HV TRANSMISSIONS LTD, MUMBAI V. ITO 2(1)(4), MUMBAI

ITA 2230/MUM/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7295 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 08-09-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 19-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAO
• Assessee Lawyers: DINESH VYAS
• Keywords: Reopening of assessment; Depreciation; Tangible material; Difference of opinion; Validity of assessment; Revised return; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 2230/MUM/2010. ASSESSMENT YEAR : 2001-02. HV TRANSMISSIONS LTD., THE INCOME-TAX OFFICER, 3 RD FLOOR, NANAVATI MAHALAYA, VS. 2(1)(4), MUMBAI. 18, HOMI MODI STREET, HUTATMA CHOWK, MUMBAI 400 001. PAN AABCH 7626Q APPELLANT. RESPONDENT. I.T.A. N O.2476/MUM/2010. ASSESSMENT YEAR : 2001-02. ASSTT. COMMISSIONER OF INCOME-TAX, M/S H.V. TRANSMISSION LTD., 2(1), MUMBAI. VS. MUMBAI. APPELLANT. RESPONDENT. ASSESSEE BY : SHRI DINESH VYAS. DEPARTMENT BY : SHRI GOLI SRINIWAS RAO. DATE OF HEARING : 09-09-2011 DATE OF PRONOUNCEMENT :07-10-2011. O R D E R. PER P.M. JAGTAP, A.M. : THESE TWO APPEALS, ONE FILED BY THE ASSESSEE BEING ITA NO. 2230/MUM/2010 AND OTHER FILED BY THE REVENUE BEING ITA NO. 2476/M UM/2010, ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT (APPEALS)-4, MUMBAI DATED 18- 01-2010. 2 ITA NO.2230/MUM/2010 ITA NO.2476/MUM/2010 ASSESSMENT YEAR : 2001-02. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF HEAVY GEAR BOXES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS ORIGINALLY FILED BY IT 31-1 0-2001 DECLARING A LOSS OF RS.73,57,95,273/-. THE SAID RETURN WAS PROCESSED BY THE AO U/S 143(1) ON 28-01- 32003. THEREAFTER THE ASSESSEE FILED A REVISED RETU RN ON 27-03-2003 DECLARING A TOTAL LOSS OF RS.74,22,78,281/- AFTER REVISING ITS CLAIM U/S 35DDA IN RESPECT OF EMPLOYEES SEPARATION COST. SUBSEQUENTLY IT WAS OBSE RVED BY THE AO FROM THE BALANCE SHEET FILED BY THE ASSESSEE ALONG WITH ITS RETURN OF INCOME THAT THE ASSESSEE COMPANY HAS INCURRED EXPENSES TOWARDS ERP SOFTWARE AMOUNTING TO RS.95,14,000/- AND ALTHOUGH 20% OF THE SAID EXPENSE S WERE ONLY DEBITED IN THE PROFIT & LOSS ACCOUNT, THE ENTIRE AMOUNT OF RS.95,1 4,000/- WAS CLAIMED AS DEDUCTION IN THE COMPUTATION OF TOTAL INCOME. ACCOR DING TO THE AO, THE SAID EXPENSES WERE IN THE NATURE OF CAPITAL WHICH SHOULD HAVE BEEN DISALLOWED. HE, THEREFORE, ENTERTAINED A BELIEF THAT INCOME OF THE ASSESSEE TO THAT EXTENT HAD ESCAPED ASSESSMENT AND THE ASSESSMENT WAS REOPENED BY HIM BY ISSUING NOTICE U/S 148 ON 03-03-2006. IN REPLY, THE ASSESSEE COMPANY S UBMITTED VIDE ITS LETTER DATED 03-04-2006 THAT THE REVISED RETURN OF INCOME FILED BY IT ON 27-03-2003 MAY BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE U/S 1 48. THEREAFTER ASSESSMENT U/S 143(3) READ WITH SECTION 147 WAS MADE BY THE AO BY AN ORDER DATED 27-12-2006 ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT A LOS S OF RS.50,17,47,153/- AFTER MAKING ADDITION INTER ALIA, ON ACCOUNT OF DISALLOWA NCE OF EXPENSES INCURRED ON ERP SOFTWARE TREATING THE SAME AS OF CAPITAL NATURE . IN THE SAID ASSESSMENT, HE ALSO DISALLOWED ASSESSEES CLAIM FOR DEPRECIATION AT 100 % IN RESPECT OF POLLUTION CONTROL AND ENERGY SAVING DEVICES VALUED AT RS.29.2 7 CRORES HOLDING THAT THE SAME HAD BEEN EARLIER USED BY THE SISTER CONCERN OF THE ASSESSEE COMPANY. 3 ITA NO.2230/MUM/2010 ITA NO.2476/MUM/2010 ASSESSMENT YEAR : 2001-02. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3) RE AD WITH SECTION 147, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEA RNED CIT(APPEALS) CHALLENGING THEREIN THE VALIDITY OF THE SAID ASSESSMENT AS WELL AS THE VARIOUS ADDITIONS/DISALLOWANCES MADE THEREIN. THE LEARNED C IT(APPEALS) DID NOT FIND MERIT IN THE CASE OF THE ASSESSEE ON THE PRELIMINARY ISSU E CHALLENGING THE VALIDITY OF THE ORDER PASSED BY THE AO U/S 143(3) READ WITH SECTION 147 AND REJECTING THE SAME, HE UPHELD THE VALIDITY OF THE SAID ASSESSMENT. HE ALSO CONFIRMED THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF EXPENSES INCURRED ON E RP SOFTWARE TREATING THE SAME AS OF CAPITAL NATURE. HE, HOWEVER, ALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION AT THE RATE OF 100% IN RESPECT OF POLL UTION CONTROL AND ENERGY SAVING DEVICES AND DELETED THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE THE TRIBUNAL. 4. IN GROUND NO.1 OF ITS APPEAL, THE ASSESSEE COMPA NY HAS RAISED A PRELIMINARY ISSUE CHALLENGING THE VALIDITY OF ASSESSMENT MADE B Y THE AO U/S 143(3) READ WITH SECTION 147 ON THE GROUND THAT THE INITIATION OF RE ASSESSMENT PROCEEDINGS ITSELF WAS BAD IN LAW. 5. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET INVITED OUR ATTENTION TO THE COPY OF REASONS RECORDED BY THE AO FOR REOPENING TH E ASSESSMENT PLACED AT PAGE NO.1 OF HIS PAPER BOOK AND POINTED OUT THAT THERE W AS NO REFERENCE TO ANY NEW MATERIAL COMING TO THE POSSESSION OF THE AO ON THE BASIS OF WHICH BELIEF ABOUT THE ESCAPEMENT OF INCOME WAS ENTERTAINED BY THE AO TO R EOPEN THE ASSESSMENT. RELYING ON THE THIRD MEMBER DECISION OF MUMBAI BENC H OF ITAT IN THE CASE OF TELCO DADAJI DHACKJEE LTD. VS. DCIT (ITA NO. 4613/M UM/2005 DATED 12 TH MAY, 2010), HE CONTENDED THAT IN THE ABSENCE OF ANY SUCH NEW MATERIAL, THE REOPENING OF 4 ITA NO.2230/MUM/2010 ITA NO.2476/MUM/2010 ASSESSMENT YEAR : 2001-02. ASSESSMENT ITSELF WAS BAD IN LAW AND THE ASSESSMENT MADE IN PURSUANCE THEREOF IS LIABLE TO BE CANCELLED BEING INVALID. 6. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T THE RETURN FILED BY THE ASSESSEE IN THIS CASE WAS ORIGINALLY PROCESSED U/S 143(1) AND EVEN IN THE ABSENCE OF ANY NEW MATERIAL COMING TO THE POSSESSION OF THE AO , IT WAS PERMISSIBLE TO REOPEN THE ASSESSMENT. HE INVITED OUR ATTENTION TO THE REA SONS RECORDED BY THE AO AND SUBMITTED THAT THERE WAS A VALID REASON SPECIFICALL Y GIVEN BY THE AO WHICH FORMED THE BASIS FOR THE BELIEF ENTERTAINED BY HIM REGARDI NG ESCAPEMENT OF INCOME OF THE ASSESSEE FROM ASSESSMENT. HE CONTENDED THAT THE REO PENING OF ASSESSMENT ON THE BASIS OF THE SAID REASONS WAS THUS VALID EVEN IN TH E ABSENCE OF ANY NEW MATERIAL COMING TO THE POSSESSION OF THE AO SINCE THE ASSESS MENT IN THIS CASE WAS ORIGINALLY MADE U/S 143(1) AND NOT U/S 143(3). IN SUPPORT OF T HIS CONTENTION, HE RELIED INTER ALIA, ON THE DECISION OF HONBLE SUPREME COURT IN T HE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. REPORTED IN 291 ITR 500. 7. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE AS SESSEE SUBMITTED THAT THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF R AJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA) RELIED UPON BY THE LEARNED DR HAS BEEN CONSIDERED BY THE THIRD MEMBER IN THE DECISION OF TELCO DADAJI DHACKJEE LTD . (SUPRA) AND AFTER TAKING INTO CONSIDERATION THE SAID DECISION AS WELL AS OF SUBSE QUENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LT D. REPORTED IN 256 ITR 1, THE THIRD MEMBER HAS HELD THAT REASSESSMENT PROCEEDINGS INITIATED BY THE AO WAS LIABLE TO BE QUASHED WHERE THERE WAS NO FRESH MATER IAL AVAILABLE WITH THE AO IN A CASE WHERE ASSESSMENT HAD BEEN COMPLETED ORIGINALLY U/S 143(1). HE HAS CONTENDED THAT THE PRELIMINARY ISSUE INVOLVED IN TH E PRESENT CASE THUS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE SAID DECIS ION OF THIRD MEMBER AND THIS 5 ITA NO.2230/MUM/2010 ITA NO.2476/MUM/2010 ASSESSMENT YEAR : 2001-02. DIVISION BENCH IS BOUND TO FOLLOW THE SAME BEING EQ UIVALENT TO A SPECIAL BENCH DECISION AS HELD BY HONBLE DELHI HIGH COURT IN THE CASE OF P.C. PURI VS. CIT 151 ITR 584. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSM ENT COMPLETED IN THIS CASE ORIGINALLY U/S 143(1) WAS REOPENED BY THE AO FOR TH E FOLLOWING REASONS RECORDED U/S 148(2) : FROM THE BALANCE SHEET, ANNEXURE 11, IT IS SEEN T HAT ASSESSEE HAS INCURRED EXPENSES TOWARDS ENTERPRISE RESOURCE PLANN ING SOFTWARE AMOUNTING TO RS.95,14,000/-. IN THE ACCOUNTS, THE ASSESSEE HAS DEBITED 25% OF TH IS AMOUNT I.E. 23,78,500/- WHEREAS IN THE COMPUTATION OF INCOME, T HE ASSESSEE HAS CLAIMED ENTIRE AMOUNT OF RS.95,14,000/- AS A DEDUCTION. THE EXPENSE INCURRED BY THE ASSESSEE TOWARDS ENTERPRISE RESOURCE PLANNING SOFTW ARE IS PAYMENT FOR ACQUISITION OF SOFTWARE WHICH IS CAPITAL IN NATURE AND HENCE THE ASSESSEES CLAIM OF THE SAME AS REVENUE EXPENSES IS NOT ALLOWA BLE. AS IS CLEARLY EVIDENT FROM THE REASONS RECORDED BY THE AO, THERE WAS NO NEW MATERIAL COMING TO THE POSSESSION OF THE AO ON THE BASIS OF WHICH THE ASSESSMENT COMPLETED U/S 143(1) WAS REOPENED AND THIS POSITION HAS NOT BEEN DISPUTED EVEN BY THE LEARNED DR. RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA), HE, HOWEVER, HAS CONTENDED THAT THE REOPENING OF ASSESSMENT COMPLETED ORIGINALLY U/S 14 3(1) IS PERMISSIBLE WITHOUT THERE BEING ANY NEW MATERIAL COMING TO THE POSSESSI ON OF THE AO IF THE REASONS RECORDED FOR REOPENING OF THE ASSESSMENT ARE OTHERW ISE VALID. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS RELIED ON THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF TELCO DADAJI DHACKJEE LTD. (SUPRA) STATING THAT A SIMILAR 6 ITA NO.2230/MUM/2010 ITA NO.2476/MUM/2010 ASSESSMENT YEAR : 2001-02. ISSUE INVOLVED IN THE SAID CASE HAS BEEN DECIDED BY THE THIRD MEMBER IN FAVOUR OF THE ASSESSEE AFTER TAKING INTO CONSIDERATION THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD . (SUPRA) RELIED UPON BY THE LEARNED DR. IN THE SAID CASE, THE RETURN, FILED BY THE ASSESSEE WAS ORIGINALLY ACCEPTED U/S 143(1). IN THE SAID RETURN THE ASSESSE E HAD CLAIMED DEDUCTION FOR PAYMENT OF NON-COMPETE FEES OF RS.75 LAKHS WHICH IN CLUDED PAYMENT OF RS.15 LAKHS TOWARDS DIRECTORS. THE ASSESSEE HAD ALSO CLAI MED DEPRECIATION OF RS.1,41,858/- ON LEASE PREMISES. THE AO ISSUED NOTI CE U/S 148 ON THE GROUND THAT THESE WERE NOT ALLOWABLE EXPENSES AND INCOME CHARGE ABLE TO TAX HAD ESCAPED ASSESSMENT. HE ACCORDINGLY DISALLOWED BOTH THE ITEM S IN THE REASSESSMENT ORDER. WHEN THE MATTER REACHED TO THE TRIBUNAL, THE LEARNE D JUDICIAL MEMBER TOOK THE VIEW THAT THERE WAS NO FRESH MATERIAL TO SUPPORT TH E FORMATION OF THE BELIEF OF THE AO THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESS MENT AND IN THE ABSENCE OF ANY FRESH TANGIBLE MATERIAL, HE CAME TO THE CONCLUS ION THAT IT WAS NOT PERMISSIBLE FOR THE AO TO REOPEN THE ASSESSMENT. THE LEARNED AC COUNTANT MEMBER, HOWEVER, TOOK A DIFFERENT VIEW RELYING ON THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA) A ND THE MATTER, THEREFORE, WAS REFERRED TO A THIRD MEMBER FOR RESOLVING INTER ALIA , THE FOLLOWING POINT OF DIFFERENCE: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE PRO CEEDINGS INITIATED BY THE AO U/S 147 IS LIABLE TO BE CONFIRMED OR QUASHED WHE N THERE WAS NO FRESH MATERIAL AVAILABLE WITH THE AO AND THE ASSESSMENT H AD BEEN COMPLETED ORIGINALLY U/S 143(1). THE THIRD MEMBER AGREED WITH THE VIEW TAKEN BY THE LEARNED JUDICIAL MEMBER RELYING MAINLY ON THE DECISION OF HONBLE SUPREME C OURT IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) AND EICHER LTD. 320 ITR 561. IT WAS HELD BY THE THIRD 7 ITA NO.2230/MUM/2010 ITA NO.2476/MUM/2010 ASSESSMENT YEAR : 2001-02. MEMBER THAT SECTION 147 APPLIES BOTH TO SECTION 143 (1) AS WELL AS SECTION 143(3) AND, THEREFORE, EXCEPT TO THE EXTENT THAT A REASSES SMENT NOTICE ISSUED U/S 148 IN A CASE WHERE THE ORIGINAL ASSESSMENT WAS MADE U/S 143 (1) CANNOT BE CHALLENGED ON THE GROUND OF A MERE CHANGE OF OPINION, STILL IT IS OPEN TO AN ASSESSEE TO CHALLENGE THE NOTICE ON THE GROUND THAT THERE IS NO REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. AS REGARDS THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD . (SUPRA) CITED BY THE REVENUE AND RELIED UPON BY THE ACCOUNTANT MEMBER, THE THIRD MEMBER HELD THAT THE SAME WAS APPLICABLE IN CASES WHERE THE RETURN WAS PROCES SED U/S 143(1) BUT LATER ON NOTICE WAS ISSUED U/S 148 AND THE ASSESSEE CHALLENG ES THE NOTICE ON THE GROUND THAT IT IS PROMPTED BY A MERE CHANGE OF OPINION. THE THI RD MEMBER THEN REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. KELVINATOR OF INDIA (SUPRA) WHEREIN IT WAS HELD THAT THERE SHOULD BE T ANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT INCOME HAD ESCAPED ASSESSMENT. RELY ING ON THE SAID DECISION, IT WAS HELD BY THE THIRD MEMBER THAT WHILE RESORTING T O SECTION 147 EVEN IN A CASE WHERE ONLY AN INTIMATION HAD BEEN ISSUED U/S 143(1) (A), IT IS ESSENTIAL THAT THE AO SHOULD HAVE BEFORE HIM TANGIBLE MATERIAL JUSTIFYING HIS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. SINCE THERE WAS NO S UCH TANGIBLE MATERIAL BEFORE THE AO FROM WHICH HE COULD ENTERTAIN THE BELIEF THA T INCOME OF THE ASSESSEE CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT, THE THIRD MEMBER HELD THAT REASSESSMENT PROCEEDINGS INITIATED BY THE AO WERE L IABLE TO BE QUASHED ON THE GROUND THAT THERE WAS NO TANGIBLE MATERIAL BEFORE T HE AO EVEN THOUGH THE ASSESSMENT WAS COMPLETED ORIGINALLY U/S 143(1). IN OUR OPINION, THE THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF TELCO DADAJ I DHACKJEE LTD. (SUPRA) IS SQUARELY APPLICABLE IN THE PRESENT CASE AND RESPECT FULLY FOLLOWING THE SAME, WE HOLD THAT THE INITIATION OF REASSESSMENT PROCEEDING S BY THE AO ITSELF WAS BAD IN LAW 8 ITA NO.2230/MUM/2010 ITA NO.2476/MUM/2010 ASSESSMENT YEAR : 2001-02. AND THE REASSESSMENT COMPLETED IN PURSUANCE THEREOF IS LIABLE TO BE QUASHED BEING INVALID. WE ORDER ACCORDINGLY AND ALLOW GROUND NO.1 OF THE ASSESSEES APPEAL. 9. AS A RESULT OF OUR DECISION RENDERED ABOVE ON TH E PRELIMINARY ISSUE QUASHING/CANCELLING THE ASSESSMENT MADE BY THE AO U /S 143(3) READ WITH SECTION 147, THE OTHER ISSUES RAISED IN THE APPEALS OF THE ASSESSEE AND THE REVENUE IN RESPECT OF ADDITIONS MADE IN THE SAID ASSESSMENT HA VE BECOME INFRUCTUOUS AND WE DO NOT DEEM IT NECESSARY OR EXPEDIENT TO DECIDE THE SAME. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 7 TH DAY OF OCT. , 2011. SD/- SD/- (R.V. EASWAR) (P.M. J AGTAP) PRESIDENT. ACC OUNTANT MEMBER MUMBAI, DATED: 7 TH OCT., 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, H-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCH ES, WAKODE MUMBAI.