Shivsu Canadian Clear Waters Ltd., CHENNAI V. DCIT Corporate Circle 6(1) , CHENNAI

ITA 2347/CHNY/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5011 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 25-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RU GEORGE
• Assessee Lawyers: S SRIDHAR
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings; Capital expenditure
• Section: 143(3); 147; 148; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI ... , . !', $ '% BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.2347/MDS/2017 ' (' / ASSESSMENT YEAR : 2009-10 M/S SHIVSU CANADIAN CLEAR WATERS LTD., 6 B-2, PARIVAKKAM ROAD, LEELAVATHI NAGAR, POONAMALLEE, CHENNAI - 600 056. PAN : AAICS 2574 C V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE ,-*+ . / / RESPONDENT BY : SMT. RUBY GEORGE, CIT 0 . 1$ / DATE OF HEARING : 28.12.2017 23( . 1$ / DATE OF PRONOUNCEMENT : 25.01.2018 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 15, CHEN NAI, DATED 21.08.2017 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2 I.T.A. NO.2347/MDS/17 2. SHRI S. SRIDHAR, THE LD. COUNSEL FOR THE ASSESSE E, SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERATION IS WI TH REGARD TO DISALLOWANCE OF 5,25,00,000/- SAID TO BE PAID TO FOREIGN COMPANY WITHOUT DEDUCTING TAX AS REQUIRED UNDER SEC TION 195 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). THE ASS ESSEE HAS ALSO CHALLENGED REOPENING OF ASSESSMENT UNDER SECTION 14 7 OF THE ACT. 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT RETURN OF INCOME WAS FILED ADMITTING A TOTAL INCOME OF 1,48,24,677/-. THE RETURN WAS PROCESSED UNDER SEC. 143(1) OF THE ACT O N 30.11.2010. SUBSEQUENTLY, ACCORDING TO THE LD. COUNSEL, THE RET URN WAS TAKEN FOR SCRUTINY ASSESSMENT AND NOTICE WAS ISSUED UNDER SEC TION 143(2) OF THE ACT ON 19.08.2010. THE ASSESSING OFFICER COMPLE TED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT BY AN OR DER DATED 29.12.2011. THE ASSESSEE, ACCORDING TO THE LD. COUN SEL, FURNISHED ALL THE DETAILS WITH REGARD TO PAYMENT MADE TO FORE IGN COMPANY. THE ASSESSING OFFICER HAS NOT DISALLOWED ANY PAYMENT UN DER SECTION40(A)(IA) OF THE ACT. SUBSEQUENTLY, ACCORDIN G TO THE LD. COUNSEL, THE ASSESSING OFFICER ISSUED A NOTICE UNDE R SECTION 148 OF THE ACT ON 30.03.2014. ACCORDING TO THE LD. COUNSEL , NO FRESH MATERIAL CAME TO THE POSSESSION OF THE ASSESSING OF FICER. EVEN THOUGH THE NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED WITHIN A 3 I.T.A. NO.2347/MDS/17 PERIOD OF FOUR YEARS, UNLESS THE CONDITIONS WERE CO MPLIED WITH FOR REOPENING ASSESSMENT UNDER SECTION 147 OF THE ACT, THE ASSESSING OFFICER CANNOT REOPEN THE ASSESSMENT. PLACING RELI ANCE ON THE JUDGEMENT OF MADRAS HIGH COURT IN TANMAC INDIA V. D CIT (2016) 97 CCH 189, THE LD. COUNSEL SUBMITTED THAT ON IDENTICA L CIRCUMSTANCES, THE MADRAS HIGH COURT FOUND IN THE C ASE BEFORE IT, THE RETURN WAS PROCESSED UNDER SECTION 143(1)(A) OF THE ACT AND NO NOTICE WAS ISSUED UNDER SECTION 143(2) OF THE ACT A ND THEREAFTER ISSUED NOTICE UNDER SECTION 148 OF THE ACT FOR PROC ESSING THE REASSESSMENT. EVEN IN THAT CASE, ACCORDING TO THE LD. COUNSEL, THE HIGH COURT FOUND THAT REOPENING OF ASSESSMENT IS IN VALID. ACCORDING TO THE LD. COUNSEL, IN VIEW OF THE JUDGEM ENT OF MADRAS HIGH COURT IN TANMAC INDIA (SUPRA), THE ASSESSING O FFICER IS NOT JUSTIFIED IN REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE ACT. 4. COMING TO THE MERIT OF THE ISSUE, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT ADMITTEDLY, THE PAYMENT OF 5,25,00,000/- WAS MADE TO CANADIAN CRYSTALINE EMIRATES, UAE. THI S PAYMENT WAS MADE FOR ERECTION AND COMMISSIONING CHARGES. I T IS NOT FOR TECHNICAL SERVICE. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE PROFIT EARNED BY CANADIAN CRYSTALINE EMIRATES IN RESPECT O F THE PAYMENT MADE BY THE ASSESSEE TOWARDS ERECTION AND COMMISSIO NING 4 I.T.A. NO.2347/MDS/17 CHARGES IS NOT TAXABLE IN INDIA, HENCE, THE ASSESSE E IS NOT LIABLE TO DEDUCT TAX AT ALL UNDER SECTION 195 OF THE ACT. RE FERRING TO EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT, THE LD. COUNSEL SUBMITTED THAT THE CONSIDERATION MADE FOR COMMISSIO NING AND ERECTION OF THE PLANT CANNOT BE CONSIDERED TO BE FE E FOR TECHNICAL SERVICE. ACCORDING TO THE LD. COUNSEL, THE DESIGN AND MACHINERY BELONG TO ASSESSEE AND THE CANADIAN CRYSTALINE EMIR ATES HAS TO ERECT THE MACHINERY WHICH AMOUNTS TO CONSTRUCTION. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE PAYMENT IS NOT LI ABLE FOR TDS. 5. ON THE CONTRARY, SMT. RUBY GEORGE, THE LD. DEPAR TMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE MADE A PAYMENT TO NON-RESIDENT COMPANY M/S CANADIAN CRYSTALLINE EMIRA TES TRADING COMPANY, UAE TOWARDS ERECTION AND COMMISSION CHARGE S WITHOUT DEDUCTING THE TAX, THEREFORE, THE ASSESSING OFFICER REOPENED THE ASSESSMENT. REFERRING TO SECTION 147 OF THE ACT, T HE LD. D.R. POINTED OUT THAT WHEN THE ASSESSING OFFICER HAS A R EASON TO BELIEVE THAT INCOME OTHERWISE CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, HE CAN VERY WELL ISSUE NOTICE UNDER SECTION 148 OF THE ACT FOR REOPENING OF ASSESSMENT. IN THIS CASE, ACCORDING T O THE LD. D.R., THE PAYMENT MADE TO NON-RESIDENT COMPANY REQUIRES D EDUCTION OF TAX AT SOURCE. ADMITTEDLY, THE ASSESSEE HAS NOT DE DUCTED TAX AT 5 I.T.A. NO.2347/MDS/17 SOURCE, THEREFORE, SUCH PAYMENT MADE BY THE ASSESSE E TO A NON- RESIDENT COMPANY CANNOT BE ALLOWED AS DEDUCTION WHI LE COMPUTING THE TAXABLE INCOME. TO THAT EXTENT, ACCORDING TO T HE LD. D.R., THERE WAS ESCAPEMENT OF INCOME FROM TAXATION, HENCE, THE CIT(APPEALS) HAS RIGHTLY FOUND THAT THE ASSESSING OFFICER HAS RI GHTLY REOPENED THE ASSESSMENT. 6. NOW COMING TO THE MERIT OF THE CLAIM MADE BY THE ASSESSEE, SMT. RUBY GEORGE, THE LD. DEPARTMENTAL REPRESENTATI VE SUBMITTED THAT THE PAYMENT WAS ALREADY MADE TO A NON-RESIDENT COMPANY M/S CANADIAN CRYSTALLINE EMIRATES TRADING COMPANY, UAE TOWARDS ERECTION AND COMMISSION CHARGES. ACCORDING TO THE LD. D.R., THE AMOUNT PAID BY THE ASSESSEE TOWARDS ERECTION AND CO MMISSION CHARGES IS IN THE NATURE OF FEE FOR TECHNICAL SERVI CE, THEREFORE, IT REQUIRES DEDUCTION OF TAX AT SOURCE. ACCORDING TO THE LD. D.R., THE NON-RESIDENT COMPANY M/S CANADIAN CRYSTALLINE EMIRA TES TRADING COMPANY, UAE UTILISED ITS TECHNICAL SKILL AND EXPER TISE FOR ERECTION AND COMMISSION OF UNIT. THEREFORE, ACCORDING TO TH E LD. D.R., THE PROFIT OF THE NON-RESIDENT COMPANY IS TAXABLE IN IN DIA, HENCE, THE ASSESSEE IS LIABLE TO DEDUCT TAX. REFERRING TO RET ROSPECTIVE AMENDMENT MADE BY THE PARLIAMENT IN SECTION 9(1)(VI I) OF THE ACT WITH EFFECT FROM 01.06.1976, THE LD. D.R. POINTED O UT THAT THE 6 I.T.A. NO.2347/MDS/17 INCOME OF THE NON-RESIDENT COMPANY IS DEEMED TO ACC RUE IN INDIA IRRESPECTIVE OF THE FACT WHETHER THE NON-RESIDENT C OMPANY HAS A PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIG HTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE MATERIAL AVAILABLE ON RECORD IT APPEARS THAT THE AS SESSEE PURCHASED EQUIPMENTS FROM M/S ALFATAH INTERNATIONAL NAVIGATIO N COMPANY LIMITED, JEDDAH, KINGDOM OF SAUDI ARABIA. THE CONTR ACT OF PURCHASE IS AVAILABLE AT PAGE 1 OF THE PAPER-BOOK. AS PER THIS CONTRACT, THE ASSESSEE HAS PURCHASED THE MACHINERY AND EQUIPMENTS FROM SAUDI ARABIAN COMPANY. THE ASSESSE E HAS ENTERED INTO ANOTHER AGREEMENT FOR INSTALLATION AND COMMISSIONING OF MACHINERY, A COPY OF WHICH IS AVAILABLE AT PAGE 27 OF THE PAPER- BOOK. AS PER THIS AGREEMENT, M/S CANADIAN CRYSTALL INE EMIRATES TRADING COMPANY, UAE IS ONLY A SERVICE PROVIDER FOR INSTALLATION OF THE MACHINERY. THE MACHINERY WAS PURCHASED OUTSIDE INDIA. IT WAS SUPPLIED OUTSIDE INDIA. THE AGREEMENT TO INSTALL T HE MACHINERY IS ALSO MADE OUTSIDE INDIA. THEREFORE, M/S CANADIAN C RYSTALLINE EMIRATES TRADING COMPANY, UAE HAS NO BUSINESS CONNE CTION OR 7 I.T.A. NO.2347/MDS/17 PLACE OF BUSINESS IN INDIA. THE ENTIRE SERVICES WE RE RENDERED OUTSIDE INDIA. 8. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 9(1)(VII) OF THE ACT WHICH READS AS FOLLOWS:- 9(1)(VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVIC ES PAYABLE BY (A) THE GOVERNMENT ; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FEE S ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINE SS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY S OURCE OUTSIDE INDIA ; OR (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PR OFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPO SES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN IND IA : PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHAL L APPLY IN RELATION TO ANY INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE TH E 1ST DAY OF APRIL, 1976, AND APPROVED BY THE CENTRAL GOVERNMENT . EXPLANATION 1. FOR THE PURPOSES OF THE FOREGOING PROVISO, AN AGREEMENT MADE ON OR AFTER THE 1ST DAY OF APRIL, 1976, SHALL BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE IF THE AGREEMENT IS MADE IN ACCORDANCE WITH PROPOSALS APPR OVED BY THE CENTRAL GOVERNMENT BEFORE THAT DATE. EXPLANATION 2. FOR THE PURPOSES OF THIS CLAUSE, FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGER IAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE 8 I.T.A. NO.2347/MDS/17 PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATIO N WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER T HE HEAD SALARIES. 9. WHEN A NON-RESIDENT COMPANY RENDERED A TECHNICAL SERVICE AND INDIAN COMPANY PAID FEES IRRESPECTIVE OF THE FA CT WHETHER THE NON-RESIDENT COMPANY HAS A PLACE OF RESIDENCE OR BU SINESS OR BUSINESS CONNECTION IN INDIA OR THE NON-RESIDENT CO MPANY RENDERED SERVICE IN INDIA, THE ASSESSEE IS LIABLE TO DEDUCT TAX. IN THIS CASE, THE QUESTION ARISES FOR CONSIDERATION IS WHETHER TH E COMMISSIONING AND ERECTION OF THE MACHINERY BY M/S CANADIAN CRYST ALLINE EMIRATES TRADING COMPANY, UAE IS A TECHNICAL SERVICE OR NOT? IF THE SERVICE RENDERED BY M/S CANADIAN CRYSTALLINE EMIRATES TRADI NG COMPANY, UAE IS A TECHNICAL SERVICE, THEN THE ASSESSEE IS LI ABLE TO DEDUCT TAX. THEREFORE, WE HAVE TO EXAMINE WHETHER THE SERVICE R ENDERED BY M/S CANADIAN CRYSTALLINE EMIRATES TRADING COMPANY, UAE IS A TECHNICAL SERVICE OR NOT WITHIN THE MEANING OF SECT ION 9(1)(VII) OF THE ACT. 10. THE PARLIAMENT BY WAY OF EXPLANATION 2 TO SECTI ON 9(1)(VII) OF THE ACT, HAS CLARIFIED THAT RENDERING OF MANAGER IAL, TECHNICAL AND CONSULTANCY SERVICES WOULD BE CONSIDERED AS TECHNIC AL SERVICES BUT CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT 9 I.T.A. NO.2347/MDS/17 WOULD NOT BE CONSTRUED AS TECHNICAL SERVICES. IN V IEW OF THIS EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT, WE H AVE TO EXAMINE WHETHER THE SERVICE RENDERED BY M/S CANADIAN CRYSTA LLINE EMIRATES TRADING COMPANY, UAE WOULD AMOUNT TO TECHNICAL SERV ICE OR NOT. 11. WE HAVE CAREFULLY GONE THROUGH THE AGREEMENT EN TERED INTO BETWEEN THE ASSESSEE AND M/S CANADIAN CRYSTALLINE E MIRATES TRADING COMPANY, UAE. IT IS OBVIOUS FROM THE AGREEM ENT THAT THE ASSESSEE HAS ENTERED INTO THE AGREEMENT FOR PURCHAS E OF DESIGN, MACHINERY, ETC. IN RESPECT OF SEAWATER DESALINATION EQUIPMENT OF CAPACITY OF 60,000M3 PER DAY. M/S CANADIAN CRYSTAL LINE EMIRATES TRADING COMPANY, UAE AGREED TO INSTALL AND COMMISSI ON THE DESALINATION EQUIPMENT OUTSIDE THE COUNTRY. THE EQ UIPMENT, SPECIFICATIONS, DESIGNING, DRAWING, ETC. SHALL REMA IN THE PROPERTY OF THE ASSESSEE-COMPANY. IN FACT, THE AGREEMENT READS AS FOLLOWS:- COPYRIGHTS AND TITLE: THE CONTRACTOR HEREBY IRREVOCABLY AGREE AND WARRANT THAT ANY COPYRIGHT AND TITLE INFORMATION, DRAWINGS, PHOTOGRA PHS, CALCULATIONS, SPECIFICATIONS, EQUIPMENT, DEVELOPED OR PROVIDED BY THE PRINCIPAL TO THE CONTRACTOR AND WHETHER SUCH WAS PROVIDED DIRECTLY OR INDIRECTLY TO THE CONTRACTOR S HALL BE THE PROPERTY OF THE PRINCIPAL AND THE CONTRACTOR SHALL NOT USE THE SAME FOR ANY OTHER PURPOSE OTHER THAN PERFORMANCE O F SERVICES PURSUANT THIS AGREEMENT. THE CONTRACTOR H EREBY VEST ALL COPYRIGHT, TITLE, DESIGNS, PATENTS AND OTH ER PROPRIETARY RIGHTS WHATSOEVER RELATING TO THIS AGREEMENT AND DE VELOPED / 10 I.T.A. NO.2347/MDS/17 ACQUIRED DURING THE CURRENCY OF THE AGREEMENT FROM ANY THIRD PARTY TO THE PRINCIPALS. THE CONTRACTOR SHALL EXEC UTE ALL NECESSARY DOCUMENTS, PROOF, STATEMENTS IF ANY REQUI RED BY THE PRINCIPAL PROVING SUCH COPYRIGHTS, TITLE, DESIGN, P ATENTS AND OTHER PROPRIETARY RIGHTS OF THE PRINCIPAL. 12. IN VIEW OF THE ABOVE SPECIFIC AGREEMENT BETWEEN THE ASSESSEE AND M/S CANADIAN CRYSTALLINE EMIRATES TRAD ING COMPANY, UAE, IT IS OBVIOUS THAT M/S CANADIAN CRYST ALLINE EMIRATES TRADING COMPANY, UAE HAS ERECTED AND COMMI SSIONED THE DESALINATION EQUIPMENT OUTSIDE THE COUNTRY, THE REFORE, IT CANNOT BE CONSTRUED TO BE A TECHNICAL SERVICE WITHIN THE M EANING OF SECTION 9(1)(VII) OF THE ACT. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE FEE PAID BY THE ASSESSEE TO M/S CA NADIAN CRYSTALLINE EMIRATES TRADING COMPANY, UAE IS NOT A FEE FOR TECHNICAL SERVICE. HENCE, IT DOES NOT REQUIRE ANY DEDUCTION OF TAX UNDER SECTION 195 OF THE ACT. THEREFORE, NO INCOME HAS ESCAPED FROM TAXATION. 13. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMEN T OF MADRAS HIGH COURT IN TANMAC INDIA (SUPRA). IN THE CASE B EFORE MADRAS HIGH COURT, THE ASSESSEE-PARTNERSHIP FIRM PAID 5,50,000/- TO A RETIRING PARTNER TOWARDS COMPENSATION. THE FIRM CL AIMED THE ABOVE SAID PAYMENT OF 5,50,000/- AS DEDUCTION WHILE COMPUTING THE TAXABLE INCOME. INITIALLY, THE RETURN WAS PROCESSE D UNDER SECTION 11 I.T.A. NO.2347/MDS/17 143(1)(A) OF THE ACT. NO NOTICE WAS ISSUED UNDER S ECTION 143(2) OF THE ACT. SUBSEQUENTLY, THE ASSESSING OFFICER ISSUE D NOTICE UNDER SECTION 148 OF THE ACT AND INITIATED REASSESSMENT P ROCEEDINGS. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER T HAT THE PAYMENT OF 5,50,000/- TO THE RETIRING PARTNER IS A NON-COMPETE FEE, THEREFORE, IT IS AN ALLOWABLE DEDUCTION. THE ASSES SING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE HOLDING THAT I T IS A CAPITAL EXPENDITURE. THE CIT(APPEALS) REJECTED THE APPEAL OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER. THIS TRIBUNAL ALSO BY AN ORDER DATED 18.08.2006, CO NFIRMED THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE CIT(A PPEALS). ON FURTHER APPEAL BY THE ASSESSEE BEFORE THE HIGH COUR T, IT WAS FOUND THAT THE ASSESSING OFFICER INITIATED REASSESSMENT P ROCEEDINGS SOLELY ON THE BASIS OF RETURN OF INCOME AND THE ENCLOSURES THERETO, BEING THE FINANCIALS AND THE DEED OF PARTNERSHIP. THE HIG H COURT FOUND THAT THE ABOVE SAID DOCUMENTS WERE PART OF RECORD A ND ON THAT BASIS, THE INTIMATION UNDER SECTION 143(1)(A) OF TH E ACT WAS ISSUED ON 01.12.1998. SUBSEQUENTLY, THE HIGH COURT FOUND THAT THE DEPARTMENT CANNOT BE PERMITTED TO AVAIL THE EXTENDE D TIME LIMIT IN THE ABSENCE OF ANY NEW OR TANGIBLE MATERIAL, WHEN T HE TIME LIMIT FOR SCRUTINY ASSESSMENT HAS ELAPSED ON 31.03.2001, PRIO R TO ISSUE OF 12 I.T.A. NO.2347/MDS/17 NOTICE UNDER SECTION 148 OF THE ACT. THUS, IT WAS FOUND THAT THE ISSUE OF NOTICE FOR REASSESSMENT PROCEEDING IS AN A RBITRARY EXERCISE OF POWER AND A REVIEW OF PROCEEDINGS IS NOT PERMISS IBLE UNDER THE SCHEME OF THE INCOME-TAX ACT. IN FACT, THE HIGH CO URT HAS OBSERVED AS FOLLOWS:- 7. THE SINE QUA NON FOR THE INITIATION OF PRO CEEDINGS IN TERMS OF SECTION 147 OF THE ACT IS REASON TO BELIEVE ON THE PART OF THE ASSESSING OFFICER THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. WHILE THE COURT CANNOT EXAMINE THE SUFFI CIENCY OF REASONS ON THE BASIS OF WHICH RE-ASSESSMENT IS INIT IATED, THE EXISTENCE OR OTHERWISE SUCH REASON TO BELIEVE IS CER TAINLY OPEN TO VERIFICATION AND WOULD BE EVIDENT FROM THE REASONS RECORDED PRIOR TO ISSUE OF NOTICE UNDER SECTION148 AS REQUIRED IN TERMS OF SECTION 148(2) OF THE ACT. IN ORDER TO EXAMINE THIS AS PECT OF THE MATTER, THE RECORDS WERE CALLED FOR AND HAVE BE EN DULY PRODUCED FOR OUR PERUSAL BY MR..NARAYANASWAMY. THE REASONS RECORDED ARE AS FOLLOWS: THE DEBIT CLAIMED TOWARDS LUMP SUM PAYMENT MADE AS A COMPENSATION FOR FUTURE PROFITS FORGONE BY THE RETI RING PARTNER RS.5,50,000/- IS NOT ALLOWABLE FOR THE FOLLOWING REASONS : 1. THE PAYMENT HAS NOT BEEN AUTHORISED BY PARTNER SHIP DEED. 2. SERVING OF FUTURE PROFIT IS CONTINGENT ONE. CON TINGENT EXPENDITURE CANNOT BE ALLOWED. 3. FUTURE PROFITS DOES NOT RELATE TO THE AY IN QUE STION. AND SO, THE EXPENDITURE CANNOT BE ALLOWED IN THIS AY. 8. A PERUSAL OF THE REASONS WOULD INDICATE THAT TH E ASSESSING OFFICER PROCEEDS SOLELY ON THE BASIS OF THE RETURN OF INCOME AND THE ENCLOSURES THERETO, BEING THE FINANCIALS AND TH E DEED OF PARTNERSHIP, TO INITIATE PROCEEDINGS FOR RE-ASSESSM ENT. THE AFORESAID DOCUMENTS HOWEVER ARE PART OF RECORD AND THE BASIS ON WHICH THE INTIMATION UNDER SECTION 143(1)(A) HAS BEEN ISSUED ON 1.12.98. LET US BEAR IN MIND THAT THE INTIMATION DATED 1.2.1998 HAS BEEN MANUALLY ISSUED, BEING PRIOR TO THE ELECTR ONIC ERA WHICH 13 I.T.A. NO.2347/MDS/17 CAME INTO FORCE ON AND WITH EFFECT FROM 2003. THE ASSE SSING OFFICER HAS THUS EVIDENTLY APPLIED HIS MIND TO THE RETURN AND ANNEXURES EVEN AT THAT STAGE. 9. THE SCHEME OF ASSESSMENT AS SET OUT IN SECTION 1 43 REQUIRES AN ASSESSING OFFICER TO PROCESS THE RETURN BY ISSUE OF AN INTIMATION (WHICH HAS BEEN DONE IN THE PRESENT CASE ) AND THEREAFTER ISSUE A NOTICE UNDER SUB-SECTION (2) OF SECTION 143 TO THE ASSESSEE IF THE ASSESSING OFFICER CONSIDERS IT NECESSARY OR EXPEDIENT TO ENSURE THAT THE ASSESSEE HAS NOT UNDER STATED INCOME, COMPUTED EXCESSIVE LOSS OR UNDERPAID TAX CALL ING UPON HIM TO ATTEND HIS OFFICE AND REQUIRE HIM ON A DATE TO BE SPECIFIED THEREIN, TO PRODUCE OR CAUSE TO BE PRODUCED ANY EV IDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF SUCH CLAI M. HAVING DONE SO, AN ASSESSMENT IS TO BE COMPLETED IN TERMS OF SE CTION 153(1) OF THE ACT WITHIN A PERIOD OF TWO YEARS FROM THE EN D OF THE ASSESSMENT YEAR IN WHICH THE INCOME WAS FIRST ASSES SABLE, IN THIS CASE, ON OR BEFORE 31.3.2001. 10. LET US NOW SEE THE SEQUENCE OF EVENTS THAT HA VE TRANSPIRED IN THIS CASE. THE ASSESSEE FILED A RETURN OF INCOME PURSUANT TO WHICH, AN INTIMATION DATED 1.12.1998 UNDER SECTION 143(1) (A) OF THE ACT WAS ISSUED. THE PROVISIONS OF SECTION 143(2) R EQUIRE THAT IF THE ASSESSING OFFICER CONSIDERED IT NECESSARY OR EXPEDIENT TO ENSURE THAT THE ASSESSE HAS NOT UNDERSTATED INCOME, CLAIMED EXCESSIVE LOSS OR UNDERPAID TAX IN ANY MANNER, THE A SSESSMENT IS TO BE SUBJECT TO FURTHER SCRUTINY, A NOTICE UNDER S ECTION 143(2) IS LIABLE TO BE ISSUED AND THE ASSESSMENT COMPLETED ON OR BEFORE 31.3.2001. THIS WAS NOT DONE IN THE PRESENT CASE. SUBSE QUENTLY, A NOTICE UNDER SECTION 148 HAS BEEN ISSUED ON 9.12.2002 UNDER SECTION 148 OF THE INCOME TAX ACT TAKING ADVANTAGE OF THE NOW EXTENDED LIMITATION OF FOUR YEARS TO RE-ASSESS INCOM E ON THE BASIS OF THE SAME MATERIALS THAT WERE AVAILABLE WIT H THE AUTHORITY AS PART OF THE RECORD. 11. THE PHRASE REASON TO BELIEVE IN SECTION 147 REL ATES TO SUCH OTHER NEW OR TANGIBLE MATERIAL AS MAY HAVE COME TO THE KNOWLEDGE OF THE ASSESSING OFFICER PURSUANT TO THE ORIGINAL PROCEEDINGS FOR ASSESSMENT. THE SUPREME COURT IN CI T VS. KELVINATOR OF INDIA (320 ITR 561) STATES THUS IN THE CON TEXT OF THE BELIEFTHAT SHOULD FORM THE BASIS FOR A RE-ASSES SMENT; 14 I.T.A. NO.2347/MDS/17 WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENC E BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW, HE HAS TH E POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FUL FILLMENT OF CERTAIN PRE-CONDITIONS AND IF THE CONCEPT OF CHA NGE OF OPINION IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSE SSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE OF OPINION AS AN IN-BUILT TEST TO CHECK ABUS E OF POWER BY THE ASSESSING OFFICER. HENCE, AFTER 1ST APRIL, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN, PROVIDED THE RE IS TANGIBLE MATERIALTO COME TO THE CONCLUSION THAT THE RE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LINK WITH THE FORMATION OF THE BELIEF. 12. IF THE ASSESSING OFFICER, AFTER ISSUING IN TIMATION U/S SECTION 143(1) DOES NOT TO ISSUE A NOTICE U/S 143(2) OF THE ACT TO INITIATE PROCEEDINGS FOR SCRUTINY OF THE RETURN OF INCOME, THE OBVIOUS CONCLUSION IS THAT HE DOES NOT CONSIDER IT NECESSARY OR EXPEDIENT TO DO SO, THE INFERENCE BEING THAT THE RET URN OF INCOME FILED IN ORDER. IT IS THIS OPINION THAT CANN OT BE ARBITRARILY CHANGED BY THE ASSESSING OFFICER, TO RE-ASSESS INCO ME ON THE BASIS OF STALE MATERIAL, ALREADY ON RECORD. IF WE T HUS KEEP IN THE MIND THE ABOVE FUNDAMENTAL REQUIREMENT OF SECTION 1 47, IT WOULD BE APPARENT THAT THE EXERCISE UNDERTAKEN BY THE REVE NUE IN THIS CASE IS NOT ONE OF RE-ASSESSMENT, BUT OF REVIEW. TH E REASONS MAKE IT ABUNDANTLY CLEAR THAT THE RE-ASSESSMENT IS SOUGHT TO BE INITIATED ON THE BASIS OF THE RETURN OF INCOME AND THE ENCLOSURES WHICH WERE AVAILABLE WITH THE ASSESSING OFFICER SIN CE 2.11.1998 AND WHICH OUGHT TO HAVE PROMPTED HIM TO ISSUE A NOT ICE UNDER SECTION 143(2) OF THE ACT TO CONDUCT THE PROCEEDINGS U NDER SCRUTINY. WHAT IS SOUGHT TO BE DONE BY THE RE-ASSES SMENT OUGHT TO HAVE BEEN ACHIEVED BY SCRUTINY ASSESSMENT PROCEE DINGS. HAVING MISSED THE BUS EARLIER, THE DEPARTMENT CANNO T BE PERMITTED TO AVAIL OF THE EXTENDED TIME LIMIT IN THE ABSENCE OF ANY NEW OR TANGIBLE MATERIAL, WHEN THE TIME FOR SC RUTINY ASSESSMENT HAS ELAPSED ON 31.3.2001, PRIOR TO ISSUE OF N OTICE U/S 148. THE NOTICE UNDER SECTION 148 DATED 9.12.2002 IS THUS AN ARBITRARY EXERCISE OF POWER AND A REVIEW OF PROCEEDI NGS IMPERMISSIBLE IN LAW. 15 I.T.A. NO.2347/MDS/17 14. IN THE CASE BEFORE US, THE ORIGINAL ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT WAS PASSED ON 29.12.2011. THEREFORE, THE ASSESSING OFFICER, AFTER SCRUTINIZING THE ENTIR E MATERIAL AVAILABLE ON RECORD, ALLOWED THE CLAIM OF THE ASSESSEE. IN T HE CASE BEFORE HIGH COURT, IT WAS ONLY AN INTIMATION UNDER SECTION 143(1)(A) OF THE ACT, BUT IN THIS CASE IT IS AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT. THE REASSESSMENT PROCEEDINGS WERE INITIATED ON THE BASIS OF THE RETURN AND ITS E NCLOSURES. NO TANGIBLE OR NEW MATERIAL CAME TO THE POSSESSION OF THE ASSESSING OFFICER SUBSEQUENTLY. 15. IN VIEW OF THE ABOVE, IN THE ABSENCE OF ANY TAN GIBLE MATERIAL WHICH CAME TO THE POSSESSION OF THE ASSESSING OFFIC ER, THE PROCEEDING CANNOT BE REOPENED BY ISSUING NOTICE UND ER SECTION 148 OF THE ACT. SINCE THE SCRUTINY PROCEEDING UNDER SE CTION 143(3) OF THE ACT WAS COMPLETED BY AN ORDER DATED 29.12.2011, IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COURT IN TANMAC INDIA ( SUPRA), THE ASSESSING OFFICER CANNOT REOPEN THE COMPLETED ASSES SMENT IN THE ABSENCE OF ANY NEW OR TANGIBLE MATERIAL. THEREFORE , EVEN THE REOPENING OF ASSESSMENT ITSELF IS INVALID IN LAW. 16 I.T.A. NO.2347/MDS/17 16. IN VIEW OF THE ABOVE, WE ARE UNABLE TO UPHOLD T HE ORDER OF THE LOWER AUTHORITIES. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ADDITION MADE BY THE AS SESSING OFFICER IS DELETED. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED ON 25 TH JANUARY, 2018 AT CHENNAI. SD/- SD/- (. !' ) ( ... ) (S. JAYARAMAN) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 25 TH JANUARY, 2018 KRI. . ,167 87(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 91 () /CIT(A)-15, CHENNAI 4. PRINCIPAL CIT-6, CHENNAI 5. 7: ,1 /DR 6. ' ; /GF.