DCIT, CHENNAI V. M/s. Hyundai Motor India Limited, Kancheepuram

ITA 1988/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64338 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-08-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 09-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SHUKLA
• Assessee Lawyers: S HARI HARAN
• Keywords: Reopening of assessment; Depreciation; Transfer pricing; Period of limitation; Services rendered outside India; Deemed to accrue or arise in india; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 43B; 143(3); 80HHC; 10B; 32; 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT ME MBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NOS.1987 & 1988/MDS/2011 (ASSESSMENT YEARS: 2004-05 & 2005-06 ) & C.O.NO.43/MDS/2012 (IN ITA NO.1988/MDS/2011) (ASSESSMENT YEAR: 2005-06) DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI-600 101. VS. M/S. HYUNDAI MOTOR INDIA LTD., PLOT NO.H1, SIPCOT INDUSTRIAL PARK, IRUNGATTUKOTTAI, SRIPERUMPUDUR, KANCHEEPURAM DIST. PAN: AAACH2364M (APPELLANT) (RESPONDENT/CROSS OBJECTOR) APPELLANT BY : SMT. ANUPAMA SHUKLA, CIT DR RESPONDENT BY : SHRI S. HARIHARAN, C.A., DATE OF HEARING : 27 TH AUGUST 2012 DATE OF PRONOUNCEMENT : 25 TH SEPTEMBER, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE PRESENT APPEALS I.E. ITA NO.1987/MDS/2011 RELEVANT TO THE ASSESSMENT YEAR 2004-05 AND ITA NO.1988/MDS/2011 RELEVANT TO THE ASSESSMENT YEAR 20 05-06 HAVE BEEN FILED BY THE DEPARTMENT IMPUGNING TWO SE PARATE ORDERS OF THE CIT(A), LTU DATED 23.09.2011 FOR THE RESPECTIVE ASSESSMENT YEARS. THE ASSESSEE HAS ALSO FILED ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 2 CROSS OBJECTION IMPUGNING THE ORDER OF THE CIT(A) R ELEVANT TO THE ASSESSMENT YEAR 2005-06. ITA NO.1987/MDS/2011: 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE MANUFACTURE AND TRADING O F PASSENGER CARS AND VEHICLE COMPONENTS. FOR THE ASSE SSMENT YEAR 2004-05 THE ASSESSEE FILED ITS RETURN OF INCOM E ON 30.10.2004 DECLARING TOTAL INCOME OF ` 5,08,72,14,630/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 29.12.2006 DETERMINING TOTAL INCOME AT ` 5,48,34,61,386/-. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSE E PREFERRED AN APPEAL BEFORE THE CIT(A), LTU IMPUGNIN G THE ASSESSMENT ORDER DATED 29.12.2006. DURING THE PENDE NCY OF THE SAID APPEAL, THE ASSESSING OFFICER ISSUED NOTIC E UNDER SECTION 148 ON 17.3.2009. THE ASSESSING OFFICER VID E LETTER DATED 5.6.2009 GAVE REASONS FOR REOPENING THE ASSES SMENT WHICH ARE REPRODUCED HEREUNDER:- IN THE SCHEDULE 4 (FIXED ASSET) OF THE BALANCE SHEET ADDITIONS MADE DURING THE YEAR IS ` 14,33,133 ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 3 THOUSAND S. THIS IS THE NET OF ` 1,44,897 THOUSANDS PERTAINING TO GAINS FROM FOREIGN EXCHANGE RATE FLUCTUATION ON LOANS TAKEN TO ACQUIRE THE FIXED ASS ET. THE ASSESSEE HAS CLAIMED A DEDUCTION OF ` 2,42,957 THOUSANDS FROM THE PROFIT AS PER P&L ACCOUNT IN THE COMPUTATION STATEMENT TOWARDS R& I CAPITAL EXPENSES U/S.35. ACTUAL COST OF ADDITION DURING THE YEAR AS PER INCOME TAX DEPRECIATION STATEMENT IS ` 13,35,053 THOUSANDS AND THE ASSESSEE HAS DEDUCTED A SUM OF ` 1,46,04,383 FROM THE ACTUAL COST OF THE ASSET WHIL E COMPUTING DEPRECIATION U/S.32 WHEREAS THE ASSESSEE HAS MADE A PROFIT OF ` 1,44,897 THOUSAND FROM FOREIGN EXCHANGE RATE FLUCTUATION ON LOANS TAKEN TO ACQUIRE THE FIXED ASSETS. HENCE, THE ASSESSEE HAS NOT REDUCED THE ENTIRE GAIN ON FLUCTUATION GAIN FOR THE PURPOSE OF COMPUTATION OF DEPRECIATION AS PER THE INCOME TAX ACT. FURTHER, IF THE PROFIT ON FOREIGN EXCHANGE RATE FLUCTUATION ON LOANS PERTAINS TO THE FIXED ASSETS WHICH IS USED FOR R & D PURPOSE ON WHICH DEDUCTION U/S.35 WAS CLAIMED, AS PER SEC.43A OF THE ACT, THE ASSESSEE CAN CLAIM DEDUCTION ONLY TO THE EXTENT OF ` 11,26,65,180 (24,29,57,797 13,02,92,617) U/S.35 OF THE INCOME TAX ACT, WHEREAS THE ASSESSEE HAS CLAIMED ENTIRE R &D CAPITAL EXPENSES AS DEDUCTION INCLUDING THE GAIN ON FOREIGN EXCHANGE RATE FLUCTUATION. 2. IT IS SEEN FROM THE PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE COMPANY DEBITED ON ACCOUNT OF ` 2,04,81,35,000/- TOWARDS ROYALTY & TECHNOLOGY TRANSFER FEE. OUT OF THE TOTAL AMOUNT, THE ROYALTY PAID WAS TO THE TUNE OF ` 1,93,97,95,716/- AS DETAILED BELOW:- ROYALTY FOR THE PERIOD FROM 1.4.03 TO 30.9.03 ` 81,86,35,068 ROYALTY FOR THE PERIOD FROM 1.10.03 TO 31.3.04 ` 1,02,87,89,423 ` 1,84,74,24,491 ADD: CESS ` 9,23,71,225 ---------------------- TOTAL ` 1,93,97,95,716 ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 4 THUS, THE BALANCE OF ` 10,83,39,284/- (I.E. 2,04,81,35,000 ` 1,93,97,95,716 REPRESENTS AMOUNT PAID TOWARDS TECHNOLOGY TRANSFER FEE. IT IS SEEN FROM THE AGREEMENT CONTRACT BETWEEN M/S. HYUNDAI MOTOR COMPANY AND THE ASSESSEE THAT THE HMC HAD GRANTED THE ASSESSEE, THE RIGHT TO MANUFACTURE, ASSEMBLE, SELL AND SERVICE THE LICENSED PRODUCTS AND SUPPLY OF TECHNICAL KNOW- HOW ON THE TERMS AND CONDITIONS STIPULATED IN THE AGREEMENT. ACCORDING TO ARTICLE 6 OF THE AGREEMENT IN CONSIDERATION OF THE RIGHTS GRANTED AND TECHNICAL KNOWHOW SUPPLIED BY M/S. HMC TO THE ASSESSEE COMPANY THE ASSESSEE COMPANY SHALL MAKE THE FOLLOWING PAYMENTS TO M/S. HMC. (A) ROYALTY AS MENTIONED CLAUSE 6(2) OF THE AGREEME NT. (B) LUMP SUM FEE NOT EXCEEDING US $ 2 MILLIONS OR A S FIXED BY THE GOVT. OF INDIA FROM TIME TO TIME. THE ROYALTY AND LUMP SUM FEE AS MENTIONED ABOVE SHOULD BE PAID BY THE ASSESSEE COMPANY M/S. HMC IN FOREIGN CURRENCY DECIDED BY THE PARTIES. THE ASSESSEE SHALL PAY THE ROYALTY TO M/S. HMC COMMENCING FROM 1.4.02. THE PARTIES SHALL THROUGH A LETTER OF CONCURRENCE SPECIFY THE PERCENTAGE OF ROYALTY PAYABLE BY THE ASSESSEE COMPANY TO M/S. HMC. THE AGREEMENT SHALL BE EFFECTIVE FOR THE PERIOD OF 10 YEARS COMMENCING FROM 1.4.2002 AND ENDING ON 31.3.2012 UNLESS TERMINATED UNDER ANY OTHER PROVISIONS OF THE AGREEMENT. IN THIS CONNECTION, THE LUMP SUMS PAYMENT OF ` 10,83,39,284/- MADE BY THE ASSESSEE TOWARDS SUPPLY OF TECHNICAL KNOW HOW REQUIRES TO BE CAPITALIZED AFTER ALLOWING DEPRECIATION UNDER SECTI ON 32(I)(II) IN VIEW OF THE DECISION IN 23 TAXMAN 66(S C) IN THE CASE OF SCRUTIJ ENGINEERING HOME (P) LTD. V S. CIT WHEREIN IT WAS HELD THAT WHERE UNDER AN AGREEMENT ASSESSEE MADE PAYMENT TO ITS FOREIGN ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 5 COLLABORATOR FOR DOCUMENTS SUCH AS MANUFACTURE, DRAWINGS, PROCESSING DOCUMENTS, DESIGNS CHARTS, PLAN ETC. THE EXPENDITURE HAS TO BE TREATED AS CAPI TAL EXPENDITURE. 3. AS PER TAXATION LAW AMENDMENT 2005, IF THE EXPORT TURNOVER EXCEEDS ` 10 CRORES, THE BENEFIT OF DEDUCTION ON THE DEPB U/S.80HHC SHALL BE GIVEN SUBJECT TO THE FULFILLMENT OF CONDITIONS LAID DOWN AS PER THE ABOVE AMENDMENT TO THE SECTION 80HHC(3) OF THE ACT. HENCE, THE ASSESSEE HAS TO PROVE THAT I T HAD OPTED TO CHOOSE EITHER DUTY DRAWBACK OR THE DEPB/DFRC BEING THE DUTY REMISSION SCHEME AND THE RATE OF THE DUTY DRAWBACK WAS HIGHER THAN THE DEPB/DFRC DURING THAT PERIOD. THE CORRESPONDING PROVISO IS REPRODUCED AS UNDER:- PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVING EXPORT TURNOVER EXCEEDING RUPEES TEN CRORES DURING THE PREVIOUS YEAR, THE PROFITS COMPUTED UNDE R CLAUSE (A) OR CLAUSE (B) OR CLAUSE (C) OF THIS SUB- SECTION OR AFTER GIVING EFFECT TO THE FIRST PROVISO AS THE CASE MAY BE, SHALL BE FURTHER INCREASED BY THE AMOUNT WHICH HEARS TO NINETY PER CENT OF ANY SUM REFERRED TO IN CLAUSE (IIID) OF SECTION 28, THE SAM E PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTA L TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE , IF THE ASSESSEE HAS NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT :- (A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAW BACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME BEING THE DUTY REMISSIONS SCHEME; AND (B) THE RATE OF DRAWBACK CREDIT ATTRIBUTABLE TO THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALLOWABLE UNDER THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSIONS SCHEME. IT HAS BEEN OBSERVED THAT DURING THE CURRENT YEAR THE ASSESSEE HAS EXPORT TURNOVER OF ` ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 6 9,41,08,31,440/- AND INCOME BY WAY OF DEPB/DFRC CREDIT TO THE TUNE OF ` 1,28,86,38,853/- BUT THE ASSESSEE HAS NOT PROVED THAT IT HAD OPTED T O CHOOSE EITHER DUTY DRAWBACK OR THE DEPB BEING THE DUTY REMISSION SCHEME AND THE RATE OF DUTY DRAWBACK WAS HIGHER THAN THE DEPB DURING THAT PERIOD. HENCE, THE ABOVE DEPB/DFRC RECEIPT SHOULD BE EXCLUDED FOR THE PURPOSE OF COMPUTATION OF 80HHC DEDUCTION BEING THE EXPORT INCENTIVES AS PER THE PROVISO TO SECTION 80HHC(3) OTHERWISE MEANS THAT THE DEDUCTION U/S.80HHC CANNOT BE FURTHER INCREASED ON THE ABOVE RECEIPT BY WAY OF DEPB/DFRC CREDIT. BASED ON THE ABOVE FACTS, IT IS CLEAR THAT ASSESSEE HAS NOT PRODUCED THE MATERIAL FACTS FULLY AND TRULY BEFORE THE TAX AUTHORITIES. THEREFORE, I HAVE THE REASON TO BELIEVE THAT THE INCOME HAS ESCAPED THE ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE INCOME TAX ACT. THE ASSESSEE FILED OBJECTIONS TO THE REOPENING PROC EEDINGS. THE ASSESSING OFFICER REJECTED THE OBJECTIONS OF TH E ASSESSEE AND COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R EAD WITH SECTION 147 OF THE ACT ON 23.12.2009 DETERMINI NG TOTAL INCOME OF THE ASSESSEE AT ` 5,70,17,10,121/-. AGGRIEVED AGAINST THE ASSESSMENT ORDER DATED 23.12.2009, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) LTU PRIMARILY ON THE FOLLOWING GROUNDS:- ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 7 I) REOPENING OF THE ASSESSMENT IS BEYOND THE PERIOD OF FOUR YEARS; II) THE ASSESSING OFFICER REOPENED THE ASSESSMENT FOR THE REASONS THAT THE APPELLANT DID NOT REDUCE THE ENTIRE FOREIGN EXCHANGE GAIN FROM THE ACTUAL COST OF ASSET FOR CLAIMING DEPRECIATION UNDER SECTION 32 AND DEDUCTION UNDER SECTION 35 OF THE ACT; III) THE LUMPSUM CONSIDERATION PAID TOWARDS TECHNICAL KNOWHOW NEEDS TO BE CAPITALIZED AFTER ALLOWING DEPRECIATION @ 25% ; IV) THE ASSESSEE DID NOT PROVE THAT IT HAD OPTED TO CHOOSE EITHER DUTY DRAW BACK OR DEPB/DFRC FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80HHC. THE CIT(A) VIDE ORDER DATED 23.9.2011 ALLOWED THE A PPEAL OF THE ASSESSEE ON THE GROUND THAT THE ASSESSING OFFIC ER HAD CALLED FOR THE DETAILS REGARDING THESE ISSUES DURIN G THE ORIGINAL ASSESSMENT PROCEEDINGS. THE ASSESSEE VIDE LETTERS D ATED 13.9.2006 AND 16.10.2006 HAD FURNISHED DETAILS IN R ESPECT OF QUERIES RAISED BY THE ASSESSING OFFICER. THE ASSES SING ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 8 OFFICER AFTER CONSIDERING THE CONTENTIONS OF THE AS SESSEE AND THE DOCUMENTS ON RECORD HAD COMPLETED THE ORIGINAL ASSESSMENT. SINCE, THE INFORMATION SOUGHT IN THE REASSESSMENT PROCEEDINGS WAS ALREADY SUBMITTED BY THE ASSESSEE IN ORIGINAL ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) THE REASSESSMENT PROCEEDINGS HAVE BEEN INITI ATED MERELY ON CHANGE OF OPINION WHICH IS NOT PERMISSIBL E IN LAW. THE CIT(A) RELYING ON THE JUDGEMENT OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD., REPORTED AS 320 ITR 561 ALLOWED THE APPEAL OF THE A SSESSEE FOR THE ASSESSMENT YEAR 2004-05. 3. THE REVENUE AGGRIEVED BY THE ORDER OF THE CIT(A) PREFERRED SECOND APPEAL BEFORE THE TRIBUNAL. SMT. A NUPAMA SHUKLA REPRESENTING THE DEPARTMENT SUBMITTED THAT N OTICE UNDER SECTION 148 WAS ISSUED TO THE ASSESSEE ON 17. 03.2009 WHICH IS VERY MUCH WITHIN THE TIME LIMIT PRESCRIBED UNDER THE PROVISIONS OF SECTION 149 OF THE ACT. THE D.R. SUBM ITTED THAT THE REASONS FOR REOPENING WERE DULY CONVEYED TO THE ASSESSEE. THE CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSMENT WAS REOPENED ON CHANGE OF OPINION ONLY. THE ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 9 D.R. FURTHER CONTENDED THAT PRODUCTION OF BOOKS O F ACCOUNTS OR ANY OTHER EVIDENCE BEFORE THE ASSESSING OFFICER FROM WHICH MATERIAL EVIDENCE COULD HAVE BEEN DISCOVERED WITH DUE DILIGENCE BY THE ASSESSING OFFICER WILL NOT NECESSA RILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF PROVISO TO SECT ION 147. TO SUPPORT HER CONTENTIONS, THE D.R. RELIED ON THE DEC ISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CONSOLIDATE D PHOTO & FINVEST REPORTED AS 281 ITR 394 AND THE ORDER OF T HE VISHAKAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF COASTAL CORPORATION LTD. REPORTED AS 118 TTJ 563. 4. ON THE OTHER HAND, SHRI S.HARIHARAN, AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ORDER PASSED BY THE CIT(A) IS A WELL-REASONED AND DETAILE D ORDER. NO INTERFERENCE IN THE ORDER OF THE CIT(A) IS CALLE D FOR. HE SUBMITTED THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE JUDGEMENT OF THE HONBLE SUPREME COURT IN TH E CASE OF CIT VS. KELVINATOR OF INDIA LTD., REPORTED AS 320 I TR 561 AND DIVISION BENCH JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. CHOLAMANDALAM INVESTMENT & F INANCE COMPANY LTD., 309 ITR 110 (MAD). HE CONTENDED THAT IN THE ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 10 PRESENT CASE THE ENTIRE DOCUMENTS WERE SUBMITTED BY THE ASSESSEE TO THE ASSESSING OFFICER AND WHATEVER QUER IES RAISED WERE DULY ANSWERED ALONG WITH THE EVIDENCES AT THE TIME OF ORIGINAL ASSESSMENT. HE SUBMITTED THAT NOT ICE UNDER SECTION 148 OF THE ACT WAS ISSUED MERELY ON THE BAS IS OF CHANGE OF OPINION AND NO NEW ISSUE OR GROUND WAS RA ISED IN THE REOPENING PROCEEDINGS. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF THE AUT HORITIES BELOW. THE JUDGEMENT/ORDERS REFERRED TO BY THE RES PECTIVE PARTIES HAVE ALSO BEEN EXAMINED BY US. IT IS AN AD MITTED FACT THAT IN ORIGINAL ASSESSMENT PROCEEDINGS UNDER SECTI ON 143(3) OF THE ACT, THE ASSESSING OFFICER HAD COMPLETED THE ASSESSMENT VIDE ORDER DATED 29.12.2006 MAKING CERTA IN ADDITIONS. A PERUSAL OF THE ORIGINAL ASSESSMENT ORD ER DATED 29.12.2006 WHICH IS AT PAGE 32 TO 37 OF THE PAPER B OOK SHOWS THAT THE ASSESSING OFFICER HAD MADE DETAILED STUDY OF BOOKS OF ACCOUNTS OF THE ASSESSEE AND THEREAFTER HAD REWORKED THE DEDUCTION UNDER SECTION 80HHC OF THE A CT. THE ASSESSING OFFICER HAD ALSO TAKEN INTO CONSIDERATION THE ORDERS ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 11 OF THE TRANSFER PRICING OFFICER DATED 18.12.2006 PA SSED UNDER SECTION 92CA3. DURING THE PENDENCY OF THE APPEAL BE FORE THE CIT(A), THE ASSESSING OFFICER ISSUED NOTICE UNDER S ECTION 148 FOR REOPENING THE ASSESSMENT FOR THE REASONS MENTIO NED HEREINABOVE. A PERUSAL OF THE REASONS FOR REOPENIN G PROVIDED BY THE ASSESSING OFFICER SHOWS THAT THE ASSESSING O FFICER HAD ALREADY ASKED FOR THE DETAILS PERTAINING TO THE ISS UES DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. THE ASSESSEE VIDE LETTER DATED 13.09.2006 AND 16.10.2006, WHIC H ARE AT PAGE 38 TO 51 OF THE PAPER BOOK, HAD FURNISHED ALL THE DETAILS IN RESPONSE TO THE QUESTIONNAIRE ISSUED BY THE ASSE SSING OFFICER. IN OUR CONSIDERED OPINION, THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT IS NOTHING BUT MERE CHANGE O F OPINION. THE ISSUES WHICH HAVE ALREADY BEEN CONSIDERED IN TH E ORIGINAL ASSESSMENT CANNOT BE REAPPRECIATED IN REAS SESSMENT PROCEEDINGS UNDER THE GARB OF INCOME ESCAPING ASSES SMENT. IF THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING AFTER CONSIDERING THE EVIDENCE ON RECORD, IT CANNOT BE SA ID THAT THE INCOME HAD ESCAPED ASSESSMENT ON ACCOUNT OF CONCEAL MENT ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 12 OF ASSESSEE. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) HAS HELD THAT THE ASSESSING OFFICER HAS POWER TO REOPEN THE ASSESSMENT PROVIDED THERE IS TANGIBLE MATERIALTO COME TO THE CONCLUSION THAT T HERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. HOWEVER, IN T HE PRESENT CASE THE ASSESSING OFFICER HAS MISERABLY FA ILED TO SHOW THAT THERE WAS ANY TANGIBLE MATERIAL TO HOLD T HAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. THE D.R. IN SUPPORT OF HER CONTENTIONS HAS RELIED ON THE JUDGEM ENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CONSOLIDATE D PHOTO & FINANCE LTD.(SUPRA) AND THE ORDER OF THE VIASAKHAPA TNAM BENCH OF THE TRIBUNAL IN THE CASE OF COASTAL CORPOR ATION LTD., IN BOTH THE AFOREMENTIONED CASES IT HAS BEEN HELD T HAT THE IN VIEW OF EXPLANATION 1 TO SECTION 147 ACTION UNDER SECTION 147 IS PERMISSIBLE, EVEN IF THE ASSESSING OFFICER GATHE RED HIS REASONS TO BELIEVE FROM THE VERY SAME RECORD AS HAD BEEN THE SUBJECT MATTER OF THE COMPLETED ASSESSMENT PROC EEDINGS. IN OUR OPINION, THE LAW LAID DOWN IN THE SAID JUDGE MENT/ORDER IS NOT APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. IN THE INSTANT CASE, THE ASSESSING OFFICER NO T ONLY ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 13 EXAMINED THE DOCUMENTS/EVIDENCE ORIGINALLY SUBMITTE D BY THE ASSESSEE BUT HAS ASKED FOR FURTHER DOCUMENTS. ADMI TTEDLY, THE INFORMATION WAS SUPPLIED BY THE ASSESSEE, IF TH E ASSESSING OFFICER FAILS TO TAKE NOTE OF THE SAME OR DOES NOT APPRECIATE THE EVIDENCE FROM ALL DIMENSIONS IN THE FIRST INSTANCE, HE CANNOT BE PERMITTED TO REOPEN THE AS SESSMENT UNDER SECTION 147 OF THE ACT TO COVER UP HIS OWN FO LIES. ONCE THE ENTIRE EVIDENCE AS REQUIRED BY THE ASSESSING OF FICER IS SUBMITTED BY THE ASSESSEE, DUTY IS CAST UPON THE A SSESSING OFFICER TO TAKE COGNIZANCE OF THE EVIDENCE AND PASS ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT. THE ASSESSING OFFICER CANNOT REVIEW HIS OWN ORDER UNDER THE GUISE OF SECTION 148 AND REAPPRECIATE THE EVIDENCE WHICH WAS ALREADY BEFORE HIM AT THE TIME OF ORIGINAL ASSE SSMENT. THEREFORE, WE UPHOLD THE ORDER OF THE CIT(A) AND D ISMISS THE APPEAL OF THE REVENUE. ITA NO.1988/MDS/2011 & CO NO.43/MDS/2012:- 6. THE REVENUE IN ITA N O.1988/MDS/2011 HAS IMPUGNE D THE ORDER OF THE CIT(A) DATED 23.09.2011 RELEVANT T O THE ASSESSMENT YEAR 2005-06. THE ASSESSEE HAD FILED RE TURN OF ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 14 INCOME ON 29.10.2005 DECLARING TOTAL INCOME OF ` 4,08,60,91,779/-. ASSESSMENT UNDER SECTION 143(3) W AS COMPLETED BY THE ASSESSING OFFICER ON 26.12.2008. T HE ASSESSING OFFICER MADE CERTAIN ADDITIONS/DISALLOWAN CES IN THE INCOME RETURNED BY THE ASSESSEE AND DETERMINED THE TOTAL INCOME OF THE ASSESSEE AS ` 5,36,70,48,238/-. AGGRIEVED AGAINST THE ASSESSMENT ORDER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) IMPUGNING THE ASSESSMENT O RDER DATED 26.12.2008. DURING THE PENDENCY OF THE APPEAL BEFORE THE CIT(A), THE ASSESSING OFFICER ISSUED NOTICE UND ER SECTION 148 TO THE ASSESSEE ON 24.03.2010. THE ASSESSING OF FICER VIDE LETTER DATED 25.05.2010 COMMUNICATED THE REASO NS FOR REOPENING OF ASSESSMENT TO THE ASSESSEE. THE REASON S FOR REOPENING OF ASSESSMENT ARE REPRODUCED HEREUNDER:- IT HAS OBSERVED FROM THE MANUFACTURING ACCOUNT THAT AN AMOUNT OF ` 15,57,94,737/- HAS BEEN DEBITED AS EXCISE DUTY PAID ON FINISHED GOODS, WHEREAS IT I S OBSERVED THAT THE SALE OF THE CURRENT YEAR HAS BEEN VALUED AT NET OFF EXCISE DUTY. IF THE CLOSING STOCK OF THIS YEAR SOLD IN THE NEXT ASSESSMENT YEAR, THE SAL E FIGURE WOULD BE EXCUSIVE OF THE EXCISE DUTY WHICH WOULD AMOUNT TO DOUBT DEDUCTION. HENCE THE ABOVE AMOUNT OF ` 15,57,94,737/- HAS TO BE DISALLOWED AND ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 15 BROUGHT TO TAX. HENCE, IT IS CLEAR THAT THE ASSESSE E HAS NOT PROVIDED ALL THE NECESSARY PARTICULARS FOR THE PURPOSE OF ASSESSMENT IN THIS REGARD. 2. ALSO AS PER CIRCULAR NO.7/2009 THE CIRCULAR WHICH HAS BEEN ISSUED WITH REFERENCE TO THE PROVISIONS OF SECTION 195 VIZ. CIRCULAR NO.23 DATED 23.7.1969 CIRCULAR NO.163 DATED 29.5.1975 AND CIRCULAR NO.786 DATED 7.2.2000 HAS BEEN WITHDRAWN BY THE CBDT. FURTHER IT HAS BEEN OBSERVED FROM THE FINANCE BILL 2010-11 THAT THE PROVISIONS OF SECTION 9 OF THE INCOME TAX ACT HAS BEEN AMENDED RETROSPECTIVELY FROM 1.6.1976 IN RELATION TO THE A. Y. 1977-78 AND SUBSEQUENT YEARS THAT THE EXPENDITURE INCURRED OUTSIDE INDIA ALSO DEEMED TO ACCRUE OR ARISE IN INDIA IN RESPECT OF THE SERVICES RENDERED. BASED ON THE ABOVE CIRCULAR OF CBDT NO.7/2009 AND ALSO FROM FINANCE BILL 2010-11 THAT WHATEVER THE EXPENDITURE INCURRED BY THE ASSESSEE IN FOREIGN CURRENCY FOR THE PURPOSE OF UTILIZATION OF SERVICE S EVEN THOUGH THE SERVICES RENDERED OUTSIDE INDIA IS TAXABLE. SINCE THE ASSESSEE HAS INCURRED EXPENDITURE IN FOREIGN CURRENCY TO THE TUNE OF ` 3,88,92,59,000/- THE SAME HAS TO BE ALLOWED ONLY SUBJECT TO THE PROVISIONS OF SECTION 195 OF THE ACT . HENCE, THE ASSESSEE HAS NOT DISCLOSED ALL THE NECESSARY FACTS FOR THE PURPOSE OF ALLOWABILITY OF THE SAME IN THE RETURN OF INCOME ON THE ABOVE ISSUE. THUS, THE ABOVE CLAIM OF EXPENDITURE IN FOREIGN CURRENCY SHALL BE DISALLOWED AS PER THE PROVISIONS OF SECTION 40(A)(I) OF THE INCOME TAX ACT. THEREFORE, IT IS CLEAR THAT THE ASSESSEE HAS NOT DISCLOSED ALL THE MATERIAL FACTS FOR THE ASSESSMENT YEAR 2005-06 FOR THE PURPOSE OF ASSESSMENT. HENCE, I HAVE REASONS TO BELIEVE THAT THE INCOME ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 16 HAS ESCAPED THE ASSESSMENT WITHIN THE PURVIEW OF SECTION 147 OF THE INCOME TAX ACT. 7. THE ASSESSING OFFICER AFTER REJECTING THE OBJECT ION OF THE ASSESSEE VIDE ASSESSMENT ORDER DATED 27.12.2010 PAS SED UNDER SECTION 143(3) READ WITH SECTION 147 DETERMIN ED THE TOTAL INCOME OF THE ASSESSEE AS ` 4,27,41,97,180/- AFTER MAKING ADDITIONS ON ACCOUNT OF DISALLOWANCE OF EXCI SE DUTY ON CLOSING STOCK. AGGRIEVED AGAINST THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE ASSESSEE IMPUGNED THE ASSESSMENT ORDER ON TWO COUNT S:- I) VALIDITY OF REOPENING OF ASSESSMENT U/S.147; & II) DISALLOWANCE OF EXCISE DUTY ON CLOSING STOCK. THE CIT(A) VIDE ORDER DATED 23.9.2011 PARTLY ALLOW ED THE APPEAL OF THE ASSESSEE. THE CIT(A) HELD THAT THE A SSESSEE HAD PROVIDED FOR EXCISE DUTY ON CLOSING STOCK IN AC CORDANCE WITH THE ACCOUNTING STANDARD 2 ISSUED BY THE INSTIT UTE OF CHARTERED ACCOUNTANTS OF INDIA. THE SAME DOES NOT HAVE ANY EFFECT ON THE PROFITS SINCE THE AMOUNT OF EXCIS E DUTY PROVIDED IS ALSO ADDED TO THE VALUE OF CLOSING STOC K. THE ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 17 CIT(A) DISCARDED THE VIEW OF THE ASSESSING OFFICER THAT SINCE THE SALE IS NET OF EXCISE DUTY, THE DEBIT TOWARDS E XCISE DUTY IN THE PROFIT AND LOSS ACCOUNT CANNOT BE ALLOWED. TO FORTIFY HIS DECISION THE CIT(A) RELIED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LOKENETE BALASABEH DESAI SSK LTD. REPORTED AS (2011) TIOL 3 98 HC MUM-IT. 8. AGGRIEVED AGAINST THE ORDER OF THE CIT(A) DATED 23.9.2011 THE REVENUE HAS PREFERRED SECOND APPEAL B EFORE THE TRIBUNAL. SMT. ANUPAMA SHUKLA APPEARING ON BEHA LF OF THE REVENUE SUBMITTED THAT THE ASSESSEE HAS NOT INCORPORATED THE VALUE OF EXCISE DUTY IN THE VALUE OF CLOSING STOCK WHICH IS IN VIOLATION OF THE PROVISIONS OF SE CTION 145A OF THE ACT. THE D.R. CONTENDED THAT THE ASSESSEE WHIL E SHOWING INVENTORY AS NET OF EXCISE DUTY DEBITS EXC ISE DUTY PAYABLE ON THE DIFFERENCE OF STOCK ONLY TO OFFSET T HE INCREASE IN THE VALUE OF STOCK UNDER SECTION 145A. SHE FURTH ER CONTENDED THAT CLOSING STOCK OF THE CURRENT YEAR IS SOLD IN THE NEXT ASSESSMENT YEAR. THE SALE FIGURE WOULD BE EXCL USIVE OF EXCISE DUTY WHICH WOULD AMOUNT TO DOUBLE DEDUCTION . ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 18 9. ON THE OTHER HAND, SHRI S.HARIHARAN, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE A SSESSEE IS IMPUGNING THE ORDER OF THE CIT(A) IN CROSS OBJEC TION (C.O.NO.43/MDS/2012) ON THE GROUND THAT THE ASSESS ING OFFICER HAD NO JURISDICTION TO REOPEN THE ASSESSMEN T ON THE BASIS OF CHANGE OF OPINION. HE FURTHER CONTENDED TH AT NOTICE UNDER SECTION 148 WAS SERVED ON THE ASSESSEE AFTER EXPIRY OF TIME LIMIT MENTIONED IN THE ACT. THE ASSESSEE HAD F ILED THE RETURN OF INCOME UNDER SECTION 139 WITHIN DUE DATE AND HAD PRODUCED ALL THE RELEVANT DOCUMENTS WITH REGARD TO NOTICE SERVED BY THE DEPARTMENT UNDER SECTION 143(2). THER EFORE, THE REOPENING OF ASSESSMENT BY THE ASSESSING OFFICE R IS WITHOUT JURISDICTION. IN ORDER TO SUPPORT HIS CONTE NTIONS, HE RELIED ON THE JUDGEMENT OF THE HONBLE SUPREME COUR T OF INDIA IN THE CASE OF CIT VS. KELVINATOR OF INDIA LT D. REPORTED AS (2010) TIOL 06-SC-IT-LB . 10. ON THE ISSUES RAISED BY THE DR, THE AUTHORIZED REPRESENTATIVE SUBMITTED THAT THERE WOULD BE NO DOU BLE DEDUCTION AS MENTIONED BY THE DR AND THERE IS NO QU ESTION OF ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 19 FURTHER ADDITION IN THE INVENTORY. THE A.R. SUBMITT ED THAT THERE WAS SUBSTANTIAL INCREASE IN THE COST OF FINISHED GO ODS AS ON 31.3.2005 AS COMPARED TO 31.03.2004. ON CLOSING ST OCK THE EXCISE DUTY HAS BEEN PROVIDED AS PER ACCOUNTING STA NDARD 2 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. DUE TO SUBSTANTIAL INCREASE IN CLOSING STOCK, ADDITIONA L EXCISE DUTY HAS BEEN PROVIDED. IN THE TAX AUDIT REPORT FOR TH E ASSESSMENT YEAR 2005-06 IT HAS BEEN CERTIFIED THAT THE PROVISION FOR EXCISE DUTY FOR THE FINANCIAL YEAR EN DING ON 31.3.2005 HAS BEEN MADE BEFORE THE FILING OF INCO ME TAX RETURN. THIS COMPLIES THE REQUIREMENT OF SECTION 43 B OF THE ACT. IN ORDER TO SUPPORT HIS CONTENTIONS, THE AR RE LIED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF LOKENETE BALASABEB DESAI SSK LTD. (SUPRA), WHEREIN IT HAS BEEN HELD THAT EXCISE DUTY ON CLOSING STOCK ONCE PR OVIDED SHOULD BE ALLOWED. THE AUTHORIZED REPRESENTATIVE H AS REFERRED TO LETTER DATED 8.8.2008 ADDRESSED TO ACIT WHICH IS AT PAGE 48 OF THE PAPER BOOK. THE SAID LETTER WAS S ENT BY THE ASSESSEE IN REPLY TO THE QUERIES DURING THE COURSE OF ORIGINAL ASSESSMENT, WHEREIN THE DETAILS OF DOMESTIC AS WELL AS EXPORT ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 20 SALES IN NUMBER OF UNITS, AND ALSO IN VALUES WAS ME NTIONED AS EXPLANATION TO QUERY RAISED BY THE ASSESSING OFFICE R IN REGARD TO THE CLOSING STOCK. 11. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RESPECTIVE PARTIES AND HAVE ALSO EXAMINED THE ORDER S PASSED BY THE AUTHORITIES BELOW. WE ARE IN CONSONANCE WITH THE VIEW TAKEN BY THE CIT(A) ON THE ISSUE OF EXCISE DUTY AND CLOSING STOCK. AS HAS BEEN RIGHTLY POINTED OUT, THE ASSESS EE HAD PROVIDED FOR EXCISE DUTY ON CLOSING STOCK IN ACCOR DANCE WITH ACCOUNTING STANDARD 2 ISSUED BY THE INSTITUTE OF CH ARTERED ACCOUNTANTS OF INDIA. THE ASSESSEE IN ITS LETTER DA TED 18.8.2008 HAS CATEGORICALLY STATED THAT THE AMOUNT OF ` 23,02,99,484/- APPEARING IN ANNEXURE 10B OF TAX AUD IT REPORT REPRESENTS EXCISE DUTY PROVISION ON THE CLOS ING STOCK OF FINISHED GOODS AS ON 31.3.2005. THIS AMOUNT WAS PAID BEFORE THE CLEARANCE OF GOODS FROM THE FACTORY PRIO R TO THE DATE OF TAX AUDIT REPORT AS CERTIFIED BY THE TAX AU DITORS. AN AMOUNT OF ` 15,57,94,737/- WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD MANUFACTURING & OTHER EXPEN SES. ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 21 THIS AMOUNT REPRESENTS DIFFERENCE BETWEEN OPENING P ROVISION OF EXCISE DUTY ON STOCK AS ON 1.4.2004 AND THE EXCI SE DUTY ON CLOSING STOCK AS ON 31.3.2005. THE ASSESSING OFFICE R HAS ERRED IN COMING TO THE CONCLUSION THAT SINCE THE SA LE IS NET OFF EXCISE DUTY, THE DEBIT TOWARDS EXCISE DUTY IN THE P ROFIT AND LOSS ACCOUNT CANNOT BE ALLOWED. WITH REGARD TO COMP LIANCE OF THE PROVISIONS OF SECTION 43B IS CONCERNED, THE ASS ESSEE HAD STATED THAT THE AMOUNT OF EXCISE DUTY DEBITED IN TH E PROFIT AND LOSS ACCOUNT HAS BEEN PAID IN THE NEXT YEAR BEFORE THE DUE DATE OF FILING OF RETURN AND THEREFORE, DISALLOWAN CE ON THIS GROUND IS NOT WARRANTED. THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT VS. LOKENETE BALASAHEB DES AI SSK LTD. (SUPRA). THEREFORE, THE APPEAL OF THE REVENUE IS DISMISSED BEING DEVOID OF MERITS. 12. THE CROSS OBJECTIONS HAVE BEEN FILED BY THE ASS ESSEE IMPUGNING THE ORDER OF THE CIT(A) RELEVANT TO THE A SSESSMENT YEAR 2005-06 ON THE ISSUE OF JURISDICTION. THE CR OSS OBJECTIONS HAVE BEEN FILED BY THE ASSESSEE WITH TH E DELAY OF 57 DAYS. THE ASSESSEE HAS NOT FILED ANY APPLICATION FOR ITA NO. 1987 & 1988/MDS/2011 C.O.NO.43/MDS/2012 22 CONDONATION OF DELAY. SINCE, NO REASONS WHATSOEVER HAVE BEEN FURNISHED BY THE ASSESSEE FOR FILING THE CROSS OBJECTIONS BEYOND THE PERIOD OF LIMITATION, THE CROSS OBJECTIO NS OF THE ASSESSEE ARE DISMISSED BEING BARRED BY LIMITATION. 13. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED FOR THE REASONS MENTIONED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, TH E 25 TH DAY OF SEPTEMBER, 2012 AT CHENNAI. SD/- SD/- (ABRAHAM P.GEORGE) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 25 TH SEPTEMBER, 2012. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.