M/S. HINDUSTAN HARDY SPICER LIMITED, MUMBAI V. INCOME TAX OFFICER-6(3)-2, MUMBAI

ITA 2629/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55008 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 21-07-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 24-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI SR
• Keywords: Depreciation; Difference of opinion; Change of opinion; Reassessment proceedings; Set aside
• Section: 142(1); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI. P.M. JAGTAP (A.M.) AND SHRI. VIJAY PAL RAO (J.M) ITA NO.2629/MUM/2009 ASSESSMENT YEAR : 2001-02 HINDUSTAN HARDY SPICER LIMITED DHANWATY BLDG., PLOT NO.80, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 018. PAN : AAACX0022G VS. INCOME TAX OFFICER-6(3)(2) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIPUL JOSHI RESPONDENT BY : SHRI V.V. SHASTRI (SR.A.R.) O R D E R PER VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 27.02.2009 OF CIT(A)-XXVI, MUMBAI FOR THE A.Y.2001- 02. 2. THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS: 1. THE LD CIT(A)-XXVI, MUMBAI [THE LD CIT(A)] ERR ED IN CONFIRMING THE ACTION OF THE AO WHEREBY THE AO HAD INITIATED REASSESSMENT PROCEEDINGS AND FRAMED ASSESSMENT OF T HE APPELLANT BY INVOKING THE PROVISIONS OF SECTION 147 R.W.S.148 OF THE I.T. ACT, 1961 (THE ACT). 2. THE LD CIT(A) ERRED IN CONFIRMING THE ACTION OF THE AO WHEREBY THE AO TREATED THE TECHNICAL KNOW-HOW FEES OF RS.11,82,730/-, PAID TO M/S. NORDISKA KARDAN AB (M /S.N.K) A CAPITAL IN NATURE. 3. GROUND NO. 1 REGARDING VALIDITY OF REOPENING OF THE ASSESSMENT. THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) ON 19. 03.2004. SUBSEQUENTLY THE CASE WAS REOPENED BY ISSUING A NOT ICE U/S.148 ON 06.03.2006 AND REASSESSMENT ORDER WAS PASSED ON 30. 10.2006 WHEREBY THE TECHNICAL KNOW-HOW FEES WAS DISALLOWED BY THE AO BY TREATING THE SAME AS CAPITAL IN NATURE AND DEPRECIATION AT THE RATE OF 2 5% WAS ALLOWED. THE ASSESSEE CHALLENGED THE VALIDITY OF REASSESSMENT AS WELL AS THE ADDITION ITA NO.2629/MUM/2009 A.Y.: 2001-02 2 MADE BY THE AO BEFORE THE CIT(A). THE CIT(A) REJE CTED THE GROUND OF THE ASSESSEE REGARDING THE VALIDITY OF A ASSESSMENT U/S .143(3) R.W.S. 147. 4. BEFORE US, THE LD AR OF THE ASSESSEE HAS CHALLEN GED THE VALIDITY OF REASSESSMENT ON TWO FOLD. THE FIRST LINE OF ARGUME NTS OF LD AR IS THAT THE NOTICE U/S.148 ISSUED WITHOUT PRIOR APPROVAL OF THE JT.CIT IS NOT VALID AND THEREFORE THE RESULTANT REASSESSMENT IS LIABLE TO B E SET ASIDE. HE HAS REFERRED THE PROVISION OF SECTION 151 OF THE I.T. A CT AND SUBMITTED THAT SINCE THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3), T HE NOTICE U/S.148 CANNOT BE ISSUED WITHOUT PRIOR SATISFACTION OF THE JT. CIT ABOUT THE REASONS RECORDED BY THE AO. SECOND LINE OF ARGUMENT OF TH E LD AR AGAINST THE VALIDITY OF THE REASSESSMENT IS THAT THE AO WHILE P ASSING THE ORIGINAL ASSESSMENT U/S.143(3) HAVE DULY CONSIDERED ALL THE RELEVANT RECORDS, DETAILS AND INFORMATION AND THEREAFTER THE REOPENING OF THE ASSESSMENT WITHOUT ANY FRESH MATERIAL, INFORMATION COME TO THE KNOWLEDGE O F THE AO IS BASED ONLY ON THE CHANGE OF OPINION. HE HAS REFERRED THE ANN EXURE TO NOTICE U/S.142(1) AND SUBMITTED THAT THE AO HAS RAISED QUE STIONNAIRE OF 27 QUESTIONS VIDE ANNEXURE 2 WITH NOTICE U/S.142(1). AT SR. NO.21 OF THE SAID QUESTIONNAIRE THE AO ASKED TO FURNISH COMPLETE DETA ILS OF THE EXPENSES DEBITED UNDER EACH HEAD OF P & L A/C. THE ASSESS EE FURNISHED ALL THE DETAILS INCLUDING THE EXPENSES REGARDING TECHNICAL KNOW-HOW FEES. HE HAS REFERRED THE DETAILS OF THE MISCELLANEOUS EXPENSES WHICH CONTAINS ITEM OF TECHNICAL KNOW-HOW FEE. THUS THE LD AR HAS SUBMIT TED THAT WHILE PASSING THE ORIGINAL ASSESSMENT U/S.143(3) THE AO APPLIED H IS MIND ON THE ISSUE OF EXPENDITURE REGARDING TECHNICAL KNOW-HOW FEE CLAIME D BY THE ASSESSEE AND ALLOWED THE SAME. WHEN THE AO HAS TAKEN A VIEW AN D ALLOWED THE CLAIM OF THE ASSESSEE THEN THE REOPENING ON THIS ISSUE IS PU RELY ON THE BASIS OF CHANGE IN OPINION AND IN THE ABSENCE OF ANY NEW MAT ERIAL AND INFORMATION COME TO THE KNOWLEDGE OF THE AO, THE REOPENING OF T HE ASSESSMENT IS NOT SUSTAINABLE AND LIABLE TO BE SET ASIDE. HE HAS R ELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. KEL VINATOR OF INDIA (256 ITR 1) WHICH HAS BEEN UPHELD BY THE HONBLE SUPREME COU RT IN 320 ITR 561(SC). ITA NO.2629/MUM/2009 A.Y.: 2001-02 3 5. ON THE OTHER HAND LD DR HAS SUBMITTED THAT THE R EOPENING IS WITHIN FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR THER EFORE, THE CASE DOES NOT FALL UNDER THE PROVISION TO U/S.147. HE HAS FURT HER CONTENDED THAT IN THE ORIGINAL ASSESSMENT ORDER THE AO HAS NOT GIVEN ANY FINDING ON THIS ISSUE. EVEN NO DISCUSSION HAS BEEN MADE BY THE AO ON THE I SSUE OF TECHNICAL KNOW-HOW FEE THUS THE AO HAS NOT APPLIED ITS MIND O R TAKEN A VIEW WHILE PASSING THE ORIGINAL ASSESSMENT ORDER AND THEREFORE THERE IS NO QUESTION OF CHANGE OF OPINION. HE HAS RELIED UPON THE IMPUGNED ORDER OF THE LD CIT(A). 6. WE HAVE CONSIDERED THE RIVAL CONTENTION AND CARE FULLY PERUSED THE RELEVANT MATERIAL ON RECORD. AS FAR AS THE FIRST O BJECTION OF THE LD AR REGARDING VALIDITY OF REOPENING OF THE ASSESSMENT I S CONCERNED WE FIND THAT THE NOTICE U/S.148 DATED 06.03.2006 HAS BEEN ISSUED BY THE D.C.I.T. THEREFORE, THERE WAS NO REQUIREMENT FOR TAKING ANY PRIOR APPROVAL OR SATISFACTION BY JT.CIT/COMMISSIONER AS PRESCRIBED U /S.151(1) OF THE I.T. ACT. WE QUOTE SECTION 151 IS AS UNDER: 151(1) IN A CASE WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR SECTION 147 HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NOTICE SHALL BE ISSUED U/S.148 [BY AN AO, WHO IS BELOW THE RANK OF ASSISTANT COMMISSIONER [OR DEPUTY COMMISSIONER], UNLESS THE [JOINT} COMMISSIONER IS SATISFIED ON THE REASONS RECORDED BY SUCH AO THAT IT IS A FIT CASE F OR THE ISSUE OF SUCH NOTICE] 7. SINCE THE NOTICE U/S.148 HAS BEEN ISSUED BY THE D.C.I.T. THEREFORE NO SUCH APPROVAL OR SATISFACTION IS REQUIRED ON THE RE ASONS RECORDED BY THE AO FOR ISSUING THE NOTICE U/S.148 AS PROVIDED U/S.151. IN VIEW OF THE ABOVE FACT WE DID NOT FIND ANY SUBSTANCES OR MERIT IN THE FIRST CONTENTION OF THE LD AR. 8. AS REGARDS THE OBJECTION TO THE REOPENING BASED ON CHANGE OF OPINION IS CONCERNED WE NOTE THAT AS PER THE QUESTIONNAIRE ISSUED BY THE AO BEING ITA NO.2629/MUM/2009 A.Y.: 2001-02 4 ANNEXURE TO SECTION 142(1) OF THE I.T. ACT, THE AO ASKED THE ASSESSEE TO FURNISH COMPLETE DETAILS REGARDING EACH AND EVERY I TEM OF EXPENDITURE DEBITED TO THE P & L A/C. QUESTION NO.21 OF THE S AID QUESTIONNAIRE AS UNDER: FURNISH THE COMPLETE DETAILS (MONTH WISE AND PARTY WISE) OF EXPENSES DEBITED UNDER EACH HEARD OF THE P & L A/C. ALONG WITH COMPARATIVE ANALYSIS WITH PREVIOUS YEARS FIGUR ES. ALSO FURNISH THE REASONS FOR VARIATIONS. PARTY WISE DET AILS SHOULD INCLUDE NAME AND ADDRESS. THE ASSESSEE HAS ALSO PRODUCED BEFORE US THE DETAIL S OF MISCELLANEOUS EXPENDITURE WHICH ALSO CONTAINS THE TECHNICAL KNOW- HOW FEE. THESE DETAILS WERE PRODUCED IN RESPONSE TO THE NOTICE U/S.142(1). WE FURTHER NOTE THAT THE AO HAS REOPENED THE ASSESSMENT BY RECORDING THE FOLLOWING REASONS: IT MAY KINDLY BE NOTED THAT THE ASSESSMENT HAS BEE N REOPENED IN VIEW OF THE FACT THAT YOU HAVE DEBITED AN AMOUNT OF RS.11,82,630/- IN THE P & L A/C. ON ACCOUNT OF T ECHNICAL KNOW-HOW FEES UNDER THE HEAD MISCELLANEOUS EXPENSE S, THIS EXPENSES BEING CAPITAL IN NATURE SHOULD HAVE BEEN C APITALIZED AND THE DEPRECIATION AT THE RATE OF 25% AS PER SECT ION 32(1)(II) OF THE I.T. ACT, IS ONLY ALLOWABLE. 9. IT IS MANIFEST FROM THE REASONS RECORDED THAT NO NEW INFORMATION, MATERIAL OR EVIDENCE COME TO THE KNOWLEDGE OF THE A O AFTER PASSING THE ORIGINAL ASSESSMENT U/S.143(3) TO FORM THE BELIEF T HAT THE INCOME ASSESSABLE TO TAX HAS ESCAPED ASSESSMENT. THE ASSESSING OFFIC ER CALLED ALL THE DETAILS REGARDING EXPENDITURE BOOKED BY THE ASSESSEE AND DE BITED TO P & L A/C. AND AFTER CONSIDERING THE REPLY AND DETAILS FURNISHED B Y THE ASSESSEE THE ASSESSMENT ORDER WAS PASSED U/S.143(3). THUS IT IS CLEAR THAT THE AO APPLIED ITS MIND WHILE ALLOWING THE CLAIM OF THE AS SESSEE AT THE TIME OF PASSING THE ASSESSMENT ORDER U/S.143(3). IT IS SE TTLED PROPOSITION OF LAW THAT REASSESSMENT U/S.143 R.W.S. 147 CANNOT BE INIT IATED MERELY ON CHANGE OF OPINION. THE HONBLE FULL BENCH OF DELHI HIGH C OURT IN THE CASE OF CIT VS. KELVINATOR (SUPRA) HAS OBSERVED AT PAGE 19 & 20 AS UNDER: ANOTHER ASPECT OF THE MATTER ALSO CANNOT BE LOST SIGHT OF. A STATUTE CONFERRING AN ARBITRARY POWER MAY BE HELD T O BE ULTRA VIRES ARTICLE 14 OF THE CONSTITUTION OF INDIA. IF TWO INTERPRETATIONS ARE POSSIBLE, THE INTERPRETATION WH ICH UPHOLDS CONSTITUTIONALITY, IT IS TRITE, SHOULD BE FAVOURED. ITA NO.2629/MUM/2009 A.Y.: 2001-02 5 IN THE EVENT IT IS HELD THAT BY REASON OF SECTION 1 47 IF THE INCOME TAX OFFICER EXERCISES HIS JURISDICTION FOR I NITIATING A PROCEEDING FOR REASSESSMENT ONLY UPON A MERE CHANGE OF OPINION, THE SAME MAY BE HELD TO BE UNCONSTITUTIONA L. WE ARE THEREFORE OF THE OPINION THAT SECTION 147 OF THE AC T DOES NOT POSTULATE CONFERMENT OF POWER UPON THE AO TO INITIA TE REASSESSMENT PROCEEDING UPON HIS MERE CHANGE OF OPI NION. WE, HOWEVER, MAY HASTEN TO ADD THAT IF REASON TO B ELIEVE OF THE AO IS FOUNDED ON AN INFORMATION WHICH MIGHT HAVE BEEN RECEIVED BY THE AO AFTER THE COMPLETION OF ASSESSME NT, IT MAY BE A SOUND FOUNDATION FOR EXERCISING THE POWER U/S. 147 R.W.S.148 OF THE ACT. WE ARE UNABLE TO AGREE WITH THE SUBMISSION OF MR. J OLLY TO THE EFFECT THAT THE IMPUGNED ORDER OF REASSESSMENT CANNOT BE FAULTED AS THE SAME WAS BASED ON INFORMATION DERIVE D FROM THE TAX AUDIT REPORT. THE TAX AUDIT REPORT HAD ALREADY BEEN SUBMITTED BY THE ASSESSEE. IT IS ONE THING TO SAY THAT THE AO HAD RECEIVED INFORMATION FROM AN AUDIT REPORT WHICH WAS NOT BEFORE THE INCOME TAX OFFICER, BUT IT IS ANOTHER TH ING TO SAY THAT SUCH INFORMATION CAN BE DERIVED BY THE MATERIAL WHI CH HAD BEEN SUPPLIED BY THE ASSESSEE HIMSELF. WE ALSO CANNOT ACCEPT THE SUBMISSION OF MR. JOLLY T O THE EFFECT THAT ONLY BECAUSE IN THE ASSESSMENT ORDER, D ETAILED REASONS HAVE NOT BEEN RECORDED AN ANALYSIS OF THE M ATERIALS ON THE RECORD BY ITSELF MAY JUSTIFY THE AO TO INITIATE A PROCEEDING UNDER SECTION 147 OF THE ACT. THE SAID SUBMISSION IS FALLACIOUS. AN ORDER OF ASSESSMENT CAN BE PASSED E ITHER IN TERMS OF SUB-SECTION (1) OF SECTION 143 OR SUB-SECT ION (3) OF SECTION A PRESUMPTION CAN BE RAISED THAT SUCH AN OR DER HAS BEEN PASSED ON APPLICATION OF MIND. IT IS WELL KN OWN THAT A PRESUMPTION CAN ALSO BE RAISED TO THE EFFECT THAT I N TERMS OF CLAUSE (E) OF SECTION 114 OF THE INDIAN EVIDENCE AC T JUDICIAL AND OFFICIAL ACTS HAVE BEEN REGULARLY PERFORMED. IF IT BE HELD THAT AN ORDER WHICH HAS BEEN PASSED PURPORTEDLY WITHOUT APP LICATION OF MIND WOULD ITSELF CONFER JURISDICTION UPON THE A O TO REOPEN THE PROCEEDING WITHOUT ANYTHING FURTHER, THE SAME W OULD AMOUNT TO GIVING A PREMIUM TO AN AUTHORITY EXERCISI NG QUASI- JUDICIAL FUNCTION TO TAKE BENEFIT OF ITS OWN WRONG. 10. THE HONBLE HIGH COURT HAS HELD THAT THE ORDER PASSED U/S.143(3) MAY BE PRESUMED AS PASSED ON APPLICATION OF MIND. THE HONBLE SUPREME COURT 320 ITR 561 WHILE UPHOLDING THE DECISION OF T HE HONBLE DELHI HIGH COURT HAS HELD THAT EVEN UNDER THE AMEND PROVISION OF SECTION 147 THE CONCEPT OF CHANGE OF OPINION HAS NOT BEEN OBLITRATE D AND IT IS AN INBUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. THEIR LORDSHIP HAVE OBSERVED THAT THE AO HAS POWER TO REOPEN PROVIDED T ANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. ITA NO.2629/MUM/2009 A.Y.: 2001-02 6 IN VIEW OF THE ABOVE DISCUSSION AND WHEN THAT THERE IS NO NEW INFORMATION OR MATERIAL CAME TO THE KNOWLEDGE OF THE AO AFTER P ASSING THE ORIGINAL ASSESSMENT U/S.143(3), THE REOPENING OF THE ASSESSM ENT IS NOT SUSTAINABLE AND LIABLE TO BE SET ASIDE. ACCORDINGLY WE HOLD T HAT THE REOPENING OF THE ASSESSMENT IN THIS CASE IS AGAINST LAW AND CONSEQUE NT REASSESSMENT IS NULL AND VOID. IN VIEW OF OUR FINDING THAT THE REASSESS MENT IS INVALID, NO PROPOSE TO GO TO THE MERIT OF THE ADDITION MADE ON THE ISSU E OF TECHNICAL KNOW HOW FEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON THIS 24 TH DAY OF AUGUST, 2011. SD/- (P.M. JAGTAP) (ACCOUNTANT MEMBER) SD/- (VIJAY PAL RAO) (JUDICIAL MEMBER) MUMBAI, DATED 24.08.2011. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUM BAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH , MUM BAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI