitioner, in response thereto, vide submission dated November 19, 2018, provided details of corporate club membership expenses incurred. The Petitioner also relied on the decision of the Hon'ble Supreme Court in the case of CIT v. United Glass Mfg. Co. Ltd. (28 taxmann.com 429) and submitted that the club membership expenses are an allowable expenditure. 46. In view of the above, it is evident that the Assessing Officer, in the original assessment, inquired into the issue of club membership expenses as well. Therefore, the current assessment proceedings on this issue are also only on the basis of the mere change of opinion, which is impermissible in law. 47. Moreover, from the perusal of the reasons recorded for reopening on all the ten issues above, it is evident that Respondent No. 1 is proceeding on the basis of material already available on record and there was no new tangible material with him to justify....
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....eturn of Income is processed under Section143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion; (2) Reassessment proceedings will be invalid in case the Assessment Order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by principle of "change of opinion". (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the Assessment Order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons." 49. We agree with Mr. Sharma that tangible material need not be something which is new. It is correct that an Assessing Officer who has plainly ignored relevant material in arriving at an assessment act....