DCIT, New Delhi V. M/s SMCC Construction India Ltd., New Delhi

ITA 4282/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97576 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 21-09-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 15-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BIBHU DUTT MIS HRA
• Assessee Lawyers: G C SRIVASTAVA; SAURABH SRIVASTAVA
• Keywords: Reopening of assessment; Salary income; Tangible material; Difference of opinion; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 142(1); 80HHC; 194C; 147; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G: NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.4282/DEL./2013 (ASSESSMENT YEAR : 2005-06) DCIT, CIRCLE 9 (1), VS. M/S. SMCC CONSTRUCTION IN DIA LTD., NEW DELHI. 23, LOCAL SHOPPING CENTRE, MADANGIR, NEW DELHI 110 062. (PAN : AAACM7822P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.C. SRIVASTAVA, ADVOCATE AND SHRI SAURABH SRIVASTAVA, FCA REVENUE BY : SHRI BIBHU DUTT MISHRA, CIT DR DATE OF HEARING : 21.09.2015 DATE OF PRONOUNCEMENT : 21.10.2015 O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THIS APPEAL, AT THE INSTANCE OF THE REVENUE, IS DIR ECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XII, NEW D ELHI DATED 17.04.2013 FOR THE ASSESSMENT YEAR 2005-06. 2. THE SOLITARY GROUND OF APPEAL TAKEN BY THE REVEN UE IS AGAINST QUASHING OF THE ASSESSMENT PROCEEDINGS U/S 147/148 OF THE INCOM E-TAX ACT, 1961 (HEREINAFTER THE ACT) BY THE CIT (A). 2 ITA NO.4282/DEL/2013 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, S MCC CONSTRUCTION INDIA LIMITED (EARLIER KNOWN AS MITSUI KENSETSU INDIA LIM ITED) WAS INCORPORATED ON 12.12.1996 AS A JOINT VENTURE BETWEEN MITSUI CONSTR UCTION CO. LTD., JAPAN AND M/S. KAIRALI CONSTRUCTION, INDIA. THE ASSESSEE COM MENCED ITS BUSINESS OPERATIONS IN AUGUST 1997 AND THE FIRST YEAR OF ASS ESSMENT WAS AY 1998-99. DURING THE FINANCIAL YEAR 2005-06, THE NAME OF THE ASSESSEE COMPANY WAS CHANGED TO SMCC CONSTRUCTION INDIA PVT. LTD. THE AS SESSEE COMPANY IS INCORPORATED IN INDIA AND IS ENGAGED IN THE BUSINES S OF PROVIDING ENGINEERING SERVICES, UNDERTAKES TURNKEY CONSTRUCTION AND RENOV ATION WORKS OF INDUSTRIAL UNDERTAKINGS, ETC. 3.1 THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDE RATION WAS FILED ON 30.10.2005 DECLARING TAXABLE INCOME OF RS.2,96,99,3 82. ASSESSMENT PROCEEDINGS UNDER SECTION 143(2) OF THE ACT WERE IN ITIATED AND THE SAME WERE COMPLETED VIDE ORDER UNDER SECTION 143(3) OF THE AC T DATED 11.12.2008 AT AN INCOME OF RS.3,04,47,740/-. A NOTICE U/S 148 OF TH E ACT WAS ISSUED ON 23.03.2012 AFTER RECORDING THE REASONS. IN RESPONS E TO NOTICE U/S 148, THE ASSESSEE FILED REPLY DATED 20.04.2012 STATING THAT THE ORIGINAL RETURN OF INCOME FILED FOR THE RELEVANT YEAR I.E. 2005-06 BE TREATED AS RETURN FILED IN COMPLIANCE TO NOTICE ISSUED U/S 148 OF THE ACT AND REQUESTED FOR COPY OF REASONS RECORDED FOR REOPENING THE ASSESSMENT. THE AO PROVIDED THE SAME TO THE ASSESSEE ON 15.10.2012. SUBSEQUENTLY, NOTICE U/S 143 (2) WAS I SSUED TO THE ASSESSEE. VIDE 3 ITA NO.4282/DEL/2013 LETTER DATED 28.02.2013, THE ASSESSEE RAISED OBJECT IONS AGAINST REOPENING OF THE ASSESSMENT WHICH WAS DISPOSED OFF VIDE ORDER DATED 28.02.2013. AGAINST THE SAME, THE ASSESSEE FILED A REPLY WHICH WAS CONSIDER ED AND NOT ACCEPTED BY THE AO. THE AO OBSERVED THAT THE EXPLANATION GIVEN BY THE ASSESSEE COULD NOT BE ACCEPTED BECAUSE SECTION 194C OF THE ACT NOWHERE LI MITS THE DEDUCTION OF ANY PARTICULAR TYPE OF PAYMENT MADE TO THE SUB-CONTRACT OR AND AS SUCH, THE ASSESSEE WAS LIABLE TO DEDUCT TDS ON THE BALANCE PAYMENT OF RS.6,13,90,130/- WHICH THE ASSESSEE HAD FAILED TO COMPLY WITH. SO, THE AO MAD E AN ADDITION OF RS.6,13,90,130/- ON ACCOUNT OF TDS NOT DEDUCTED UND ER THE PRESCRIBED HEADS WERE ADDED BACK TO THE INCOME OF THE ASSESSEE AND C OMPLETED THE REASSESSMENT ON TOTAL INCOME OF RS.9,18,37,870/-. 3.2 AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY CHALLENGING THE ORDER OF THE AO U/S 147/148 OF THE ACT. THE CIT (A) QUASHED THE ASSESSMENT U/S 147/148 OF THE ACT BY HOLDING A S UNDER :-\ GROUND NO.1 TO 4 ARE TOGETHER: I HAVE PERUSED THE FACTS STATED IN THE RE-ASSESSMEN T ORDER AS WELL AS THE FACTS STATED BY THE ASSESSEE IN HIS SUBMISSIONS . THE RETURN FOR ASSESSMENT YEAR 2005-06, WAS FILED ON OCTOBER 30, 2005 DECLARI NG TAXABLE INCOME OF RS.2,96,99,382. THE RETURN WAS DULY PROCESSED UNDER SECTION 143(1) OF THE ACT. ASSESSMENT WAS MADE UNDER SECTION 143(2) ON DE CEMBER 11, 2008. A NOTICE UNDER SECTION 148 WAS ISSUED ON MARCH 23, 2012. THE REASON RECORDED FOR REOPENING OF ASSESSMENT PROCEEDINGS WE RE PROVIDED TO THE APPELLANT AS UNDER: 'IN THE INSTANT CASE, AS PER COLUMN 27(A) OF THE AU DIT REPORT, IT IS STATED THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SO URCE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER. IT HAS NOW BEEN NOT ICED THAT THE 4 ITA NO.4282/DEL/2013 ASSESSEE HAS NOT DEDUCTED TDS ON THE FOLLOWING PAY MENTS THEREBY VIOLATING PROVISIONS OF SECTION 40( A)(IA) OF THE A CT. S.NO. NAME OF ITEMS AMOUNT 1 CONTRACT AND SUB - CONTRACT WORKS 24,02,624 2 ROYALTY 2,39,60,828 3 LEGAL AND PROFESSIONAL SERVICES 1,95,924 4 PAYMENT TO CONTRACTOR 16,42,338 5 RENT 84,68,904 6 ROYALTY ON SALES 2,52,06,791 7 SECURITY SERVICE CHARGES 11,82,701 TOTAL 6,30,60,110 THUS, I HAVE REASONS TO BELIEVE THAT THERE IS ESCA PEMENT OF INCOME TO THE TUNE OF RS.6,30,60,110/- WHICH IS DUE TO THE FAILUR E ON THE PART OF THE ASSESSEE TO TRULY AND FULLY DISCLOSE ALL THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT.' IT HAS BEEN OBSERVED THAT DURING THE ASSESSMENT PRO CEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961, THE AO HAS ISSU ED DETAILED QUESTIONNAIRE TO THE APPELLANT SEEKING INFORMATION RELATING TO CONTRACT AND SUB-CONTRACT WORKS, SUPERVISION FEE, LEGAL & PROFES SIONAL SERVICES ETC AND TDS COMPLIANCE THEREON. THE APPELLANT HAS DULY COMP LIED WITH THE ABOVE NOTICE BY SUBMITTING COMPLETE INFORMATION AND ANY F URTHER INFORMATION SOUGHT BY THE LEARNED AO THEREON. COPIES OF THE QUE STIONNAIRE DATED 27 OCTOBER, 2008 SEEKING SUCH INFORMATION VIDE QUESTIO N NO. 19 AND SUBMISSIONS WAS FILED BY THE APPELLANT ON 26 NOVEMB ER, 2008 AND 03 DECEMBER, 2008 HAVE ALSO BEEN EXAMINED FROM WHERE I T CAN BE OBSERVED THAT THE APPELLANT HAS NOT FAILED TO DISCLOSE ANY MATERI AL FACT TO THE AO. IT IS APPARENT THAT THE APPELLANT HAS TRULY AND COM PLETELY DISCLOSED ALL MATERIAL FACTS RELATING TO ALL THE EXPENSES AT THE TIME OF SCRUTINY ASSESSMENT PROCEEDINGS ITSELF. THE AO, AFTER SCRUTINIZING THE DETAILS FURNISHED BY THE APPELLANT IN THE COURSE OF SCRUTINY ASSESSMENT, FOR MED AN OPINION THAT THE APPELLANT HAS CORRECTLY CLAIMED THESE EXPENSES. IN VIEW OF THESE FACTS, NO NEW FACTS ARE BROUGHT ON RECORD WHICH GIVES REASONS TO BELIEVE THAT THE INCOME OF THE APPELLANT HAS ESCAPED ASSESSMENT. THEREFORE, TH E REOPENING OF ASSESSMENT IN THE PRESENT CASE HAS BEEN MERELY ON THE BASIS OF CHANGE OF OPINION. IT IS SEEN THAT THE REOPENING U/S 147 WAS DONE SUBS EQUENT TO THE FOUR- YEAR PERIOD STIPULATED IN THE PROVISO TO SECTION 14 7 AND, CONSEQUENTLY, THE SAME COULD ONLY BE INITIATED IF ANY INCOME CHARGEAB LE TO TAX HAD ESCAPED ASSESSMENT BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE UNDER SECTION 142(1) OR SECTION 148 OR 'TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS NECESSARY FOR HIS ASSESSMENT' FOR THAT ASSESSMENT YEAR. THERE HAS BEEN NO FAILURE WHICH COULD BE ATTRIBUTED TO THE ASSESSEE OF NOT DISCLOSING FULLY TRULY ALL RELEVANT PRIMARY MAT ERIAL FACTS NECESSARY FOR COMPLETION ASSESSMENT BECAUSE IN THE REASONS ITSELF IT IS MENTIONED AS PER 5 ITA NO.4282/DEL/2013 COLUMN 27(A) OF THE AUDIT REPORT, IT IS STATED THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE IN ACCORDANCE WITH THE PROVI SIONS OF CHAPTER ....' IT IS EVIDENT THAT REASONS RECORDED ARE BASED ON THE AUDI T REPORT OF THE ASSESSEE WHICH WERE FURNISHED WITH THE RETURN OF INCOME. FUR THER IT IS SELF EVIDENT THAT THE INFORMATION WAS AVAILABLE IN COURSE OF ORIGINAL ASSESSMENT AND ALL THE MATERIAL INFORMATION NECESSARY FOR FRAMING AN ASSES SMENT. IT IS ALSO SEEN THAT NO NEW FACTS OR MATERIAL HAD BEEN BROUGHT ON RECORD WHICH PROVIDES REASONS TO BELIEVE THAT THE INCOME OF THE APPELLANT HAS ESC APED ASSESSMENT. IN VIEW OF THE ABOVE FACTS THIS IS NOT A FIT CASE FOR REOPE NING OF ASSESSMENT. MY ATTENTION WAS FURTHER DRAWN TO THE PROVISO TO SE CTION 147: 'PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTIO N (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHA RGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REAS ON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR.' THIS CASE IS SQUARELY COVERED BY MY ORDER IN THE CA SE OF JCIT(OSD), CIRCLE 9(1), NEW DELHI VS SMS DEMANG PVT. LTD. THE ITAT DELHI BENCH 'G' IN ITA NO. 5666/DELL2011 VIDE ORDER DATED 08/02/201 3 HAS UPHELD THE SIMILAR ISSUE AND HAS STATED THAT.- ' .. .IN THE PRESENT CASE BEFORE US AS DISCUSSED AB OVE THE ASSESSING OFFICER DURING ORIGINAL ASSESSMENT PROCEEDINGS HAD RAISED A QUESTION ON THE ISSUE OF THE CLAIMED BAD DEBT AND ON THE PRO VISION OF WARRANTY AND CURRENT LIABILITIES VIDE QUERY NO. 12 OF THE QU ESTIONNAIRE AND BEING CONVINCED WITH THE SUBMISSION OF THE ASSESSEE MADE IN THIS REGARD HE HAD ACCEPTED THE CLAIM. THE TAX AUDIT REPORT FILED BY THE ASSESSEE WAS ALREADY THERE ON RECORD ON THE BASIS OF WHICH R EOPENING OF ASSESSMENT U/S 147 HAS BEEN INITIATED AFTER RECORDI NG THE REASONS. UNDER THESE CIRCUMSTANCES WE FIND THAT THE LD. CIT( A) HAS RIGHTLY ACCEPTED THE OBJECTION OF THE ASSESSEE THAT INITIAT ION OF REOPENING PROCEEDINGS U/S 147 OF THE ACT IN THE PRESENT CASE AFTER THE EXPIRY OF 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR WAS NOT VALID AS PER THE PROVISO TO SECTION 147 OF THE ACT SINCE THE RE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSED FULLY AND TRU LY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT FOR ASSESSMENT YEAR UN DER CONSIDERATION... WE DO NOT FIND REASON TO INTERFERE WITH THE FINDING S OF THE LD. CIT(A) THAT INITIATION OF REOPENING PROCEEDINGS IN THE PRE SENT CASE WAS BARRED UNDER THE PROVISO OF SECTION 147 OF THE ACT AND HEN CE WE ARE OF THE VIEW THAT THE LD. CIT(A) HAS RIGHTLY QUASHED THE AS SESSMENT U/S 6 ITA NO.4282/DEL/2013 147/143(3) OF THE ACT MADE IN FURTHERANCE TO THE IN VALID NOTICE ISSUED U/S 148 OF THE ACT. FURTHER, IN APPELLANT'S OWN CASE FOR THE ASSESSMENT YEAR 2004-05 WITH THE HONOURABLE IT AT BENCH OF DELHI WHERE IT WAS HE LD THAT ' .....IT IS EVIDENT THAT IN THE ORIGINAL ASSESSMEN T, THE ASSESSEE CLAIMED CERTAIN EXPENSES WHICH ARE IN THE NATURE OF PURCHAS E OF DESIGNS AND DRAWINGS TO BE REVENUE EXPENDITURE AND THE SAME WERE DISALLO WED AS SUCH. NOW, IN THE OPINION OF THE ASSESSING OFFICER, IT IS IN THE NATU RE OF CAPITAL EXPENDITURE. THUS, AS PER THE ASSESSING OFFICER HIMSELF THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ANY MATERIAL FACT NECESSAR Y (OR ASSESSMENT. IT IS A CLEAR CASE OF CHANGE OF OPINION WHEREIN THE SUCCEED ING ASSESSING OFFICER IS OF THE OPINION THAT THE EXPENDITURE WHICH WAS ALLOW ED IN THE ORIGINAL PROCEEDINGS AS REVENUE EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE. HOWEVER, AS PER THE PROVISO TO SECTION 147, UNLESS THERE IS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE ANY MATERIAL FACT, THE ASSESSMENT CANNOT BE REOPENED.' RELIANCE IN THIS RESPECT IS ALSO PLACED ON THE FOLL OWING JUDGMENT IS AS UNDER:- IN THE CASE OF CIT VS USHA INTERNATIONAL LTD. IN IT A NO. 202612010 DATED SEPTEMBER 21, 2012 WHERE IN THE COURT REITERA TED THAT ONUS IS ON AO TO PROVE THAT THERE IS FAILURE ON THE PART OF THE ASSE SSEE TO DISCLOSE TRULY AND FULLY OF ALL PARTICULARS OF INCOME WHICH RESULTED I NTO AN ESCAPED ASSESSMENT. IN CASE OF THE NON-OBSERVATION OF THE SAME, THE ENT IRE PROCEEDINGS IN PURSUANT OF THE SAME ARE VOID AND BAD IN LAW. HON'BLE SUPREME COURT JUDGEMENT IN CASE OF M/S KELV INATOR OF INDIA LIMITED [2010-TIOL-06-SC-IT-LB] WHERE IT WAS HELD A FTER CONSIDERING THE VARIOUS AMENDMENTS U/S 147 OF THE LT. ACT, HELD THA T: 'THE ASSESSING OFFICER CANNOT RE-OPEN ASSESSMENTS O N THE BASIS OF MERE CHANGE OF OPINION AND IF THE SAME IS DONE IT W OULD GIVE ARBITRARY POWERS TO THE AO TO REOPEN THE PAST ASSESSMENTS ON MERE CHANGE OF OPINION AND THIS IS NOT PERMISSIBLE EVEN AS PER LEGISLATIVE INTENT. ' THE BOMBAY HIGH COURT IN THE CASE OF OHM STOCK BROK ERS (P) LTD. VS COMMISSIONER OF INCOME TAX & ANR. IN WRIT PETN. NOS.79 TO 82 OF 2013 VIDE ORDER DATED 20TH FEBRUARY, 2013 WHEREIN IT IS HELD THAT:- 'THOUGH THE POWER OF THE AO TO REOPEN AS ASSESSMENT WITHIN A PERIOD OF FOUR YEARS IS INDISPUTABLY WIDER THAN WHEN AN AS SESSMENT IS SOUGHT TO BE REOPENED BEYOND FOUR YEARS, THE POWER IS NONETHELES S NOT UNBRIDLED. AFTER THE AMENDMENT WHICH WAS BROUGHT IN BY THE DIRECT TA X LAWS (AMENDMENT) ACT, 1987 W.E.F 1ST APRIL 1989, THE AO MUST HAVE RE ASON TO BELIEVE THAT INCOME HAS ESCAPED THE ASSESSMENT. AT THE SAME TIME , THE AO IS NOT CONFERRED WITH THE POWER TO REVIEW AN ASSESSMENT AN D HE CANNOT REOPEN AS ASSESSMENT ONLY BECAUSE OF A MERE CHANGE IN THE OPI NION. THE AO MUST, IN 7 ITA NO.4282/DEL/2013 OTHER WORDS, HAVE TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS AN ESCAPEMENT OF INCOME. THE MERE FACT THAT THE ORDER OF ASSESSMENT DID NOT SPECIFICALLY DEAL WITH THE ISSUE AS TO WHETHER THE PAYMENT FELL WITHIN THE PURVIEW OF S. 36(1)(II) IS NOT DISPOSITIVE IN THE P RESENT CASE. THE TEST IS AS TO WHETHER THE ASSESSEE HAD FURNISHED TO THE AO ALL TH E PRIMARY FACTS ON THE BASIS OF WHICH A DEDUCTION WAS CLAIMED IN RESPECT O F THE COMMISSION THAT WAS PAID TO THE TWO DIRECTORS FOR SERVICES RENDERED . THE RECORD INDICATES THAT THE ASSESSEE HAD SPECIFICALLY PLACED BEFORE THE AD BY ITS LETTER DT. 4TH SEPT., 2009, COPIES OF THE AGREEMENT DT. 16TH JUNE, 2005 B ETWEEN THE ASSESSEE AND ITS DIRECTORS IN PURSUANCE OF WHICH REMUNERATION WA S PAID TO THEM FOR THE RELEVANT YEAR WHICH INCLUDED THE PAYMENT OF COMMISS ION. THE ATTENTION OF THE AO WAS CLEARLY AND SPECIFICALLY DRAWN TO THE QU ANTUM OF THE FIXED MONTHLY REMUNERATION AND IN ADDITION TO THE PAYMENT OF COMMISSION WHICH IS COMPUTED AT A STIPULATED PROPORTION OF THE NET P ROFITS. THE ASSESSEE EXPLAINED THE BASIS ON WHICH A DECISION WAS TAKEN T O MAKE THE PAYMENT OF COMMISSION AT A FIXED MONTHLY REMUNERATION AND THE REST AT A PROPORTION OF THE NET PROFIT. ACCORDING TO THE ASSESSEE, THIS DEC ISION WAS BASED ON THE VOLATILITY OF THE STOCK MARKET AND HAVING REGARD TO THE FACT THAT THE INCOME OF THE ASSESSEE FROM SHARE BUSINESS HAD REDUCED AND IN FACT, IT WAS RS.35.51 CRORES IN COMPARISON TO THE INCOME OF RS.57.07 CROR ES FOR THE PREVIOUS YEAR, THIS IS THEREFORE, A CASE WHERE THE NATURE OF THE P AYMENT, THE BASIS OF THE COMPUTATION AND THE RATIONALE FOR COMPUTING THE REM UNERATION TO THE TWO DIRECTORS WITH REFERENCE TO A FIXED REMUNERATION IN PART AND A PROPORTION OF THE NET PROFITS IN BALANCE WAS BROUGHT IN FOCUS BEF ORE THE AO. HENCE, ALL THE PRIMARY FACTS FOR THE PURPOSE OF A DEDUCTION UNDER S. 36(1)(II) WERE PLACED BEFORE THE AD. THAT THE ORDER OF ASSESSMENT UNDER S . 143(3) ACCEPTED THE CLAIM ON THIS ISSUE IS WHAT MATTERS. 1T IS NOT IN D ISPUTE THAT THE TWO DIRECTORS HAVE BEEN ASSESSED UNDER S. 143(3) ON THE AMOUNTS P AID BY THE ASSESSEE TO THEM AS SALARY INCOME. THE REVENUE HAS ADMITTEDLY T REATED THE AMOUNTS PAID TO THE DIRECTORS IN QUESTION AS SALARY INCOME IN TH EIR HANDS AND THEIR ASSESSMENTS HAVE BEEN COMPLETED ACCORDINGLY. IN THI S VIEW OF THE MATTER, THE REOPENING OF THE ASSESSMENTS MUST BE HELD TO BE BAS ED ON A PURE CHANGE OF OPINION AND NOT ON TANGIBLE MATERIAL. THEREFORE, TH E CONCLUSION IS THAT THE REOPENING OF THE ASSESSMENT WAS ON A MERE CHANGE OF OPINION AND WAS IMPERMISSIBLE IN LAW. FOR THESE REASONS, THE CONCLU SION IS THAT THE REOPENING OF THE ASSESSMENTS UNDER S. 147 FOR ASSESSMENT YEAR S 2007-08 AND 2008-09 IS CONTRARY TO LAW. THE NOTICES ISSUED UNDER S. 148 FO R THE AFORESAID YEARS ARE QUASHED AND SET ASIDE - CIT VS KELVINATOR OF INDIA LTD. (2010) 228 CTR (SC) 488: (2010) 34DTR (SC) 49: (2010) 320 ITR 561 (SC) IN THE CASE OF COMMISSIONER OF INCOME-TAX VS PUROLA TOR INDIA LTD. [2012] 343 ITR 155 (DELHI HIGH COURT) IT IS HELD TH AT:- '... ONE OF THE JURISDICTIONAL PRE-CONDITIONS FOR R EOPENING OF AN ASSESSMENT AFTER FOUR YEARS IS THAT THERE SHOULD BE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS NECESSARY FOR A SSESSMENT. THE EXPRESSION 'MATERIAL FACTS' IN EXPLANATION J TO SECTION 147 OF THE INCOME-TAX ACT, 1961 REFERS TO PRIMARY FACTS. THE TERM 'PRIMARY FACTS' O R 'MATERIAL FACTS' ARE THOSE FACTS WHICH ARE MATERIAL AND RELEVANT FOR THE DECIS ION OF THE QUESTION BEFORE THE ASSESSING OFFICER AND NON-DISCLOSURE OF WHICH W OULD HAVE A MATERIAL 8 ITA NO.4282/DEL/2013 BEARING ON THE QUESTION OF ESCAPEMENT OF INCOME FRO M ASSESSMENT. WHETHER OR NOT 'PRIMARY FACTS' HAVE BEEN DISCLOSED IS NORMA LLY A QUESTION OF FACT AND DEPENDS UPON THE FACTS AND CIRCUMSTANCES OF EACH CA SE. THE REQUIREMENT OF EXPLANATION 1 IS THAT THERE SHOULD BE FULL AND TRUE DISCLOSURE OF THE PRIMARY OR MATERIAL FACTS AND NOT BEYOND THAT. IT IS THE OBLIG ATION OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY THE PRIMARY FACTS. IT IS N OT THE OBLIGATION OF THE ASSESSEE TO INDICATE AND STATE WHAT LEGAL INFERENCE CAN BE DRAWN FROM THE PRIMARY FACTS. THE ASSESSEE HAD CLAIMED SPECIAL DEDUCTION FOR THE ASSESSMENT YEAR 2000-01 UNDER SECTION 80HHC. THE DEDUCTION WAS REDU CED BY THE ASSESSING OFFICER. THE ORIGINAL RETURN OF INCOME WAS ACCOMPAN IED BY AUDITED ACCOUNTS AND AUDITOR'S REPORT REQUIRED TO BE SUBMITTED IN TE RMS OF SECTION 80HHC (4) OF THE ACT. SIMILARLY, THE ASSESSEE HAD CLAIMED DED UCTION UNDER SECTION 80-IB OF THE ACT, WHICH WAS SPECIFICALLY MENTIONED IN THE AUDITED ACCOUNTS AND THE AUDITOR'S REPORT. THE SPECIAL DEDUCTIONS WERE ALLOW ED. SUBSEQUENTLY, IN MARCH, 2006, REASSESSMENT PROCEEDINGS WERE INITIATE D BY THE ASSESSING OFFICER AFTER RECORDING THAT THE COMPUTATION OF DED UCTION UNDER SECTION 80HHC WAS ALLOWED WITHOUT REDUCING THE DEDUCTION CL AIMED AND ALLOWED UNDER SECTION 80-IB AS REQUIRED BY SECTION 80-IA(9) , WHICH IS ALSO APPLICABLE TO SECTION 80-IB. THE TRIBUNAL HELD THAT THE REASSE SSMENT PROCEEDINGS WERE NOT VALID. ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL, THAT THERE WAS NO INDI CATION THAT THE ASSESSEE HAD FAILED OR ADMITTED TO DISCLOSE THE MAT ERIAL OR PRIMARY FACTS. THESE WERE AVAILABLE ON RECORD. THE ASSESSING OFFI CER HAD FAILED TO DRAW CORRECT LEGAL INFERENCES AT THE TIME OF ORIGINAL AS SESSMENT FROM THE PRIMARY FACTS. THIS WAS NOT AN ERROR OR OMISSION ON THE PAR T OF THE ASSESSEE. IT WAS NOT ALLEGED THAT THE ASSESSEE HAD SUPPRESSED, MISREPRES ENTED OR FALSIFIED THE RECORD/FACTS. IT WAS ALSO NOT ALLEGED THAT THERE WA S ANY SUBSEQUENT FACTUAL INFORMATION ON THE BASIS OF WHICH IT WAS FOUND THAT THE ASSESSEE HAD NOT FULLY DISCLOSED THE PRIMARY FACTS OR HAD FALSIFIED OR DIS CLOSED INCORRECT PRIMARY FACTS. THE REASSESSMENT PROCEEDINGS WERE NOT VALID ... ' ATMA RAM PROPERTIES PVT. LTD. VS. DCIT[2012] 343 IT R 141(DELHI) THE DELHI HIGH COURT HAS STATED AS UNDER.- ' ...IN ORDER TO INITIATE PROCEEDINGS FOR REASSESSM ENT AFTER FOUR YEARS, THERE SHOULD HAVE BEEN A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS NECESSARY FOR ASSESSMENT. IF THE ASS ESSING OFFICER HAD FAILED TO APPLY LEGAL PROVISIONS/SECTION OF THE INCOME-TAX AC T, 1961, THE FAULT CANNOT BE ATTRIBUTED TO THE ASSESSEE. THE REQUIREMENT IS T HAT THE ASSESSEE SHOULD HAVE FAILED OR OMITTED TO MAKE FULL AND TRUE DISCLOSURE OF MATERIAL FACTS. THE ASSESSEE IS NOT REQUIRED TO DISCLOSE, STATE OR EXPL AIN THE LAW ... ' BLB LIMITED VS ASSISTANT COMMISSIONER OF INCOME-TAX [2012]343 ITR 129 (DEL) ' ... HELD, ALLOWING THE PETITION, THAT THE ASSESSE E HAD DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS RELEVANT FOR THE ASSES SMENT. THE REASONS RECORDED 9 ITA NO.4282/DEL/2013 DID NOT DISCLOSE OR STATE THAT THERE WAS FAILURE OR OMISSION TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. THERE WAS NO INDICATI ON AND IT WAS NOT ALLEGED THAT THERE WAS SOME MATERIAL OR INFORMATION AVAILAB LE ON RECORD WHEN REASONS TO REOPEN WERE RECORDED, TO SHOW THAT THE ASSESSEE HAD CONCEALED OR HAD NOT DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS. IN TH E ORIGINAL ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER HAD CONSIDERED AN D EXAMINED WHETHER OR NOT THE NON-COMPETE FEE PAYMENT WAS OF CAPITAL OR R EVENUE NATURE. THE ASSESSING OFFICER ACCEPTED THE STAND OF THE ASSESSE E AND TREATED THE NON- COMPETE FEE AS A REVENUE EXPENDITURE. THE REASSESSM ENT PROCEEDINGS COULD NOT, THEREFORE, BE INITIATED ON THE GROUND THAT THE ASSESSING OFFICER WAS LEGALLY WRONG AND HAD MISAPPLIED AND WRONGLY UNDERS TOOD THE LAW/LEGAL POSITION.' THE ASSESSING OFFICER WAS NOT CORRECT IN HIS ACTION TO ASSUME JURISDICTION OVER THE APPELLANT FOR THE YEAR UNDER CONSIDERATION IN VIEW OF THE PROVISO TO SECTION 147 OF THE ACT. ADDITIONALLY REA SONS RECORDED ARE BASED ON AUDIT REPORT FURNISHED WITH RETURN OF INCOME AND AC CEPTED IN ORIGINAL ASSESSMENT. THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT PROCEEDINGS U/S 143(2) WERE INITIATED BY THE ASSESSING OFFICER AND THE SAME WERE COMPLETED U/S 143(3). IT IS A CASE OF CHANGE OF OPI NION I.E. REAPPRAISAL OF SAME FACTS. ON WHICH EARLIER ASSESSING OFFICER HAD TAKEN A VIEW ON WHICH THE NEW ASSESSING OFFICER DIFFERS. IN VIEW OF THE A BOVE, IT IS SUBMITTED THAT, PROCEEDINGS INITIATED U/S 147 OF THE ACT AND COMPLE TION OF ASSESSMENT U/S 1471143(3) OF THE ACT IS AB-INITIO VOID AND ILLEGAL IS THEREFORE QUASHED. 4. THE REVENUE, BEING AGGRIEVED, FILED THE APPEAL B EFORE US. 5. LD. DR RELIED ON THE ORDER OF THE AO. 6. ON THE OTHER HAND, LD. AR FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BY THE CIT (A) AND SUBMITTED THAT THE ORDER OF THE AO IS ERRONEOUS AS THE SAME WAS PASSED WITHOUT CONSIDERING THE FIRST PROVI SO TO SECTION 147 WHICH PROVIDES THAT WHERE AN ASSESSMENT HAS BEEN COMPLETE D U/S 143(3) OF THE ACT, REASSESSMENT U/S 147 CANNOT BE INITIATED AFTER EXPI RY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS THERE IS AN OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS NECESSARY FOR THE 10 ITA NO.4282/DEL/2013 ASSESSMENT. HE FURTHER SUBMITTED THAT THERE HAS BE EN NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERI AL FACTS WHICH WERE NECESSARY AT THE TIME OF THE ASSESSMENT PROCEEDINGS. HE SUBMIT TED THAT THE REASSESSMENT IS MADE ONLY ON THE BASIS OF A MERE CHANGE OF OPINION WHICH COULD NOT BE A GROUND FOR REOPENING ASSESSMENT PROCEEDINGS. LD. AR SUBMITTED THAT ALL THE RELEVANT INFORMATION WAS SUBMITTED AT THE TIME OF A SSESSMENT PROCEEDINGS AND ALSO AT THE TIME OF REASSESSMENT PROCEEDINGS. HE S UBMITTED THAT THE LD. CIT (A) HAS RIGHTLY QUASHED THE REASSESSMENT PROCEEDINGS AN D WANTED US NOT TO INTERFERE WITH THE ORDER OF THE LD. CIT (A). 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. WE TAKE NOTE THAT THE REOPENING U/S 147 WAS DONE SUBSE QUENT TO THE FOUR-YEAR PERIOD STIPULATED IN THE PROVISO TO SECTION 147 AND, CONSE QUENTLY, THE SAME COULD ONLY BE INITIATED IF ANY INCOME CHARGEABLE TO TAX HAD ES CAPED ASSESSMENT BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE UNDER SECTION 142(1) OR SECTIO N 148 OR ' TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSE SSMENT' FOR THAT ASSESSMENT YEAR. WE TAKE NOTE THAT DURING THE ORIGINAL SCRUTI NY ASSESSMENT PROCEEDINGS U/S 143(3), THE AO HAD ISSUED DETAILED QUESTIONNAIRE TO THE ASSESSEE SEEKING INFORMATION RELATING TO CONTRACT AND SUB-CONTRACT W ORKS, SUPERVISION FEE, LEGAL & PROFESSIONAL SERVICES ETC AND TDS COMPLIANCE THEREO N; AND THE ASSESSEE HAS DULY REPLIED THE QUESTIONNAIRE AND COMPLIED WITH TH E SAID NOTICE BY SUBMITTING 11 ITA NO.4282/DEL/2013 INFORMATION REGARDING THE SAME AND FURTHER INFORMAT ION SOUGHT BY THE AO THEREUPON HAS BEEN FOUND TO HAVE BEEN COMPLIED WITH . WE FURTHER TAKE NOTE THAT QUESTIONNAIRE OF AO DATED 27.10.2008 SOUGHT IN FORMATION PERTAINING TO THE IMPUGNED REOPENING VIDE QUESTION NO. 19 AND THE ASS ESSEE IN RESPONSE TO IT HAD FILED REPLY TO IT ON 26.11.2008 AND 03.12.2008 WHIC H HAVE ALSO BEEN BEFORE THE AO DURING THE ORIGINAL ASSESSMENT. SO, IT CANNOT B E SAID THAT THE ASSESSEE HAS FAILED TO DISCLOSE ANY MATERIAL FACT BEFORE THE AO DURING THE ORIGINAL SCRUTINY ASSESSMENT. WE FURTHER CONCUR WITH THE VIEW OF TH E LD. CIT (A) THAT THERE HAS BEEN NO FAILURE WHICH COULD BE ATTRIBUTED TO THE AS SESSEE OF NOT DISCLOSING FULLY AND TRULY ALL RELEVANT PRIMARY MATERIAL FACTS NECES SARY FOR COMPLETION OF ASSESSMENT BECAUSE IN THE REASONS ITSELF IT WAS MEN TIONED, AS PER COLUMN 27(A) OF THE AUDIT REPORT, IT IS STATED THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER .... '. THIS AVERMENT IN THE REASONS RECORDED FOR REOPENING IS ITSELF COPIED FROM THE VE RY SAME AUDIT REPORT OF THE ASSESSEE WHICH WAS FURNISHED WITH THE ORIGINAL RETU RN OF INCOME. THUS, WE FIND THAT THE ASSESSEE HAS TRULY AND COMPLETELY DISCLOSE D ALL MATERIAL FACTS RELATING TO ALL THE EXPENSES AT THE TIME OF SCRUTINY ASSESSMENT PROCEEDINGS ITSELF AND THE AO, AFTER SCRUTINIZING THE DETAILS FURNISHED BY THE ASSESSEE IN THE COURSE OF SCRUTINY ASSESSMENT, HAS PASSED THE ORIGINAL ASSESS MENT ORDER U/S 143 (3) OF THE ACT. THEREFORE, WE CONCUR WITH THE CIT (A) THAT NO NEW FACTS WERE BROUGHT ON RECORD WHICH CAN BE THE BASIS FOR REASONS TO BELIEV E THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT AND, THEREFORE, THE REOPENING OF ASSESSMENT IN 12 ITA NO.4282/DEL/2013 THE PRESENT CASE HAD BEEN MERELY ON THE BASIS OF CH ANGE OF OPINION, WHICH IS NOT PERMISSIBLE IN THE EYES OF LAW. THEREFORE, WE UPHO LD THE VIEW OF THE LD. CIT (A) THAT THIS IS NOT A FIT CASE FOR REOPENING OF AS SESSMENT. 7.2 IN VIEW OF THE ABOVE, WE HOLD THAT THIS IS A CA SE OF CHANGE OF OPINION AND THE LD. CIT (A) HAS RIGHTLY QUASHED THE REASSESSMEN T. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD. CIT (A). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF OCTOBER, 2015. SD/- SD/- (N.K. SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 21 ST DAY OF OCTOBER, 2015 TS COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A)-XII, NEW DELHI. 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI