Section 147 — Even an assessment completed u/s.143(1) cannot be reopened unless there is fresh material
Facts: The assessee company, engaged in the business of manufacturing heavy gear boxes, filed its return of income, on 31-10-2001, declaring a loss of Rs. 73,57,95,273. This return of income was processed u/s.143(1) on 28-1-2003. The assessee filed a revised return of income on 27-3-2003 declaring a loss of Rs.74,22,78,281 after revising its claim u/s.35DDA in respect of employee separation cost. The AO, from the balance sheet filed by the assessee along with its return of income observed that the assessee had incurred expenses towards ERP software amounting to Rs.95,14,000 and although 20% of the said expenses were only debited in P&L account, the entire amount of Rs.95,14,000 was claimed as a deduction in computation of total income. He, accordingly, entertained a belief that to this extent income has escaped assessment and the assessment was reopened by issuing a notice u/s.148 on 3-3- 2006.
In an order passed u/s.143(3) r.w.s. 147, the AO assessed the loss to be Rs.50,17,47,153 after making addition inter alia on account of disallowance of expenses incurred on ERP software treating the same as of capital nature. He also disallowed claim for depreciation at 100% in respect of pollution control and energy saving devices at 100% valued at Rs.29.27 crore holding that the same had been earlier used by sister concern of the assessee-company.
Aggrieved the assessee preferred an appeal to the CIT(A) challenging the validity of the said assessment and also the various additions/disallowances made therein. The CIT(A) upheld the validity of reassessment proceedings and also the addition on account of disallowance of expenses incurred on ERP software treating the same as capital in nature. He, however, allowed relief in respect of depreciation at the rate of 100% on pollution control and energy saving devices.
Aggrieved, the assessee preferred an appeal to the Tribunal challenging inter alia the validity of the assessment on the ground that initiation of reassessment proceedings was bad in law.
Held:
The Tribunal on perusal of the reasons recorded by the AO noted that there was no new material coming to the possession of the AO on the basis of which the assessment completed u/s.143(1) was reopened. The Tribunal also noted that in the case of Telco Dadaji Dhackjee Ltd. v. DCIT, (ITA No. 4613/ Mum./2005, dated 12th May, 2010) (Mum.) (TM), the Third Member, had relying on the decision of the Supreme Court in the case of CIT v. Kelvinator of India, (256 ITR 1) (SC), held that while resorting to section 147 even in a case where only an intimation had been issued u/s.143(1)(a), it is essential that the AO should have before him tangible material justifying his reason that income has escaped assessment. The Tribunal held that the TM decision of the Tribunal in the case of Telco Dadaji Dhackjee Ltd. (supra) is squarely applicable to the present case. Following this decision, it held that the initiation of reassessment proceedings by the AO itself was bad in law and reassessment completed in pursuance thereof is liable to be quashed being invalid.
