M/s.Apollo Tyres Ltd, Cochin V. The DCIT, Cochin

CO 44/COCH/2014

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9977 (ITAT-COCHIN)
• Duration Of Justice: 1 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 15-06-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 10-09-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: V SATHYANARAYANAN
• Keywords: Reopening of assessment; Depreciation; Period of limitation; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings; Capital expenditure
• Section: 143(3); 147; 148; 6

Judgement Text

ITA NO. 359/COCH/2014 & C O NO. 44/COCH/2014 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI N.R.S. GANESAN, JM & CHANDRA POOJARI , AM ITA NO . 359/COCH/2014 (ASST YEAR 2006 - 07 ) & CROSS OBJECTION NO. 44/COCH/2014 THE DY COMMR OF INCOME TAX CIRCLE 4(2), KOCHI VS M/S APOLLO TYRES LTD CHERUPUSHPAM BUILDING SHANMUGHAM ROAD ERNAKULAM KOCHI 682 ( APPELLANT /RESPONDENT ) (RESPONDENT /CROSS OBJECTOR ) PAN NO. AAACA6990Q ASSESSEE BY SHRI V SATHYANARAYANAN REVENUE BY SHRI M ANIL KUMAR, CIT - DR DATE OF HEARING 24 TH SEPT 2014 DA TE OF PRONOUNCEMENT 17 TH OCT 2014 OR D ER PER CHANDRA POOJARI , AM: THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 13.2.2014 OF THE CIT(A) - II, KOCHI AND ITS PERTAINS TO THE AY 2 006 - 07. 2 THE REVENUE IN ITS APPEAL RAISED A GROUND THAT THE CIT(A) ERRED IN CANCELLING THE REOPENING OF ASSESSMENT U/S 148 OF THE ACT. THE ASSESSEE, IN ITS CROSS OBJECTION RAISED A GROUND THAT THE CIT(A) MUST HAVE DECIDED THE ISSUE ON ITA NO. 359/COCH/2014 & C O NO. 44/COCH/2014 2 MERITS RELATING TO VARIOUS DISALLOWANCE MADE BY THE AO IN THE REASSESSMENT PROCEEDINGS. 3 THE FACTS OF THE CASE THE ASSESSEE IS A PUBLIC COMPANY ENGAGED IN THE MANUFACTURE AND SALES OF TYRES AND TUBES AND DEALING IN FLAPS. THE ASSESSEE FILED ITS RETURN OF INCOME FO R THE AY UNDER CONSIDERATION ON 27.11.2006 DECLARING INCOME OF RS. 45,56,76,918/ - . THE AO COMPLETED THE ASSESSMENT U/S 143(3) R.W.S.147 OF THE I T ACT ON 22.12.2011 AT A TOTAL INCOME OF RS. 60,66,53,240/ - 3.1 ON APPEAL, THE CIT(A) OBSERVED THAT THOUGH THE OTHER INCOME MENTIONED BY THE AO AS ONE OF THE REASON FOR REOPENING THE CASE; BUT THE AO HAS GIVEN A FINDING IN HIS ORDER THAT THERE WAS NO ESCAPEMENT OF INCOME ON THIS POINT. REGARDING THE ISSUE OF TECHNICAL KNOW - HOW FEE/CONSULTANCY CHARGES , THE CIT( A) FURTHER OBSERVED THAT THE AO CONSIDERED THESE PAYMENTS IN DETAIL ALONG WITH THE COPY OF THE AGREEMENT FILE. THE LD CIT(A) FURTHER OBSERVED THAT FOR RESTRICTION OF RATE OF DEPRECIATION ON COMPUTER ACCESSORIES FROM 60% TO 15%, WHEN THE ISSUE WAS ALREADY CONSIDERED DURING THE ASSESSMENT THERE CAN BE NO JUSTIFICATION FOR REOPENING THE CASE ON THIS ISSUE. ACCORDING TO THE CIT(A), FOR MAKING REASSESSMENT U/S 147, THE AO MUST HAVE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. A CCORDING TO HIM, T HE EXPRESSION USED IN THIS SECTION IS REASON TO BELIEVE WHICH ARE QUITE DIFFERENT ITA NO. 359/COCH/2014 & C O NO. 44/COCH/2014 3 FROM CHANGE IN OPINION ON AN ISSUE . THE CIT(A) FURTHER OBSERVED THAT WHEN THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS FOR THE PURPOSE OF COMPUTATION OF ASSESSMENT, THE REOPENING OF CASE AFTER 4 YEARS WAS NOT VALID. THE CIT(A) OBSERVED THAT SINCE THE FACTS WERE ALREADY BEFORE THE AO AND WERE ALSO CONSIDERED BY HIM IN DETAIL ; THEREFORE, BY RELYING ON VARIOUS DECISIONS OF VARIOUS HIGH COURTS AND SUPREME COURT, THE CIT(A) HELD THAT THE REOPENING MADE BY THE AO ON CHANGE OF OPINION WAS NOT VALID. ACCORDINGLY, THE CIT(A) CANCELLED THE REASSESSMENT ORDER. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD DR RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KALYANJI MAVJI & CO VS CIT REPORT ED IN 102 ITR 287 WHEREIN IT HAS BEEN HELD AS UNDER: THE WORD 'INFORMATION' IN SECTION 34(1)(B) IS OF THE WIDEST AMPLITUDE AND COMPREHENDS A VARIETY OF FACTORS. NEVERTHELESS, THE POWER UNDER SECTION 34(1)(B), HOWEVER WIDE IT MAY BE, IS NOT PLENARY BECAUSE THE DISCRETION OF THE INCOME - TAX OFFICER IS CONTROLLED BY THE WORDS 'REASON TO BELIEVE'. INFORMATION MAY COME FROM EXTERNAL SOURCES OR EVEN FROM THE MATERIALS ALREADY ON RECORD OR MAY BE DERIVED FROM THE DISCOVERY OF NEW AND IMPORTANT MATTER OR FRESH FACTS. SECTION 43(1)(B) WOULD APPLY TO THE FOLLOWING CATEGORIES O F CASES: (1) WHERE THE INFORMATION IS AS TO THE TRUE AND CORRECT STATE OF THE LAW DERIVED FROM RELEVANT JUDICIAL DECISIONS; ITA NO. 359/COCH/2014 & C O NO. 44/COCH/2014 4 (2) WHERE IN THE ORIGINAL ASSESSMENT THE INCOME LIABLE TO TAX HAS ESCAPED ASSESSMENT DUE TO OVERSIGHT, INADVERTENCE OR A MISTAKE COMMITTED BY THE ITO; (3) WHERE THE INFORMATION IS DERIVED FROM AN EXTERNAL SOURCE OF ANY KIND; SUCH EXTERNAL SOURCE WOULD INCLUDE DISCOVERY OF NEW AND IMPORTANT MATERS OR KNOWLEDGE OF FRESH FACTS WHICH WERE NOT PRESENT AT THE TIME OF ORIGINAL ASSESSMENT; AND (4) WHERE THE INFORMATION MAY BE OBTAINED EVEN FROM THE RECORD OF THE ORIGINAL ASSESSMENT FROM AN INVESTIGATION OF THE MATERIALS ON THE RECORD OR THE FACTS DISCLOSED THEREBY OR FROM OTHER ENQUIRY OR SEARCH INTO FACTS OR LAW. WHERE, HOWEVER, THE ITO GETS NO SUBSEQUENT I NFORMATION, BUT MERELY PROCEEDS TO REOPEN THE ORIGINAL ASSESSMENT WITHOUT ANY FRESH FACTS OR MATERIALS OR WITHOUT ANY ENQUIRY INTO THE MATERIALS WHICH FOR PART OF THE ORIGINAL ASSESSMENT, SECTION 34(1)(B) WOULD HAVE NO APPLICATION. 4.1 IN THE PRESENT CASE, ADMITTEDLY, THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) OF THE I T ACT AND THE REASSESSMENT NOTICE WAS ISSUED AFTER A LAPSE OF 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEARS AND THERE IS NO ALLEGATION BY THE DEPARTMENT THAT THERE IS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT FOR THIS ASSESSMENT YEAR ; B EING SO, IN VIEW OF THE FIRS T PROVISO TO SECTION 147, THE AO T O PRECLUDE FROM REOPENING THE COMPLETED ASS ESSMENT. ACCORDINGLY, THE CIT(A) RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE COMMISSIONER OF INCOME - TAX V. KELVINATOR OF INDIA LTD REPORTED IN 320 ITR 561 WHEREIN IT HAS BEEN HELD THAT; THE CONCEPT OF 'CHANGE OF OPINION' ON THE PA RT OF THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATED AFTER THE SUBSTITUTION OF SECTION 147 OF THE INCOME - TAX ACT, 1961, BY THE DIRECT TAX LAWS ITA NO. 359/COCH/2014 & C O NO. 44/COCH/2014 5 (AMENDMENT) ACTS, 1987 AND 1989. AFTER THE AMENDMENT, THE ASSESSING OFFICER HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, BUT THIS DOES NOT IMPLY THAT THE ASSESSING OFFICER CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF 'CHANGE OF OPINION' MUST BE TREATED AS AN IN - BUILT TEST TO CHECK THE ABUSE OF POWER . HENCE AFTER APRIL 1, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN AN ASSESSMENT, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST HAVE A LINK WITH THE FORMATION OF THE BEL IEF. 4.2 IN THE PRESENT CASE THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) FOR THE AY 2006 - 07 ON 19.12.2008. SUBSEQUENTLY, THE CASE WAS REOPENED BY ISSUING NOTICE U/S 148 ON 22.3.2011. THE REASONS FOR REOPENING THE ASSESSMENT ARE AS UNDER: I) OTHER INCOME NOT OFFERED TO TAX II) EXCESS DEPRECATION CLAIMED ON COMPUTER ACCESSORIES III) COST OF TECHNICAL KNOW HOW OMITTED TO BE DISALLOWED AS CAPITAL EXPENDITURE IV) ROYALTY TERMINATION FEE OMITTED TO BE DISALLOWED AS CAPITAL EXPENDITURE. 4.3 TO CONFER J URISDICTION UNDER SECTION 147(A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED FIRSTLY THE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME, PROFITS OR GAINS CHARGEABLE TO INCOME - TAX HAVE ESCAPED ASSESSMENT, AND, SECONDLY, HE MUST ALSO HAVE REASO N TO BELIEVE THAT SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THESE CONDITIONS WERE CONDITIONS PRECEDENT T O BE SATISFIED BEFORE THE ASSESSING OFFICER COULD HAVE JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 READ ITA NO. 359/COCH/2014 & C O NO. 44/COCH/2014 6 WITH SECTION 147(A). HOWEVER, W.E.F 1.4.1989, THE SCOPE AND EFFECT OF SECTION HAS SUBSTITUTED ONLY THE FIRST CONDITION SUFFICIENT TO REOPEN THE ASSESSMENT . IN OTHER WORDS, IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. IT IS, HOWEVER, TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFILLED IF TH E CASE FALLS WITHIN THE AMBIT OF THE PROVISO TO SECTION 147. THE CASE BEFORE US FALLS UNDER THE SECOND CRITERIA . 4.4 A CLOSE READING OF THE ABOVE REASONS RECORDED BY THE AO TO MAKE IT CLEAR THAT IT SATISFIES ONLY THE FIRST REQUIREMENT OF SECTION 147 OF THE ACT . THE SECOND REQUIREMENT HAS NOT BEEN SATISFIED . THERE IS NO MENTION IN THE ABOVE RECORDED REASONS THAT THE ESCAPEMENT OF CHARGEABLE INCOME FOR TAX WAS DUE TO OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR THE ASSESSMENT. UNDISPUTEDLY, THE NOTICES HAVE BEEN ISSUED TO THE ASSESSEE BEYOND THE PERIOD OF LIMITATION OF FOUR YEARS AND THAT IS THE REASON THE CASE OF THE ASSESSEE FALLS UNDER SCOPE OF PROVISO TO SECTION 147 OF THE ACT , AS BOTH THE CONDITIONS ARE MANDATORY. 4.5 IN VIEW OF THE FAILURE TO FULFILL THE SECOND LEGAL REQUIREMENT , WE HAVE TO HOLD THAT THE REASSESSMENT OF THE ASSESSMENT UNDER SECTION 148 READ WITH SECTION 147 OF THE ACT ARE WHOLLY WITHOUT JURISDICTION AND, THEREFORE , T HEY ARE ITA NO. 359/COCH/2014 & C O NO. 44/COCH/2014 7 LIABLE TO BE QUASHED AS THE AO CANNOT REOPEN THE ORDER PASSED ON MERE CHANGE OF OPINION . ACCORDINGLY, IN VIEW OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF KELVINATOR INDIA LTD (SUPRA), WE ARE INCLINED TO ANNUL THE REOPENING OF THE ASSESSM ENT AND DISMISS THE APPEAL FILED BY THE REVENUE. 5 SINCE WE DISMISS THE APPEAL FILED BY THE REVENUE, THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS AND THE SAME IS DISMISSED AS BECOME INFRUCTUOUS. 6 IN THE RESULT, THE APPEAL FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTION BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF OCT 2014 . SD/ - SD./ - ( N.R.S. GANESAN ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN: DATED 17 TH OCT 201 4 RAJ* ITA NO. 359/COCH/2014 & C O NO. 44/COCH/2014 8 C OPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT , 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN