DCIT, New Delhi V. M/s Botil Oil Tools (I) Pvt. Ltd., New Delhi

ITA 4740/DEL/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82142 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-08-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 29-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: Y KAKKAR
• Keywords: Reopening of assessment; Rectification of order; Search and seizure; Difference of opinion; Assessment record; Reason to believe; Change of opinion
• Section: 143(3); 80HHC; 147; 148; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI G.D. AGARWAL, VICE PRESIDENT AND SHRI A.T . VARKEY , JUDICIAL MEMBER ITA NO . 4740 /DEL/ 2010 ASSESSMENT YEAR : 2003 - 04 DCIT, VS. BOTIL OIL TOOLS (I) P. LTD. CIRCLE 3(1), 4 TH FLOOR, MOHATA BLDG., NEW DELHI. 4, BHIKAJI CAMA PLACE, NEW DELHI. AAACB0222G (APPELLANT) (RESPONDENT) APPELLANT BY: SH. ANIL BHALLA, CA RESPONDENT BY: SH. Y. KAKKAR, SR. DR ORDER PER A.T. VARKEY, J.M. THIS APPEAL BY THE ASSES SEE AGAINST THE ORDER OF THE LD. CIT(A) - VI, NEW DELHI DATED 02.08.2010 FOR ASSESSMENT YEAR 2003 - 04. 2. THE SOLE GROUND RAISED BY THE REVENUE OF THE APPEAL READS AS UNDER : 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN ANNULLING THE ORDER U/S 143(3)/1 47 OF THE I.T. ACT WHILE HOLDING INVALID THE REOPENING U/S 147, IGNORING THAT ALSO AS PER DECISION OF HONBLE SUPREME COURT IN CIT(A) VS. P.V.S. BEADIES P. LTD., 237 ITR 13, THE FACTUAL INFORMATION PROVIDED BY THE INTERNAL AUDITOR IS TO BE TREATED AS INFOR MATION FOR THE PURPO SE OF REOPENING OF ASSESSMENT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 28.11.2003 , DECLARING INCOME OF RS. 1,40,81,107/ - WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT , 1961 (HEREINAFTE R THE ACT) . LATER ON, IT WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED ON 3 .3.2006 AT ASSESSED INCOME OF R S. 1,43,56,410/ - . SUBSEQUENTLY, THE AO NOTED FROM THE PERUSAL OF RECORDS THAT THE ASSESSEE COMPANY HAD PAID COMMISSION OF RS. 35,02,907/ - TO ITS DIRECTORS WHO WE RE ALSO MAJOR ITA NO. 4740/D/ 2010 BOTIL OIL TOOLS (I) P. LTD. 2 SHAREHOLDERS IN THE COMPANY. ON THE BASIS OF A.Y. 2006 - 07 , THE AO WAS OF THE VIEW THAT THE ALLOWABILITY OF BONUS/COMMISSION PAID TO AN EMPLOYEE MUST BE BASED ON SECTION OF 36(1)(II) OF THE ACT ; AND SO , THE BONUS/ COMM ISSION PAID TO AN EMPLOYEE WA S NOT ALLOWABLE AS DEDUCTION, IF IT COULD HAVE BEEN PAID AS PROFIT OR DIVIDEND. ACCORDING TO THE AO, T HE ASSESSEE COMPANY COULD HAVE PAID THE AMOUNT AS PROFIT/DIVIDEND INSTEAD OF BONUS/COMMISSION , SINCE THE PAYMENT IS BEING MA DE TO DIRECTORS OF THE COMPANY. AND SINCE T HE FACTS OF THIS RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS OF A.Y. 2006 - 07, HENCE FOR THIS YEAR ALSO, THE COMMISSION PAID TO DIRECTORS AT RS. 35,02,907/ - IS NOT ALLOWABL E U/S 36(1)(II) OF THE ACT . FURTHER IT WAS OBSERVED BY THE AO AFTER PERUSAL OF RECORDS THAT THE ASSESSEE COMPANY HAD PAID ROYALTY OF RS. 20,11,115/ - TO M/S CHANCELLOR OIL TOOL, A COMPANY INCORPORATED UNDER THE US LAWS. THE AO AFTER CITING THE HONBLE APEX COURTS DECIS ION IN THE CASE OF M/S SOUTHERN SWITCH GEAR LTD. VS. CIT, 232 ITR 359, WHEREIN IT WAS HELD BY THE HONBLE COURT THAT 25% OF ROYALTY PAYMENT HAS TO BE CAPITALIZED, THE AO OBSERVED THAT OUT OF THE SAID SUM OF RS. 5,02,778/ - (25% OF 20,11,115/ - ) SHOULD HAVE BEEN CAPITALIZED. FURTHER ACCORDING TO THE AO, T HE DEDUCTION U/S 80HHC WAS ALSO ALLOWED IN EXCESS. ACCORDING TO THE AO, THEREFORE, THE SAID CIRCUMSTANCES RESULTED IN ESCAPEMENT OF INCOME TO THE TUNE OF RS. 42,95,200/ - (RS. 35,02,907 + 5,02,778 + 2,89,51 5 ). AND SO , THE CASE HAS BEEN REOPENED U/S 147 OF THE ACT. 4. THE LD. CIT(A) QUASHED THE REOPENING OF ASSESSMENT BY HOLDING AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY LD. AR AND HAVE GONE THROUGH THE ASSESSMENT ORDER. WHILE EXPLAINING THE REASONS FOR REOPENING OF THE CASE, THE AO HAS REFERRED TO THE RECORDS WHICH REVEALED THAT THE ASSESSEE HAS CLAIMED COMMISSION PAYMENT OF RS. 35,02,907/ - . THE AO WAS OF THE OPINION THAT THIS AMOUNT IS NOT ALLOWABLE U/S 36(1)(II) OF THE ACT. IT WAS AL SO NOTICED BY THE AO FROM THE RECORDS THAT THE ASSESSEE HAS PAID ROYALTY AMOUNT OF RS. 20,11,115/ - TO M/S CHANCELLOR OIL TOOL, A COMPANY INCORPORATED UNDER THE US LAWS. HE WAS OF THE VIEW THAT ITA NO. 4740/D/ 2010 BOTIL OIL TOOLS (I) P. LTD. 3 THIS AMOUNT SHOULD BE CAPITALIZED. SIMILARLY, THE AO HAS OBSE RVED THAT THE DEDUCTION U/S 80HHC HAS BEEN ALLOWED IN EXCESS. IT IS EVIDENT FROM THE FACTS OF THE CASE THAT IT HAS BEEN REOPENED ON THE BASIS OF RECORDS AVAILABLE WITH THE AO. IT IS PERTINENT TO MENTION HERE THAT IN THIS CASE, SCRUTINY ASSESSMENT WAS COM PLETED ON 3.3.2006 AND ALL THIS MATERIAL WAS BEFORE THE AO AT THE TIME OF FINALIZING THE ASSESSMENT ORDER. IT IS ALSO NOT THE CASE OF THE AO THAT ANY NEW INFORMATION/MATERIAL HAS COME TO HIS NOTICE WHICH COULD LEAD TO THE FORMATION OF BELIEF THAT INCOME H AS ESCAPED ASSESSMENT DUE TO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE AO HAS REFERRED TO THE HONBLE SUPREME COURTS DECISION IN THE CASE OF M/S SOUTHERN SWITCH GEAR LTD. VS. CIT, 232 ITR 359. HOWEVER, THE ABOVE JUDGMENT WAS DELIVERED ON 11.12.1997 I.E. MUCH PRIOR TO THE ORIGINAL ASSESSMENT ORDER U/S 143(3). THUS, THE REOPENING IS BASED ON RECONSIDERATION OF MATERIAL/INFORMATION ALREADY AVAILABLE ON RECORD AT THE TIME OF COMPLETION OF ORIGINAL PROCEEDINGS. NO NEW FACT OR MATERIAL WAS AVAILABLE WITH THE AO WHICH COULD COME WITHIN THE PURVIEW OF THE EXPRESSION INFORMATION. TAKING A DIFFERENT VIEW AT A LATER STAGE IS MERELY A CHANGE OF OPINION. IT HAS BEEN HELD IN VARIOUS DECISIONS T HAT THE REOPENING OF THE CASE ON THE BASIS OF CHANGE OF OPINION IS NOT JUSTIFIED. IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. 123 TAXMAN 433, HONBLE DELHI HIGH COURT HAS HELD THAT: IT IS NOT IN DISPUTE THAT THE AO DOES NOT HAVE ANY JURISDICTION TO R EVIEW ITS OWN ORDER. HIS JURISDICTION IS CONFINED ONLY TO RECTIFICATION OF MISTAKE AS CONTAINED IN SECTION 154 OF THE ACT. THE POWER OF RECTIFICATION OF MISTAKE CONFERRED UPON THE ITO IS CIRCUMSCRIBED BY THE PROVISIONS OF SEC. 154. THE SAID POWER CAN BE EXERCISED WHEN MISTAKE IS APPARENT. EVEN MISTAKE CANNOT BE RECTIFIED WHERE IT MAY BE A MERE POSSIBLE VIEW OR WHERE THE ISSUES ARE DEBATABLE. EVEN THE TRIBUNAL HAS LIMITED JURISDICTION U/S 254(2) OF THE ACT. THUS, WHEN THE AO HAS CONSIDERED THE MATTER I N DETAIL AND THE VIEW TAKEN IS A POSSIBLE VIEW, THE ORDER CANNOT BE CHANGED BY WAY OF EXERCISING THE JURISDICTION OF RECTIFICATION OF MISTAKE. THE ABOVE - SAID DECISION HAS BEEN AFFIRMED BY HONBLE SUPREME COURT (187 TAXMAN 312), WHEREIN HONBLE SUPREME CO URT HAS OBSERVED 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 AO TO REOPEN 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 AO HAS NO POWER TO REVIEW; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAI N PRE - CONDITION AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED, ITA NO. 4740/D/ 2010 BOTIL OIL TOOLS (I) P. LTD. 4 ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE OF OPINION AS AN IN - BUILT TEST TO CHECK ABUSE OF POWER OF THE ASSESSING OFFICER. LOOKING INTO FACTS OF THE C ASE, I FIND THAT THE AO WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 147 IN THE PRESENT CASE AND HENCE, THE REOPENING IS HELD TO BE VOID - AB - INITO. CONSEQUENTLY, THE ORDER U/S 143(3) READ WITH SECTION 147 STANDS ANNULLED. 5. THE LD. DR SUPPORT ED THE AOS ACTION OF REOPENING THE ASSESSMENT U /S 147 OF THE ACT AND THE LD. AR RELIED ON THE FINDING OF LD. CIT(A). 5.1 WE HAVE HEARD BOTH THE SIDES. THE BASIS FOR REOPENING THE ASSESSMENT IS MENTIONED IN THE REASONS RECORDED WHICH ARE AS UNDER: THE ASSESSEE COMPANY, FILED ITS RETURN OF INCOME FOR THE A.Y. 2003 - 04 ON 28.11.2003 DECLARING AN INCOME OF RS. 14081107/ - . LATER ON, THE CASE WAS SELECTED FOR SCRUTINY U/S 143(3) AND ASSESSED AT INCOME OF RS. 14356410/ - ON A/C OF CERTAIN ADDITIONS/DISALLOWAN CES MADE TO THE RETURNED INCOME. ON PERUSAL OF ASSTT. RECORDS FOR THE A.Y. 2003 - 04 REVEALS THAT THE ASSESSEE COMPANY HAD PAID COMMISSION OF RS. 3502907/ - TO ITS DIRECTORS OF THE COMPANY. FURTHER, ON SIMILAR GROUNDS, ADDITION HAD BEEN MADE IN THIS CASE BY THE AO IN THE A.Y. 2006 - 07 BY OBSERVING AS UNDER: IT NEEDS TO BE MENTIONED HERE THAT DUE TO AMENDMENT IN SECTION 36(1)(II) BY THE DIRECT TAX LAW (AMENDMENT) ACT, 1987 AND LATER IN 1989, THE PROVISOS TO THE MAIN SECTION HAVE BEEN OMITTED. IN OTHER WORDS , THERE IS NO NEED TO TEST THE REASONABLENESS OF THE AMOUNT OF BONUS AS WELL AS COMMISSION PAID TO AN EMPLOYEE. THE ALLOWABILITY OF BONUS/COMMISSION PAID TO AN EMPLOYEE IS BASED ON THE MAIN SECTION OF 36(1)(II). FURTHER, IT IS A WELL LAID DOWN LAW THAT W HERE THE LANGUAGE OF THE SECTION IS PLAIN CLEAR AND UNAMBIGUOUS. IT HAS TO BE UNDERSTOOD IN THE SENSE, WHAT IT LITERALLY MEANS. NO INTERPRETATIONS/OUTSIDE MEANINGS SHOULD BE ATTACHED TO IT. IN THIS CASE THE PROVISIONS OF SEC. 36(1)(II) SIMPLY SAYS THAT BONUS/COMMISSION PAID TO AN EMPLOYEE IS NOT ALLOWABLE AS DEDUCTION, IF IT COULD HAVE BEEN PAID AS PROFIT OR DIVIDEND. THE ASSESSEE COMPANY COULD HAVE PAID THE AMOUNT AS PROFIT/DIVIDEND INSTEAD OF BONUS/COMMISSION SINCE THE PAYMENT IS BEING MADE TO DIRECTI ONS OF THE COMPANY. ACCORDINGLY, THE COMMISSION OF RS../ - PAID TO DIRECTORS WHICH IS NOT ALLOWABLE AS PER THE ITA NO. 4740/D/ 2010 BOTIL OIL TOOLS (I) P. LTD. 5 PROVISION OF SECTION 36(1)(II) OF THE I.T. ACT IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. FURTHER, ON PERUSAL OF ASSTT. RECORDS FOR THE A.Y. 03 - 04 REVEALS THAT THE ASSESSEE HAD PAID ROYALTY PAYMENT OF RS. 2011115/ - TO M/S CHANCELLOR OIL TOOL, INC., A COMPANY INCORPORATED UNDER THE US LAWS. THE AO HAD ALSO MADE DISALLOWANCE ON THIS SIMILAR ISSUE IN THE A.Y. 06 - 07 BY OBSERVING AS UNDER: T ERMS OF THE AGREEMENTS : SUBJECT TO ANY PRIOR TERMINATION OF THIS AGREEMENT AS PROVIDED HEREINABOVE, THE TERM OF THIS AGREEMENT SHALL BE 10 YEARS FROM THE EFFECTIVE DATE OR 10 YEARS FROM THE COMMENCEMENT OF PRODUCTION OF THE PRODUCTS WHICHEVER IS LATER. T HE INDIAN COMPANY SHALL BE ENTITLED, THEREAFTER TO THE CONTINUED AND FREE USE OF THE KNOW HOW AND INFORMATION GIVEN BY CHANCELLOR OIL TOOL TO THE INDIAN COMPANY. AS SEEN FROM ABOVE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND THE CHANCELLOR INC. USA THE ASS ESSEE COMPANY HAS AN EXCLUSIVE RIGHT OVER THE TECHNICAL KNOW HOW PROVIDED TO IT IN THE RIGHT FOR CONTINUED AND THERE USE OF THE KNOW HOW GIVEN BY CHANCELLOR INC. BASED ON HONBLE APEX COURTS DECISION IN CASE OF M/S SOUTHERN SWITCH GEAR LTD. VS. CIT, 232 ITR 359 (SC), WHEREIN IT WAS HELD BY THE HONBLE COURT THAT 25% OF ROYALTY PAYMENT HAS TO BE CAPITALIZED, RS. 502778/ - (25% OF 2011115/ - ) SHOULD HAVE BEEN CAPITALIZED. THE PERUSAL OF THE RECORDS FOR THE SAME YEAR ALSO REVEALS THAT DEDUCTION U/S 80HHC OF R S. 3096114/ - WAS ALLOWED TO THE ASSESSEE WHEREAS IT WAS ADMISSIBLE TO THE EXTENT OF RS. 2806599/ - ONLY. THIS RESULTED IN EXCESS ALLOWANCE OF DEDUCTION UNDER THIS SECTION OF RS. 289515/ - . IN VIEW OF THE ABOVE FACTS AND FINDINGS, I HAVE REASONS TO BELIEVE THAT THE TOTAL INCOME TO THE TUNE OF RS. 4295200/ - (502778/ - + 3502907/ - ), HAS ESCAPED ASSESSMENT BECAUSE OF FAILURE ON PART OF ASSESSEE TO DISCLOSE FULLY AND TRULY MATERIAL FACTS NECESSARY FOR ASSTT. AND HENCE NOTICE U/S 148 IS HEREBY ISSUED FOR REOPENING U/S 147 OF THE I.T. ACT. 6. ON A PERUSAL OF THE REASONS EXTRACTED ABOVE, CLEARLY BRING S OUT THAT THE CONTENTIOUS ISSUES WERE NOTICED BY THE AO ON A PERUSAL OF THE ASSESSMENT RECORDS FOR THE A.Y. 03 - 04 ; AND THERE IS NO WHISPER ABOUT ANY FRESH INFORMATI ON ON THE BASIS OF WHICH THE AO HAS BASED HIS REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. MOREOVER , WE FIND THAT THE REOPENING HAS BEEN ORDERED AFTER FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. SO, THE AO WAS DUTY BOUND TO CLEARLY I NDICATE ITA NO. 4740/D/ 2010 BOTIL OIL TOOLS (I) P. LTD. 6 WHETHER THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THE ADMITTED FACTS EMERGING FROM THE RECORDS OF THIS CASE ARE THAT THE ASSESSEE HAD FILED ITS RETURN ON 28/11/2003 F OR THE RELEVANT ASSESSMENT YEAR. SCRUTINY ASSESSMENT U/S 143(3) WAS COMPLETED ON 02/03/2006 (PB PAGE 36 TO 40). ADMITTEDLY, FOUR YEARS EXPIRED ON 31/03/2008 FROM THE END OF RELEVANT ASSESSMENT YEAR. SO THE NOTICE DATED 31/03/2009 U/S 148 OF THE ACT , FO R REOPENING OF THE ASSESSMENT FOR A.Y. 2003 - 04 WAS ISSUED AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THEREFORE, AS PROVIDED BY THE FIRST PROVISO TO SEC. 147, THE AO HAS TO SATISFY THAT THERE WAS A FAILURE ON THE PART OF THE A SSESSEE TO DISCLOSE FULLY AND TRULY MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. ON A PERUSAL OF THE REASONS RECORDED BY THE AO, WE FIND THAT THE AO HAS MADE A BALD STATEMENT, THAT THE ASSESSEES TOTA L INCOME TO THE TUNE OF RS. 42,95,200/ - HAS ESCAPED ASS ESSMENT BECAUSE OF FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. BUT FOR THIS BALD STATEMENT OF THE AO, NOTHING EMERGES FROM THE RECORDS TO SUPPORT THE SAID OBSERVATION OF THE AO. WE FIND THA T ALL THE THREE ISSUES RAISED BY THE AO HAS BEEN DEALT DURING THE ORIGINAL SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT AND, THEREFORE, IT IS A CLEAR CASE OF CHANGE OF OPINION, WHICH H AS BEEN CORRECTLY HELD BY LD. CIT(A) FOLLOWING THE RATIO - DECIDEND I OF THE A PEX COURT IN 320 ITR 561 KELVINATOR OF INDIA LTD. WHEREIN, IT WAS HELD THAT MERE CHANGE OF OPINION CANNOT PER - SE BE REASON TO REOPEN AND DOES NOT CONFER JURISDICTION U/S 147 OF THE ACT. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS REJECTED & APPEAL IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.11.2014. - SD/ - - SD/ - ( G.D. AGARWAL) (A.T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER ITA NO. 4740/D/ 2010 BOTIL OIL TOOLS (I) P. LTD. 7 DATED: 14.11.2014 *KAVITA, P.S /AK KEOT COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, IT AT, NEW DELHI TRUE COPY BY ORDER ASSISTANT REGISTRAR