The main legal point established in the judgment is the requirement for the Assessing Officer to infer the nature of expenses based on disclosed material facts and the limitations on reopening assessments based on change of opinion.

SANJIV KHANNA, J

1. The Revenue has preferred these appeals for the assessment years 2000-01 and 2001-02 against the order dated 16.02.2010 of the Income Tax Appellate Tribunal (tribunal for short) in ITA No.4461/Del/2009 and 1704/Del/2007 in the case of Munjal Showa Ltd.

2. By the impugned order, the Tribunal has struck down the reassessment proceedings initiated u/s 147/148 of the Income Tax Act, 1961 (Act for short) on the ground of change of opinion. For the assessment year 2000-01, it has also been held that the respondent-assessee had fully and truly disclosed all material facts and, therefore, the bar/stipulation in the proviso protects the respondent assessee.

3. As full details have not been set out in the impugned order, we have, with the assistance of the learned counsel for the parties, examined the contentions raised. Learned counsel for the respondent has filed a paper book in this Court which is taken on record.

4. For the assessment year 2000-01, the respondent/assessee had filed a return declaring income of Rs.12,99,85,610/-on 29.11.2000. This return was processed on 14.05.2001 and the returned income was accepted. Subsequently, notice u/s 143(2), dated 27.11.2001, was issued and Assessing Officer passed an assessment order dated 31.01.2003. The assessment order is brief and we have referred to the contents thereof in the subsequent paragraphs of this order.

5. For the assessment year 2001-02, the respondent had filed their return of income on 28.10.2001, disclosing income of Rs.17,63,93,104/-. The aforesaid income includes capital gains of Rs.11,76,471/-. The return was processed u/s 143(1) on 23.05.2002 on the returned income. Thereafter, the return was taken up for scrutiny by issue of notice u/s 143(2) dated 11.10.2002. Assessment order u/s 143(3) was passed on 20.02.2004. The income was assessed at Rs.17,52,16,710/-including capital gains. The assessment order is brief but it specifically refers to the admissible expenses and depreciation etc. The questionnaire issued by the Assessing Officer during the course of the original assessment proceedings, and the reply submitted by the assessee, have been referred to below.

6. The assessments were reopened vide notices dated 29.03.2007 and 13.07.2005 for the assessment year 2000-01 and 2001-02, respectively. The reasons for reopening have not been stated in the assessment order and the appellate orders but they have been produced before us. For the sake of convenience we are reproducing relevant portion of the reasons of reopening recorded for the two years of the assessment:-

“Reasons recorded for re-opening the assessment of M/s Munjal Showa Ltd. for A.Y. 2000-01 u/s 147 of the I.T. Act, 1961.

1. The assessee filed its return of income on 28.11.2000 declaring an income of Rs.12,99,85,610/-.

2. The assessment u/s 143(1) in this case was made on 31.01.2003 at Rs.12,99,85,610/-.

3. the assessee has debited a sum of Rs. 2,86,74,323/-under the head of royalty and Rs. 10,73,766/-under the head technicians fee in the P & L a/c ending 31.3.2000. 25% of the royalty expenses should be considered as capital expenditure in view of the Supreme Court judgment in Southern Switchgear Ltd. 232 ITR 359 (SC) as it gives rise to enduring benefit which can be enjoyed by the assessee over a number of years. Under the terms of the technical collaboration, the royalty is payable at 3% of the ex-factory sales price of the products carried out by the manufacturing facility invoiced by the licensee less certain other cost for a period of ten years from the date of the agreement or period of seven years from the start of the commercial production whichever is earlier. The assessee has paid a royalty for acquisition of an exclusive and indivisible privilege of manufacturing and selling the products. The assessee is also entitled to continue the manufacture and sale of the products with the know how provided by the licensor upon expiration of the agreement. The assessee is also en