M/s. Nokia India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 1870/DEL/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7494 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 11-04-2016
• Assessment Year: 1999-2000
• Appeal Filed On: 26-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Assessee Lawyers: VIKAS SRIVASTAVA
• Keywords: Recovery proceedings; Depreciation; Audit objection; Bad and doubtful debts; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings; Capital expenditure
• Section: 147; 148

Judgement Text

1 ITA NOS. 1870 & 2147/DEL/2010 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI G. D. AGRAWAL, VICE P RESIDENT AND SMT SUCHITRA KAMBLE , JUDICIAL MEMBER I.T.A .NO. 1870/D EL/2010 (A.Y 1999-2000) NOKIA INDIA PVT. LTD. SP INFOCITY, INDUSTRIAL PLOT NO. 243 UDYOG VIHAR, PHASE-1 DUNDAHERA GURGAON AAACN2170R (APPELLANT) VS DCIT CIRCLE-13(1) CENTRAL REVENUE BUILDING NEW DELHI (RESPONDENT) I.T.A .NO. 2147/DE L/2010 (A.Y 1999-2000) DCIT CIRCLE-13(1) CENTRAL REVENUE BUILDING NEW DELHI (APPELLANT) VS NOKIA INDIA PVT. LTD. SP INFOCITY, INDUSTRIAL PLOT NO. 243 UDYOG VIHAR, PHASE-1 DUNDAHERA GURGAON AAACN2170R (RESPONDENT) APPELLANT BY SH. VIKAS SRIVASTAVA, ADV RESPONDENT BY SH. P. DAM KANUNJNA, SR. DR ORDER PER SUCHITRA KAMBLE JM THE APPEAL AND CROSS APPEAL ARE FILED AGAINST THE O RDER DATED 22/02/2010 PASSED BY CIT(A)- XVII, NEW DELHI. DATE OF HEARING 19.04.2016 DATE OF PRONOUNCEMENT 03.06.2016 2 ITA NOS. 1870 & 2147/DEL/2010 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS: (ITA NO. 1870/DEL/2010) 1. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) [HEREINAFTER REFERRED O AS THE CIT(A) HAS ERRED IN HOLDING THAT PROCEEDINGS U/S 147 OF THE INCOME-TAX ACT, 196 1 ( THE ACT) ARE VALID DESPITE THE FACT THAT THE NOTICE U/ S 148 OF THE ACT HAD BEEN ISSUED ON ACCOUNT OF MERE CHANGE O F OPINION. 2. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN HOLDING THAT THE LEAR NED ASSESSING OFFICER WAS CORRECT IN EXTENDING THE SCO PE OF REASSESSMENT PROCEEDINGS TO THE ISSUES WHICH WERE N OT RECORDED IN THE REASONS FOR REOPENING THE ASSESSMEN T AND CARRYING OUT THE DETAILED SCRUTINY ASSESSMENT U/S 1 48 OF THE ACT. 3. WITHOUT PREJUDICE, BASED ON THE FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN HOLDIN G THAT THE LEARNED ASSESSING OFFICER WAS CORRECT IN DISAL LOWING THE PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO RS. 4 3, 4. WITHOUT PREJUDICE, BASED ON THE FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLD ING THE DISALLOWANCE OF 25 PERCENT OF THE PROVISION FOR OBSOLESCENCE AMOUNTING TO RS. 1,213,037/- CREATED B Y THE APPELLANT DURING THE PREVIOUS YEAR RELEVANT TO THE SUBJECT ASSESSMENT YEAR, FOR THE PURPOSE FOR COMPUTING BOOK PROFITS U/S 115JA OF THE ACT. 5. WITHOUT PREJUDICE, BASED ON THE FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLD ING THE DISALLOWANCE OF 25 PERCENT OF THE PROVISION FOR OBSOLESCENCE AMOUNTING TO RS. 1,213,037/- CREATED B Y THE APPELLANT DURING THE PREVIOUS YEAR RELEVANT TO THE SUBJECT ASSESSMENT YEAR, UNDER THE NORMAL PROVISIONS OF TH E ACT. 3 ITA NOS. 1870 & 2147/DEL/2010 6. WITHOUT PREJUDICE, BASED ON THE FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLD ING THE DISALLOWANCE OF MARKETING EXPENDITURE OF RS.2,454,7 98/- INCURRED ON ACCOUNT OF MOBILE PHONES HANDSET ISSUED TO AMCS, DEALERS AND EMPLOYEES DURING THE PREVIOUS YEA R RELEVANT TO THE SUBJECT ASSESSMENT YEAR AS CAPITAL EXPENDITURE IN THE HANDS OF THE APPELLANT, UNDER TH E NORMAL PROVISIONS OF THE ACT. 7. WITHOUT PREJUDICE, BASED ON THE FACTS AND CIRCUM STANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN UPHOLD ING THE ARBITRARY ADDITION OF AN AMOUNT OF RS. 2,960,347/- TO THE CLOSING STOCK OF THE APPELLANT, WHICH RESULTS IN A DOUBLE DISALLOWANCE WITH REGARD TO THE MARKETING EXPENDITU RE, HAVING REGARD TO THE FACTS OF THE CASE. (ITA NO. 2147/DEL/2010) 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE ADDITION MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF PROVISION OF GRATU ITY. 2. THAT OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF PR OVISION FOR WARRANTY OF RS.1,77,45,202/-. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.1,71,95,149/- OUT OF FOREIGN TRAVEL EXPENSES. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE LEVY OF INTEREST U /S 234D OF THE IT ACT, 1961. 4. THE MAIN CONTENTION OF THE ASSESSEE WAS THAT THE CIT(A) ERRED IN HOLDING THAT PROCEEDINGS U/S 147 OF THE INCOME T AX ACT, 1961 ARE VALID DESPITE THE FACT THAT THE NOTICE U/S 148 OF THE ACT HAD BEEN ISSUED ON ACCOUNT OF CHANGE OF OPINION. THUS THE VALIDITY OF SECTION 148 NOTICE IS TAKEN UP AT THIS STAGE OF HEA RING. 4 ITA NOS. 1870 & 2147/DEL/2010 5. ON 29/9/2004 FIRST NOTICE U/S 148 OF THE INCOME TAX ACT, 1961 WAS ISSUED, WITHOUT REQUISITE APPROVAL OF JCIT . THE ASSESSEE FILED REPLY DATED 25/10/2004 ASKING ASSESSING OFFIC ER TO CONSIDER REVISED INCOME DATED 30/11/2000. NOTICE U/S 143(2) OF THE ACT DATED 10/10/2005 WAS ISSUED BY A.O INITIATING ASSES SMENT. THE ASSESSEE FILED REPLY DATED 20/10/2005 TO SECTION 14 3(2) NOTICE, REQUESTING REASONS FOR RE-OPENING BEFORE PROCEEDING FURTHER WITH THE ASSESSMENT. 6. ON 17/11/2005 REASONS FOR RE-OPENING, IN RESPECT OF FIRST NOTICE UNDER SECTION 148 WAS PROVIDED TO ASSESSEE A RE AS UNDER: ..AFTER EXAMINATION OF THE ASSESSMENT RECORDS FO R THE ASSESSMENT YEAR 1999-2000 IT HAS BEEN REVEALED THA T DURING THE YEAR THE ASSESSEE HAS MAD VARIOUS PROVISIONS IN THE RETURN OF INCOME LISTED AS UNDER:- GRATUITY-RS. 1407400/- DOUBTFUL DEBTS-RS. 43554990/ - WARRANTY-RS. 17745202/- OBSOLESCENCE-RS. 4852150/- HOWEVER, WHILE COMPUTATION OF INCOME U/S 115JA THE ABOVE UNASCERTAINED LIABILITIES HAS NOT BEEN ADDED TO THE BOOK PROFIT WHICH HAS RESULTED IN UNDER ASSESSMENT OF INCOME TO THE TUNE OF RS.225.97 LACS 7. THE ASSESSEE INSPECTED A.OS RECORDS ON 21/11/20 05 AND FOUND THAT PROCEEDINGS U/S 148 OF THE ACT WERE INIT IATED SOLELY ON THE BASIS OF AUDIT OBJECTION SUGGESTING THAT PROVIS IONS, BEING UNASCERTAINED LIABILITIES, WHICH SHOULD BE ADDED TO BOOK PROFIT FOR 115JA. 5 ITA NOS. 1870 & 2147/DEL/2010 8. THE ASSESSEE FILED LETTER DATED 28/11/2005 AND O BJECTED THE LEGALITY OF FIRST 148 NOTICE (DATED 29/9/2004) STAT ING THAT AS 4 YEARS HAD EXPIRED AFTER END OF ASSESSMENT YEAR 99-00 PRIO R APPROVAL OF JCIT WAS MANDATORY U/S 151 OF THE ACT AND IT WAS FO UND THAT NO SUCH APPROVAL HAD BEEN OBTAINED. IN THE SAID LETTER THE VALIDITY OF SECTION 148 NOTICE WAS ALSO CHALLENGED BASED ON ABS ENCE OF REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT AND R E-ASSESSMENT BASED ON AUDIT OBJECTIONS WAS INVALID. 9. ON 6/13.02.2006 A.O WITHDRAWN FIRST SECTION 148 NOTICE (DATED 29/9/2004) BASED ON NIPLS OBJECTIONS. ON 13 /2/2006, SECOND NOTICE U/S 148 WAS ISSUED, WITH JCIT APPROVA L. ON 24/2/2006 NIPL FILED A REPLY ASKING A.O TO CONSIDER REVISED INCOME DATED 30/11/2000 AND ASKED FOR REASONS FOR RE-OPENI NG. ON 8/8/2006 A.O ISSUED NOTICES UNDER SECTION 143(2), 1 42(1) OF THE ACT. ON 30/8/2006 NIPL FILED RESPONSE TO 143(2) NOT ICE, REITERATING REQUEST FOR REASONS RECORDED BEFORE PROCEEDING WITH ASSESSMENT. 10. ON 30/8/2006 COPY OF REASONS (DATED 2/2/2006) IN RESPECT OF SECOND 148 NOTICE PROVIDED BY A.O. TO THE ASSESSEE. THE SAME ARE REPRODUCED HEREUNDER: .AFTER EXAMINATION OF THE ASSESSMENT RECORDS F OR THE ASSESSMENT YEAR 1999-2000, IT HAS BEEN REVEALED THA T DURING THE YEAR THE ASSESSEE MADE VARIOUS PROVISIONS IN THE RE TURN OF INCOME LISTED AS UNDER: GRATUITY- RS. 1407400/- 6 ITA NOS. 1870 & 2147/DEL/2010 DOUBTFUL DEBTS- RS. 43554990/- WARRANTY-RS. 17745202/- OBSOLESCENCE- RS. 4852150/- THE PROVISIONS CLAIMED ARE IN THE NATURE OF UNASCER TAINED LIABILITIES, HOWEVER, WHILE COMPUTATION OF INCOME U/S 115JA THE ABOVE UNASCERTAINED LIABILITIES HAVE NOT BEEN ADDED TO TH E BOOK PROFIT WHICH HAS RESULTED IN UNDER ASSESSMENT OF INCOME 11. ON 20/09/2006 NIPL FILED ITS OBJECTIONS TO REAS ONS FOR RE- OPENING. ON 8/11/2006 ORDER PASSED BY A.O REJECTIN G NIPLS OBJECTIONS. ON 24/11/2006 NIPL FILED ITS SUBMISSIO N BEFORE THE A.O. THE ASSESSING OFFICER DISALLOWED 20% OF FOREIG N TRAVELLING EXPENSES TO THE EXTENT OF RS. 1,71,95,149/-, PROVIS ION FOR WARRANTY TO THE EXTENT OF RS. 1,77,45,202/-, FOC MARKETING E XPENSES (AFTER DEPRECIATION) TO THE EXTENT OF RS. 18,41,099/- AS W ELL AS DISALLOWED 25% OF PROVISION FOR OBSOLESCENCE OF INVENTORY TO THE EXTENT OF RS. 12,13,037/- AND MADE ADDITION TO CLOSING STOCK FOR RS.29,60,347. 12. THE CIT(A) REJECTED NIPLS ARGUMENTS ON SECTIO N 148 AND DELETED THE DISALLOWANCE OF 20% OF FOREIGN TRAVELLI NG EXPENSES AND PROVISION FOR WARRANTY, BUT SUSTAINED THE OTHER ISS UES. 13. THE PRESENT APPEAL AND CROSS APPEAL ARE FILED B Y REVENUE AND ASSESSEE RESPECTIVELY. 14. THE LD. AR SUBMITTED THAT THE FIRST NOTICE WAS WITHDRAWN AFTER THE SECOND NOTICE WAS ISSUED OR WAS IN THE PROCESS OF DELIVERY TO THE ASSESSEE. THEREFORE, AS REGARDS THE PROCEDURAL ASP ECT THERE IS LAPSE 7 ITA NOS. 1870 & 2147/DEL/2010 ON THE PART OF THE ASSESSING OFFICER. THERE WAS A C LEAR OPINION GIVEN BY THE ASSESSING OFFICER BEFORE THE AUDITOR VIDE LE TTER DATED 24.09.2003 THAT THERE WAS NO EVIDENCE AS THE SAID P ROVISION WAS AN UNASCERTAINED LIABILITY. HENCE, A.O SUBMITTED A REP ORT THAT THE DEPARTMENT SHOULD NOT HAVE OBJECTION. FURTHER, THE THEN AO GAVE A CLEAR FINDING THAT THE MATTER IS SETTLED. THE SAID STAND WAS SHIFTED AND A CONTRARY VIEW WAS TAKEN BY THE ASSESSING OFFI CER WHILE PASSING THE ASSESSMENT ORDER IN QUESTION. THUS IT W AS CLEAR CHANGE OF OPINION. THE LETTER DATED 24.09.2003 IS EXTRACTE D HEREINBELOW: NO.ACIT/CIR.13(1)/AUDIT/2003-04/499 OFFICE OF THE ASSTT.COMMISSIONER OF I.TAX CIRCLE-13(1), NEW DELHI DATED: 24.09.2003 TO THE SR. RECEIPT AUDIT OFFICER ITAP-13 ROOM NO. 156 C. R. BUILDING, NEW DELHI SIR, SUB: AUDIT OBJECTION REGARDING SHORT RECOVERY OF T AX IN THE CASE OF M/S. NOKIA INDIA LTD. ASSTT. YEAR 1999-2000 PLEASE REFER TO AUDIT MEMO NO. 268 DATED 3.7.2003 IN THE ABOVE CASE. THE AUDIT SCRUTINY RAISED THAT FOR THE PURPOSE OF SECTION U/S 115JA, THE ASSESSEE COMPANY HAS NOT INCREASED THE AMOUNT OR AM OUNTS SET ASIDE TO PROVISION MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES, AND 8 ITA NOS. 1870 & 2147/DEL/2010 OMISSION TO DO SO RESULTED IN UNDER ASSESSMENT OF I NCOME OF RS. 1,69,67,732/- INVOLVING SHORT RECOVERY OF TAX OF RS.69,48,229/- U NDER SPECIAL PROVISION OF THE ACT. I HAVE GONE THROUGH THE RECORDS. KEEPING IN VIEW T HE ABOVE OBJECTION, IT IS FOUND THAT THE LIABILITIES MENTIONED BY THE AUDIT H AD BEEN DECLARED IN HIS RETURN OF INCOME AS ASCERTAINED LIABILITIES AS PER SECTION 115JA SUB SEC.(2) CLAUSE (C) OF THE I.T. ACT. THE RETURN WAS PROCESSED U/S 143(1) A ND AS THERE WAS PRIMA FACIE NO EVIDENCE THAT THE LIABILITIES WERE NOT ASCERTAIN ED LIABILITIES IN VIEW OF THE ABOVE MENTIONED ASSESSEES SELF DECLARATION, THESE LIABILITIES WERE NOT BE ADDED TO THE NET PROFIT WHILE COMPUTING THE BOOK PROFIT A ND THEREFORE, THE ISSUE RAISED BY THE AUDIT IS NOT ACCEPTED. IN VIEW OF THE ABOVE, OBJECTION RAISED BY THE AUDI T MAY PLEASE BE TREATED AS SETTLED AS THE ABOVE ADJUSTMENT WERE NOT PERMISS IBLE U/S 143(1) OF THE I. T. ACT. YOURS FAITHFULLY, SD/- (SANJOG KAPOOR) ASSTT. COMMISSIONER OF I. TAX, CIRCLE- 13(1), NEW DELHI COPY TO: THE CIT, DELHI V, NEW DELHI FOR INFORMAT ION. SD/- ACIT, CIR.13(1), N. DELHI THUS THE LD. AR SUBMITTED THAT THE ISSUE WAS ALREAD Y SETTLED AND THERE WAS NO NECESSITY OF RE-OPENING THE SAME. THE LD. AR FURTHER SUBMITTED THAT THE CIT (A) IS NOT JUSTIFIED IN DISA LLOWING THE GROUND OF APPEAL OF THE ASSESSEE AS RELATES TO ISSUANCE OF NOTICE U/S. 148 FOR CHANGE OF OPINION. THE FIRST NOTICE WAS AS PER LAW WITHDRAWN. THUS, THERE WAS NO NECESSITY TO ISSUE SECOND NOTICE MERELY ON THE GROUND OF CHANGE OF OPINION. 9 ITA NOS. 1870 & 2147/DEL/2010 15. THE LD. DR RELIED ON THE ASSESSMENT ORDER AND T HE ORDER OF THE CIT(A) AND SUBMITTED THAT THE APPEAL OF THE REV ENUE BE ALLOWED ON MERIT. 16. WE HAVE PERUSED ALL THE RECORDS AND HEARD BOTH THE PARITIES. IT IS FOUND THAT THE LD. AR WAS RIGHT IN ITS CONTEN TION THAT THERE WAS A CHANGE OF OPINION WHICH WAS CLEARLY SEEN IN THE L ETTER PRODUCED BEFORE US DATED 24/9/2003 SENT TO SENIOR RECEIPT AU DIT OFFICER. IN THE SAID LETTER, THE STAND OF THE A.O WAS THAT OBJE CTION RAISED BY THE DEPARTMENT MAY BE TREATED AS SETTLED AS THE ADJUSTM ENT MENTIONED THEREIN WAS NOT PERMISSIBLE UNDER THE ACT. THIS LE TTER WAS PRODUCED BY THE LD. DR DURING THE COURSE OF HEARING . THIS LETTER CLEARLY SHOWS THAT NOTICE UNDER SECTION 148, WAS A CLEAR CHANGE OF OPINION. THERE WAS NO NEW MATERIAL FOUND BY THE AS SESSING OFFICER. THERE WAS A CLEAR OPINION GIVEN BY THE ASSESSING OF FICER BEFORE THE AUDITOR THAT THERE WAS NO EVIDENCE AS THE SAID PROV ISION WAS AN UNASCERTAINED LIABILITY AS PER LETTER DATED 24.09.2 003. THUS, THE PROCEEDINGS UNDER SECTION 147 OF THE INCOME TAX ACT , 1961 ARE NOT VALID AS THE NOTICE UNDER SECTION 148 OF THE ACT WA S ISSUED ON ACCOUNT OF CHANGE OF OPINION. THEREFORE, CIT(A) WAS INCORRECT WHILE DISMISSING THE APPEAL OF THE ASSESSEE. 10 ITA NOS. 1870 & 2147/DEL/201 0 17. IN RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AN D THE REVENUES APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 03 RD OF JUNE, 2016. SD/- SD/- (G. D. AGRAWAL) (SUC HITRA KAMBLE) VICE PRESIDENT JUDICIAL MEMBER DATED: 03/06/2016 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 19/04/2016 PS 2. DRAFT PLACED BEFORE 21/04/2016 PS 11 ITA NOS. 1870 & 2147/DEL/201 0 AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2016 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 03.06.2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 03.06.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.