In a recent ruling, the Gujarat High Court ruled that a future amendment disallowing depreciation on goodwill, which came into effect on April 1, 2021, could not be used as a basis to reopen the assessment for the financial year 2017-18.
GTPL Hathway Limited, the assessee had originally filed its return of income for the assessment year 2017-18, declaring an income of Rs. 39.69 crores, later revised to Rs. 83.33 crores. The case was scrutinized, and an assessment order was passed under Section 143(3) of the Income Tax Act, 1961.
On March 27, 2021, the Income Tax Department issued a notice under Section 148 to reopen the assessment. The department stated that the company had wrongly claimed Rs. 17.37 crores as lease payments under revenue expenditure, had improperly accounted for unrealized foreign exchange gains and losses, and had claimed depreciation on goodwill, which was later disallowed by a 2021 amendment.
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The assessee challenged the reassessment notice before the ITAT, arguing that all the issues raised by the tax department had already been examined during the original scrutiny assessment. The company argued that no new tangible material justified the reopening and that the amendment disallowing depreciation on goodwill, which became effective in 2021, could not be applied retrospectively to reassess its 2017-18 returns.
The Income Tax Department countered that the reassessment was valid since the original scrutiny assessment had not specifically examined the treatment of foreign exchange transactions and goodwill depreciation.
A division bench comprising Justice Bhargav D. Karia and Justice D. N. Ray observed that the reassessment was based on existing records and did not involve any new findings. The court observed that reopening based on a mere change of opinion is impermissible under tax law.
The court also observed that the lease payment had been consistently allowed in previous years and that foreign exchange losses and gains were properly accounted for. The court ruled that the 2021 amendment disallowing goodwill depreciation could not be applied retrospectively to reassess the company’s income for the financial year 2017-18. The court set aside the reassessment notice issued under Section 148 of the Income Tax Act, 1961.
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