Case Note & Summary
The petitioner, Bedmutha Industries Ltd., challenged a notice dated 29 November 2010 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen its assessment for Assessment Year 2004-05, and the subsequent order dated 4 November 2011 rejecting its objections. The original assessment under Section 143(3) was completed on 18 December 2006, assessing total income at Rs.91.49 lacs. The Assessing Officer recorded reasons that the assessee had claimed depreciation of Rs.69,04,465, which included Rs.9,12,412 on goodwill, and that goodwill is not an intangible asset specified for depreciation allowance, resulting in under-assessment. The petitioner contended that the reopening was based on a mere change of opinion and that depreciation on goodwill is allowable under Section 32(1)(ii). The court analyzed the reasons and found that the Assessing Officer had not brought on record any new tangible material; the issue of depreciation on goodwill was already considered during the original assessment. The court held that reopening on the same facts without fresh material amounts to a change of opinion and is impermissible. Additionally, the court observed that goodwill is an intangible asset and depreciation on it is allowable under Section 32(1)(ii) as it is akin to know-how, patents, copyrights, etc. The court allowed the writ petition, quashed the notice under Section 148 and the order rejecting objections, and directed the respondents to give effect to the order.
Headnote
A) Income Tax - Reopening of Assessment - Section 147/148 of Income Tax Act, 1961 - Change of Opinion - The Assessing Officer reopened the assessment on the ground that depreciation on goodwill was not allowable, but the original assessment had allowed it after due consideration. The court held that reopening based on the same facts without fresh tangible material amounts to a change of opinion and is not permissible. (Paras 2-5)
B) Income Tax - Depreciation on Goodwill - Section 32(1)(ii) of Income Tax Act, 1961 - Allowability - The court held that goodwill is an intangible asset and depreciation on goodwill is allowable under Section 32(1)(ii) as it is a capital asset of similar nature to know-how, patents, copyrights, etc. The Assessing Officer's reason that goodwill is not specified for depreciation was erroneous. (Paras 3-5)
Issue of Consideration
Whether the notice under Section 148 of the Income Tax Act, 1961 seeking to reopen the assessment for Assessment Year 2004-05 on the ground that depreciation on goodwill was incorrectly allowed is valid, and whether the Assessing Officer had jurisdiction to reopen the assessment based on a change of opinion.
Final Decision
The court allowed the writ petition, quashed the notice dated 29 November 2010 under Section 148 of the Income Tax Act, 1961 and the order dated 4 November 2011 rejecting the petitioner's objections. The respondents were directed to give effect to the order.
Law Points
- Reopening of assessment under Section 147/148 of Income Tax Act
- 1961 requires tangible material and not mere change of opinion
- Depreciation on goodwill is allowable under Section 32(1)(ii) of Income Tax Act
- 1961 as goodwill is an intangible asset akin to know-how
- patents
- copyrights
- etc.
Case Details
WRIT PETITION NO.10655 OF 2011
S.J. Vazifdar, M.S. Sanklecha
Mr. S.N. Inamdar Senior Advocate with Mr. Mihir Naniwadekar for the Petitioner; Mr. Vimal Gupta Advocate for the Respondents
Bedmutha Industries Ltd. (Formerly known as Bedmutha Wire Co. Ltd.)
1. The Dy. Commissioner of Income Tax, Circle 1, Nashik; 2. Union of India
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Writ petition under Article 226 of the Constitution of India challenging a notice under Section 148 of the Income Tax Act, 1961 and the order rejecting objections to reopening of assessment.
Remedy Sought
The petitioner sought quashing of the notice dated 29 November 2010 under Section 148 and the order dated 4 November 2011 rejecting its objections.
Filing Reason
The Assessing Officer sought to reopen the assessment for Assessment Year 2004-05 on the ground that depreciation on goodwill was incorrectly allowed, which the petitioner contended was a change of opinion and not permissible.
Previous Decisions
The original assessment under Section 143(3) was completed on 18 December 2006, assessing total income at Rs.91.49 lacs.
Issues
Whether the notice under Section 148 of the Income Tax Act, 1961 for reopening the assessment for Assessment Year 2004-05 is valid.
Whether the Assessing Officer had jurisdiction to reopen the assessment based on a change of opinion.
Whether depreciation on goodwill is allowable under Section 32(1)(ii) of the Income Tax Act, 1961.
Submissions/Arguments
The petitioner argued that the reopening was based on a mere change of opinion as the issue of depreciation on goodwill was already considered during the original assessment.
The petitioner contended that depreciation on goodwill is allowable under Section 32(1)(ii) as goodwill is an intangible asset akin to know-how, patents, copyrights, etc.
The respondents argued that goodwill is not specified for depreciation and the reopening was justified.
Ratio Decidendi
Reopening of assessment under Section 147/148 of the Income Tax Act, 1961 based on a change of opinion without fresh tangible material is impermissible. Depreciation on goodwill is allowable under Section 32(1)(ii) as goodwill is an intangible asset of a similar nature to know-how, patents, copyrights, etc.
Judgment Excerpts
By this petition under Article 226 of the Constitution of India, the petitioner challenges a notice dated 29th November,2010 under Section 148 of the Income Tax Act, 1961 and the order dated 4th November,2011 rejecting the petitioner’s objection to initiation of proceeding under Section 147/148 of the said Act.
The reasons recorded for reopening of assessment for Assessment Year 2004-2005 are as under: “It is seen from the records that the assessee company had claimed deduction of depreciation of Rs.69,04,465/- which included depreciation of Rs.9,12,412/- on Goodwill. Goodwill is an intangible asset which has not been specified for allowance of depreciation nor it can be held to be of similar nature as know how, patents etc and hence is not a capital asset for which depreciation is allowed. Incorrect allowance of depreciation on Goodwill resulted in under assessment to the extent of Rs.9,12,412/.-”
Procedural History
The original assessment under Section 143(3) was completed on 18 December 2006. On 29 November 2010, the Assessing Officer issued a notice under Section 148 to reopen the assessment. On 5 January 2011, the reasons for reopening were furnished to the petitioner. The petitioner filed objections, which were rejected by order dated 4 November 2011. The petitioner then filed the present writ petition under Article 226 of the Constitution of India.
Acts & Sections
- Income Tax Act, 1961: Section 143(3), Section 147, Section 148, Section 32(1)(ii)
- Constitution of India: Article 226
