M/s. Network Programme (India) Ltd., New Delhi V. ITO, New Delhi

ITA 4147/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3615 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 12-06-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 25-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KN GUPTA
• Keywords: Reopening of assessment; Audit objection; Tangible material; Difference of opinion; Change of opinion; Capital expenditure
• Section: 43B; 143(3); 147; 148

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH E, NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 4147/DEL/2014 ASSESSMENT YEAR: 2002-03 NETWORK PROGRAMME (INDIA) LTD., 2, WESTERN AVENUE, MAHARANI BAGH NEW DELHI (PAN- AAACN 1499H) (APPELLANT) VS. INCOME - TAX OFFICER, WARD 13(2), NEW DELHI. (RESPONDENT) APPELLANT BY SH. K.N. GUPTA, ADVOCATE RESPONDENT BY MS. RAKHI VIMAL, SR. DR ORDER PER L.P. SAHU, A.M.: THIS APPEAL AT THE INSTANCE OF ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 17.04.2014 OF LD. CIT(A)-XVI, DELHI FOR THE ASSESSM ENT YEAR 2002-03 ON THE FOLLOWING GROUNDS : 1. THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ( 'CIT(A)') ERRED ON FACTS AND IN JAW IN NOT HOLDING THAT THE ASSESSMENT ORDER , DATED 28.12.2006, PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME TAX ACT, 1961 ('THE ACT') IS BEYOND JURISDICT ION, BAD IN LAW AND VOID AB INITIO, SINCE PROCEEDINGS UNDER THAT SECTION WERE I NITIATED (I) ON MERE CHANGE OF OPINION, WITHOUT ANY NEW MATERIAL/INFORMATION CO MING TO THE POSSESSION OF THE ASSESSING OFFICER AND (II) ON THE BASIS OF AUDI T OBSERVATIONS, WITHOUT ANY INDEPENDENT SATISFACTION OF THE ASSESSING OFFICER H AVING BEEN REACHED REGARDING ESCAPEMENT OF INCOME. 1.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW I N HOLDING THAT RE-ASSESSMENT PROCEEDINGS UNDER SECTION 147 WERE NOT INITIATED ON THE BASIS OF MERE CHANGE DATE OF HEARING 26.09.2017 DATE OF PRONOUNCEMENT 17 .11.2017 ITA NO. 4147/DEL./2014 2 OF OPINION, SINCE THE ISSUES ON WHICH RE-ASSESSMENT PROCEEDINGS WERE INITIATED WERE NOT DISCUSSED IN THE ASSESSMENT ORDER UNDER SE CTION 143(3) OF THE ACT, NOR ANY QUERY THERETO WAS RAISED DURING THE COURSE OF A SSESSMENT PROCEEDINGS. MERITS 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW I N UPHOLDING THE DISALLOWANCE OF RS. 1,83,14,900, BEING LOSS INCURRED ON WRITE-OF F OF WORK-IN-PROGRESS RELATING TO DEVELOPMENT OF SOFTWARE, ON THE GROUND THAT THE SAME AS CAPITAL IN NATURE, SINCE THE APPELLANT HAD DISCLOSED THE SAME AS 'CAPI TAL WORK IN PROGRESS' IN THE BALANCE SHEET. 2.1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN HOL DING THAT LOSS INCURRED ON ACCOUNT OF WRITE-OFF WORK-IN-PROGRESS WAS PRIOR PER IOD EXPENDITURE AND WAS INADMISSIBLE AS BUSINESS DEDUCTION DURING THE RELEV ANT ASSESSMENT YEAR. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A COMPANY ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWARE. THE ORIGINAL RETURN OF INCOME WAS FILED ON 31.10.2002 ALONGWITH COMPUTATION OF IN COME WITH NOTES THERETO AND AUDIT REPORT WITH FINANCIAL STATEMENTS, DECLARING A LOSS OF RS.3,67,32,019/-. THE ORIGINAL ASSESSMENT WAS COMPLETED U/S. 143(3) ON 24 .02.2005 ACCEPTING THE LOSS AS RETURNED BY THE ASSESSEE. SUBSEQUENTLY, ON THE B ASIS OF AUDIT OBJECTION, THE AO NOTICED THAT THE ASSESSEE HAD WRITTEN OFF AN AMOUNT OF RS.1,83,32,019/- WHICH WAS CAPITAL EXPENDITURE NOT ALLOWABLE AS REVENUE EXPEND ITURE AND THAT ASSESSEE DID NOT DEPOSIT EMPLOYERS AND EMPLOYEES CONTRIBUTION TO PF AND ESI WITHIN THE STIPULATED TIME AND THEREFORE, THE ASSESSING OFFICE R ISSUED NOTICE U/S. 148 AFTER RECORDING THE REASONS (PB-49A), COPY OF WHICH WAS S UPPLIED TO THE ASSESSEE ON 27.11.2006. THE REASONS RECORDED READ AS UNDER : ITA NO. 4147/DEL./2014 3 IT HAS BEEN NOTICED THAT THE ASSESSEE HAS NOT DEPO SITED EMPLOYERS AS WELL AS EMPLOYEES CONTRIBUTION TO PF AND ESI AMOUNTING TO RUPEES 14,12,034/- WITHIN A STIPULATED TIME AS PER PROVISIONS OF SECT ION 43B READ WITH SECTION 36(1) (IV). IT HAS BEEN NOTED THAT THE ASSESSEE HAS WRITTEN OFF CAPITAL WORK IN PROGRESS AMOUNTING TO RS. 1,83,14,900/- IN THE PROF IT AND LOSS ACCOUNT DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE H AS ITSELF ACCOUNTED FOR EXPENSES AS CAPITAL EXPENDITURE, THEREFORE, BEING C APITAL EXPENDITURE, THIS IS NOT AN ITEM TO BE CLAIMED IN PROFIT AND LOSS ACCOUN T. ON THE BASIS OF ABOVE- MENTIONED, I HAVE REASONS TO BELIEVE THAT THE ASSES SEE HAS ENHANCED THE LOSS BY RS. BY RS.1,97,26,934/-. IN VIEW OF THIS, PERMIS SION TO ISSUE THE NOTICE UNDER SECTION 148 MAY BE ACCORDED IN THE CASE. THE OBJECTIONS RAISED BY THE ASSESSEE ON REOPENING OF ASSESSMENT WERE DISPOSED OF BY THE AO VIDE SPEAKING ORDER DATED 30.11.2006. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY (I) THE WORK IN PROGRESS AMOUNTIN G TO RS.1,83,14,900/- WRITTEN OFF DURING THE YEAR SHOULD NOT BE DISALLOWED CONSID ERING IT AS CAPITAL EXPENDITURE AND ALSO PERTAINING TO THE EARLIER YEARS AND (II) E MPLOYERS AND EMPLOYEES CONTRIBUTION AMOUNTING TO RS.14,12,034/- TO PF AND ESI SHOULD NOT BE ADDED TO THE INCOME FOR THE YEAR UNDER CONSIDERATION AS THE SAME HAVE NOT BEEN DEPOSITED WITHIN STIPULATED TIME AS PER LAW. IN RESPONSE TO N OTICE U/S. 148, THE ASSESSEE FILED RETURN OF INCOME DECLARING THE LOSS AT RS.3,60,80,4 70/- BY ADDING BACK THE EMPLOYEES CONTRIBUTION TO PF, AMOUNTING TO RS.6,51 ,931/- AS INCOME OF THE ASSESSEE IN THE RETURN OF INCOME. THE ASSESSEE IN R ESPONSE TO SHOW CAUSE NOTICE, FILED DETAILED SUBMISSIONS BEFORE THE AO WHICH ARE PLACED AT PAGES 54 TO 60 OF THE PAPER BOOK. HOWEVER, THE LD. ASSESSING OFFICER DID NOT CONCUR WITH THE ITA NO. 4147/DEL./2014 4 SUBMISSIONS OF THE ASSESSEE AND ADDED A SUM OF RS.1 ,83,14,900/- AS EXPENDITURE DEBITED FOR THE EARLIER YEARS AND RS.14,12,034/- AS EMPLOYERS AND EMPLOYEES CONTRIBUTION TO PF AND ESI FUND AND ACCORDINGLY, RE DUCED THE LOSS TO RS.1,70,05,086/- AS AGAINST RS.3,67,32,019/- DECLAR ED BY THE ASSESSEE IN THE ORIGINAL RETURN OF INCOME. THE ASSESSEE CARRIED TH E MATTER BEFORE THE LD. CIT(A) AND CHALLENGED THE VALIDITY OF REOPENING PROCEEDING S AS WELL AS THE ADDITIONS ON MERITS. BEFORE THE LD. CIT(A), THE ASSESSEE MADE WR ITTEN SUBMISSIONS WHICH ARE PLACED AT PAGES 61 TO 70 AND 71 TO 72 OF THE PAPER BOOK. THE LD. CIT(A) AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE ASSESSE E, FACTS OF THE CASE AND VARIOUS CASE LAWS, HELD THE INITIATION OF PROCEEDINGS AS LE GALLY VALID AND SUSTAINED THE ADDITION OF RS.1,83,14,900/-, BUT DELETED THE ADDIT ION OF RS.14,12,034/- U/S. 43B IN RESPECT OF EMPLOYERS CONTRIBUTION TO PF AND ESI FU ND VIDE THE IMPUGNED ORDER. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRI BUNAL. 3. THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT TH E LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THE ISSUANCE OF NOTICE U/S. 14 8/147 AS LEGALLY VALID IGNORING THE FACT THAT THE REASSESSMENT HAS BEEN DONE AFTER CONS IDERING THE SAME MATERIAL WHICH WAS ALREADY ON THE RECORD AT THE TIME OF ORIG INAL ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED THAT THE FACTUAL POSITION PERTAINING TO IMPUGNED ADDITIONS WAS WELL NARRATED IN THE NOTES TO COMPUTATION OF INCOME AT T HE TIME OF FILING THE ORIGINAL ITA NO. 4147/DEL./2014 5 RETURN AND WAS VERY MUCH EXISTING ON THE RECORD OF ASSESSING OFFICER IN THE ORIGINAL PROCEEDINGS. THESE NOTES TO COMPUTATION OF INCOME (PB-1C) READ AS UNDER : 1. AMOUNTS OF PROVIDENT FUND DEPOSITED BEYOND THE DUE DATE BUT WITHIN THE PREVIOUS YEAR HAS BEEN CONSIDERED AS AN ADMISSIBLE DEDUCTION DURING THE YEAR. IN THIS CONNECTION WE HAVE RELIED UPON THE DE CISION OF MADRAS TRIBUNAL IN THE CASE OF MADRAS RADIATORS VS. DCIT 5 9 ITD 515 (1996). 2. THE COST INCURRED ON CERTAIN MARKETABLE SOFTWARE P RODUCTS UNDER DEVELOPMENTS WERE BROUGHT FORWARD FROM PREVIOUS AS CAPITAL WIP. DUE TO UNCERTAINTY IN REVENUE WHICH COULD BE REALISED IN F UTURE FROM MARKETING SUCH PRODUCTS, THE MANAGEMENT HAS CHARGED OFF TO P& L ACCOUNT. SINCE THE AMOUNT IS FOR SOFTWARE DEVELOPED FOR BUSINESS PURP OSE IS OF REVENUE NATURE, THE SAME IS BEING CLAIMED AS DETECTION. 3. ESI THE MONTH OF MARCH 2002 TOWARDS EMPLOYEE CONTRI BUTION AND TOWARDS EMPLOYERS CONTRIBUTION WHICH WAS NOT PAYABLE DURING THE YEAR HAVE NOT DISALLOWED UNDER SECTION 43B SINCE EXPLANATION 2 T O SECTION 43B IS APPLICABLE ONLY TO ITEMS MENTIONED IN CLAUSE (A) OF THE SAID SECTION, IN VIEW OF THE DECISION OF DELHI BENCH OF ITAT IN CASE OF S YLVANIA LAXMAN 41 ITD 192. THEREFORE, IT WAS SUBMITTED, THAT THE RE-ASSESSMEN T PROCEEDINGS ARE BASED ON CHANGE OF OPINION, WHICH IS IMPERMISSIBLE UNDER THE PROVISIONS OF SECTION 147 OF THE ACT, AS THE ASSESSING OFFICER HAD NO TANGIBLE M ATERIAL TO REOPEN THE COMPLETED ASSESSMENT. RELIANCE IS PLACED ON THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA, 320 ITR 561 (SC) AND O F HONBLE DELHI HIGH COURT IN DIT VS. ROLLS ROYCE INDUSTRIES POWER INDIA LTD., 39 4 ITR 547 (DEL.) AND DELHI HIGH ITA NO. 4147/DEL./2014 6 COURT IN INDU LATA RANGWALA VS. DCIT, 384 ITR 337 D EL.). SEVERAL OTHER DECISIONS HAVE ALSO BEEN RELIED UPON BY THE ASSESSEE (COPIES PLACED ON RECORD). 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDER O F THE LD. AUTHORITIES BELOW AND SUBMITTED THAT THE LAPSE ON THE PART OF ASSESSI NG OFFICER TO EXAMINE A PARTICULAR CLAIM, DOES NOT PRECLUDE HIM TO REOPEN T HE COMPLETED ASSESSMENT U/S. 147/148, AS HELD BY VARIOUS AUTHORITIES. THE TAX AU DITORS HAVE NOT DISCLOSED THE ACTUAL FACTS IN REGARD TO WRITING OFF OF CAPITAL WO RK IN PROGRESS INTO THE PROFIT AND LOSS ACCOUNT. IT WAS SUBMITTED THAT THE CAPITAL EXP ENDITURE OF RS.1,83,14,900/- WAS FOUND NOT PERTAINING TO THE CURRENT YEARS EXPENDIT URE, RATHER THE ASSESSEE ITSELF HAS CLASSIFIED IT AS CAPITAL WORK-IN-PROGRESS IN TH E PREVIOUS YEAR AND SHOWN UNDER THE HEAD FIXED ASSETS. THEREFORE, THE AO WAS JUST IFIED TO REOPEN THE CASE AND TO MAKE ADDITION OF THE IMPUGNED AMOUNT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE G ONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF THE REA SONS RECORDED, AS REPRODUCED ABOVE, WE FIND THAT THE LD. ASSESSING OFFICER HAS N O WHERE RECORDED HIS SATISFACTION THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSES SMENT. MOREOVER, THE REASONS SO RECORDED, FURTHER DO NOT HAVE ANY MENTION ABOUT THE TANGIBLE MATERIAL, WHICH TRIGGERED THE AO TO REOPEN THE COMPLETED ASSESSMENT . THE ASSESSEE HAD PRODUCED ITA NO. 4147/DEL./2014 7 BOOKS OF ACCOUNTS BEFORE THE AO IN ORIGINAL PROCEED INGS WHICH WERE TEST CHECKED BY THE AO. IT IS ALSO BORN OUT ON RECORD THAT SPEC IFIC NOTES TO THE COMPUTATION OF INCOME, AS REPRODUCED ABOVE, WERE AVAILABLE ON RECO RD BEFORE THE ASSESSING OFFICER WHILE COMPLETING THE ORIGINAL ASSESSMENT OR DER. THEREFORE, IT CAN HARDLY BE SAID THAT THERE WAS ANY OMISSION ON THE PART OF THE ASSESSEE TO PRODUCE ALL THE MATERIAL FACTS NECESSARY FOR COMPLETION OF ASSESSME NT. THE REASONS RECORDED ARE SILENT AS TO THE TANGIBLE MATERIAL, WHATSOEVER, LEA DING THE AO TO FORM A BELIEF OF ESCAPEMENT. IN PRESENCE OF ALL THESE FACTS, WE FIND THAT THE DECISIONS RELIED UPON BY THE ASSESSEE ARE SQUARELY APPLICABLE TO THE PRESENT CASE. IN THE PRESENT FACT SITUATION, WE FURTHER LAY OUR HANDS ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF TECHMAN BUILDWELL P. LTD. ACIT, 370 ITR 771 (DEL.), WHEREIN THE HONBLE COURT HAS HELD AS UNDER : IN THE PRESENT CASE THE REASONS TO BELIEVE EXTRACT ED ABOVE NOWHERE HIGHLIGHT WHAT, IF AT ALL, WAS THE MATERIAL WHICH THE AO CAME UP OR BECAME AWARE OF SU BSEQUENT TO THE ORIGINAL ASSESSMENT. IN OTHER WORDS, WHAT TRIGGERED THE AOS CURIOSITY TO IMPEL HI M TO RE-EXAMINE THE FILES AND DOCUMENTS PERTAINING TO A COMPLETED ASSESSMENT IS UNKNOWN. NO R DOES THE MATERIALS PLACED IN THE ASSESSMENT SHOW THAT THE PETITIONER HAD UNJUSTIFIABLY SUPPRESS ED VALID OR RELEVANT INFORMATION WHICH WAS OTHERWISE AVAILABLE. THE ADVERTENCE TO THE DISALLOW ANCE OF A PROVISION FOR AN UNASCERTAINED LIABILITY POINTS TO THE AO INDULGING IN WHAT AMOUNTS TO NOTHI NG BUT A MASKED REVIEW. WHAT APPEARS TO HAVE EXCITED THE AOS MIND WAS THAT THE ORIGINAL ASSESSME NT ORDER WAS NOT FRAMED PROPERLY AS IT OVERLOOKED CERTAIN MATERIALS WHICH LED TO LOSS OF R EVENUE. THE AO IN THE FIRST INSTANCE DID NOT PERFORM HIS JOB PROPERLY FOR WHICH THE ASSESSEE CAN NOT BE FAULTED WITH. IN CALCUTTA DISCOUNT COMPANY LTD. V. I.T.O. 41 ITR 191 THE SUPREME COURT HAD POINTEDLY OBSERVED THAT THE ASSESSEE IS REQUIRED TO FAIRLY DISCLOSE WHAT IS EXPECTED OF HIM THE PRIMARY FACTS WHILE SUBMITTING THE RETURNS. IT IS UP TO THE AO TO DRAW THE NECESSARY INFERENCES. I N THE PRESENT CASE THE AOS OMISSION APPEARS TO HAVE BEEN THE SOLE BASIS FOR ISSUING THE REASSESSME NT NOTICE AND CONSEQUENTLY PROCEEDING TO MAKE THE IMPUGNED DEMAND. ITA NO. 4147/DEL./2014 8 IN THE LIGHT OF THE ABOVE DISCUSSION THIS PETITION H AS TO SUCCEED. THE IMPUGNED NOTICE DATED 20.3.2012 AND THE DEMANDS ARISING CONSEQUENT TO IT THROUGH THE NOTICE DATED 03.10.2012 AND 09.11.2012 ARE HEREBY QUASHED. IN VIEW OF THE ABOVE DISCUSSION, WE FIND MERIT IN T HE LEGAL GROUNDS RAISED BY THE ASSESSEE AGAINST THE VALIDITY OF RE-OPENING OF ASSE SSMENT. ACCORDINGLY, THE NOTICE ISSUED U/S. 148 OF THE ACT IS HELD AS INVALID, THER EBY QUASHING THE CONSEQUENTIAL ASSESSMENT U/S. 147 OF THE ACT. HENCE, THE GROUNDS ON MERITS OF ADDITION BECOME ACADEMIC IN NATURE AND WE NEED NOT TO ADJUDICATE TH E SAME. WE, THEREFORE, DIRECT THE AO TO DELETE THE ADDITION OF RS.1,83,14,900/- O NLY, WHICH IS UNDER CHALLENGE IN THIS APPEAL BEFORE US. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 17.11.2017. SD/- SD/- (BHAVNESH SAINI) (L.P. SA HU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17.11.2017 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI