ACIT, CHENNAI V. M/s. Simpson & Company Ltd., CHENNAI

ITA 11/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61326 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-07-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 05-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAMADITYA JT
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Revised return; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 147; 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER] I.T.A.NO.11/MDS/2011 ASSESSMENT YEAR : 2002-03 THE ACIT LARGE TAXPAYER UNIT CHENNAI VS M/S SIMPSON & COMPANY LTD 861/862, ANNA SALAI CHENNAI 600 002 [PAN AAACS4909F] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIKRAMADITYA, JT. CIT RESPONDENT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVOCATE DATE OF HEARING : 16-07-2012 DATE OF PRONOUNCEMENT : 17-07-2012 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A), LARGE TAXPAYER UNIT, CHENNAI, DATED 30.09.2 010, BY RAISING THE FOLLOWING GROUNDS: 1 . T HE O RDER OF TH E L EA R N E D C I T ( A) I S CO NTRAR Y T O L A W AND F A C T S O F THE CASE . 2 . 1 . THE LEARNED CIT(A) ERRED IN ALLOWING THE CLAIM OF T HE ASSESSEE AND . HOLDING THAT THE REASSESSMENT PROCE EDINGS WERE NOT VALID. 2.2. THE LEARNED CIT(A) OU G HT T O H AVE SEEN THAT AS PE R EX P L ANATION 1 TO SECTION 14 7 , PRO DUCT I O N B E F ORE TH E A S S E S S ING OFFI CER O F A CCO U N T BO O KS OR OTHER EVIDENCE ' FROM W HI C H MATE R IA L EVI DE N C E C OU LD WI T H D U E D ILI G E N CE H A V E BEEN D I SCOVERED B Y TH E ASSES SIN G O FF I CER WILL NO T NEC E S S A RI L Y A MOUN T T O DISCL OSURE. I.T.A.NO. 11/11 :- 2 -: 2 . 3 HAVI NG R EGARD TO T HE H ON ' BL E DELH I H I GH CO U R T J UD G M EN T IN TH E C ASE OF CONSOLIDAT ED PH O T O A ND FIN VES T L T D.V S A C IT ( 2 8 1 ITR 39 4 ) , THE D ECISIONS THE HON'B L E SUPREME COURT IN TH E CAS E S OF THE CIT ( A ) OUGHT TO HA V E DISMISSED THE APPEAL. 3 . F O R T HE SE A N D O TH E R G R O U NDS THAT MA Y BE A D DU C ED AT TH E T I ME OF HEARING , IT IS PR AYED THAT TH E O R DE R OF TH E LEA R NED C IT ( A ) M A Y B E SET ASI DE AND THAT OF THE ASSESSING OFFICER RESTORED. 2. IN ALL THE ABOVE GROUNDS OF APPEAL, THE REVENUE HAS CHALLENGED THE ORDER OF THE CIT(A) HOLDING THE RE-A SSESSMENT PROCEEDINGS AS INVALID. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF DIESEL ENGINES. FOR ASSESSMENT YEAR 2002-03, THE ASSESSEE FILED RETURN OF INCOME ON 30 .10.2002 AT AN INCOME OF ` 35,29,22,361/- WHICH WAS REVISED ON 20.3.2003 AT A N INCOME OF ` 35,18,34,020/-. THE ASSESSMENT U/S 143(3) WAS COMPLETED ON 31.1.2005. SUBSEQUENTLY, NOTICE U/S 148 WAS ISSUED ON 20.3.2009 AND IN THE RE-ASSESSMENT COMPLETED U/S 1 43(3) R.W.S 147 DATED 11.12.2009, THE ASSESSMENT WAS MADE AT AN INC OME OF ` 35,94,45,355/-. IN THE RE-ASSESSMENT, THE ASSESSIN G OFFICER DISALLOWED THE EXPENDITURE TOWARDS TECHNICAL ASSIST ANCE FEE AS CAPITAL IN NATURE. 4. AGGRIEVED BY THE SAID ORDER OF THE ASSESSING OFFICE R, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A) AND CHALLEN GED THE RE-OPENING OF ASSESSMENT U/S 147 OF THE ACT. I.T.A.NO. 11/11 :- 3 -: 5. THE CIT(A) HAS NOTED THE REASONS FOR RE-OPENING OF ASSESSMENT AS UNDER: ' IT IS NOTICED FROM THE EXPENDITURE INCURRED FOR RES EARCH AND DEVELOPMENT THAT THE ASSESSEE COMPANY HAS PAID AN AMOUNT OF RS.66,95,385/- FOR THE PURPOSE OF TECHNICAL ASSISTANCE FEES FOR THE DEVELOPMENT OF SJ SERIES ENGINES AND THE ABOVE EXPENDITURE HAS BEEN CLAIMED AS A REVENUE EXPENDITURE AS THE ABOVE EXPENDITURE FALLS UNDER THE AMBIT OF TECHNICAL KNOW-HOW PAID TO AVL LIST GMBH. BUT IT IS NOTICED FROM THE AGREEMENT ENTERED BY THE ASSESSEE WITH AVL LIST GMBH DURING THE REASSESSMENT PROCEEDINGS FOR THE AY 2001-02 THAT THE COOLED AND NATURALLY ASPIRATED 3 CYLINDER DIESEL TRACTOR ENGINE 91. 4MM DIA X 127 MM STROKE (2.50 L). FURTHER THE AVL WAS REQUESTED TO PERFORM CORRESPONDING DESIGN CALCULATI ON AND DEVELOPMENT WORK AIMED AT 4 ENGINE VERSIONS AS PER CUSTOMER REQUEST. IT IS ALSO ESSENTIAL TO NOTE THAT, AS PER ARTICLE 5 OF THE AGREEMENT, IT IS CLEAR THAT THE ABOVE TECHNICAL KNOW-HOW GIVEN BY THE AVL SHOULD NOT BE SHARED WITH THE OTHER THIRD PART EXCEPT TO AVL'S SUB- SUPPLIERS. FROM THE ABOVE FACTS. IT IS CLEAR THAT THE ABOVE TE CHNICAL ASSISTANCE FEES HAS BEEN PAID FOR THE PURPOSE OF DEVELOPMENT OF PROTO TYPE DIESEL ENGINE AS PER THE REQUEST OF THE ASSESSEE COMPANY. SUBSEQUENT IN THE DEVELOPMENT OF PROTO TYPE ENGINE, DRAWINGS, DESIGNS HAVE BEEN SUPPLIED TO THE ASSESSEE COMPANY FOR THE MASS SCALE PRODUCTION OF DIESEL ENGINES IN INDIA WITH THE SUPERVISION AND CO NSULTANCY OF AVL LIST GMPH. HENCE, IT IS A CAPITAL EXPENDITU RE. THEREFORE, IT IS CLEAR THAT THE ASSESSEE HAS NOT PR ODUCED THE MATERIAL FACTS FULLY AND TRULY BEFORE THE TAX A UTHORITIES. HENCE, I HAVE THE REASON TO BELIEVE THAT THE INCOME HAS ESCAPED THE ASSESSMENT BY WAY OF EXCESS CLAIM OF DEDUCTION. 6. THE CIT(A) HAS FURTHER RECORDED THE SUBMISSIONS OF THE ASSESSEE BEFORE HIM, AS UNDER: I.T.A.NO. 11/11 :- 4 -: 'FOR THE ABOVE ASSESSMENT YEAR THE APPELLANT HAS CL AIMED A SUM OF RS.2,06,54,543/-AS PRODUCT DEVELOPMENT EXPENSES WHICH INCLUDED A SUM OF RS. 69,95,385/ - AS TECHNICAL ASSISTANCE FEE WITH M/S.AVL LIST GMBH AUSTRIA FOR MANUFACTURE OF SJ SERIES ENGI NE. DURING THE COURSE OF SCRUTINY ASSESSMENT A NOTICE U/S 143(2) WAS ISSUED ON 09-09-2003 REQUESTING TO FURNISH THE DETAILS WITH RESPECT TO PRODUCT DEVELOPMENT EXPENSES AND A DETAILED NOTE WITH REGARD TO THE CLAIM OF THIS EXPENDITURE AS REVENUE. THE APPELLANT VIDE LETTER DATED 28-09-2004 & 09-12-2004 FURNISHED THE DETAILS AS REQUIRED BY THE ASSESSING OFFICER AND THE ASSESSING OFFICER AFTER C ONSIDERING THE REPLY COMPLETED THE ASSESSMENT U/S. 143(3) DATED 31.01.2005 WITHOUT MAKING ANY DISALLOWANCE. 7. NOW THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT BY ISSUE OF NOTICE U/ S.148 ON 12-06-2009 TO DISALLOW THE TECHNICAL ASSISTANCE FEE PAID TO AVL LIST GMBH AS CAPITAL IN NATURE. ALL THE FACTS WERE AVAILABLE WITH THE ASSESSING OFFICER AT THE TIME OF COMPLETING THE SCRUTINY ASSESSMENT. THEREFORE REOPE NING OF ASSESSMENT ON THE SAME SET OF FACTS WHICH WERE AVAILABLE ON RECORD AT THE TIME OF ORIGINAL ASSESSMENT IS ONLY A MERE CHANGE OF OPINION AND ALSO BARRED BY LIMITATION. UNDER PROVISO TO SEC.147 AN ASSESSMENT COMPLETED U/S.143 (3) CANNOT BE REOPENED BEYOND 4 YEARS' UNLESS THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE MATERIAL FACTS. IN THE PRES ENT CASE ALL THE MATERIALS WERE DISCLOSED AT THE TIME OF ORIGINAL ASSESSMENT HENCE REOPENING OF ASSESSMENT IS BAD IN LAW.' 8. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE, HAS HELD AS UNDER: 4.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE CONTENTIONS THE ID AR OF THE APPELLANT. THE AO WHIL E COMPLETING THE ASSESSMENT U/S 143 HAD ASKED VIDE A DETAILED Q UESTIONNAIRE DATED-17.09.2004 REGARDING THE PRODUCT DEVELOPMENT EXPENDITURE WHICH WAS DULY FURNISHED BY THE APPELLA NT IN HIS REPLIES ON DIFFERENT DATES. THUS, THE AO HAS PASSED THE ORDER AFTER CONSIDERING ALL THE RELEVANT FACTS ON THE SU BJECT MATTER. THEREFORE, REOPENING OF ASSESSMENT ON THE SAME SET OF FACTS WHICH WERE AVAILABLE ON RECORD AT THE TIME OF ORIG INAL ASSESSMENT IS ONLY A MERE CHANGE OF OPINION. I ALSO FIND THAT SIMILAR ISSUE WAS INVOLVED FOR THE EARLIER A.Y. 200 1-2002 IN ITA NO. 39/08 DATED 8.03.2010 WHICH WAS DECIDED IN FAVOUR OF THE APPELLANT BY HOLDING UNDER: I.T.A.NO. 11/11 :- 5 -: ' 4.3 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND THE MATERIAL ON RECORD. AT THE TIME OF REGULAR ASSESSME NT, THE ASSESSEE HAS FURNISHED FULLY PARTICULARS ABOUT THE CLAIM FOR DEDUCTION OF TECHNICAL SERVICE FEE OF RS.1,82,75, 250/- PAID TO AVL LIST GMBH, AUSTRIA. THE AO HAD SOUGHT CLARIFICATION ON THIS ISSUE VIDE HIS LETTER DATED 09.02.2004 WHICH WAS DULY EXPLAINED BY THE APPELLANT BY GIVING THE BREAK UP OF EXPENDITURE INC LUDING TECHNICAL ASSISTANCE FEE PAID TO AVL LIST GMBH, AUSTRIA. THE AO HAS SOUGHT CLARIFICATION AND AFTER CONSIDERING DETAILS AND EXP LANATION ALLOWED THE CLAIM OF THE ASSESSEE. THIS BEING SO, IT CANNOT BE SAID THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO FURNISH FULL AND COMPLETE PARTICULARS ON THE BASIS OF WHICH THE ASSESSMENT ORDER PASSED. THERE IS ALSO NO MENTION IN THE REOPENED A SSESSMENT AS TO WHAT WAS NOT FURNISHED BY THE ASSESSEE WHICH HAS R ESULTED IN REOPENING. IN THE CIRCUMSTANCES THE REOPENING OF THE ASSESSMENT TO TREAT TECHNICAL FEE ORIGINALLY ALLOWED AS REVENU E EXPENDITURE AS CAPITAL EXPENDITURE IS MERELY A CHANGE OF OPINION OF THE A. 0., HELD MADRAS HIGH COURT IN THE CASE OF CIT V. CHOLAMANDALAM INVESTMENT AND FINANCE CO. LTD 305 ITR 310, THE AO CANNOT REOPEN THE ASSESSMENT BEYOND FOUR YEARS FROM THE EN D OF THE ASSESSMENT YEAR IF THE ASSESSEE HAD FILED ALL THE PARTICULARS NECESSARY FOR MAKING ASSESSMENT. THE OTHER DECISION CITED BY THE ASSESSEE ALSO SUPPORTS THIS VIEW. THE HON'BLE SUPRE ME COURT IN A DECISION IN THE CASE OF CIT, DELHI V. M/S. KELVINATOR OF INDIA LIMITED (2010-TIOL-06-SC-IT-LB) HAS HELD THAT THE AO CAN REOPEN THE ASSESSMENT ONLY IF THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME A ND NOT ON CHANGE OF OPINION. ALSO THE AO HAS NO POWER TO REVIEW AND HA S THE POWER TO ONLY RE-ASSESS. IN VIEW OF THE ABOVE AUTHO RITATIVE PRECEDENTS, I AM OF THE CONSIDERED OPINION THAT THE REASSESSMENT PROCEEDINGS WERE NOT VALID. ACCORDINGLY, THE GROUND OF APPEAL IS ALLOWED. THE APPELLANT SUCCEEDS ON THIS GROUND. 4.3 I FIND NO REASONS TO DEVIATE FROM THE FINDING GIVEN BY ME IN THE EARLIER YEAR IN THE APPELLANTS OWN CASE, WHICH HAS SINCE BEEN CONFIRMED BY THE HON'BLE ITAT IN I.T.A.NO.857/2010 DATED 19.8.2010. ACCORDINGLY, THIS GROUND OF APPEAL IS A LLOWED. 9. THE DR VEHEMENTLY ARGUED AND SUPPORTED THE ACTION O F THE ASSESSING OFFICER IN RE-OPENING THE ASSESSMENT. I.T.A.NO. 11/11 :- 6 -: 10. ON THE OTHER HAND, THE A.R OF THE ASSESSEE SUBMITT ED THAT ON SIMILAR GROUND, RE-OPENING OF ASSESSMENT WAS MA DE IN ASSESSMENT YEAR 2001-02. THE CIT(A), IN ASSESSMENT YEAR 2001- 02, HAS HELD THE REOPENING OF THE ASSESSMENT AS INVALID. THE REVENU E APPEALED AGAINST THE SAID ORDER OF THE CIT(A) BEFORE THE TRI BUNAL AND THE TRIBUNAL, VIDE ORDER DATED 19.8.2010 IN I.T.A.NO. 8 57/MDS/2010 CONFIRMED THE ORDER OF THE CIT(A). IT WAS THE SUBM ISSION OF THE A.R OF THE ASSESSEE THAT PAYMENT OF TECHNICAL FEE WAS M ADE TO THE VERY SAME PARTY FOR THE VERY SAME SERVICES RENDERED TO T HE ASSESSEE AS WAS IN ASSESSMENT YEAR 2001-02. HE SUBMITTED THAT THERE IS NO CHANGE OF FACT IN THE YEAR UNDER APPEAL. THEREFORE , FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2001-02, T HE APPEAL OF THE REVENUE DESERVES TO BE DISMISSED. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE PRESENT APPEAL ARE THAT THE ASSESSING OFFICER MADE THE ASSESSMENT U/S 143(3) ON 31.1.2005 AND TH EREAFTER ISSUED NOTICE U/S 148 ON 20.3.2009 ON THE GROUND THAT THE ASSESSEE HAS INCURRED EXPENDITURE FOR RESEARCH & DEVELOPMENT OF ` 66,95,385/- FOR THE PURPOSE OF TECHNICAL ASSISTANCE FEES FOR THE DE VELOPMENT OF SJ SERIES ENGINES AND THAT THE EXPENDITURE HAS BEEN CL AIMED AS REVENUE EXPENDITURE AS IT FALLS UNDER THE AMBIT OF TECHNICA L KNOW-HOW PAID OF I.T.A.NO. 11/11 :- 7 -: AVL LIST GMBH. THE ASSESSING OFFICER OBSERVED THAT IT IS NOTICED FROM THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH A VL LIST GMBH DURING THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMEN T YEAR 2001-02 THAT THE PROJECT WAS AIMED AT IMPROVEMENT AND MODER NIZATION OF EXISTING AND WATER COOLED AND NATURALLY ASPIRATED 3 CYLINDER DIESEL TRACTOR ENGINE. FURTHER, AVL WAS REQUESTED TO PERF ORM CORRESPONDING DESIGN CALCULATION AND DEVELOPMENT WORK AIMED AT 4 ENGINE VERSIONS AS PER CUSTOMER REQUEST. HE ALSO NOTED THAT ARTICL E 5 OF THE AGREEMENT MAKES IT CLEAR THAT THE ABOVE TECHNICAL K NOW-HOW GIVEN BY AVL SHOULD NOT BE SHARED WITH THE OTHER THIRD PARTY EXCEPT WITH AVLS SUB-SUPPLIERS. FROM THIS, HE INFERRED THAT THE TEC HNICAL ASSISTANCE FEE PAID FOR DEVELOPMENT OF PROTOTYPE DIESEL ENGINE AS PER THE REQUEST OF THE ASSESSEE-COMPANY AND SUBSEQUENT TO THE DEVELOPM ENT OF PROTOTYPE ENGINE, DRAWINGS, DESIGNS HAVE BEEN SUPP LIED TO THE ASSESSEE-COMPANY FOR MASS SCALE PRODUCTION OF DIESE L ENGINES IN INDIA WITH THE SUPERVISION AND CONSULTANCY OF AVL LIST GM PH. THEREFORE, THE EXPENDITURE INCURRED WAS CAPITAL EXPENDITURE. SINCE THE ASSESSEE HAD NOT PRODUCED THE MATERIALS FULLY AND TRULY TO T HE TAX AUTHORITIES, THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT TH ERE WAS ESCAPEMENT OF INCOME BY WAY OF EXCESS CLAIM OF DEDUCTION. I.T.A.NO. 11/11 :- 8 -: 12. ON APPEAL, THE CIT(A) HAS HELD THE RE-ASSESSMENT PROCEEDINGS TO BE INVALID BY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02. 13. WE FIND FROM THE REASONS RECORDED BY THE ASSESSING OFFICER AS QUOTED BY THE CIT(A) IN HIS ORDER THAT SIMILAR I SSUE WAS CONSIDERED BY THE ASSESSING OFFICER IN RE-ASSESSMENT PROCEEDIN GS FOR ASSESSMENT YEAR 2001-02. IN ASSESSMENT YEAR 2001-02, THE CIT( A) HELD THE RE- ASSESSMENT PROCEEDINGS TO BE INVALID WHICH WAS CONF IRMED IN APPEAL BY THE TRIBUNAL. WE ALSO OBSERVE THAT THE TRIBUNAL IN ASSESSMENT YEAR 2001-02, HAS HELD AS UNDER: 3. SHORT FACTS APROPOS ARE THAT THE ASSESSEE HAD F ILED ORIGINAL RETURN FOR THE IMPUGNED ASSESSMENT YEAR DE CLARING INCOME OF RS. 35,64,40,434/- WHICH WAS LATER REVISE D THROUGH A REVISED RETURN TO RS. 35,64,17,704/-. ASS ESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 25.3.2004. THEREAFTER, NOTICE WAS ISSUED ON 28.3.2008 U/S 148 OF THE ACT FOR REOPENING THE ASSESSMENT AND THE REASON GIV EN WAS AS UNDER: 'IT IS FOUND THAT THE ASSESSEE HAS MADE A CLAIM OF RS.2,62,30,965/- AS EXPENDITURE ON 'PRODUCT DEVELOP MENT EXPENSES'. OUT OF THESE EXPENSES A SUM OF RS.1,82, 75,250/- HAS BEEN PAID BY THIS ASSESSEE TO M/S.AVL TOWARDS ' TECHNICAL ASSISTANCE FEE' FOR THE DEVELOPMENT OF NEW SJ SERIE S ENGINE IN RESEARCH DEVELOPMENT DEPARTMENT. AS PER THE AGREEME NT WITH AVL VIDE ARTICLE 4 OF THIS AGREEMENT IT IS FOUND TH AT THE ASSESSEE SHALL IN DUE COURSE SHALL HAVE WORLDWIDE RIGHT TO U SE THE END RESULTS OF THE PROJECTS ENTERED WITH M/S. AVL UTILI ZING WHICH IT SHALL PRODUCE AND SELL THE NEW ENGINES. THUS IT IS FOUND THAT THE ASSESSEE HAS MADE THE ABOVE EXPENDITURE WHICH IS CA PITAL IN NATURE AND THEREFORE CANNOT BE ALLOWED AS REVENUE E XPENDITURE. THUS, THE ASSESSEE HAS NOT DISCLOSED THE FACTS FULL Y AND TRULY BEFORE THE ASSESSING OFFICER. HENCE, THE INCOME HAS ESCAPED THE ASSESSMENT TO THE EXTENT OF RS.1,82,75,250/- FOR TH E-ASSESSMENT YEAR 2001-02' I.T.A.NO. 11/11 :- 9 -: 4. THOUGH ASSESSEE OBJECTED TO THE REOPENING, ASS ESSING OFFICER PROCEEDED WITH THE REASSESSMENT AND COMPLET ED SUCH REASSESSMENT ON 11.12.2008. ASSESSEE ASSAILED REOPENING BEFORE LD. CIT(A) IN ITS APPEAL. SUBMISSI ON OF THE ASSESSEE WAS THAT REOPENING WAS BEYOND FOUR YEARS A FTER THE END OF THE RELEVANT ASSESSMENT YEAR AND INVALID SINCE, IT HAD FURNISHED ALL PARTICULARS BEFORE THE ASSESSI NG OFFICER DURING ORIGINAL ASSESSMENT PROCEEDINGS. IT WAS POIN TED OUT BY THE ASSESSEE THAT NOTES ON ACCOUNT TO ITS BALANC E SHEET AS ON 31.3.2001 SPECIFICALLY MENTIONED R & D EXPEND ITURE OF RS. 4,02,65,172/- AS REVENUE IN NATURE AND RS. 8,33,520/- AS CAPITAL IN NATURE. FURTHER, ACCORDING TO THE ASSESSEE, ASSESSING OFFICER HAD, DURING ORIGINAL ASSESSMENT PROCEEDINGS, VIDE HIS LETTER DATED 9.2.2 004 REQUIRED VARIOUS CLARIFICATION FROM ASSESSEE IN REL ATION TO THE ASSESSMENT, WHICH, INTER ALIA, INCLUDED DETAILS IN RESPECT OF PRODUCT DEVELOPMENT EXPENSES BEING PART OF ITS R & D CLAIM. SPECIFIC REASON WAS ALSO SOUGHT BY THE ASSES SING OFFICER, WHY SUCH CLAIM SHOULD BE ALLOWED AS REVENU E EXPENDITURE. ACCORDING TO THE ASSESSEE, DETAILED RE PLY WAS GIVEN BY IT TO ASSESSING OFFICER ON 17.2.2004 AND B REAK UP ALSO GIVEN FOR TOTAL EXPENDITURE OF RS. 4,02,65,172 /-. THIS BREAK UP INCLUDED TECHNICAL ASSISTANCE FEES FOR DEVELOPMENT OF NEW S.J. SERIES ENGINE AS PER AGREEM ENT WITH ONE M/S AVL GMBH, AUSTRIA. THEREFORE, AS PER T HE ASSESSEE, CLARIFICATIONS WERE GIVEN AND THE ASSESSI NG OFFICER HAVING SATISFIED HIMSELF ON THE REPLY GIVEN BY ASSESSEE COMPLETED THE ASSESSMENT. HENCE, IT WAS AR GUED THAT REOPENING WAS PURELY ON A CHANGE OF OPINION. A S PER THE ASSESSEE, THERE WAS NO NEW INFORMATION AVAILABL E WITH ASSESSING OFFICER NOR WAS ANY INFORMATION OMITTED B Y THE ASSESSEE TO BE GIVEN TO THE ASSESSING OFFICER. AGAI N, AS PER ASSESSEE, ITS R & D DEPARTMENT WAS DEVELOPING BASIC ENGINEERING DETAILS FOR A NEW ENGINE WHICH WAS FORW ARDED TO AUSTRIA FOR COMMENTS OF AVL AND BASED ON SUCH COMMENTS, IMPROVEMENTS SUGGESTED WERE CARRIED OUT. THEREAFTER, R & D DEPARTMENT DEVELOPED PROTOTYPE EN GINE AND CARRIED OUT TESTING AGAIN THROUGH AVL, AUSTRIA. CRUX OF ITS SUBMISSION WAS THAT ALL SUCH DETAILS WERE SUBMI TTED TO THE ASSESSING OFFICER AND THEREFORE, REOPENING WAS MERELY ON A CHANGE OF OPINION. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF C IT VS. KELVINATOR OF INDIA LTD 320 ITR 561 AND CIT VS. CHOLAMANDALAM INVESTMENTS AND FINANCE COMPANY LTD O F I.T.A.NO. 11/11 :- 10 -: HON'BLE JURISDICTIONAL HIGH COURT 309 ITR 310. LD. CIT(A), APPRECIATING THE CONTENTIONS OF THE ASSESSEE HELD T HAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO FURNI SH FULL AND COMPLETE PARTICULARS DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND HENCE REOPENING DONE WAS INVALID. 5. NOW BEFORE US, THE LD. D.R. STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 6. PER CONTRA, THE LD. A.R. SUBMITTED THAT THE LD. CI T(A) HAD RIGHTLY RELIED ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF KELVINATOR OF INDIA LTD [SUP RA] AND HELD THE REASSESSMENT PROCEEDINGS TO BE INVALID. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE ORDERS. DURING THE COURSE OF ORIGINAL ASSESSME NT PROCEEDINGS, ASSESSING OFFICER HAD WRITTEN A LETTER ON 9.2.2004 TO THE ASSESSEE REQUIRING VARIOUS DETAILS. ITEM 3 OF THE SAID LETTER RAN AS UNDER: DETAILS WITH RESPECT TO PRODUCT DEVELOPMENT EXPENS ES AND A DETAILED NOTE WITH REGARD TO THE CLAIM OF T HIS EXPENDITURE AS REVENUE. ASSESSEE, IN REPLY TO THIS LETTER, VIDE LETT ER DATED 17.8.2004 GAVE SUCH DETAILS AND SUCH DETAILS FURNI SHED BY ASSESSEE READ AS UNDER: AS PER SECTION 35 (1) OF THE INCOME TAX ACT, ANY E XPENDITURE LAID OUT OR EXPANDED ALL SCIENTIFIC RESEARCH RELATE D TO BUSINESS IS ALLOWED IN FULL IN THE PREVIOUS YEAR IN WHICH IT WAS INCURRED. FOR DETAILS OF EXPENDITURE, PLEASE REFER ANNEXURE 3. I.T.A.NO. 11/11 :- 11 -: SIMPSON & CO. LTD MANUFACTURES DIESEL ENGINES WHICH ARE OFFERED AS ORIGINAL EQUIPMENT FOR VEHICLES, TRACTOR S, INDUSTRIAL EQUIPMENTS AND GENSETS. THESE PRODUCTS HAVE TO MEET EMISSION REGULATIONS WH ICH ARE BEING ENACTED BY GOVT. OF INDIA TO MEET THIS REQUIREMENT AND ALSO IN BRINGING OUT N EW PRODUCTS WITH LOWER FUEL CONSUMPTION, OIL CONSUMPTION AND IM PROVED LIFE, THE R&D DEPT. IS ENGAGED IN DEVELOPING NEWER MODELS OF ENGINES AND UPGRADING THE EXISTING PRODUCTS. FOR ACHIEVING THIS, WE CARRYOUT MODIFICATIONS ON TH E EXISTING PRODUCTS AND TEST THEM AT OUR END. WE SEND ENGINES AFTER ESTABLISHING SATISFACTORY PERFORMANCE AT OUR END TO ARAI, (AUTOMOBILE RESEARCH ASSOCIATION OF INDIA) TO MEASU RE THE EMISSION CONSTITUENTS. WE CARRY OUT AT ARAI DEVELOP MENT TEST TO ASSESS THE PRESENT STATUS OF THE PRODUCT, TYPE A PPROVAL TEST TO MEET LEGISLATIVE REQUIREMENTS AND CONFORMITY OF PRODUCTION TEST ARAI IS AN APPROVED CERTIFYING LAB. TO MEET THE COMPETITION AND MARKED REQUIREMENTS, WE DEVELOP NEWER PRODUCTS. FOR THIS ACTIVITY, WE AVAIL EXTERNA L ASSISTANCE DURING DESIGN AND TESTING. BASED ON THE ABOVE ACTIVITIES, WE NOW HAVE PRODUCTS MEETING BHARAT STAGE II(EURO IT) EMISSION NORMS FOR VEHICUL AR ENGINES. IN THE SAME WAY, OUR' TRACTOR ENGINES MEET THE CURR ENT INDIAN REGULATION TERM II. FOR EXPORT OF TRACTORS, WE HAVE EMISSIONISED PRODUCT MEETING US TIER II NORMS. IN T HE GENSET SEGMENT, WE HAVE PRODUCTS WHICH MEET CURRENT CPCB N ORMS. THE ENGINES OFFERED FOR INDUSTRIAL APPLICATION MEET S THE NORMS APPLICABLE FOR THIS SEGMENT. THESE ACTIVITIES ARE CARRIED OUT IN A SEPARATE SETU P IN OUR COMPANY. WE ARE EQUIPPED WITH NECESSARY TESTING AND DESIGN FACILITIES FOR CARRYING OUT THIS ACTIVITY. FOR DESI GN, WE HAVE PRO E SOFTWARE TO CREATE 3D MODELS OF OUR ENGINES AND COM PONENTS. 20 DRAWINGS ARE MADE FOR MANUFACTURING. IN TESTING, WE HAVE FACILITIES TO CHECK COMBUSTION PARAMETERS FOR OPTIM IZING THE PERFORMANCE TO MEET THE ABOVE SAID OBJECTIVES. ANNEXURE TO THE ABOVE REPLY, ENCLOSED BY ASSESSEE G AVE BREAK- UP OF THE PRODUCT DEVELOPMENT EXPENSES IN A VERY DE TAILED MANNER. ASSESSEE HAD ALSO GIVEN PRESENT STATUS OF I TS R & D PROGRAMME WITH REGARD TO THE DEVELOPMENT OF THE ENG INE AND ALSO BROUGHT TO THE ATTENTION OF THE ASSESSING OFFICER R ECOGNITION GIVEN BY MINISTRY OF SCIENCE AND TECHNOLOGY ON 3.6.2003 F OR ITS RESEARCH & DEVELOPMENT UNIT. IN THE BALANCE SHEET A TTACHED TO THE I.T.A.NO. 11/11 :- 12 -: RETURNED INCOME, ASSESSEE HAD CLEARLY GIVEN BREAK U P OF THE R & D EXPENSES. THUS, WITHOUT DOUBT, ASSESSEE WAS ASKED THE DETAILS OF R & D EXPENSES AND IT HAD FURNISHED COMPLETE DET AILS INCLUDING THE BREAK UP. ORIGINAL ASSESSMENT WAS COMPLETED ONL Y AFTER CONSIDERING SUCH REPLIES AND QUERIES. IF THAT BE SO , REASONS MENTIONED BY ASSESSING OFFICER FOR REOPENING, REPRO DUCED AT PARA THREE ABOVE, CAN ONLY BE CONSIDERED AS A CHANGE OF OPINION. ASSESSING OFFICER WANTS TO TREAT THE EXPENSES WHICH HE EARLIER TREATED AS REVENUE IN NATURE, AFTER CONSIDERING THE REPLIES GIVEN BY ASSESSEE TO BE CAPITAL IN NATURE WITHOUT HAVING ANY FRESH MATERIAL SUPPORTING SUCH CHANGE OF OPINION. HON'BLE APEX COURT IN THE CASE OF KELVINATOR OF INDIA LTD [SUPRA] HAD HEL D THAT EVEN AFTER SUBSTITUTION OF SECTION 147 BY TAXATION LAWS [AMEND MENT] ACT, 1987 W.E.F 1.4.1989 REASON TO BELIEVE WAS STILL R EQUIRED AND NOT A MERE CHANGE OF OPINION. FURTHER, HERE, UNDISPUTED LY, THE REOPENING PROCEEDINGS WERE INITIATED AFTER FOUR YEA RS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THEREFORE, PROV ISO TO SECTION 147 CLEARLY APPLIED. WE ARE OF THE OPINION THAT THE RE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO FURNISH ALL PARTICUL ARS FOR ITS ASSESSMENT AT THE TIME OF ORIGINAL ASSESSMENT AND T HE REASSESSMENT PROCEEDINGS WERE INITIATED WITHOUT ANY RHYME OR REASON. LD. CIT(A) HAD, THEREFORE, RIGHTLY HELD SUC H REASSESSMENT PROCEEDINGS TO BE INVALID. WE DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). 14. IN THE PRESENT APPEAL ALSO, WE FIND THAT THE ASSESS ING OFFICER, DURING THE COURSE OF ORIGINAL ASSESSMENT P ROCEEDINGS, HAS WRITTEN A LETTER ON 17.9.2004 TO THE ASSESSEE REQ UIRING VARIOUS DETAILS AND ITEM 3 OF THE SAID LETTER READS AS FOLLOWS: 3. DETAILS WITH RESPECT TO PRODUCT DEVELOPMENT EXPENSES AND A DETAILED NOTE WITH REGARD TO THE CLAIM OF THIS EXPENDITURE AS REVENUE . 15. WE ALSO OBSERVE THAT THE ASSESSEE, IN REPLY TO THI S LETTER, HAD WRITTEN A LETTER ON 28.9.2004 GIVING THE DETAIL S REQUIRED BY THE ASSESSING OFFICER AND THE REPLY READS AS UNDER: I.T.A.NO. 11/11 :- 13 -: AS PER SECTION 35 (1) OF THE INCOME TAX ACT, ANY E XPENDITURE LAID OUT OR EXPANDED ALL SCIENTIFIC RESEARCH RELATED TO BUSINESS IS ALLOWED IN FULL IN THE PREVIOUS YEAR IN WHICH IT WA S INCURRED. FOR DETAILS OF EXPENDITURE, PLEASE REFER ANNEXURE 3. SIMPSON & CO. LTD MANUFACTURES DIESEL ENGINES WHICH ARE OFFERED AS ORIGINAL EQUIPMENT FOR VEHICLES, TRACTOR S, INDUSTRIAL EQUIPMENTS AND GENSETS. THESE PRODUCTS HAVE TO MEET EMISSION REGULATIONS WH ICH ARE BEING ENACTED BY GOVT. OF INDIA TO MEET THIS REQUIREMENT AND ALSO IN BRINGING OUT N EW PRODUCTS WITH LOWER FUEL CONSUMPTION, OIL CONSUMPTION AND IM PROVED LIFE, THE R&D DEPT. IS ENGAGED IN DEVELOPING NEWER MODELS OF ENGINES AND UPGRADING THE EXISTING PRODUCTS. FOR ACHIEVING THIS, WE CARRYOUT MODIFICATIONS ON TH E EXISTING PRODUCTS AND TEST THEM AT OUR END. WE SEND ENGINES AFTER ESTABLISHING SATISFACTORY PERFORMANCE AT OUR END TO ARAI, (AUTOMOBILE RESEARCH ASSOCIATION OF INDIA) TO MEASU RE THE EMISSION CONSTITUENTS. WE CARRY OUT AT ARAI DEVELOP MENT TEST TO ASSESS THE PRESENT STATUS OF THE PRODUCT, TYPE APPR OVAL TEST TO MEET LEGISLATIVE REQUIREMENTS AND CONFORMITY OF PRO DUCTION TEST ARAI IS AN APPROVED CERTIFYING LAB. TO MEET THE COMPETITION AND MARKED REQUIREMENTS, WE DEVELOP NEWER PRODUCTS. FOR THIS ACTIVITY, WE AVAIL EXTERNA L ASSISTANCE DURING DESIGN AND TESTING. BASED ON THE ABOVE ACTIVITIES, WE NOW HAVE PRODUCTS MEETING BHARAT STAGE II(EURO IT) EMISSION NORMS FOR VEHICUL AR ENGINES. IN THE SAME WAY, OUR' TRACTOR ENGINES MEET THE CURRENT INDIAN REGULATION TERM II. FOR EXPORT OF TRACTORS, WE HAVE EMISSIONISED PRODUCT MEETING US TIER II NORMS. IN THE GENSET SEG MENT, WE HAVE PRODUCTS WHICH MEET CURRENT CPCB NORMS. THE ENGINES OFFERED FOR INDUSTRIAL APPLICATION MEETS THE NORMS APPLICAB LE FOR THIS SEGMENT. THESE ACTIVITIES ARE CARRIED OUT IN A SEPARATE SETU P IN OUR COMPANY. WE ARE EQUIPPED WITH NECESSARY TESTING AND DESIGN F ACILITIES FOR CARRYING OUT THIS ACTIVITY. FOR DESIGN, WE HAVE PRO E SOFTWARE TO CREATE 3D MODELS OF OUR ENGINES AND COMPONENTS. 20 DRAWINGS ARE MADE FOR MANUFACTURING. IN TESTING, WE HAVE FACILIT IES TO CHECK COMBUSTION PARAMETERS FOR OPTIMIZING THE PERFORMANC E TO MEET THE ABOVE SAID OBJECTIVES. I.T.A.NO. 11/11 :- 14 -: 16. FURTHER, WE ALSO OBSERVE THAT THE BREAK-UP OF PRODU CT DEVELOPMENT EXPENSES OF ` 2,06,54,543/- WAS ALSO GIVEN WITH THE LETTER DATED 28.9.2004 BY THE ASSESSEE WHICH IS AS FOLLOWS: (I) AMOUNT PAID TO AUTOMOBILE RESEARCH ASSOCIATION OF INDIA (ARAI IS THE CERTIFYING AGENCY TO CONFIRM THAT OUR ENGINE MEET THE LEGISLATIVE REQUIREMENT. HENCE, WE HAVE TO OFFER ENGINE DEVELOPMENT, TYPE APPROVAL AND CONFORMITY OF PRODUCTION TO THEM) TESTING EXPENSES ` 32,59,939 (II) VALUE OF COMPONENTS AND SPARES PURCHASED AND ALSO SUB-CONTRACTING RELATING TO DEVELOPMENT OF MATERIAL AND COMPONENTS USED BY ENGG. & DEVELOPMENT DEPARTMENT TO BE USED IN DIESEL ENGINES ` 2,39,274 (III) VALUE OF COMPONENTS AND SPARES CONSUMED BY ENGG. & DEVELOPMENT DEPARTMENT FOR CONDUCTING VARIOUS TESTS ON ENGINES AND COMPONENTS (MAINLY NOZZLE HOLDER & FI PUMP FROM MICO FOR EURO-II) ` 2,38,450 (IV) SJ 3-PROTOTYPE HONING EXPENSES NAGAL SPL PVT. LTD ` 10,00,000 (V) AVL PATTERN AND FIXURES IMPORT OF REFERENCE MODEL ` 84,66,319 (VI) VALUE OF EXPERIMENTAL ENGINES USED BY ENGG. & DEVELOPMENT DEPARTMENT ` 4,55,176 (VII) TECHNICAL ASSISTANCE FEE FOR THE DEVELOPMENT OF NEW SJ SERIES ENGINE IN RESEARCH & DEVELOPMENT DEPARTMENT AS PER AGREEMENT WITH AVL ` 69,95,385 TOTAL ` 2,06,5 ` 2,06,5 ` 2,06,5 ` 2,06,5 4,543 4,543 4,543 4,543 I.T.A.NO. 11/11 :- 15 -: 17. THUS, IT IS SEEN THAT THE ASSESSEE WAS ASKED TO FU RNISH THE DETAILS OF RESEARCH & DEVELOPMENT EXPENSES AND THE COMPLETE DETAILS INCLUDING THE BREAK-UP WERE PROVIDED BY THE ASSESS EE IN THE ORIGINAL ASSESSMENT WHICH WAS COMPLETED AFTER CONSIDERING TH E DETAILS AND THE REPLY OF THE ASSESSEE. THUS, IT IS SEEN THAT THE FACTS AND ISSUE INVOLVED IN THE PRESENT YEAR OF APPEAL ARE IDENTICA L TO THE FACTS AND ISSUE INVOLVED IN ASSESSMENT YEAR 2001-02 WHEREIN T HE TRIBUNAL HAS CONFIRMED THE ORDER OF THE CIT(A) HOLDING THE RE-AS SESSMENT PROCEEDINGS AS INVALID. RESPECTFULLY FOLLOWING THE SAME, IN THE PRESENT YEAR OF APPEAL ALSO, WE HOLD THE RE-ASSESSMENT PROC EEDINGS TO BE INVALID AND DISMISS THE GROUNDS OF APPEAL OF THE RE VENUE. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON TUESDAY, THE 17 TH OF JULY, 2012, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 17 TH JULY, 2012 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR