The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has recently, in an appeal filed before it held that re-assessment based on the ground of mere change of opinion is not permitted under law.
The aforesaid observation was made by the Mumbai ITAT, when an appeal was preferred before it by the assessee, challenging the order dated10.08.2022, passed by the CIT(A),National Faceless Appeal Centre(NFAC), Delhi, relating to the AY 2013-14.
The grievance of the assessee being related to the decision of the CIT(A) in dismissing the appeal ofthe assessee under the wrong impression that the assessee had settled the dispute under Vivad se Vishwas scheme, it was submitted Mr. Pratik Shah, the AR of the assesssee that the assessee had also raised a legal ground challenging the re-opening of the assessment u/s 148 of the Income Tax Act, along with the prayer that the legal ground may kindly be heard and adjudicated by the bench.
Itfurther submitted by the AR that the assessment for the year under the consideration was originally completed by the Assessing Officer u/s 143(3) of the Income Tax Act on 18.06.2016, and that in the return of income, the assessee had claimed software expanses of 2.61 crore, as revenue expenditure, but that theAssessing Officer held the software expanses to be capital in nature, thereby disallowing the above said claim.
He added that the Assessing Officer however, had allowed the depreciation thereon at 60%, which amounted to Rs.1.57 crore, following which, theassessee had challenged the above said disallowance by filing an appeal before the CIT(A). He further submitted that in fact, the assessee had settled the above said dispute under VSV scheme.
Subsequently, the Assessing Officer re-opened the assessment byissuing a notice u/s 148 of the Income Tax Act on 09.03.2020, i.e., after the expiry of four years from the end of the present assessment year, wherein the reason for the re-opening was that the depreciation on software expenses should have been allowed at 25%, instead of 60% in the original assessment order, as the same has resulted in excess of allowance of depreciation resulting in escapement of income.
It was the AR’s submission that the Assessing Officer had completed the reassessment by disallowing the excess depreciation of Rs. 91.71 lacs, that the Assessing Officer had examined the issue of allowing depreciation on software at the time of original assessment proceedings, and that it, was based on the same, that he had taken the conscious decision to allow depreciation at 60%.
The re-assessment proceeding having been initiated only to restrict the rate of depreciation to 25%, which was mere change of opinion, accordingly, it was the contention of the AR that the Assessing Officer was not justified in re-opening the assessment on mere change of opinion.
In support of this contention, the AR placed reliance on the decision rendered by the High Court of Bombay in the case of Indian Energy Exchange Ltd vs. ACIT, and accordingly prayed that the impugned re-opening assessment order may be held as bad.
However, on the contrary, Shri.Dilip K. Shah, the SR.DR, submitted that the Assessing Officer has re-opened the assessment on proper reasoning.
Hearing the opposing contentions of either sides, and thereby perusing the materials available on record, the Mumbai ITAT observed:
“We heard rival contentions and perused the record. We notice that the only reason for reopening of assessment is to revise the rate of depreciation allowable on the software capitalized by the AO. As noticed earlier, the AO had allowed depreciation at 60% in the original assessment proceedings and the reopening of assessment was done only to restrict the rate of depreciation to 25%. The question is whether the decision of AO to revise the depreciation can be said to be mere change of opinion. If the answer is Yes, then the reopening of assessment is liable to be quashed. If the answer is No, then the reopening of assessment is justified.”
“We notice that an identical issue has been examined by the jurisdictional Bombay High Court in the case of Indian Energy Exchange Ltd. In this case also, the AO reopened the assessment to restrict the depreciation rate to 25% as against 60% originally allowed on software. The facts being identical, following the above said decision of the jurisdictional High Court, we hold that the assessing officer has reopened the assessment of the year under consideration on mere change of opinion only and that the same is not permitted under the law.”, the ITAT Bench comprising of Rahul Chaudhary, the Judicial Member, along with Baskaran BR, the Accountant Member added.
Thus, allowing the assessee’s appeal, the Mumbai ITAT held:
“Accordingly, we hold that the reopening of assessment is bad in law and accordingly the impugned assessment order is liable to be quashed. Accordingly, we quash the orders passed by the tax authorities. In the result, the appeal of the assessee is allowed on the legal ground discussed above.”
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