DCIT, New Delhi V. M/s. Coperion Ideal Private Ltd., New Delhi

ITA 4375/DEL/2010

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7314 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-09-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 28-09-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS PARWINDER KAUR
• Keywords: Reopening of assessment; Search and seizure; Opportunity of being heard; Audit objection; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 147; 148

Judgement Text

ITA NO. 4375 / DEL/ 201 0 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B , NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. N O . 4375 /DEL/201 0 A.Y . : 2002 - 03 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1), NEW DELHI VS. M/S COPERION IDEAL PRIVATE LIMITED, 402, HEMKUNT TOWER, 58, NEHRU PLACE, NEW DELHI (PAN: AAACW1248F) (APPELLANT) (RESPONDENT) DEPARTMENT BY : MRS. PARWINDER KAUR, SR. DR ASSESSEE BY : SH. SALIL KAPOOR, ADV., SH. VIKAS JAIN, ADV., SH. SANAT KAPOOR, ADV. AND SH. SK JAIN, CA DATE OF HEARING : 04 - 9 - 2014 DATE OF ORDER : . - 9 - 2014 ORDER PER H.S. SIDHU : J M TH IS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) - VI , NEW DELHI DATED 02 . 7 .201 0 P ERTAINING TO ASSESSMENT YEAR 2002 - 03 . 2. THE GROUNDS RAISED READ AS UNDER : - ITA NO. 4375 / DEL/ 201 0 2 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN ANNULLING THE ORDER U/S. 143(3)/147 OF THE I.T. ACT WHILE HOLDING INVALID THE REOPENING U/S. 147, IGNORING THAT ALSO AS PER DECISION OF HON BLE SUPREME COURT IN CIT(A) VS. PVS BEADIES PRIVATE LIMITED 237 IT R 13, THE FACTUAL INFORMATION PROVIDED BY THE INTERNAL AUDITOR IS TO BE TREATED AS INFORMATION FOR THE PURPOSE OF REOPENING OF ASSESSMENT. RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISIONS: - I) PHOOLCHAND BAJRANG LAL VS. CIT (1993) 203 ITR 456 (SC) II) RAM PRASAD VS. ITO (1995) 82 TAXMAN 199 (ALL.) III) CONSOLIDATED PHOTO AND FINVEST LIMITED VS. ACIT (2006) 281 ITR 394 (DEL.) IV) KLM ROYAL DUTCH AIRLINES VS. ADIT (2007) 292 ITR 49 (DEL) V) ACIT VS. RAJESH JHAVERI STOCK BROKERS PVT LTD. (2007) 161 TAXMAN 316 (SC) VI) PRAFU L CHUNILAL PATEL VS. MAKWANA ACIT (1999) 263 ITR 832 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT AMEND, MODIFY, AFTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME ON 31.10.2002 DECLARING TOTAL INCOME OF RS. 6791500/ - . THE SCRUTINY ASSESSMENT WAS COMPLETED ON 31.1.2005 AT ASSESSED INCOME OF RS. 7146170/ - . THE PERUSAL OF RECORD REVEALED THAT T HE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 2071489/ - UNDER THE HEAD ROYALTY AND CESS (ROYALTY RS. 1973337) THAT WAS O ENDURING NATURE AND HENCE WAS A CAPITAL EXPENDITURE AND NOT ALLOWABLE. AS PER THE DECISION OF THE HON BLE SUPREME COURT N THE CASE OF SO UTHERN SWITCHGEARS ITA NO. 4375 / DEL/ 201 0 3 LIMITED VS. CIT DATED 11.12.1997, THE ROYALTY EXPENDITURE IS NOT ALLOWABLE. THIS HAS RESULTED IN ESCAPEMENT OF INCOME TO THE TUNE OF RS. 19,73,337/ - . IN VIEW OF THESE FACTS, THE CASE WAS REOPENED U/S. 147 AND A NOTICE U/S. 148 WAS ISSU ED ON 30.3.2009 REQUIRING IT TO FILE THE RETURN OF INCOME. THE ASSESSEE COMPANY VIDE ITS LETTER DATED 15.4.2009 SUBMITTED THAT THE RETURN ORIGINALLY FILED MAY BE TREATED AS THE RETURN IN RESPONSE TO NOTICE U/S. 148. THE ASSESSEE COMPANY VIDE ITS LETTER D ATED 19.11.2009 OBJECTED TO THE REOPENING OF THE ASSESSMENT, STATING THAT THE REOPENING IS BASED ON CHANGE OF OPINION. THEREAFTER, ASSESSING OFFICER AFTER CONSIDERING THE CONTENTION OF THE ASSESSE AND THE SEVERAL CASES LAWS STATED THAT THE CONTENTION OF THE ASSESSEE REGARDING REOPENING OF THE ASSESSMENT ON CHANGE OF OPINION AND BASED ON AUDIT OBJECTION WAS REJECTED AND DECIDED THE CASE ON MERIT AND ASSESSED AT INCOME OF RS. 91,19,606/ - VIDE HIS ORDER 30.11.2009 PASSED UNDER SECTION 147 R.W.S. 143(3) OF THE I.T. ACT, 1961. 4. AGAINST THE ABOVE ORDER OF THE ASSESSING OFFICER, ASSESSEE APPEALED BEFORE THE LD. FIRST APPELLATE AUTHORITY, WHO VIDE IMPUGNED ORDER DATED 2.7.2010 ALLOWED THE APPEAL OF THE ASSESSEE BY HOLDING AS UNDER VIDE PARA NO. 1.3 AT PAGE 2 AND 3 OF HIS ORDER. 1.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. AR AND HAVE GONE THROUGH THE ASSESSMENT ORDER. WHILE EXPLAINING THE REASONS FOR REOPENING OF THE CASE IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS REFERRED TO THE RECORDS OF THE ASSESSE AND THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCHGEARS LIMITED DATED 11.12.1997. FROM THE FACTS OF THE CASE, IT IS EVIDENT THAT THE SCRUTINY ASSESSMENT IN THIS CASE WAS COMPLETED ON 31.3.2005 I.E. AFTER TH E DECISION OF THE HON BLE SUPREME COURT ON 11.12.1997. IT IS ALSO NOT THE CASE OF THE ASSESSING OFFICER THAT ANY ITA NO. 4375 / DEL/ 201 0 4 NEW INFORMATION HAS COME TO HIS NOTICE WHICH COULD LEAD TO THE FORMATION OF BELIEF THAT INCOME HAS ESCAPED ASSESSMENT DUE TO FAILURE ON THE P ART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE CASE HAS BEEN REOPENED ON THE BASIS OF SAME RECORDS WHICH WERE AVAILABLE AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS. TAKING A DIFFERENT VIEW AT A LATER S TAGE IS MERELY A CHANGE OF OPINION. IT HAS BEEN HELD IN VARIOUS JUDICIAL DECISIONS THAT REOPENING OF THE CASE ON THE BASIS OF CHANGE OF OPINION IS NOT JUSTIFIED. IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. 187 TAXMAN 312, HON BLE SUPREME COURT HAS O BSERVED AS UNDER: - ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS REASON TO BELIEVE FAILING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO RE - OPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OPINION , WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO RE - ASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRE - CONDITION AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF RE - OPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE OF OPINIO N AS AN IN - BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. ITA NO. 4375 / DEL/ 201 0 5 LOOKING INTO THE FACTS OF THE PRESENT, CASE, I FIND THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REOPENING THE ASSESSMENT U/S. 147 OF THE ACT AND THE SAME IS HELD TO BE VOID - AB - INITO. CONSEQUENTLY, THE ORDER U/S. 143(3) READ WITH SECTION 147 STANDS ANNULLED. 5. AGAINST THE ABOVE ORDER OF THE LD. CIT(A), REVENUE IS IN APPEAL BEFORE US. 6. LD. D.R. RELIED UPON THE CONTENTION RAISED IN THE GROUNDS OF APPEAL AND ORDER PASED BY THE ASSESSING OFFICER. 6.1 SHE ALSO STATED THAT AT THE TIME OF MAKING THE ASSESSMENT AO HAS NOT CONSIDERED THE CASE OF SOURTHERN SWITCGEAR LTD. V. CIT 232 ITR 359 WHICH WAS AVAILABLE AT THAT TIME AND HAS NOT BEEN CONSIDERED AT THAT TIME AND AO HA S COMPLETED THE ASSESSMENT IN WHICH ROYALTY EXPENDITURE ARE NOT ALLOWABLE. BUT THE AO HAS ALLOWED THE SAME WHILE COMPLETED THE ASSESSMENT. SHE STATED THAT LD. CIT(A) HAS MENTIONED IN HER ORDER THAT IT HAS BEEN HELD IN VARIOUS JUDICIAL DECISION THAT REOPE NING OF THE CASE ON THE BASIS OF CHANGE OF OPINION IS NOT JUSTIFIED. IN THIS BEHALF, LD. CIT(A) HAS WRONGLY APPLIED THE RATIO IN THE CASE OF CIT VS KELVINATOR INDIA LTD. 187 TAXMAN 312 WHICH IS CONTARY TO THE FACTS OF THE CASE IN HAND. 6.2 LD. COUNSEL OF THE ASSESSEE HAS STATED THAT AO HAS NOT MENTIONED ABOUT THE AUDIT OBJECTION IN THE REASONS RECORDED. HE HAS PRODUCED COPY OF THE REASONS RECORDED FOR REOPENING IN THE CASE OF THE ASSESSEE DATED 24.3.2009. HE ALSO PRODUCED A COPY OF LET TER DATED 28.10.2005 IN WHICH AO STATED THAT ROYALTY IS A REVENUE EXPENDITURE . BUT THE AO HAS WRONGLY REOPENED THE CASE BY APPLYING THE DECISION OF THE HON BLE SUPREME COURT OF INDIA IN THE CASE OF ITA NO. 4375 / DEL/ 201 0 6 SOURTHERN SWITCHGEAR LTD. V. CIT 232 ITR 359. HE FUR THER STATED THAT ROYALTY EXPENDITURE IS OF CAPITAL OR REVENUE, THERE ARE SO MANY DECISIONS IN FAVOR OF THE ASSESSEE AND AGAINST THE REVENUE MEANING THEREBY THE ISSUE IS DEBATABLE ISSUES AND THE AO HAS REOPENED THE ASSESSMENT ON THE BASIS OF CHANGE OF OPINION WHICH IS NOT PERMISSIBLE IN VIEW OF THE DECISION IN THE CASE OF CIT VS. KELVINATOR LTD. (SUPRA). HE FURTHER STATED THAT THE AO HAS REOPENED THE REASSESSMENT WITHOUT ANY FRESH MATERIAL ON THE RECORD. THERE MUST BE EXTRAORDINARY MATERIAL TO REOPEN THE ASSESSMENT. 7. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. IT IS AN ADMITTED FACT THAT DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF SOURTHERN SWITCHGEAR LTD. V. CIT 232 ITR 359 WAS VERY MUCH AVAILABLE AT THE TIME OF AS SESSMENT. THE DECISION OF THE HON BLE SUPREME COURT OF INDIA IS A LAW OF LAND IN WHICH IT IS CLEARLY HELD THAT ROYALTY EXPENDITURE IS NOT ALLOWABLE EXPENDITURE. BUT THE AO HAS ESCAPED OVERLOOK THE AFORESAID JUDGMENT S AND HAS NOT CONSIDERED THE SAME WHILE COMPLETING THE ORIGINAL ASSESSMENT. BUT LATER ON AS AND WHEN IT CAME TO THE NOTICE OF THE AO, HE ADOPTED THE PRESCRIBED PROCEDURE UNDER THE LAW FOR REOPENING OF CASE OF THE ASSESSEE AND HAS RIGHTLY REOPENED THE CASE OF THE ASSESEE AND COMPLETED THE ASSES SMENT UNDER SECTION 147 W.E.F. 143(3) OF THE ACT VIDE ORDER DATED 30.11.2009. BUT THE LD. FIRST APPELLATE AUTHORITY HAS NOT APPRECIATED THIS VERSION OF THE AO WHILE CANCELLING THE ASSESSMENT MADE BY THE AO ON 30.11.2009. IN OUR CONSIDERED OPINION, LD. FIRST APPELLATE AUTHORITY HAS CANCELLED THE ORDER DATED 30.11.2009 PASSED BY THE AO AND HELD THAT THE CASE OF THE ASSESSEE HAS BEEN REOPENED BY THE AO ON THE BASIS OF CHANGE OF OPINION , IN VIEW OF THE DECISION OF THE CIT VS. KELVINATOR INDIA LTD. 187 TAXMAN 332 (SC). IN OUR VIEW THE FINDING OF THE LD. FIRST APPELLATE AUTHORITY IS CONTRARY TO THE FACTS OF THE CASE, BECAUSE THE DECISION OF THE HON BLE SUPREME COURT IN SOURTHERN SWITCHGEAR LTD. V. CIT 232 ITR 359 WAS VERY MUCH ITA NO. 4375 / DEL/ 201 0 7 AVAILABLE, BUT THE SAME HA S BEEN ESCAPED/ OVERLOOKED BY THE AO WHILE COMPLETING THE ORIGINAL ASSESSMENT. THEREFORE, LATER ON THE AO HAS RIGHTLY REOPENED THE ASSESSMENT U/S. 147. IN OUR CONSIDERED OPINION, THE IMPUGNED ORDER IS NOT SUSTAINABLE IN THE EYES OF LAW AND HENCE, WE CA NCEL THE IMPUGNED ORDER DATED 02.7.2010 PASSED BY THE LD. CIT(A) . A S THE LD. CIT(A) HAS NOT DECIDED THE CASE OF THE ASSESSEE ON MERITS. SHE HAS ONLY DECLARED THE ASSESSMENT ANULL ED AND WHICH WE HAVE CANCELLED AS MENTIONED IN THE FORGING PARAGRAPH. LD. C IT(A) IS ALSO DIRECTED TO DECIDE THE CASE OF THE ASSESSEE ON MERITS, AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD THE PARTIES. 8 . IN THE RESULT, APPEAL FILED BY THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE O PEN C OURT ON 26 / 9 /20 1 4 . SD/ - SD/ - [ S.V. MEHROTRA ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 26 / 9 /201 4 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 4375 / DEL/ 201 0 8