By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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Section 148 – Reopening of assessment is void ab intio when initiated merely on the fact that the issue was not specifically dealt with in the assessment order.
Facts:
The assessee company had developed a computer software technology internally, which was capitalised in the books of account and claimed as revenue expenditure in the return of income. The assessing officer during the assessment proceedings, had raised a specific query on allowability of expenditure on computer software. The assessee wrote a letter for the same to the AO giving justification and the relevant facts. There was no specific reference to this issue in the assessment order.
Subsequently, the AO was in receipt of the audit report from the revenue audit party, stating that he had completely overlooked the above mentioned facts and legal position in the given case. The AO then issued notice u/s. 148 based on the above finding.
The assessee then challenged the initiation of the proceedings u/s. 147/148 on the basis of reasons recorded by the AO.
Held:
Merely because the issue on which the notice was issued was not specifically dealt with in the assessment order does not give the AO jurisdiction to reopen the assessment, unless there is tangible material before him to come to the conclusion that there is escapement of income.
When no specific reference to the issue was made in the order, it is presumed that the AO had formed an opinion about the allowability of software expenses as revenue expenditure while completing the assessment u/s. 143(3).
The issue was squarely covered by the judgement of the Supreme Court in CIT v Kelvinator of India Ltd. whereby it was held that mere change of opinion by the AO cannot be taken as the “reason to believe” u/s. 147 to reopen the assessment.
