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2006 (6) TMI 175 - AT - Income TaxIncome Escaping Assessment - Reopening of the assessment u/s 147 r/w section 148 on the basis of change of opinion - whether the Income-tax Officer had reason to believe that income chargeable to tax had escaped assessment for the assessment year in question by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts - HELD THAT - It is seen from the original assessment order the assessee has disclosed all the primary facts which has been discussed in the original assessment order and even the assertion made by the Assessing Officer in the reassessment order that in respect of claiming depreciation of an asset which did not exist at all but for the investigation assessee would have joyfully got away with his tax evasion to the extent of a whopping Rs. 300 lakhs for two assessment years. It is seen from the original assessment order that the assessee has filed the revised return disallowing the depreciation claimed himself and paid the taxes fully before 31-3-1998. This cannot be the subject-matter for reopening. The Hon ble Apex Court in the case of Gemini Leather Stores where the decision of the Calcutta Discount Co. Ltd. 1971 (1) TMI 10 - SUPREME COURT . Thus it is seen from the records that the Assessing Officer has not given any failure on the part of the assessee to disclose the material facts whereas in the original assessment order all the details are discussed and after discussion and following the case laws allowed the claim of the assessee whether this tantamounts to change of opinion for reopening. For this we will go to the case law of the Hon ble Apex Court in the case of ITO v. Nawab Mir Barkat Ali Khan Bahadur 1974 (10) TMI 1 - SUPREME COURT . Thus respectfully following the case laws of the Hon ble Apex Court the Hon ble jurisdictional High Court and other High Courts we fairly feel that the reopening is not permissible on change of opinion as clearly evident from the reasons recorded by the Assessing Officer and the original assessment order passed by the Assessing Officer. In view of this the reopening is held as bad in law. Accordingly this issue of the cross-objection is decided in favour of the assessee and against the revenue.
Issues Involved:
1. Reopening of assessment under Section 147 read with Section 148 of the Income Tax Act. 2. Validity of reassessment proceedings due to non-service of notice under Section 143(2). 3. Taxability of consideration for sale of technical know-how under Section 9. 4. Treatment of non-compete fees as goodwill. 5. Credit for Tax Deducted at Source (TDS). 6. Treatment of discount to customers as an ascertained liability. 7. Computation of book profit under Section 115JA. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 147 read with Section 148: The assessee filed its return of income for the assessment year 1997-98, which was revised and assessed under Section 143(3) of the Income Tax Act. Subsequently, the assessment was reopened by issuing a notice under Section 148 on 29th Nov 1999. The reasons for reopening included excessive claim of deduction under Section 80HHC, incorrect allowance of exemption under Section 54, incorrect computation of capital gains, and non-compete fee computation. The assessee contended that the reopening was based on a mere change of opinion, which is not permissible. The Tribunal held that the reopening was not justified as it was based on the same set of facts already examined during the original assessment, thus constituting a change of opinion. 2. Validity of Reassessment Proceedings due to Non-Service of Notice under Section 143(2): The assessee argued that no notice under Section 143(2) was served within the stipulated period, rendering the reassessment invalid. The Tribunal noted that the Department could not provide evidence of the notice being served on the assessee. Consequently, the Tribunal held that the reassessment proceedings were invalid due to non-service of the notice under Section 143(2), following the jurisdictional High Court's decision in CIT v. M. Chellappan. 3. Taxability of Consideration for Sale of Technical Know-How under Section 9: The assessee received consideration for the transfer of technical know-how to Bayer AG. The AO treated this as income chargeable to tax under Section 9(1)(vi) as royalty. However, the Tribunal held that the receipt was a capital receipt and not liable to tax for the assessment year 1997-98, as the relevant provisions under Section 55(2) were applicable only from the assessment year 1998-99 onwards. 4. Treatment of Non-Compete Fees as Goodwill: The AO treated the non-compete fee received by the assessee as goodwill. The Tribunal, however, concluded that the non-compete fee was received for restrictive covenants and not for goodwill. The Tribunal relied on the jurisdictional High Court's decision in CIT v. Late G.D. Naidu, which held that compensation for restrictive covenants is a capital receipt and not taxable. 5. Credit for Tax Deducted at Source (TDS): The Tribunal directed the AO to verify the details of TDS certificates and provide appropriate relief to the assessee for the calculation of interest under Sections 234B and 234C. 6. Treatment of Discount to Customers as an Ascertained Liability: The AO disallowed the provision for discount and commission payable to customers, treating it as unascertained liability. The Tribunal upheld the CIT(A)'s order, which remitted the issue back to the AO for verification of the details and allowed the deduction if the liability was ascertained during the relevant assessment year. 7. Computation of Book Profit under Section 115JA: The AO recomputed the book profit under Section 115JA by including amounts taken directly to the capital reserve account without crediting the P&L account. The Tribunal upheld the CIT(A)'s decision, following the Supreme Court's ruling in Apollo Tyres Ltd. v. CIT, which stated that the AO cannot alter the book profit certified by statutory auditors and approved by the company in its general meeting. Conclusion: The Tribunal allowed the assessee's cross-objections on jurisdictional issues, rendering the Revenue's appeal on merits unsustainable. Consequently, the Tribunal dismissed the Revenue's appeal.
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