Coca Cola India Inc.-India Branch Office, Gurgaon V. DDIT, New Delhi

ITA 4487/DEL/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7033 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-01-2017
• Assessment Year: 1998-1999
• Appeal Filed On: 07-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R MURLIDHAR
• Keywords: Reopening of assessment; Business income; Transfer pricing; International transaction; Reason to believe; Reassessment proceedings
• Section: 143(3); 147; 148; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SH. L. P. SAHU, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. NOS. 4487,4488 & 4489/DEL/2011 (ASSESSMENT YEARS 1998-99, 1999-00 & 2000-01) AND ITA NO. 1345/DEL/2012 (ASSESSMENT YEAR 2001-02) CO NO. 182/DEL/2012 ( IN ITA NO. 1345/DEL/2012) (ASSESSMENT YEAR 2001-02) COCA COLA INDIA INC. - INDIA BRANCH OFFICER; ENKAY TOWER, UDOG VIHAR, NEW DELHI GIR/PAN : AAACC2638K (APPELLANT) VS. DCIT CENTRAL CIRCLE-3(1), INTERNATIONAL TAXATION DRUM SHAPED BUILDING, I. P.ESTATE NEW DELHI. (RESPONDENT) DCIT CENTRAL CIRCLE-3(1), INTERNATIONAL TAXATION DRUM SHAPED BUILDING, I. P. ESTATE NEW DELHI. (APPELLANT) VS. COCA COLA INDIA INC. - INDIA BRANCH OFFICER; ENKAY TOWER, UDOG VIHAR, NEW DELHI GIR/PAN : AAACC2638K (RESPONDENT) COCA COLA INDIA INC. - INDIA BRANCH OFFICER; ENKAY TOWER, UDOG VIHAR, NEW DELHI GIR/PAN : AAACC2638K (APPELLANT) VS. DCIT CENTRAL CIRCLE-3(1), INTERNATIONAL TAXATION DRUM SHAPED BUILDING, I. P. ESTATE NEW DELHI. (RESPONDENT) ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 2 OF 17 ASSESSEE BY : SH. R. MURLIDHAR, ADV. REVENUE BY : SH. ANIL KUMAR SHARMA, SR. DR. DATE OF HEARING : 03.01.2017 DATE OF PRONOUNCEMENT: 12.01.2017 ORDER PER BENCH: 1. THE PRESENT APPEALS AND CROSS OBJECTION HAS BEEN F ILED BY ASSESSEE AS WELL AS DEPARTMENT AGAINST COMMON ORDER DATED 4.07.2011 PASSED BY LD. CIT (A) 11 FOR ASSESSMENT Y EARS 1998-99, 1999-00, 2000-01 AND 2001-02. THE LEGAL ISSUE INVOL VED IN ASSESSEES APPEALS FOR ASSESSMENT YEARS UNDER CONSI DERATION IS IN RESPECT OF VALIDITY OF REOPENING OF ASSESSMENT, BEI NG NOT IN ACCORDANCE WITH LAW AND WITHOUT PROPER JURISDICTION . AT THE OUTSET, IT HAS BEEN SUBMITTED BY LD. COUNSEL FOR TH E ASSESSEE THAT REOPENING FOR ASSESSMENT YEAR 1998-99 AND 1999-2000 HAVE BEEN INITIATED BEYOND 4 YEARS AND FOR ASSESSMENT YEAR 20 00-01 AND 2001-02, REOPENING HAS BEEN INITIATED ON IDENTICAL SET OF REASONS RECORDED BY THE ASSESSING OFFICER WHICH IS WITHIN 4 YEARS FOR SAKE OF CONVENIENCE THE REASONS RECORDED BY THE ASSESSIN G OFFICER, WHICH IS COMMON TO ALL THE ASSESSMENT YEARS UNDER C ONSIDERATION, FOR REOPENING OF THE IS REPRODUCED HEREIN BELOW: THE ASSESSEE HAS SUBMITTED ITS RETURN ON 30.11.1998 DECLARING INCOME OF RS. 6,47,66,370/-. THE ASSESSEE REVISED ITS RETURN ON 30.03.2000 DECLARING INCOME OF RS. 6,28,0 1,943/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 22.03.2001 BY MAKING ADDITIONS AS UNDER:- ON SUBSTANTIVE:- ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 3 OF 17 (I) ADDITION OF RS. 63,68,36,936/- BY APPLYING PROVISION S U/S 44D OF THE I. T. ACT, 1961. (II) ON PROTECTION BASIS RS. 8,74,02,757/- COCA COLA INC., A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, USA HAS ESTABLISHED A BRANCH OFFICE IN INDIA (CCI-INDIA BRANCH). THE LEGAL STATU S OF CCI- INDIA BRANCH IS THAT OF A FOREIGN COMPANY (NON RESI DENT). IT PROVIDES SERVICES IN INDIA TO THE COMPANIES OF COCA COLA GROUP. THE COCA COLA GROUP IN INDIA IS ENGAGED IN MANUFACTURING AND SALE OF SOFT DRINKS. CCI-INDIA BRAN CH PROVIDES CONSULTANCY SERVICES TO THE GROUP COMPANIE S, I.E ITS INDIAN COMPANIES (RESIDENT) IN THE FIELD OF MANUFACTU RING, MARKETING AND SALE OF PRODUCTS OF THE COCA COLA COMPA NY. THE CONSULTANCY SERVICES PROVIDED BY THE ASSESSEE AR E BROADLY IN THE NATURE OF:- ACCOUNTING, BUILDING AND STATUTORY COMPLIANCE; PROVISION OF TECHNICAL KNOW-HOW AND ASSISTANCE IN TECHNICAL MATTERS; MARKETING SUPPORT; BUSINESS DEVELOPMENT AND RESTRUCTURING; COMPLIANCE WITH INTERNATIONAL STANDARDS; AND DISTRIBUTION ACTIVITIES. ; IN RETURN FOR ADVISORY ARID SUPPORT SERVICES RENDER ED, THE ASSESSEE RECEIVES CONSULTANCY FEE AT A MARK UP OF 5 % OF THE COST INCURRED. THE 5% MARK UP IS CALCULATED ON COST S SUCH AS SALARIES AND ALLOWANCES, MOVING AND RELOCATION EXPE NSES AND SERVICE CHARGES FOR USE OF ASSETS . THE ASSESSEE ASSUMES NORMAL BUSINESS RISKS ASSUMED BY ANY SERVICE PROVIDER, E.G., IT IS RESPONSIBLE FOR CONTRACTED RISKS IN RESPECT O F PERSONS ENGAGED FOR PROVISION OF SERVICES TO ITS INDIAN COM PANIES. IT IS RESPONSIBLE FOR ANY DEFICIENCY IN FOE SERVICE S PROVIDED BY IT. ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 4 OF 17 IT IS ALSO RESPONSIBLE FOR MEETING VARIOUS LEGAL AN D REGULATORY OBLIGATIONS, E.G., DEDUCTION OF TAX AT S OURCE ON THE PAYMENT MADE BY IT TO CONTRACTORS, PROFESSIONAL S AND LANDLORD FOR LEASE OF BUSINESS PREMISES ETC. IT RECEIVES THE CONSULTANCY FEE ONLY AFTER THE EXPE NDITURE HAS BEEN INCURRED BY IT AND THERE IS ALWAYS RISK, H OWEVER REMOTE, OF NON RECEIPT OF CONSULTANCY FREE FROM ITS INDIAN COMPANIES DUE TO SOME AS CLAIMED BY THE ASSESSEE COMPANY THAT THE ASSESSE E'S ROLE WAS MERELY LIMITED TO FACILITATING THE PAYMENTS TO THIR D PARTY VENDORS IS NOT CORRECT THE FOLLOWING POINT MAY BE KEPT IN MIND IN THIS REGARD: A. THE SO CALLED THIRD PARTY VENDORS RAISED THE INVOIC ES UPON THE CCI (ASSESSEE) AND NOT UPON THE INDIAN COMPANIES. B. SINCE THE INVOICES WERE RAISED UPON CCI, ANY CONTRACTUAL E.G., DEDUCTION OF TDS, MAKING TIMELY PAYMENTS ETC. WERE BORNE BY FEE CCI. C. THE PAYMENT WAS FIRST MADE BY CCI, AND THEN REALIZE D FROM ITS INDIAN COMPANIES I.E., CCIS SUBSTANTIAL F UNDS WERE DEPLOYED FOR MAKING SUCH PAYMENTS. THIS FACT I S EVIDENT FROM THE FACT MAT THE CLOSING BALANCE OF SU NDRY DEBTORS WAS RS.71.89 CRORES AS AGAINST THE TOTAL CONSULTANCY FEE OF RS.63.68 CRORES. A CAREFUL ANALYSIS OF THE BALANCE-SHEET OF THE ASSE SSEE REVEALS THAT THE OPENING AND CLOSING BALANCE OF SUNDRY DEBT ORS FOR THE YEAR UNDER CONSIDERATION IS RS.34.58 CRORES AND RS.71.89 CRORES, RESPECTIVELY, AS AGAINST THE TOTAL CONSULTANCY FEE OF RS. 63.68 CRORES DURING THE YEAR. THE ABOVE FACTS SHOW; THAT IN ITS TRANSACTIONS WITH THE INDIAN COMPANIES PROFIT IS SUPPRESSED. THIS FACTS COVERED UN DER THE PROVISIONS OF SECTION 92 OF THE I.T. ACT. ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 5 OF 17 'SECTION 92 PROVIDES THAT:- WHERE A BUSINESS IS CARRIED ON BETWEEN A RESIDENT A ND A NONRESIDENT AND IT APPEARS TO THE ASSESSING OFFIC ER THAT, OWING TO THE CLOSE CONNECTION BETWEEN THEM, THE COU RSE OF BUSINESS IS SO ARRANGED THAT THE BUSINESS TRANSACTE D BETWEEN THEM PRODUCES TO THE RESIDENT EITHER NO PRO FITS OR LESS THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPEC TED TO ARISE IN THAT BUSINESS, THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF PROFITS WHICH MAY REASONABLY BE DEEME D TO HAVE BEEN DERIVED THERE FROM AND INCLUDE SUCH AMOUN T IN THE TOTAL INCOME OF THE RESIDENT. IN THIS CASE, THE ASSESSES IS USING UNUSUALLY AND DISPROPORTIONATELY LARGE AMOUNT OF WORKING CAPITAL, I.E. THE WORKING CAPITAL DEPLOYED BY THE ASSESSEE IS USUALLY HIGH IN P ROPORTION OF ITS TOTAL REVENUES. THE INVESTMENT IN THE NET WORKING C APITAL (I.E. INVENTORIES + DEBTORS - CREDITORS) REQUIRES FUNDS. A N UNCONTROLLED LIMITED RISK ROUTINE SERVICE PROVIDER WILL EXPECT TO EARN A MARKET RATE OF RETURN ON THAT REQUIRED CAPITAL INDEPENDENT OF THE SERVICES IT PROVIDES. HOWEVER, THE AMOUNT OF CAPITAL REQUIRED TO SUPPORT THESE SERVICES VARIES GREATLY AS THE LEVEL OF INVENTORIES , DEBTORS AND CREDITORS MEASURED AS A PERCENT OF SALES VARIES. THE VIEW IS ALSO CONFIRMED BY THE TRANSFER PRICING O FFICER-I, NEW DELHI VIDE HIS ORDER DATED 07.02.2005 U/S 92CA(3) FOR A.Y. 2002-03, EXACTS OF RELEVANT PORTION OF THIS ORDER AR E REPRODUCED BELOW :- 'IN ORDER TO ACCOUNT FOR DIFFERENCES IN THE NET WORK ING CAPITAL REQUIREMENT OF THE TESTED PARTY (ASSESSES) AND THE CO MPARABLES, THE OPERATING PROFIT OF EACH OF THE COMPARABLE COMPANIE S IS REQUIRED TO BE INCREASED TO REFLECT THIS FUNCTIONAL DIFFERENCE. THE ADJUSTMENT IN THE OPERATING PROFIT IS CALCULATED &S PER THE FOLLO WING STEPS:- FIRST, DETERMINING THE DIFFERENT BETWEEN THE TES TED PARTY'S (ASSESSEE) RATIO OF AVERAGE NET WORKING CAPITAL TO AVERAGE TOTAL ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 6 OF 17 SALES AND THE CORRESPONDING RATIO OF AVERAGE NET WOR KING CAPITAL TO AVERAGE TOTAL SALES OF EACH COMPARABLE. THIS DIFFER ENCE REPRESENTS THE 'EXCESS' OR 'SHORTAGE' OF NET WORKING CAPITAL U SED BY THE TESTED PARTY, RELATIVE TO COMPARABLE COMPANIES. NEXT, DISCOUNTING THE ABOVE DIFFERENCE BY AN INTE REST RATE TO DERIVE A FIGURE REPRESENTING THE IMPLICIT INTEREST B ENEFIT/EXPENSE BORNE BY COMPARABLE, DUE TO DIFFERENT NET WORKING CA PITAL REQUIREMENT. THE PRIME LENDING RATE (PLR) FOR THE F INANCIAL YEAR 2001-02 FOR MAJOR BANKS WAS AROUND 11.00 - 12.00% ( SOURCE; CMIE MONTHLY REVIEW OF INDIAN ECONOMY, MAY, 2002. THEREF ORE, ON A CONSERVATIVE BASIS A PLR OF 11% HAS BEEN CONSIDERED FOR CARRYING OUT THE WORKING CAPITAL ADJUSTMENT. THE FORMULA OF COMPUTING THE ADJUSTMENT TO THE OPERATING PROFITS OF COMPARABLES COMPANIES IS GIVEN BELOW:- ADJUSTMENT TO PROFIT OF = PLR X (NET WORKING CAPIT AL OF COMPARABLE COMPANIES COMPARABLE COMPANIES -(SALES OF COMPARABLE COMPANIES 360) X HOLDING IN DAYS OF TESTED PARTY) THE OPERATING PROFITS OF THE COMPARABLE COMPANIES A RE INCREASED/DECREASED BY THE AMOUNT OF ADJUSTMENT COMPU TED ABOVE AND FINALLY OPERATING PROFIT/TOTAL COST MARGIN OF THE COMPARABLE COMPANIES IS COMPUTED ON THE BASIS OF SU CH ADJUSTED OPERATING PROFIT THIS ADJUSTMENT TAKES CARE INTO ACCOUNT THE ECONOMI C COST OF OWNING NET-WORKING CAPITAL AND THE EFFECT -OF SUCH C OSTS ON THE- OPERATING INCOME. THE ADJUSTMENT DERIVES THE OPERAT ING PROFIT AFTER ELIMINATING THE EFFECT OF DIFFERENCE IN NET WORKING CAPITAL OF COMPARABLES AND THE TESTED PARTY. ACCORDINGLY, OPERATING PROFIT OVER THE TOTAL COST M ARGIN OF THE COMPARABLE COMPANIES WAS ADJUSTED TO TAKE INTO ACCOU NT THE DIFFERENCE IN THE WORKING CAPITAL. THE ADJUSTED OPE RATING MARGINS OF ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 7 OF 17 COMPARABLE COMPANIES AS A RESULT OF ABOVE ADJUSTMEN T ARE GIVEN IN THE TABLE BELOW:- OPERATING PROFIT/ TOTAL OPERATING COSTS S.NO COMPARABLES 2000 2001 2000-01 1. KITCO LTD. 17.67 14.45% 15:91% 2. GILCON PROJECT SERVICES LTD. 19.27% 11.02% 14.72% 3. NIS SPARTA LIMITED 21.40% 22.90% 21.88% 4. WATER AND POWER CONSULTANCY SERVICES : 23.82% 32.22% 28.20% 5. VIMTA LABORATORIES LTD,. 24.44% 32.02% 28.95% AVERAGE 7.67% 9,07% 21.83% DETAILED CALCULATION OF WORKING CAPITAL OF COMPARABL ES AND THE ASSESSEE AND WORKING CAPITAL ADJUSTMENT TO OPERATING , PROFITS OF THE COMPARABLES IS GIVEN IN ANNEXURE-I. THE FORMULA USE D FOR CARRYING OUT WORKING CAPITAL ADJUSTMENT ON THE OPERATING PRO FITS OF COMPARABLES IS GIVEN IN PARA 11.2. IN THE MANNER DISCUSSED ABOVE, THE ARITHMETIC MEAN O F WEIGHTED AVERAGE OF OPERATING PROFIT OVER THE TOTAL COST MARGINS OF THE COMPARABLES FOR THE FINANCIAL YEAR 1999-2000 AN D 2000-01 WORKS OUT TO 21.83%. THE ARM,S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE 'WITH ITS VARIOUS AES IS WORKED OUT AS UNDER: TOTAL COST OF PROVISION OF SERVICES BY THE ASSESSEE : (AS PER ANNEXURE -6 OF THE TP REPORT) RS. 7,41,202, 452 MARGIN @ 21. 83% OF THE ABOVE: RS. 1,61,804,4 95 ARMS LENGTH PRICE TO BE CHARGED FROM THE AES : RS . 903,006,947 IN THE MANNER DISCUSSED ABOVE, THE ARM 'S LENGTH PR ICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSES SEE WITH ITS AES ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 8 OF 17 IS DETERMINED AT RS. 903,006,947/- IN PLACE OF RS. 76,32,67,158/- THIS FIGURE DOES NOT TALLY WITH THE FIGURE PROVIDED IN PARA 3 ABOVE BECAUSE IT DOES NOT INCLUDE THE AMOUNT SERVICE TAX). ACCORDINGLY, AN ADJUSTMENT OF RS. 139 I 739 F 789/- IS TO BE MADE TO THE INCOME OF THE ASSESSEE, BEING THE DIFFERENCE BETWEEN THE AIM'S LE NGTH PRICE AND THE PRICE CHARGED BY THE ASSESSEE FROM ITS AES FOR RENDERING SERVICES TO THEM, I.E., THE ASSESSING OFFICER SHALL ENHANCE THE INCOME OF THE ASSESSEE BY AN AMOUNT OF RS. 139, 739 , 789/- WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE.' IN VIEW OF ABOVE, I HAVE REASON TO BELIEVE THAT INC OME RELEVANT TO AY 1998-99 HAS ESCAPED ASSESSMENT WHICH IS LIKEL Y TO AMOUNT TO MORE THAN ONE LAC RUPEES. NECESSARY APPROVED /SAN CTION FOR ISSUE OF NOTICE U/S 148 FOR A.Y. 1998-99 MAY KINDLY BE GRANTED. 2 . LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED TH AT THE ASSESSING OFFICER HAS MENTIONED AN OFFICE NOTE AT T HE END OF THE ASSESSMENT ORDER WHICH IS REPRODUCED HEREIN BELOW: 1) IN THIS CASE, NO ADDITION IS BEING MADE ON THE BASIS OF TRANSFER PRICING ADJUSTMENTS SIMILAR TO TH OSE MADE DURING THE PROCEEDINGS FOR A.Y 2002-03. THIS IS BECAUSE THE PROVISIONS OF CHAPTER-X (SECTION 92 TO 92F) CAME INTO EXISTENCE ONLY FROM 1-4-2002 AND THEREFORE ARE NOT APPLICABLE IN THE PRESENT ASSESSMENT YEAR. FURTHER, SECTION 92, AS IT STOOD DURING THE PERIOD APPLICABLE FOR THE PRESENT ASSESSMENT YEAR, DID NOT ALLOW ANY ADJUSTMENTS TO BE MADE IN THE HANDS OF A NON-RESIDENT PERSON. THEREFORE, NO ADJUSTMENTS ARE BEING MADE ON THIS GROUND. DEPUTY DIRECTOR OF INCOME-TAX INTL. TAX, CIR. 3(2), NEW DELHI 3. WE SHALL FIRST DEAL WITH ASSESSMENT YEARS 1998-99 AND 1999-00 AS THESE HAVE BEEN REOPENED BEYOND 4 YEARS. ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 9 OF 17 4. LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT TH E REOPENING IN THESE ASSESSMENT YEARS HAS BEEN MADE B EYOND THE PERIOD OF 4 YEARS. HE SUBMITTED THAT THE ORIGINAL A SSESSMENT WAS COMPLETED UNDER SECTION 143 (3) OF THE ACT ON 22.03 .2001 & 28.03.2002 FOR A. Y. 1998-99 & 1999-00 RESPECTIVELY, WHEREAS THE NOTICE U/S 148 HAS BEEN ISSUED ON 30.03.2009 FOR TH ESE A. Y. LD. COUNSEL SUBMITTED THAT NOTICE U/S 148 HAS BEEN ISSU ED ON EXPIRY OF 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEARS. HE FURTHER SUBMITTED THAT THERE IS NO ALLEGATION IN TH E REASONS RECORDED REGARDING ANY FAILURE TO DISCLOSE FULLY AN D TRULY ALL MATERIAL FACTS, NECESSARY FOR ASSESSMENT IN ITS RET URNS OF INCOME. IT HAS BEEN SUBMITTED THAT IN THE ABSENCE OF SUCH A N ALLEGATION THE PROVISO TO SECTION 147 OF THE ACT WOULD BE ATTR ACTED, AS NOTICE UNDER SECTION 148 ISSUED IS AFTER EXPIRY OF 4 YEARS . IN SUPPORT OF HIS DEPOSITION THE LD. COUNSEL FOR THE ASSESSEE PLA CED RELIANCE UPON VARIOUS JUDICIAL PROCEEDINGS AS UNDER: HARYANA ACRYLIC MANUFACTURING COMPANY VS. CIT AND AN R. REPORTED IN 308 ITR 38 (DEL) HINDUSTAN LEVER VS. R.B.WADKAR REPORTED IN 268 ITR 33 2 (BOM) COCA-COLA EXPORT CORPORATION VS. ITO REPORTED IN 70 I TD 498 (DEL) WEL INTERTRADE (P) LTD. VS. ITO REPORTED IN 13 DTR 204 (DEL) R. T. PAPERBOARD LTD VS. ACIT IN ITA NO. 4868/DEL/201 3 FOR ASSESSMENT YEAR 2003-04. 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AS SESSING OFFICER ON A WRONG ASSUMPTION OF FACTS HAS PROCEEDE D TO RECORD THE REASONS AND REOPENED ASSESSMENTS FOR THESE YEAR S. HE ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 10 OF 17 SUBMITTED THAT ASSESSING OFFICER BY WAY OF A COMMON ORDER DATED 25.2.2009, DISMISSED THE OBJECTIONS RAISED BY THE A SSESSEE AGAINST THE REOPENING OF THE ASSESSMENTS. HE FURTHE R SUBMITTED THAT THERE WAS NO FRESH MATERIAL OR INFORMATION, BA SED ON WHICH THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT I NCOME HAS ESCAPED ASSESSMENT AND THAT THE MATERIAL BASED ON W HICH REOPENING WAS MADE ALREADY ON RECORD. HE PLACED HIS RELIANCE UPON THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF CIT VERSUS KELVINATOR INDIA LTD REPORTED IN 320 ITR 561 . 6. ON THE CONTRARY THE LD. DR RELIED UPON THE ORDERS PASSED BY THE AUTHORITIES BELOW. 7. WE HAVE PERUSED THE RECORDS PLACED BEFORE US IN TH E LIGHT OF THE ARGUMENTS ADVANCED BY BOTH THE PARTIES AND THE DECISIONS RELIED UPON BY LD. COUNSEL FOR THE ASSESSEE. UNDOUB TEDLY, IT IS OBSERVED THAT THE ASSESSING OFFICER HAS PROCEEDED T O REOPEN THE ASSESSMENTS BASED ON MATERIALS AVAILABLE ON RECORD, WITHOUT THERE BEING ANY ALLEGATION IN THE REASONS RECORDED, REGAR DING ANY FAILURE ON BEHALF OF THE ASSESSEE TO FULLY AND TRULY DISCLO SE ALL/ANY MATERIAL FACTS NECESSARY FOR ASSESSMENTS IN THE RET URN OF INCOME. WE AGREE WITH THE CONTENTION ADVANCED BY LD. COUNSE L FOR THE ASSESSEE THAT UNDER SUCH CIRCUMSTANCES PROVISO TO S ECTION 147 OF THE ACT IS ATTRACTED AND THE NOTICE ISSUED UNDER SE CTION 148 OF THE ACT ON EXPIRY OF 4 YEARS IS BAD IN LAW. WE DRAW OUR SUPPORT FROM THE DECISION PASSED BY HONBLE SUPREME COURT IN THE CASE OF CIT VERSUS KELVINATOR INDIA LTD (SUPRA) FOR THE VIEW THAT, . THE REASONS TO BELIEVE ON WHICH A REASSESSMENT CAN BE VALIDLY ORDER SHOULD NECESSARILY BE BASED ON TANGIBLE ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 11 OF 17 MATERIALS WHICH AN AO COMES BY AFTER THE ASSESSMENT . NECESSARILY SUCH MATERIAL WITH OUTSIDE THE RECORD. S TRAYING FROM THIS CLEAR PATH WOULD BE SLIDING DOWN THE SLIPP ERY SLOPE INTO A QUAGMIRE OF FREE APPRECIATION OF EXIST ING MATERIAL AND EVEN THE PROCESS OF REASONING WHICH IS IMPERMISSIBLE AS IT IS FORBIDDEN. 8. THE CASE OF THE ASSESSEE BEFORE FURTHER STRENGTHEN S FROM THE OFFICE NOTE THAT HAS BEEN REPRODUCED BY THE ASSESSI NG OFFICER TOWARDS THE END OF THE ASSESSMENT ORDER (WHICH HAS BEEN REPRODUCED HEREINABOVE). IT IS OBSERVED THAT THE AS SESSING OFFICER HAS REOPENED THE ASSESSMENT UNDER THE ASSUMPTION TH AT PROVISIONS OF CHAPTER X, BEING SECTION 92 WAS APPLI CABLE TO THE CASE OF THE ASSESSEE. HOWEVER, DURING ASSESSMENT PR OCEEDINGS HE EVENTUALLY REALIZED ITS NON APPLICABILITY AND RECOR DED THAT SAID SECTION UNDER CHAPTER X, WILL NOT BE APPLICABLE TO ASSESSEE FOR ALL THE ASSESSMENT YEARS CONCERNED. IT IS ALSO OBSERVED THAT THE ASSESSING OFFICER HAS DROPPED THE GROUND WHICH FORM ED THE BASIS OF REOPENING OF THE ASSESSMENT AND HAS NOT MADE ANY ADDITION IN THAT RESPECT. 9. RESPECTFULLY FOLLOWING THE PREPOSITIONS LAID DOWN BY HONBLE SUPREME COURT IN CASE OF CIT VS KALVINATOR DECISIONS MENTIONED HEREINABOVE AND ON THE BASIS OF THE DISCUSSIONS ABO VE, WE ARE INCLINED TO ALLOW THE LEGAL ISSUE RAISED BY THE ASS ESSEE, BEING THE FUNDAMENTAL OBJECTION, RAISED EXERCISE OF REGARDING THE JURISDICTION BY LD. AO. IN THE RESULT, AS THE NOTIC E ISSUED BY THE ASSESSING OFFICER ITSELF HAS BEEN HELD TO BE WITHOU T JURISDICTION, THE REASSESSMENT PROCEEDINGS MADE SUBSEQUENT TO THA T IS ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 12 OF 17 QUASHED AND SET-ASIDE. WE, THEREFORE, DO NOT FIND A NY NECESSITY TO DWELL UPON THE MERITS OF THE CASE. 10. APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEARS 1998-99 AND 1999-2000 IS ALLOWED. 11. AS REGARDS ASSESSMENT YEAR 2000-01 AND 2001-02, LD . COUNSEL FOR THE ASSESSEE SUBMITS THAT THE REOPENING HAS BEEN INITIATED WITHIN 4 YEARS. HOWEVER, IT IS OBSERVED T HAT THE REASONS RECORDED FOR REOPENING OF THESE ASSESSMENT YEARS AR E IDENTICAL TO THOSE RECORDED FOR THE ASSESSMENT YEARS 1998-99 AND 1999-00. LD. COUNSEL FOR THE ASSESSEE REHYDRATED THE SIMILAR ARGUMENTS PLACED AND RECORDED HEREINABOVE FOR THE YEARS UNDER CONSIDERATION. 12. ON THE CONTRARY, LD. DR RELIED UPON THE AUTHORITIE S BELOW. WE HAVE PERUSED THE RECORDS PLACED BEFORE US IN THE LIGHT OF THE SUBMISSIONS ADVANCED BY BOTH THE SIDES. UNDISPU TEDLY LD. AO DID NOT MAKE ANY ADDITION ON THE ISSUE, WHICH FORME D THE BASIS FOR REOPENING IN THE REASSESSMENT ORDER. LD. COUNSE L FOR THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF RANBAXY LABORATORIES LTD VERSUS CIT R EPORTED IN 336 ITR 136 HONBLE COURT HAS HELD AS UNDER: '18. WE ORE IN COMPLETE AGREEMENT WITH THE REASONIN G OF THE DIVISION BENCH OF BOMBAY HIGH COURT IN THE CASE OF V. JAGANMOHAN RAO (SUPRA). WE MAY ALSO NOTE THAT THE HEADING OF SECTION 147 IS 'INCOME ESCAPING ASSESSME NT' AND THAT OF SZECTION 148 'ISSUE OF NOTICE WHERE INCO ME ESCAPED ASSESSMENT'. SECTION 148 IS SUPPLEMENTARY AN D ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 13 OF 17 COMPLIMENTARY TO SECTION 147. SUB-SECTION (2) OF SEC TION 148 MANDATES REASONS FOR ISSUANCE OF NOTICE BY THE ASSE SSING OFFICER AND SUB-SECTION (1) THEREOF MANDATES SERVICE OF NOTICE TO THE ASSESSEE BEFORE THE ASSESSING OFFICER PROCEEDS TO ASSESS, REASSESS OR RECOMPUTED ESCAPED INCOME. SEC TION 147 MANDATES RECORDING OF REASONS TO BELIEVE BY THE ASSESSING OFFICER THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. ALL THESE CONDITIONS ASSESSMENT ORDER REQUIRED TO BE FULFILLED TO ASSESS OR REASSESS THE ESCAPED INCOME CHARGEABLE TO TAX. AS PER EXPLANATION (3) IF DURING THE COURSE OF THESE PROCEEDINGS THE ASSESSING OFFIC ER COMES TO CONCLUSION THAT SOME ITEMS HAVE ESCAPED ASSESSMEN T, THEN NOTWITHSTANDING THAT THOSE ITEMS WERE NOT INCL UDED IN THE REASONS TO BELIEVE AS RECORDED FOR INITIATION O F THE PROCEEDINGS AND THE NOTICE, HE WOULD BE COMPETENT TO MAKE ASSESSMENT OF THOSE ITEMS. HOWEVER, THE LEGISLATURE COULD NOT BE PRESUMED TO HAVE INTENDED TO GIVE BLANKET POWER S TO THE ASSESSING OFFICER THAT ON ASSUMING JURISDICTION U/S 147 REGARDING ASSESSMENT OR REASSESSMENT OF ESCAPED INC OME, HE WOULD KEEP ON MAKING ROVING INQUIRY AND THEREBY INCLUDING DIFFERENT ITEMS OF INCOME NOT CONNECTED OR RELATED WITH THE REASONS TO BELIEVE, ON THE BASIS OF WHICH HE ASSUMED JURISDICTION. FOR EVERY NEW ISSUE COMING BEF ORE ASSESSING OFFICER DURING THE COURSE OF PROCEEDINGS O F ASSESSMENT OR REASSESSMENT OF ESCAPED INCOME, AND WHI CH HE INTENDS TO TAKE INTO ACCOUNT, HE WOULD BE REQUIRE D TO ISSUE A FRESH NOTICE U/S 148. ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 14 OF 17 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE. INDISPUTABLY, THE AO DID NOT MAKE ANY ADDITION ON THE ISSUE, WHICH FORMED THE BASIS FOR REOPENING THE ASS ESSMENT, IN HIS REASSESSMENT ORDER. IN THESE CIRCUMSTANCES, THE ID. CIT(A) RELIED UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH CO URT IN RANBAXY LABORATORIES LTD.(SUPRA) AND QUASHED THE REASSESSME NT ORDER. HE ALSO PLACED RELIANCE THE DECISIONS HON'BLE BOMBAY H IGH COURT IN CIT VERSUS JET AIRWAYS INDIA LIMITED, (2011) 331 IT R 236 (BOM.) HELD AS UNDER: '................SECTION 147 HAS THIS EFFECT THAT T HE ASSESSING OFFICER HAS TO ASSESS OR REASSESS THE INCOME ('SUCH INCOME') WHICH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE FORMATION OF BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE DURI NG THE COURSE OF THE PROCEEDINGS. HOWEVER, IF AFTER IS SUING A NOTICE UNDER SECTION 148, HE ACCEPTED THE CONTENTIO N OF THE ASSESSEE AND HOLDS THAT THE INCOME WHICH HE HAS INIT IALLY FORMED A REASON TO BELIEVE HAD ESCAPED ASSESSMENT, HA S AS A MATTER OF FACT NOT ESCAPED ASSESSMENT, IT IS NO T OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO, AFRESH NOTICE UNDER SECTION 148 W OULD BE NECESSARY, THE LEGALITY OF WHICH WOULD BE TESTED IN T HE EVENT OF A CHALLENGE BY THE ASSESSEE.' 14. IN THE PRESENT CASE, AS IS NOTED ABOVE, THE ASSES SING OFFICER WAS SATISFIED WITH THE JUSTIFICATIONS GIVEN BY THE ASSESSEE REGARDING NON APPLICATION OF SEC. 92. HE C ONSEQUENTLY ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 15 OF 17 HAS NOT MADE ANY ADDITION U/S 92 AS IT WAS NOT APPL ICABLE TO ASSESSEE DURING THE PERIOD UNDER CONSIDERATION AND PROCEEDED TO MAKE ADDITION ON OTHER ISSUES NOT MENTIONED IN R EASON RECORDED. 15. BEFORE US REVENUE HAS NOT BROUGHT ON RECORD ANY CO NTRARY DECISION OR ANY MATERIAL, SO AS TO ENABLE US TO TAK E A DIFFERENT VIEW IN THESE ASSESSMENT YEARS. WE, THEREFORE, SET ASIDE AND QUASHED THE NOTICE U/S 148 AND ASSESSMENT ORDER FOR A. Y. 19 99-2000 AND 2000-01. ACCORDINGLY, WE ALLOW THE APPEAL FILED BY THE ASSE SSEE FOR ASSESSMENT YEAR 2000-01 AND DISMISS APPEAL BY THE R EVENUE FOR ASSESSMENT YEARS 2001-02. CO 182/DEL/2012 16. GROUND NO. 1 OF CROSS OBJECTION HAS BEEN RAISED BY THE ASSESSEE AGAINST THE FINDING OF LD. CIT (A) THAT AS SESSEE WAS NOT ENTITLED TO CHALLENGE THE VALIDITY OF THE REASSESSM ENT PROCEEDINGS PURSUANT TO THE HONBLE SUPREME COURT DECISION IN T HE ASSESSEES OWN CASE. 17. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE OR DER DATED 25.10.2010 PASSED BY HONBLE SUPREME COURT, WHICH H AS BEEN PLACED AT PAGE 134 OF THE PAPER BOOK HAS, KEPT OPEN ALL ISSUES FOR ASSESSEE TO BE AGITATED BEFORE THE AUTHORITIES BELO W. HE SUBMITTED THAT FROM THE ORDER, IT CANNOT BE IMPUTED THAT THE ASSESSEE COULD CHALLENGE THE VALIDITY OF JURISDICTION OF LD. AO. H E THUS, SEEMED UP THAT TO THAT EFFECT THE OPINION OF LD.CIT (A) NE ED TO BE RECTIFIED. ITA NO. 4487, 4488 & 4489/DEL/2011 AND CO NO. 1345 /DEL/2013 PAGE 16 OF 17 18. LD. DR RELIED UPON THE ORDER PASSED BY THE AUTHORI TIES BELOW. 19. WE HAVE PERUSED THE RECORDS PLACED BEFORE US IN TH E LIGHT OF THE SUBMISSIONS ADVANCED BY BOTH THE SIDES AND THE ORDER PASSED BY HONBLE SUPREME COURT DATED 25.10.2010. 20. ON PERUSAL OF THE ORDER PASSED BY HONBLE SUPREME COURT, WE AGREE WITH THE VIEW ADVANCED BY LD. COUNSEL FOR ASSESSEE DIFFERENT VIEW OPINED BY LD. CIT(A) WHICH WAS NOT A T ALL THE DIRECTIONS OF HONBLE SUPREME COURT. WE, THEREFORE, ALLOW THIS GROUND RAISED BY ASSESSEE IN ITS CROSS OBJECTION. R EST OF THE GROUNDS RAISED BY THE ASSESSEE ARE IN SUPPORT OF TH E ORDER PASSED BY LD. CIT(A) WHICH DO NOT REQUIRE ANY INTERFERENCE AS WE HAVE SET ASIDE AND QUASHED THE NOTICE U/S 148 ISSUED BY LD. AO AS WELL AS THE ASSESSMENT ORDER PASSED IN THE ABOVE PARAS. 21. IN VIEW OF THE ABOVE DISCUSSIONS WE ALLOW THE APPE ALS FILED BY ASSESSEE ON LEGAL ISSUED RAISED FOR ALL THE ASSE SSMENT YEARS AND HOLD THE NOTICE ISSUED FOR REOPENING OF ASSESSM ENT BEING WITHOUT JURISDICTION THEREBY SETTING ASIDE AND QUAS HING THE REASSESSMENT ORDER PASSED SUBSEQUENTLY, DISMISS THE APPEAL RAISED BY THE DEPARTMENT FOR ASSESSMENT YEAR 2001-0 2 AND ALLOW THE CO FILED BY ASSESSEE. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JANUARY, 2017. SD/- SD/- (L. P.SAHU) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 12.01.2017 @M!T