M/s McCann Erickson (India) (P) Ltd., New Delhi V. DCIT, New Delhi

CO 198/DEL/2010

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5100 (ITAT-DELHI)
• Duration Of Justice: 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2001-2002
• Appeal Filed On: 26-07-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: SANJESH JAWARANI
• Keywords: Reopening of assessment; Bad and doubtful debts; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure
• Section: 143(3); 147; 27; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T.A NO. 2476/DEL/10 ASSTT. YEAR 2001-02 DCIT, CIRCLE 6 (1), VS. MCCANN ERICKSON (INDIA)(P) LTD. ROOM NO. 413, 8, BALAJI ESTATE, KALKAJI, C.R. BUILDING, NEW DELHI. NEW DELHI 110 019. (APPELLANT) (RESPONDENT) CO. NO. 198/DEL/10 (IN ITA NO. 2476/DEL/10) ASSTT. YEAR 2001-02 MCCANN ERICKSON (INDIA) (P) LTD. VS. DCIT, CIR CLE 6(1), 8, BALAJI ESTATE, KALKAJI, ROOM NO. 413, NEW DELHI 110 019. C.R. BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SANJESH JAWARANI, CA RESPONDENT BY: SHRI N.K. CHAND, DR ORDER PER RAJPAL YADAV, JM: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD. CIT(A) DATED 22 ND MARCH, 2010 PASSED FOR ASSTT. YEAR 2001-02. ON REC EIPT OF ITA NO. 2476/DEL/10 ASSTT. YEAR 2001-02 & CO NO. 198/DEL/10 ASSTT. YEAR 2001-02 2 NOTICE IN THE REVENUES APPEAL ASSESSEE HAS FILED C ROSS OBJECTION BEARING NO. 198/D/2010. 2. THE LD. CIT (A) HAS HELD THAT REOPENING OF ASSES SMENT IS BAD IN LAW AND, THEREFORE, DID NOT PROCEED TO ADJUDICATE T HE ISSUES ON MERIT. THE REVENUE IN ITS APPEAL IS CHALLENGING THIS FINDI NG OF THE LD. CIT (A) WHEREAS ASSESSEE IN ITS CROSS OBJECTION IS IMPUGNIN G THAT LD. CIT (A) OUGHT TO HAVE ADJUDICATE THE ISSUES ON MERIT ALSO. 3. SINCE THE ISSUE OF REOPENING OF ASSESSMENT IS A JURISDICTIONAL ISSUE WHICH HAS BEEN TAKEN BY THE REVENUE IN ITS APPEAL, THEREFORE FIRST WE TAKEN THE APPEAL OF THE REVENUE. 4. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF ADVERTISING THROUGH MEDI A ETC. IT HAS FILED A RETURN OF INCOME ON 31 ST OCTOBER, 2001 DECLARING AN INCOME OF RS. 7,62,68,250/-. THE CASE OF THE ASSESSEE WAS SELECTE D FOR SCRUTINY ASSESSMENT AND A NOTICE U/S 143 (2) WAS ISSUED ON 1 6.10.2002 WHICH WAS SERVED UPON THE ASSESSEE ON 18.10.2002. IN RESP ONSE TO THE NOTICE OF HEARING MR. SANJESH JAWARANI, CA APPEARED BEFORE THE AO AND SUBMITTED REQUISITE DETAILS. AO HAD ISSUED A DETAIL ED QUESTIONNAIRE TO THE ASSESSEE ON 26.11.2002. IN THIS QUESTIONNAIRE A O HAS CALLED FOR A LARGE NUMBER OF INFORMATION. THE INFORMATION RELEVA NT FOR THE PRESENT ITA NO. 2476/DEL/10 ASSTT. YEAR 2001-02 & CO NO. 198/DEL/10 ASSTT. YEAR 2001-02 3 APPEAL IS CONTAINED AT POINT NO. 6 IN THE QUESTIONN AIRE. THE COPY OF THE QUESTIONNAIRE IS AVAILABLE AT PAGE 21 TO 22 OF THE PAPER BOOK. THE INFORMATION SOUGHT BY THE AO RELATING TO THE DISPUT E INVOLVED IN THE PRESENT APPEAL IS AS UNDER:- A) ADVANCE WRITTEN OFF, BASIS AND PROVISIONS OF IN COME-TAX ACT UNDER WHICH THESE HAVE BEEN CLAIMED. IF, THESE ARE CLAIME D AS BAD DEBTS, PLEASE GIVE ALLOWABILITY IN VIEW OF PROVISIO NS OF SEC. 36 (1)(VII) AND (VIIA) OR 36(2). B) XXXXX C) XXXXX D) FLUCTUATION IN FOREIGN EXCHANGE. GIVE FULL DETAI LS AND HOW THIS IS ALLOWABLE AS PER INCOME-TAX ACT PROVISIONS. E) REASONAL CO-ORDINATION COST. YOU HAVE CLAIMED RS . 33.05 LACS UNDER THIS HEAD BUT NO TDS HAS BEEN DEDUCTED ON THE SAME. THIS SAME IS INADMISSIBLE U/S 10A(I). WHY THE SAME SHOUL D NOT BE ADDED TO YOUR INCOME. F) XXXXX G) XXXXX H) XXXXX I) XXXXX 5. THE ASSESSEE HAS SUBMITTED A DETAILED REPLY TO T HIS QUESTIONNAIRE. HOWEVER, THE AO HAS NOT DISCUSSED THESE ISSUES IN D ETAILS IN THE ASSTT. ORDER BUT PASSED THE ASSTT. ORDER ON 31 ST MARCH 2003 U/S 143(3) OF THE INCOME TAX ACT. THE AO ON THE BASIS OF SOME INFORMA TION HAS FORMED AN OPINION THAT INCOME OF THE ASSESSEE HAS ESCAPED TAX HENCE HE RECORDED THE REASONS ON 18 TH MARCH, 2008 FOR REOPENING OF THE ITA NO. 2476/DEL/10 ASSTT. YEAR 2001-02 & CO NO. 198/DEL/10 ASSTT. YEAR 2001-02 4 ASSESSMENT. THE REASONS RECORDED BY THE AO ARE AVAI LABLE ON PAGE 1 OF THE PAPER BOOK AND THEY READ AS UNDER:- 18/03/2008 REASON FOR ISSUE OF NOTICE U/S 148 OF THE I.T. ACT , 1961 M/S. MC. CANN ERICSON (I) LTD. ASSTT. YEAR : 2001-02 THE ASSESSMENT IN THIS CASE WAS COMPLETE UNDER SCRU TINY AT INCOME OF RS. 78099150/- ON 31.03.2003. ON GOING TH ROUGH THE RECORD, FOLLOWING FACTS HAVE COME TO THE NOTICE :- 1. THE ASSESSEE HAD MADE A PAYMENT OF RS. 3309142/ - TOWARDS REGIONAL COORDINATION COST OUTSIDE INDIA BUT HAS NOT DEDUCTED TAX ON THE SAME & CLAIMED REVENUE EXPENDITURE. THE SAME IS NOT ALLOWABLE U/S 40(A)(I ) OF THE TAX. HENCE INCOME OF RS. 33,09,142/- HAS ESCAPED ASSESSMENT. 2. THE ASSESSEE HAD CLAIMED EXPENSES OF RS. 2055790 /- IN P & L A/C. AS FLUCTUATION IN FOREIGN EXCHANGE. SINCE THE AMOUNT WAS NOT BACKED BY ACTUAL REMITTANCE & THE LO SS HAD ARISEN DUE TO YEAR END REVALUATION OF FOREIGN CURRE NCY BALANCES, THE DEDUCTION IN THE COMPUTATION OF BUSIN ESS INCOME WAS NOT IN ORDER & THE SAME IS NOT ALLOWABLE . HENCE INCOME OF RS. 20,55,790/- HAS ESCAPED ASSESSMENT. 3. THE ASSESSEE HAD DEBITED A SUM OF RS. 40,26,226/- AS ADVANCES WRITTEN OFF IN THE P & L A/C. SINCE THE ADVANCES WERE GIVEN BY THE ASSESSEE FROM THE CAPIT AL ACCOUNT AND THIS AMOUNT HAS NEVER BEEN CREDITED IN THE P & L ACCOUNT, THE SAME IS NOT ADMISSIBLE AS A REVENUE EXPENDITURE. HENCE INCOME OF RS. 40,26,226/- HAS ES CAPED ASSESSMENT. IN VIEW OF ABOVE, I AM SATISFIED THAT INCOME OF RS. 9391158/- (RS. 33,09,142 + RS. 20,55,790/- + RS. 40,26,226) HAS ESCAPED ASSESSMENT. IT IS PROPOSED TO ISSUE A NOTICE U/S 148 OF THE I.T. ACT TO THE ASSESSEE IN ORDER TO TAKE ACTION U/S 147 OF THE I.T. ACT. 1961. D.C.I.T. CIR.6(1) ITA NO. 2476/DEL/10 ASSTT. YEAR 2001-02 & CO NO. 198/DEL/10 ASSTT. YEAR 2001-02 5 6. ON THE BASIS OF THE ABOVE REASON, LD. AO HAD ISS UED A NOTICE U/S 148 ON 27 TH MARCH, 2008 AND AFTER HEARING THE ASSESSEE FRAMED THE REASSESSMENT ORDER ON 19 TH DECEMBER 2008 WHEREBY HE DISALLOWED THE AMOUNTS MENTIONED IN THE REASONS. 7. DISSATISFIED WITH THE REASSESSMENT ORDER ASSESSE E CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT (A). IT CHALLEN GES THE REOPENING OF ASSESSMENT AS WELL AS THE ADDITION MADE BY THE AO. WITH REGARD TO THE ISSUE OF REOPENING IT WAS CONTENDED BY THE ASSESSEE THAT NOTICE U/S 148 OF THE ACT WAS ISSUED TO THE ASSESSEE AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THERE IS NO AL LEGATION BY THE AO IN THE REASONS RECORDED FOR REOPENING OF THE ASSESSMEN T THAT ASSESSEE FAILED TO DISCLOSE ALL NECESSARY FACTS FULLY AND TR ULY FOR ITS ASSESSMENT. IT IS THE DUTY OF THE AO TO ESTABLISH THAT INCOME HAS ESCAPED ASSESSMENT ON ACCOUNT OF THE FAILURE OF THE ASSESSEE TO DISCLO SE NECESSARY FACTS FULLY AND TRULY IN CONNECTION WITH THOSE ISSUES. IF AO FAILED TO ESTABLISH THIS FACT THEN AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSTT. YEAR HE CANNOT REOPEN THE ASSESSMENT. THE LD. CIT( A) HAS CONSIDERED THIS ASPECT AND OBSERVED THAT IN THE ORIGINAL ASSES SMENT PROCEEDING AO HAS DULY INQUIRED ALL THE THREE ISSUES IN A SCRUTIN Y ASSESSMENT. ASSESSEE HAS FILED REPLIES ON THESE ISSUES. THE LD. FIRST APPELLATE ITA NO. 2476/DEL/10 ASSTT. YEAR 2001-02 & CO NO. 198/DEL/10 ASSTT. YEAR 2001-02 6 AUTHORITY HAS TAKEN COGNIZANCE OF THE LETTERS OF TH E ASSESSEE DATED 14 TH JANUARY, 2003 AND 28 TH JANUARY, 2003 IN ORDER TO APPRECIATE THAT FACTS RELATING TO THESE ISSUES HAVE DULY BEEN DISCLOSED B Y THE ASSESSEE. AFTER PUTTING RELIANCE ON THE JUDGMENT OF HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. (2002) REPORTED IN 256 ITR 1. LD. FIRST APPELLATE AUTHORITY HAS OBSERVED THAT THERE WAS NO NEW MATERIAL WITH THE AO. HE HAS JUST REOPENED THE ASSESSMENT ON THE BASIS OF CHANGE OF OPINION. LD. CIT(A) IN THIS WAY HELD THAT REOPENING OF ASSESSMENT IS BAD IN LAW , ACCORDINGLY QUASHED THE REASSESSMENT ORDER . 8. LD. DR WHILE IMPUGNING THE ORDER OF LD. CIT(A) R ELIED UPON THE ORDER OF THE AO. HE POINTED OUT THAT AO HAS DULY RE CORDED REASONS FOR REOPENING OF THE ASSESSMENT. THE PERUSAL OF THE REA SONS REVEALS THAT INCOME HAS ESCAPED ASSESSMENT. HENCE HE IS JUSTIFIE D TO INITIATE THE REOPENING PROCEEDING. ON THE OTHER HAND LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF LD. CIT(A). HE FURTHER CON TENDED THAT THERE SHOULD BE AN OBSERVATION IN THE REASONS RECORDED BY THE AO THAT INCOME HAS ESCAPED BECAUSE OF THE FAILURE OF ASSESSEE TO D ISCLOSE FULLY AND TRULY ALL NECESSARY FACTS. THERE IS NO SUCH ALLEGAT ION IN THE REASONS RECORDED BY THE AO. FOR BUTTERACING HIS CONTENTION HE RELIED UPON THE ITA NO. 2476/DEL/10 ASSTT. YEAR 2001-02 & CO NO. 198/DEL/10 ASSTT. YEAR 2001-02 7 JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF DULI CHAND SINGHANIA VS. ACIT REPORTED IN 269 ITR 192. 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY. THE ASSESSMENT YEAR INVOLVED HEREIN IS ASSTT. YEAR 2001-02. THE ORIGINAL ASSESSMENT WAS FRAMED U/S 143 (3) ON 31 ST MARCH 2003. THE NOTICE U/S 148 HAS BEEN ISSUED ON 27.3.20 08. ALL THESE FACTS INDICATE THAT NOTICE U/S 148 WAS ISSUED AFTER EXPIR Y OF FOUR YEARS FROM THE END OF THE RELEVANT ASSTT. YEAR. SECTION 147 OF THE INCOME TAX ACT PROVIDE THAT IF THE AO HAS REASON TO BELIEVE THAT A NY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSTT. YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTION 148 TO 153, ASSESSED OR R EASSESSED SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO ITS NOTICE SUBSEQUENT LY IN THE COURSE OF THE PROCEEDINGS U/S 147. THE INTERDICTION PROVIDED IN THE PROVISO APPENDED TO THIS SECTION PUTS AN EMBARGO UPON THE POWER OF AO TO REOPEN AN ASSESSMENT WHERE ORIGINAL ASSESSMENT WAS MADE U/S 143(3) AND FOUR YEARS HAVE EXPIRED FROM THE END OF THE REL EVANT ASSESSMENT YEAR. IN SUCH CASES THE ASSESSMENT CAN BE REOPENED IF IT IS ESTABLISHED THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMEN T FOR SUCH ASSESSMENT YEAR BY FAILURE OF THE ASSESSEE TO DISCL OSE FULLY AND TRULY ALL ITA NO. 2476/DEL/10 ASSTT. YEAR 2001-02 & CO NO. 198/DEL/10 ASSTT. YEAR 2001-02 8 MATERIAL FACTS NECESSARY FOR REASSESSMENT. IN OTHER WORDS AN ASSESSMENT COMPLETED U/S 143(3) AND FOUR YEARS HAVE EXPIRED FROM THE END OF RELEVANT ASSESSMENT YEAR THEN IT CAN ONLY BE REOPENED IF AO DEMONSTRATE THAT ASSESSEE DID NOT DISCLOSE MATERIA L FACTS FULLY AND TRULY WHICH ARE ESSENTIAL FOR HIS ASSESSMENT. IN THE PRES ENT CASE THE AO IN THE ORIGINAL ASSESSMENT DID MAKE AN INQUIRY ON THE THREE ISSUES AS DISCERNABLE FROM THE DETAILS SOUGHT IN THE QUESTIO NNAIRE EXTRACTED SUPRA. THE ASSESSEE HAD FILED REPLY TO THIS QUESTIO NNAIRE AND THEREAFTER ASSESSMENT WAS MADE U/S 143(3). THERE IS NOTHING ON RECORD WHICH CAN EXHIBIT THAT ASSESSEE FAILED TO DISCLOSE FULLY AND TRULY ALL THE NECESSARY FACTS RELATING TO THESE ISSUES. THEREFORE, WE DO NO T SEE ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). HE HAS RIGHTL Y HELD THAT REOPENING OF THE ASSESSMENT IS BAD IN LAW. CO NO. 198/DEL/10 10. IN THE CROSS OBJECTION ASSESSEE HAS PLEADED THA T LD. CIT(A) HAS NOT ADJUDICATE THE ISSUE WITH REGARD TO THE ADDITIO NS ON MERIT. SINCE WE HAVE UPHELD THE ORDER OF LD. CIT(A) ON THE PRELIMIN ARY ISSUE WE DO NOT DEEM IT NECESSARY TO DEAL WITH THESE ISSUES BECAUSE THAT WILL BE ONLY AN ACADEMIC EXERCISE. EVEN OTHERWISE THESE ISSUES WOUL D REQUIRE TO BE SET ASIDE TO THE FILE OF LD. CIT(A) FOR READJUDICATION BECAUSE LD. FIRST ITA NO. 2476/DEL/10 ASSTT. YEAR 2001-02 & CO NO. 198/DEL/10 ASSTT. YEAR 2001-02 9 APPELLATE AUTHORITY HAS NOT ADJUDICATED THOSE ISSUE S. AT THIS STAGE IT IS NOT NECESSARY TO DEAL WITH ALL THESE ISSUES. THE CR OSS OBJECTION BECOME REDUNDANT . 11. IN THE RESULT APPEAL AS WELL AS CROSS OBJECTION ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.8.2010 SD/- [K.G. BANSAL] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13.8.2010 VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGI STRAR, ITAT