TMI Blog2022 (11) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... t - Once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the assessing officer while completing the assessment. It is not necessary that an assessment order should contain reference and / or discussion to disclose its satisfaction in respect of the query raised. Therefore, the entire proceeding for reopening the assessment had emanated only on account of change of opinion on the part of the assessing officer. Audit Objections relevance in making re-assessments - We have seen that the audit both Internal as well as by the Comptroller and Auditor General is not the Authority conferred with the jurisdiction to make an assessment which falls within the exclusive jurisdiction / domain of the assessing officer. Any attempt by an external agency other than the assessing officers would amount to entrenchment on the powers of assessment/reassessment vested exclusively under the statute on the assessing officer. In other words, it clearly amounts to transgression and usurping of powers vested with the assessing authority by a body/ unit not vested with the power of assessment/re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o fully and truly disclose material facts and invoke extended period - impermissible - We find that for the assessment year 2008-09, the reassessment is beyond four years, whereas, the same with regard to assessment year 2009-10 is within four years. The common jurisdictional requirement for reopening of assessment both within and beyond four years, has to be on the basis of ''reason to believe'' which cannot be on the basis of mere change of opinion. In addition to the above which is a restriction common to exercise powers of reassessment both within and beyond four years, with regard to cases of reassessment falling under clause(b) i.,e beyond four years from the end of the relevant assessment year, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment during the original assessment proceedings. We find that the jurisdictional fact to invoke the extended period is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. A finding on the above aspect is a sine qua non/condition precedent/pre-requisite for invoking the extended period. Absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the financial year 2007-08, by virtue of a Business Transfer Agreement dated 26.04.2007 (hereinafter referred to as BTA ), the appellant acquired the Customer Care Parts (hereinafter referred to as CCP ) business from M/s.Hyundai Motors India Ltd., (hereinafter referred to as HMIL ). In terms of the said agreement, the fixed assets, current assets, current liabilities, Dealer and Vendor Network (hereinafter referred to as DVN ), goodwill, material contract including supply and sales contracts, leasehold properties, after service parts business personnel and other rights including tangible and intangible assets relating to the CCP business were acquired for a total consideration of Rs.425,25,00,000/-. 2.2. Assessment Year 2008-09: 2.2.1. For the Assessment Year 2008-09, the appellant filed its return on 30.09.2008 declaring a total loss of Rs.17,58,19,692/- and book profit under Section 115JB of Rs.55,38,41,237/- along with complete and detailed financials and a Memo of income, setting out the methodology for computation thereof. The appellant claimed depreciation to the tune of Rs.75,09,65,951/- in respect of DVN, which was duly disclosed in the Tax Audit Report an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble at Nil. 3. Thereafter, the appellant was orally informed to furnish details on DVN acquired from HMIL for the Assessment Year 2008-09 to verify/revisit/re-examine/ reassess the allowability of depreciation thereon. In response, the appellant submitted a detailed note dated 03.09.2013, wherein it was stated that the DVN was valued by an Independent Valuer. The appellant had claimed depreciation on DVN at 25% under Section 32 (1) (ii) of the Act on the premise that the same constituted ''intangible commercial rights''. In support of the same, the appellant set out the business model of CCP and as to how the same would constitute intangible commercial rights , besides placing reliance upon various judgments including the judgment of the Delhi High Court in Areva T and D India Ltd v. Deputy Commissioner of Income Tax [(2012) 345 ITR 421 (Del)] and the Apex Court in CIT, Kolkata v. Smifs Securities Ltd [(2012) 24 taxmann.com 222 (SC)], in support of their claim of depreciation on DVN. 4. Whileso, the Revenue sought to re-open the assessment by issuing notice dated 05.02.2014 and 10.03.2014 for the Assessment Years 2009-10 and 2008-09 respectively under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objection submitted by the Assessing Officer, the impugned orders of reassessment dated 31.12.2014 came to be passed by the Assessing Officer, holding that the DVN was not intangible commercial right, and disallowing the claim of depreciation thereon. 6. Aggrieved by the same, the appellant filed the writ petitions challenging the orders of assessment for the Assessment Year 2008-09 and 2009-10 inter alia on the following grounds: a) An audit objection by itself cannot form the basis for exercise of the power of reassessment. In any view, the audit objection related to interpretation of law and the same was thrust on the Assessing Officer, thereby encroaching upon the jurisdiction to exercise powers of assessment/reassessment vested exclusively with the assessing officer and which functions are quasi-judicial in nature and thus impermissible. b) There was no failure on the part of the appellant to disclose any details with regard to the claim of depreciation on DVN and thus there is no warrant for exercise of powers of reassessment. c) The impugned proceedings of reassessment are mere change of opinion and thus contrary to the law laid down by the Hon ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt repeatedly. c) That the Learned Single Judge ought to have seen that existence of an alternate remedy does not place any embargo on exercise of power under Article 226 of Constitution of India and it has been consistently held that the limitation if any is self-imposed and the discretion shall be exercised under Article 226 of Constitution of India, when it is shown that the proceedings are bad for want of jurisdiction which was the case of the appellant before the Assessing Officer and also before the Learned Single Judge. Thus, the order of the Learned Single Judge relegating the matter on the grounds of alternate remedy is unsustainable. 9. CASE OF THE RESPONDENTS: a)That the proceedings for reassessment was not in compliance with the procedure contemplated in GKN DriveShafts is incorrect. For the Assessment Year 2008-09 after issuance of notice dated 10.03.2014, the appellant's authorized representative appeared before the respondent on 11.08.2014 and again on 27.10.2014 when the case was discussed and the appellant was directed to submit details in respect of their claim of depreciation on DVN and goodwill. While for the Assessment Year 2009-10 along with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise of power of Judicial Review pursuant thereto are only self-imposed restrictions. As the above position is well settled, reference is not being made to any decision though reliance was placed on number of decisions in support of the above proposition. II. CHANGE OF OPINION: The question of correctness of the claim of depreciation was examined by the assessing officer while making the assessment under Section 143(3) of the Income Tax Act, 1961. This would be evident from the fact that the assessing officer while responding to the audit objection had made it clear that there was no material to show that the valuation with regard to DVN was erroneous and mere suspicion on the valuation by the audit party cannot be a reason for revisiting / reopening concluded issues. It was further stated that even at the time of assessment proceedings under Section 143 of the Act, the assessee submitted the cost of acquisition of DVN and judicial precedence in support of its claim and the assessment under Section 143(3) was completed thereafter. Thus any attempt now to re-examine the correctness of the claim of deprecation, when in the view of the assessing officer there was no materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.11/85-16/2012-13 Para No.6-Part IIA for Asst. Year 2008-09 may kindly not be pursued further. 12. It is trite law that the power to assess the escaped income under Section 147 though stands broadened/expanded over the years through periodical amendments, one feature which has remained constant/unchanged and prevailed during the relevant assessment year is the limitation on the power to reassess on a mere change of opinion. In this regard, it may be relevant to refer to the judgment of Supreme Court in Commissioner of Income Tax, Delhi vs. Kelvinator of India Ltd., reported in 320 ITR 561 (SC), wherein, after setting out the legislative history and capturing the changes brought out periodically to Section 147 of the Income Tax Act, 1961, found that the powers are much wider under Section 147 in view of the amendments. However, it was made clear that the power of reassessment is not meant to be a power of review nor can assessments be reopened on mere change of opinion lest Section 147 become vulnerable to challenge as conferring arbitrary power to the Assessing Officer. It was further clarified that the concept of change of opinion as a limitation ought to be understoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst omission of the words reason to believe , Parliament re-introduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: 7.2 Amendment made by the Amending Act , 1989, to reintroduce the expression `reason to believe' in Section 147 . A number of representations were received against the omission of the words `reason to believe' from Section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2010] 320 ITR 561 (SC), sans such documents, evidence or tangible material, there cannot be valid opinion leading to proper reassessment proceedings. (emphasis supplied) C . Great Eastern Energy Corporation Ltd. v. Income Tax, 2014 SCC OnLine Del 3856: 6. Thus, according to the AO, income is stated to have escaped assessment on four counts. The first being on account of depreciation claimed on computer software. In this respect, it is noted that the returns furnished by the assessee had been duly scrutinized by the AO. Undeniably, the amount of depreciation claimed by the assessee was examined by the AO. This is also apparent from the fact that the AO had disallowed depreciation to the extent of Rs. 5,85,078/-, which was claimed by the assessee in respect of the building and warehouse. The AO has now alleged that the depreciation on computer software was to be allowed only to the extent of 25% instead of 60% as admitted earlier. .............Be that as it may, it is apparent that the dispute raised with regard to rate of depreciation by the AO merely indicates a change of opinion and there has been no failure on the part of the assessee to disclose any material fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Aroni Commercials Ltd., vs. Deputy Commissioner of Income-Tax and Another reported in [2014] 362 ITR 403 (Bom), the relevant paragraph is referred to as under: ''12. The power to reassess cannot be exercised on the basis of mere change of opinion. If all the facts are available on record and a particular opinion is formed, then merely because there is change of opinion on the part of the assessing officer Section 147 and 148 does not permit reassessment are not possible. The power under sections 147 and 148 cannot be exercised to correct errors/mistakes on the part of the assessing officer while passing the original order of assessment. There is sanctity bestowed on an order of assessment and the same can be disturbed by exercise of powers under section 147 and 148 only on satisfaction of the jurisdictional requirements.'' Further, the Hon'ble High Court also held that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the assessing officer while completing the assessment. It is not necessary that an assessment order should co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceedings, it may be necessary to bear in mind the following settled legal principles: a) Assessment proceeding is quasi-judicial in nature. b) The status of an internal audit report is primarily to serve as a check over the arithmetical accuracy of computation of income and determination of tax and intended to remove mistakes before the records are submitted to the Comptroller and Auditor General of India. iii) The audit by the Comptroller and Auditor General of India is intended to ensure and examine sufficiency of the rules and the procedures prescribed for the purpose of securing an effective check on assessment, collection and allocation of revenue. iv) It is relevant to note that the Audit Manual cautions stating that the Audit Department should not in any way substitute itself for the Revenue Authorities in the discharge of statutory duties/obligations. It is settled that audit does not possess nor vested with authority to review the judgment exercised or the decision taken in individual assessments by the officers entrusted with such duties. The object of the audit is not qua a particular assessment but with reference to the general procedure adopted in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on the valuation carried out by an independent valuer. The value of vendor network as per a valuation Rs.1,63,96,03,802 Value of dealers Rs.1,36,42,60,000 Network as per a valuation Rs.3,00,38,63,803 The above were treated as intangible asset and 25% depreciation was claimed to an extent of Rs.750965951. It is pointed out in audit, that above items does not come under assets mentioned in intangible assets category. Intangible assets are know-how, patents, copyrights, trademarks, licences, franchises or any other business on commercial rights of similar nature. Vendor network or dealer network is not in nature of any commercial rights under intangible assets. Further it was noticed from the IT file of HMIL where BTA copy was available, it was just on list of business concern who were dealer and vendor with whom M/s.HMIL Ltd is having business relationship. Further it was confirmed from the balance sheet of CI publishers there was no value for the goodwill on dealer network and vendor work. The assessee himself had taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is given for goodwill and Dealer Vendor Network in the hands of seller(Hyundai Motors India Limited), the difference in value of the assets(fixed assets, current assets, less current liabilities) and the purchase consideration paid, which comes to Rs.380,67,93,802 can entirely be apportioned towards goodwill as per the decision of Hon ble Supreme Court in the case of Smifs Securities Limited (cited above). Out of this sum of Rs.380.67 crores, the assessee had apportioned Rs.300,38,63,802 towards Vendor Dealer Network, based on a Independent Valuer s Report. During the course of assessment proceedings for assessment year 2008-09 which was the first year of claim of depreciation on such intangible assets, the Assessing Officer has accepted this valuation. There is no finding by the Audit party nor any material evidence available to show that the valuation is erroneous. Mere suspicion about the valuation by the Audit party cannot be a ground for revisiting the entire issue. 10.1. During the course of assessment proceedings, placing reliance on the aforementioned provisions of the Act and judicial precedent, the Assessee has submitted that the actual cost for acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter proceeded to exercise the power of reassessment and complete the assessment in line with the audit objection, importantly, the objection of the Assessing Officer to the Audit Proposal is pending consideration and no final opinion is expressed by the Audit on the objections raised by the Assessing Officer. 17. In any view, it appears that the audit objection in the present case is in excess of its jurisdiction inasmuch as it has decided on the legality of depreciation on DVN. In other words rather than furnishing new tangible material to the assessing officer and leaving it open to the assessing authority to decide for itself whether the circumstances and the material warrant reassessment, has instead issued directions which are more in the nature of direction/ command as to the manner in which the reassessment and the claim of depreciation ought to be dealt with by the Assessing Officer. The audit report's view on a question of law is at variance/disagreement with that of the assessing officer who is conferred with the jurisdiction to make the assessment. The expression of opinion or evaluation of law and its bearing on assessment by the Audit in our view is in exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Income Tax Department; it recognises it in those authorities only which are specifically authorised to exercise adjudicatory functions. Nor does Section 16 of the Comptroller and Auditor-General (Duties, Powers and Conditions of Service) Act, 1971 envisage such a power for the attainment of the objectives incorporated therein. Neither statute supports the conclusion that an audit party can pronounce on the law...... (emphasis supplied) b) Commissioner of Income-Tax v. Hackbridge-Hewittic Easun Ltd., 1985 SCC OnLine Mad 294: 14 The question of ascertaining the average amount of capital employed in the business during any computation period for the purpose of relief under s. 84 is dealt with by rule 19(5). There is obviously difference of opinion between the ITO and the Audit Department as to the true meaning and content of rule 19(5). By the audit note, the Audit Department wanted the ITO to construe rule 19(5) according to the construction placed by the Audit Department. It is, therefore, clearly a case where an error of law is sought to be pointed out to the ITO, and, in our view, this case would be squarely covered by the decision in Indian and Easte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Revenue audit party points out the law and the legal position to be followed by the Income-tax Officer in the reassessment proceedings, then that would not constitute information under section 147(b) of the Act........ 21. Apparently, it is in view of the above reason that the Hon'ble Supreme Court way back in 1979, in Indian and Eastern News Paper Society, put the issue beyond any pale of doubt by holding that the opinion on law rendered by an audit party cannot be the basis for exercising the power of reassessment. Evaluation of law and its bearing on the assessment must be directly and solely done by the assessing officer. The audit party can furnish information which leads the assessing officer to realise the need for reassessment. In other words, the information / material provided by the audit or any external agency must give birth to the realisation on the part of the assessing officer of the need to exercise its power of reassessment. However, the information cannot be the realisation. If the distinction between the two is lost sight, there is a grave danger of powers of reassessment being usurped by external agency and abdication of its quasi judicial functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s exercise of statutory power for purposes foreign to those for which it is in law intended. It means conscious violation of the law to the prejudice of another, a depraved inclination on the part of the authority to disregard the rights of others, where intent is manifested by its injurious acts. Passing an order for unauthorised purpose constitutes malice in law. (emphasis supplied) VI: Absence of finding failure on the part of the assessee to fully and truly disclose material facts and invoke extended period - impermissible: Before we conclude, we find that for the assessment year 2008-09, the reassessment is beyond four years, whereas, the same with regard to assessment year 2009-10 is within four years. We intend to make it clear that the law with regard to reopening of assessment is well settled by the courts as could be seen from the foregoing discussion. The power of Assessing Officer under Section 147 r/w.148 is classified into two parts primarily rather solely based on limitation as under: a) Reopening of assessment within a period of four years from the end of the relevant assessment year; and b) Re-opening of assessment beyond the period of four y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had disclosed the details as regards the carry forward of the losses as well as the income computed and all these details were very much there before the Assessing Officer; that there is no denial of the fact that there was no failure on the part of the assessee in disclosing the facts necessary for assessment and that there is no such allegation that the escapement of income was on account of the failure of the assessee in not disclosing fully and truly all material facts. In the circumstances, applying the Supreme Court decision referred to above, we have no hesitation in accepting the plea of the assessee that the assumption of the jurisdiction beyond four years is hit by limitation as provided under Section 147 proviso. Even though, on the merits of the assessment, the assessee's case has to fail, yet, on the limited question as regards the jurisdictional time limit as provided for under Section 147 of the Income Tax Act, the assessee is entitled to succeed. Since limitation is the fundamental aspect of the assessment, we have no hesitation in setting aside the order of the Tribunal, thereby allowing the appeal. (emphasis supplied) The reassesment order f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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