MAHINDRA & MAHINDRA FINANCIAL SERVICES LTD, MUMBAI V. ASST CIT RG 6(3), MUMBAI

ITA 4601/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2116 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-04-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 12-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SANTOSH MANKUSKARDR
• Assessee Lawyers: MANSI CHITRODA
• Keywords: Search and seizure; Tangible material; Difference of opinion; Revised return; Reason to believe; Change of opinion; Revenue expenditure
• Section: 143(3); 147; 148

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI B BENCH , ,, , !'# , ,, , $ BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SAKTIJIT DEY,JUDICIAL MEMBER /.ITA NO.4601/MUM/2013, % & /ASSESSMENT YEAR-2002-03 MAHINDRA & MAHINDRA FINANCIAL SERVICES LTD.SADHNA HOUSE, 2 ND FLOOR, 570 P.B. MARG, BEHIND MAHINDRATOWERS,WORLI,MUMBAI-18. PAN:AAACM 2931 R VS ACIT-RANGE-6(3) AAYAKAR BHAVAN, CHURCHGATE MUMBAI. ( / APPELLANT) ( / RESPONDENT) %'# /ASSESSEEBY : SHRI BHAVIN SHAH & MS. MANSI CHITRODA / REVENUE BY : DR. SANTOSH MANKUSKAR-(DR) / DATE OF HEARING : 01-10 -2015 / DATE OF PRONOUNCEMENT : -10-2015 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) )*# ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT.15.03.2013 OF CIT(A)-12,MU MBAI THE ASSESSEE HAS RAISED FIVE GROUNDS OF APPEAL. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF HIRE PU RCHASE, LEASING AND FINANCIAL ACTIVITIES,FILED ITS ORIGINAL RETURN OF INCOME ON 2 9.10.2002. THE AO COMPLETED THE ASSESSMENT ON 11.3.2005 U/S.143(3) OF THE ACT DETERMINING TAXABLE INCOME AT RS.66.01 CRORES.VIDE NOTICE DT.15.11.2006, ISSUED U/S. 148 OF THE ACT THE AO RE -OPENED THE ASSESSMENT.THE REASONS RECORDED FOR RE-OPENING OF THE ASSESSMENT ARE AS UNDER :- 'RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 60, 16, 68,920/- WAS FILED ON 29/10/2002. ON PERUSAL OF THE RETURN OF INCOME IT IS NOTICED FROM THE NOTE GIVEN IN THE COMPUTATION OF TOTAL INCOME THAT THE ASSESSEE HAS CLAIMED SOFTWARE EXPEN SE OF RS.23,20, 000/- PAID TO M/S MEDILINE EQUIPMENT AND COMPANY SYSTEM AS REVENUE EXPENDITURE . HOWEVER, SOFTWARE EXPENDITURE IS CAPITAL IN NATURE AND THE ASSESSEE'S CLAIM OF IT BE ING REVENUE EXPENDITURE IS INCORRECT. THE CLAIM OF THE ASSESSEE IS NOT CORRECT IN VIEW OF THE DECIS ION OF THE RAJASTHAN HIGH COURT IN THE CASE OF ARAWALI CONSTRUCTION CO PVT LTD (259 ITR 30) AND DE LHI ITAT IN THE CASE OF MARUTI UDYOG LIMITED (92 ITD 119). HENCE, THIS HAS RESULTED IN A N AMOUNT OF RS.23,20,000/- NOT BEEN CHARGED TO TAX AND CONSEQUENTLY ESCAPING ASSESSMENT AND I H AVE THEREFORE REASON TO BELIEVE THAT INCOME TO THE TUNE OF RS.23,20, 000/- CHARGEABLE TO TAX HA S ESCAPED ASSESSMENT FOR THE PREVIOUS YEAR RELEVANT TO THE AY 2002-03.NOTICE U/S. 148 READ WI TH SECTION CLAUSE (B) EXPLANATION TO BELOW SECTION 147 OF THE IT ACT IS ACCORDINGLY ISSUED. THE ASSESSMENT U/S.143(3) R.W.S 147 OF THE ACT WAS COMPLETED ON 24.12.07 DETERMINING THE INCOME OF THE ASSESSEE AT RS.69.92 CRORES. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM, IT WAS ARGUED THAT THE ASSESSMENT WAS RE-OPENED FOR BRINGING TO TAX EXPENDITURE OF RS.24.20 LACS INCURRED ON COMPUTER S OFTWARE, THAT ASSESSEE HAS MADE A SUITABLE ITA/4601/M/13M&MFSL,AY.02-03 2 NOTE IN COMPUTATION OF INCOME WITH REGARD TO COMPUT ER SOFTWARE EXPENDITURE, THAT SAME WAS ALLOWED BY THE AO IN THE ORIGINAL ASSESSMENT, THAT LATER ON THE AO FORMED THE OPINION THAT THE EXPENDITURE WAS CAPITAL IN NATURE, THAT THE AO HAD RELIED UPON CASES OF ARAWALI CONSTRUCTION P. LTD.(259 ITR 30) AND MARUTI UDYOG LTD.( 92 ITD 119) , THAT BOTH THE ORDERS WERE AVAILABLE TO THE AO WHEN THE ORIGINAL ASSESSMENT WAS FINALIZED ON 11 .3.2005, THAT NO NEW INFORMATION HAD COME TO THE KNOWLEDGE OF THE AO FOR INITIATING RE-OPENIN G AND AS SUCH IT WAS BAD IN LAW.THAT THERE WAS NO ADDITIONAL MATERIAL ON RECORD THAT COULD JUS TIFY THE RE-OPENING. THE ASSESSEE RELIED UPON THE CASE OF KELVINATOR INDIA LTD.( 320 ITR 561) AND ASIAN PAINTS LTD.( 308 ITR 195), THAT THE AO COULD NOT TAKE ADVANTAGE OF HIS OWN WRONG AND RE -OPENED THE ASSESSMENT U/S. 147, THAT THE RE-OPENING WAS DUE TO MERE CHANGE OF OPINION.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE FAA HELD THAT ON PERUSAL OF THE RECORDS THE AO HAD NOTICED THAT DEDUCTION HAD BEEN WRONGLY GRANTED TO THE ASSESSEE FOR SOFTWARE EXPENSES, THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, THAT THE AO HAD DEALT WITH THE OBJECTI ONS RAISED WITH REGARD TO REOPENING OF THE ASSESSMENT, THAT CASE WAS NOT OPENED ON A CHANGE OF OPINION, THAT AO HAD NOT FORMED ANY OPINION.REFERRING TO THE PROVISIONS OF SECTION 147, HE HELD THAT ALL THE CONDITIONS FOR ISSUE OF NOTICE U/S. 148 WERE AVAILABLE THAT THE ORIGINAL AS SESSMENT WAS MADE ON UNDER ASSESSED INCOME, THAT THE ONLY CONDITION FOR REOPENING WAS ESCAPEMEN T OF INCOME.FINALLY,HE UPHELD THE ACTION OF THE AO. 4. DURING THE COURSE OF HEARING BEFORE US THE AUTHORIS ED REPRESENTATIVE (AR) STATED THAT THE AO HAD REOPENED THE MATTER WITHOUT ANY TANGIBLE MATERI AL, THAT ALL THE NECESSARY DETAILS WERE FILED DURING THE ORIGINAL ASSESSMENT PROCEEDINGS, THAT AO HAD TAKEN AN INFORMED DECISION WITH REGARD TO COMPUTER SOFTWARE EXPENSES, THAT THE RE-OPENING WAS BAD IN LAW,HE PLACED RELIANCE ON THE DECISION OF KELVINATOR INDIA LTD.(SUPRA),ASIAN PAIN TS LTD.(SUPRA),AARTI INDUSTRIES LTD.(ITA/ 7230/M/2010, )AND AMITABH BACCHAN (ITA NO.4646 OF 2 010), JET AIRWAYS (331 ITR 236) AND RANBAXY LABORATORIES LTD.( 336 ITR 136). DEPARTMENT AL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE PERUSED THE MATERIAL ON RECORD.WE FIND THAT WHILE COMPLETING THE ASSESSMENT ORDER THE ASSESSEE HAD DISCLOSED ALL THE DETAILS ABOUT TH E SOFTWARE COMPANY.WE FIND THAT THE ASSESSEE HAD APPENDED A NOTE WITH THE COMPUTATION OF INCOME WHERE IT HAD SPECIFICALLY MENTIONED THAT IT WAS CLAIMING SOFTWARE EXPENSES UNDER THE HEAD REVEN UE EXPENDITURE (PG-3 OF PAPER BOOK).WE FURTHER FIND THAT THE AO HAD AT PARA-5 PG-6 OF THE ORIGINAL ORDER HAD DISCUSSED THE COMPUTER SOFTWARE EXPENDITURE IN DETAIL.THUS, THE ISSUE OF S OFTWARE EXPENSES WAS NOT A NEW ONE.THE ISSUE OF SOFTWARE EXPENDITURE OF CAPITAL/REVENUE EXPENDIT URE CANNOT FORM THE BASIS FOR REOPENING OF THE ASSESSMENT U/S.147 OF THE ACT.WE WILL LIKE TO REPRO DUCE THE RELEVANT PORTION OF DECISION OF KELVINATOR INDIA LTD.(SUPRA) WHEREIN THE HONBLE SU PREME COURT HAS HELD AS UNDER :- 6. ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MAD E TO SECTION 147 OF THE ACT, WE FIND THAT, PRIOR TO THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, REOPENING COULD BE DONE UNDER THE ABOVE TWO CONDITIONS AND FULFILMENT OF THE SAID CONDITION S ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFICER TO MAKE A BACK ASSESSMENT, BUT IN SECTION 1 47 OF THE ACT (WITH EFFECT FROM 1ST APRIL, 1989), THEY ARE GIVEN A GO-BY AND ONLY ONE CONDITION HAS R EMAINED, VIZ., THAT WHERE THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME HAS ESCAP ED ASSESSMENT, CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THEREFORE, POST-1ST APRIL, 1989, P OWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE ITA/4601/M/13M&MFSL,AY.02-03 3 NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WOR DS ' REASON TO BELIEVE' FAILING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMENTS ON THE BASIS OF ' MERE CHANGE OF OPINION', WHICH CA NNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWE R TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW ; HE HAS T HE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRECONDITIONS AND IF THE CONCEPT OF ' CHANGE OF OPINION' IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF ' CHANGE OF OPINION' AS AN IN- BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE, AFTER 1ST APRIL, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN, PROVIDED THE RE IS ' TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. OUR VIEW GETS SUP PORT FROM THE CHANGES MADE TO SECTION 147 OF THE ACT, AS QUOTED HEREINABOVE. UNDER THE DIRECT TA X LAWS (AMENDMENT) ACT, 1987, PARLIAMENT NOT ONLY DELETED THE WORDS ' REASON TO BELIEVE' BUT ALSO INSERTED THE WORD ' OPINION' IN SECTION 147 OF THE ACT. HOWEVER, ON RECEIPT OF REPRESENTATI ONS FROM THE COMPANIES AGAINST OMISSION OF THE WORDS ' REASON TO BELIEVE', PARLIAMENT REINTROD UCED THE SAID EXPRESSION AND DELETED THE WORD ' OPINION' ON THE GROUND THAT IT WOULD VEST ARBITRA RY POWERS IN THE ASSESSING OFFICER. WE QUOTE HEREINBELOW THE RELEVANT PORTION OF CIRCULAR NO. 54 9 DATED OCTOBER 31, 1989 ([1990] 182 ITR (ST.) 1, 29), WHICH READS AS FOLLOWS : ' 7.2 AMENDMENT MADE BY THE AMENDING ACT, 1989, TO REINTRODUCE THE EXPRESSION ' REASON TO BELIEVE' IN SECTION 147.A NUMBER OF REPRESENTATION S WERE RECEIVED AGAINST THE OMISSION OF THE WORDS ' REASON TO BELIEVE' FROM SECTION 147 AND THE IR SUBSTITUTION BY THE ' OPINION' OF THE ASSESSING OFFICER. IT WAS POINTED OUT THAT THE MEANING OF THE EXPRESSION, ' REASON TO BELIEVE' HAD BEEN EXPLAINED IN A NUMBER OF COURT RULINGS IN THE PAST AND WAS WELL SETTLED AND ITS OMISSION FROM SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSE SSING OFFICER TO REOPEN PAST ASSESSMENTS ON MERE CHANGE OF OPINION. TO ALLAY THESE FEARS, THE A MENDING ACT, 1989, HAS AGAIN AMENDED SECTION 147 TO REINTRODUCE THE EXPRESSION ' HAS REA SON TO BELIEVE' IN PLACE OF THE WORDS ' FOR REASONS TO BE RECORDED BY HIM IN WRITING, IS OF THE OPINION' . OTHER PROVISIONS OF THE NEW SECTION 147, HOWEVER, REMAIN THE SAME.' WE FIND THAT IN THE CASE OF AMITABH BACHCHAN (SUPRA ), THE REASONS RECORDED FOR REOPENING READ AS UNDER : N PERUSAL OF THE RECORDS, IT IS SEEN THAT SIMILARLY IN THE CASE BEFORE US THE RE-OPENING WAS DONE ON PERUSAL OF THE RECORDS.IN TH AT CASE THE TRIBUNAL HELD THAT THE REASONS RECORDED FOR INITIATING RE-ASSESMENT PROCEEDINGS U/ S. 147 OF THE ACT CLEARLY INDICATED THAT THERE WAS NO MATERIAL WHICH HAD COME TO THE NOTICE OF THE AO.IN THE PRESENT CASE,IN OUR OPINION,NO TANGIBLE OR NEW MATERIAL HAD COME IN POSSESSION OF THE AO FOR ISSUING NOTICE U/S. 148.IN THE CASE OF AMITABH BACHCHAN, THE HONBLE COURT HAS OBS ERVED AS UNDER : BOTH THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE TRIBUNAL HAVE CORRECTLY COME TO THE CONCLUSION THAT THERE WAS NO FRESH TANGIBLE MATERIA L BEFORE THE AO TO REACH A REASONABLE BELIEF THAT THE INCOME LIABLE TO TAX HAD ESCAPED ASSESSMEN T.THE ORDER PASSED ORIGINALLY ON 29 TH MARCH 2005 U/S. 143(3) OF THE SAID ACT WAS PASSED AFTER T HE RESPONDENT HAD MADE ADHOC CLAIM OF THE EXPENDITURE AT 30% OF THE PROFESSIONAL FEES IN THE REVISED RETURN OF INCOME WHICH WAS LATER WITHDRAWN.INFACT THE REASONS FOR RE-OPENING THE ASS ESSMENT FOR THE YEAR 2002-03 ITSELF RECORDS THAT THE CLAIM OF 30% OF THE ADHOC EXPENSE WAS WITHDRAWN WHEN THE RESPONDENT ASSESSEE WAS ASKED TO SUBSTANTIATE THE CLAIM.THEREFORE, THE SAME MATERIAL WAS A SUBJECT MATTER OF CONSIDERATION DURING THE PROCEEDINGS FOR ASSESSMENT LEADING TO ORDER DAT ED 29 TH MARCH 2005.IN THE CIRCUMSTANCES THERE COULD BE NO BASIS FOR THE AO TO FORM A BELIEF THAT INCOME HAD ESCAPED ASSESSMENT.IT IS A SETTLED ITA/4601/M/13M&MFSL,AY.02-03 4 POSITION OF LAW THAT REVIEW UNDER THE GARB OF RE-AS SESSMENT IS NOT PERMISSIBLE. WE FIND THAT THERE WAS NO TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME.THE LIVE-LINK BETWEEN THE REASONS AND FOR MATION OF BELIEF IS MISSING AND IT IS A CASE OF MERE CHANGE OF OPINION.THEREFORE, FOLLOWING THE PRI NCIPLES LAID DOWN IN THE CASES RELIED UPON BY THE ASSESSEE,WE HOLD THAT THE RE-ASSESSMENT PROCEED INGS WERE NOT VALID.GROUND NO.1 RAISED BY THE ASSESSEE IS DECIDED IN ITS FAVOUR. 6. AS WE HAVE HELD THAT THE ORDER PASSED BY THE AO U/S . 143(3) R.W.S. 147 WAS NOT A VALID ORDER, THEREFORE, WE ARE NOT ADJUDICATING THE REMAINING GR OUNDS OF APPEAL. AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS ALL OWED. ! '# $% & '(. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH OCTOBER,2015. * + ,-..$/ % 7 0&1 ,2015 SD/- SD/- ( !'# / SAKTIJIT DEY) ( / RAJENDRA) -. 3 / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 07 .10.2015 . . . .. . JV.SR.PS. +# ,&# / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ %15 ,6 , 4. THE CONCERNED CIT / %15 ,6 5. DR A BENCH, ITAT, MUMBAI / , , . . -. . 6. GUARD FILE/ ' //TRUE COPY// / BY ORDER, / . DY./ASST. REGISTRAR . . , /ITAT, MUMBAI.