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

ITA 4741/DEL/2010

• Counselvise Citation: 474120114 RSA 2010
• Duration Of Justice: 4 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 16-12-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 29-10-2010
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Reopening of assessment; Wrong claim; Difference of opinion; Royalty expenses; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A NEW DELHI) BEFORE SHRI I.C. SUDHIR AND SHRI T . S . KAPOOR ITA NO. 4741 /DEL/201 0 ASSESSMENT YEAR: 200 4 - 0 5 ITA NO. 3624/DEL/2013 ASSESSMENT YEAR: 2005 - 06 DEPUTY CIT, VS. BOT LI OIL TOOLS (I) PVT. LTD., CIRCLE 3(1), 4 TH FLOOR, MOHILA BUILDING, NEW DELHI. 4 - BHIKAJI CAMA PLACE, NEW DELHI. (PAN: AA A CB0222G ) (APPELLANT) (RESPONDENT) APPE LLANT BY: SHRI Y. KAKKAR. DR RESPONDENT BY: SHRI A NIL BHALLA , CA DATE OF HEARING : 16.12.2014 DATE OF PRONOUNCEMENT: :02.2015 ORDER PER I.C. SUDHIR : JUDICIAL MEMBER ITA NO. 4741/DEL/2013 : THE REVE NUE HAS QUESTIONED FIRST APPELLATE ORDER MAINLY ON THE GROUND THAT THE LEARNED CIT(APPEALS) HAS ERRED IN ANNULLING THE ASSESSMENT ORDER UNDER SECTION 143(3)/147 OF THE INCOME - TAX ACT, 1961 WHILE HOLDING THE REOPENING UNDER SECTION 147 AS INVALID. 2. WE HA VE HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF ORDERS OF THE AUTHORITIES BELOW, MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. 2 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 29.10.2009 DECL ARING INCOME OF RS.5,81,20,574 WHICH WAS PROCESSED UNDER SEC. 143(1) OF THE ACT. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS FRAMED ON 29.12.2006 AT ASSESSED INCOME OF RS.6,42,94,200. SUBSEQUENTLY, THE ASSESSING OFFICER NOTED FROM THE R ECORDS THAT THE ASSESSEE COMPANY HAD PAID ROYALTY OF RS.75,52,343 TO M/S. CHANCELLOR OIL TOOLS, A COMPANY INCORPORATED UNDER U.S. LAW. THE ASSESSING OFFICER NOTED THAT AS PER THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCH GEAR LTD. V S. CIT 232 ITR 359 (S.C), 25% OF ROYALTY PAYMENT HAS TO BE CAPITALIZED. HE ACCORDINGLY WORKED OUT THE AMOUNT OF RS.18,86,085 (25% OF RS.75,52,343) WHICH SHOULD HAVE BEEN CAPITALIZED. THIS RESULTED IN ESCAPEMENT OF INCOME TO THE TUNE OF RS.18,88,085 , REAS ONED THE ASSESSING OFFICER. THE ASSESSING OFFICER NOTED FURTHER THAT THE FACTS OF THIS YEAR ARE SIMILAR TO THE FACTS OF ASSESSMENT YEAR 2006 - 07, HENCE, FOR THIS YEAR ALSO, THE ROYALTY EXPENSES SHOULD HAVE BEEN CAPITALIZED. HE ACCORDINGLY ISSUED NOTICE UNDE R SEC. 148 OF THE ACT. THE ASSESSEE OBJECTED THE PROCEEDINGS ON THE GROUND THAT THE ISSUE HAS ALREADY BEEN SCRUTINIZED BY THE ASSESSING OFFICER UNDER SEC. 143(3) OF THE ACT AND ALLOWED THE CLAIM AS BUSINESS REVENUE EXPENDITURE AND THAT MERE CHANGE OF OPINI ON IS NOT A VALID GROUND FOR REOPENING OF ASSESSMENT UNDER SECTION 147 READ WITH SECTION 148 OF THE ACT. 3 THE ASSESSING OFFICER DID NOT AGREE WITH THE OBJECTION AND REJECTED THE SAME. THE LEARNED CIT(APPEALS) HAS, HOWEVER, ACCEPTED THE CONTENTION OF THE ASS ESSEE AND HELD THAT THE REOPENING OF ASSESSMENT PROCEEDINGS WAS BASED ON MERE CHANGE OF OPINION, HENCE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REOPENING OF THE ASSESSMENT UNDER SEC. 147 OF THE ACT. HE HELD THAT THE REOPENING PROCEEDINGS I S VOID - AB - INIT IO AND CONSEQUENTLY HELD THE ORDER PASSED UNDER SEC. 143(3) READ WITH SECTION 147 AS ANNULLED. AGAINST THIS ACTION OF THE LEARNED CIT(APPEALS), THE REVENUE IS IN APPEAL. 4 . AT THE OUTSET OF HEARING, THE LEARNED AR POINTED OUT THAT THE ISSUE RAISED IS FUL LY COVERED BY THE DECISION OF THE ITAT IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2003 - 04 VIDE ORDER DATED 14.11.2014 IN ITA NO.4740/DEL/2004, A COPY WHEREOF WAS MADE AVAILABLE TO THE BENCH AND LEARNED DR. 5 . THE LEARNED DR ON THE OTHER HAND SU BMITTED THAT DIFFERENT FACTS WERE THERE BEFORE THE ITAT FOR THE ASSESSMENT YEAR 2003 - 04 AS THEREIN , THE REASSESSMENT PROCEEDINGS HAVE BEEN HELD AS BARRED BY LIMITATION AS PER THE PROVISO TO SEC. 147 OF THE ACT. HE SUBMITTED THAT THERE WAS NO CHANGE OF OPIN ION BUT ESCAPEMENT OF ASSESSABLE INCOME WAS THERE AS PER THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCH GEAR LTD. VS. CIT (SUPRA). HE PLACED RELIANCE ON THE FOLLOWING DECISION TO SUPPORT HIS 4 CONTENTION THAT EVEN THE DECISION OF H ON BLE COURT ON AN ISSUE COMING TO THE KNOWLEDGE OF THE ASSESSING OFFICER IS INFORMATION TO BE CONSIDERED FOR REOPENING OF ASSESSMENT: I) CHANDI RAM VS. ITO (1997) 225 ITR 611 (RAJ.); II) SHRI KRISHNA PVT. LTD. VS. ITO (1996) 221 ITR 538 (S.C); & I II) CIT VS. NOVA PAN INDIA LTD. (1990) 236 ITR 746 (AP). 6 . THE LEARNED AR ON THE OTHER HAND REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW , W ITH THIS FURTHER SUBMISSION THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHER N SWITCH GEAR LTD. VS. CIT (SUPRA) WAS DELIVERED ON 21.12.1997 I.E. MUCH PRIOR TO THE SCRUTINY OF ASSESSMENT ORDER. HE SUBMITTED THAT THERE WAS NO CHANGE IN THE FACTS AND LAW RELATING TO THE ISSUE INVOLVED. IN THE PRESENT CASE, AFTER THE ASSESSMENT FRAMED UNDER SEC. 143(3) OF THE ACT ON 29.12.2006 WHICH WAS PASSED BY THE ASSESSING OFFICER AFTER CONSIDERING VARIOUS ASPECTS OF THE CASE , T HE CASE HAS BEEN SUBSEQUENTLY REOPENED ON THE BASIS OF SAME MATERIAL WHICH WAS ALREADY AVAILABLE ON RECORD. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT ANY NEW INFORMATION HAS COME TO HIS NOTICE WHICH COULD LEAD TO THE FORMATION OF BELIEF THAT INCOME HAS ESCAPED ASSESSMENT. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS: 5 I) CIT VS. KELVINATOR OF INDIA LTD. 123 TAXMAN 433 (DEL.) AFFIRMED BY THE HON'BLE SUPREME COURT REPORTED IN 187 TAXMAN 312 (S.C); & II) CIT VS. MUNJAL SHOWA LTD. (2012) 19 TAXMAN.COM 39 (DEL.). 7 . HAVING CONSIDERED THE ABOVE SUBMISSIONS, WE FIND THAT IN THE ASSESSMENT YEAR 2003 - 04 IN THE REASONS RE CORDED, THE ASSESSING OFFICER HAD ALSO SHOWN RS.5,02,778 (25% OF RS.20,11,115) WHICH WAS TO BE CAPITALIZED IN VIEW OF THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCH GEAR LTD. VS. CIT (SUPRA). HENCE, IT WAS HELD ESCAPEMENT OF ASSESSAB LE INCOME. THE ITAT HELD THAT ALL THE THREE ISSUES INCLUDING ISSUE OF 25% CAPITALIZATION OF THE ROYALTY PAYMENT RAISED BY THE ASSESSING OFFICER WERE DEALT WITH DURING THE ORIGINAL ASSESSMENT UNDER SEC. 143(3) OF THE ACT, HENCE, IT WAS A CLEAR CASE OF CHAN GE OF OPINION, CORRECTLY HELD BY THE LEARNED CIT(APPEALS) FOLLOWING THE RATIOS DECIDENDI OF THE HON'BLE SUPREME COURT IN THE CASE OF KELVINATOR INDIA LTD. 320 ITR 561 (S.C) WHEREIN IT WAS HELD THAT MERE CHANGE OF OPINION CANNOT PER SE BE REASONED TO REOP EN AND DOES NOT CONFIRM JURISDICTION UNDER SEC. 147 OF THE ACT. IN THE ASSESSMENT YEAR UNDER CONSIDERATION BEFORE US, THIS MATERIAL ASPECT OF THE CASE HAS NOT BEEN REBUTTED THAT THE ISSUE OF ALLOWABILITY OF ROYALTY OF EXPENSES WAS DULY CONSIDERED BY THE AS SESSING OFFICER WHILE FRAMING THE ORIGINAL ASSESSMENT UNDER SEC. 143(3) OF THE ACT ON 29.12.2006 AND SINCE 6 THEN, THERE WAS NO CHANGE OF LAW OR MATERIAL AND THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCH GEAR LTD. VS. CIT (SUPRA) D ATED 11.12.1997 WAS VERY MUCH IN EXISTENCE , W HEN THE ORIGINAL ASSESSMENT ORDER WAS FRAMED ON 29.12.2006 . W E ARE THUS RESPECTFULLY FOLLOWING THE RATIOS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR INDIA LTD. (SUPRA) HOLD THAT THE LEARNED CIT(APPEALS) HAS RIGHTLY COME TO THE CONCLUSION THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REOPENING OF THE ASSESSMENT UNDER SEC. 147 OF THE ACT HOLDING THE SAME AS VOID AB INITIO AND CONSEQUENTLY THE ASSESSMENT IN QUESTION AS ANNULLED. WE TH US HOLD THAT THERE IS NO INFIRMITY IN THE FIRST APPELLATE ORDER ON THE ISSUE. THE SAME IS UPHELD. 8 . THE DECISION RELIED UPON BY THE LEARNED DR HAVING DISTINGUISHABLE FACTS ARE NOT HELPFUL TO THE REVENUE. IN THE CASE OF CHANDI RAM VS. ITO (SUPRA), THE DE CISION OF THE HON'BLE SUPREME COURT WAS PRONOUNCED AFTER ISSUE OF NOTICE O F REASSESSMENT, HENCE, REASSESSMENT WAS HELD VALID AS NEW INFORMATION WAS RECEIVED BY THE ASSESSING OFFICER. IN THE CASE OF SHRI KRISHNA PVT. LTD. VS. ITO (SUPRA), THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACT NECESSARY FOR ASSESSMENT. T HERE IS , HOWEVER, NO DISPUTE ON THE RATIO LAID DOWN BY THE HON'BLE ANDHRA PRADESH 7 HIGH COURT IN THE CASE OF CIT VS. NOVA PAN INDIA LTD. (SUPRA) THAT INFORMATION INCLUDES I NFORMATION AS TO RELEVANT JUDICIAL DECISIONS. HERE ALSO, THE FACTS WERE DIFFERENT AS THE DECISIONS OF HON BLE COURT HAD COME TO THE KNOWLEDGE OF THE ITO AFTER ASSESSMENT WAS FRAMED . T HE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MUNJAL SH OWA LTD. (SUPRA), RELIED UPON BY THE LEARNED AR IS ON THE OTHER HAND SQUARELY COVERS THE ISSUE RAISED HAVING ALMOST SIMILAR FACTS. IN THAT CASE ALSO, THE REOPENING OF ASSESSMENT PROCEEDINGS WERE INITIATED IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF SOUTHERN SWITCH GEAR LTD. (SUPRA) THAT 25% OF THE ROYALTY EXPENSES SHOULD HAVE BEEN CONSIDERED AS CAPITAL EXPENDITURE. THE ITAT SET ASIDE THE REASSESSMENT PROCEEDINGS HOLDING THAT IT WAS BASED ON A MERE CHANGE OF OPINION. ON REVENUE S APPE AL BEFORE THE HON'BLE HIGH COURT, IT WAS NOTED THAT QUESTION OF PAYMENT OF ROYALTY WAS EX AMINED BEFORE THE ASSESSMENT ORDER UNDER SEC. 143(3) WAS PASSED AND THE DECISION OF THE ITAT WAS APPROVED. 9 . IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND SUBSTA NCE IN THE CONTENTIONS OF THE REVENUE RAISED IN GROUND OF THE APPEAL. THE GROUND IS ACCORDINGLY REJECTED. 10 . IN RESULT, THE APPEAL IS DISMISSED. 8 ITA NO.3624/DEL/2013 : 11 . THE REVENUE HAS QUESTIONED ACTION OF THE LEARNED CIT(APPEALS) WHEREBY HE HAS DELE TED THE PENALTY IMPOSED UNDER SEC. 271(1)(C) OF THE ACT AMOUNTING TO RS.8,44,316. THE CONTENTION OF THE REVENUE IN THE GROUND RAISED IS THAT THE LEARNED CIT(APPEALS) WHILE DELETING THE PENALTY HAS IGNORED THE FACT THAT ASSESSEE HAD MADE A WRONG CLAIM OF RS .23,07,349 IN RELATION TO THE COMMISSION OF THE EX - GRATIA PAID TO ITS DIRECTORS EVEN THOUGH THE SAME WAS NOT ALLOWABLE AS PER THE PROVISIONS OF SEC. 36(1)(II) OF THE INCOME - TAX ACT, 1961 AND THAT THE FINDINGS OF THE ASSESSING OFFICER WERE CONFIRMED BY THE LEARNED CIT(APPEALS). 1 2 . IN SUPPORT OF THE GROUND, THE LEARNED DR HAS REITERATED THE PENALTY ORDER WITH THIS SUBMISSIONS THAT THE ASSESSMENT HA S ESCAPED WITH A WRONG CLAIM MADE DELIBERATELY BY THE ASSESSEE TO EVADE TAX H A D THE SCRUTINY ASSESSMENT BE NOT TAKEN IN THE CASE. 1 3 . THE LEARNED AR, HOWEVER, POINTED OUT THAT THE PENALTY IN QUESTION ALSO DOES NOT STAND SINCE IN BETWEEN THE ITAT IN THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2005 - 06 IN ITA NO. 2281/DEL/2009 VIDE ORDER DATED 29.8.2014 HAS DEC IDED THE ISSUE OF VALIDITY OF ADDITION MADE ON ACCOUNT OF PAYMENT OF COMMISSION TO ITS DIRECTORS AS NOT VALID IN VIEW OF THE DECISI ON OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF META PLAST PVT. LTD. VS. DCIT 341 ITR 563 (DEL.) HOLDING THAT SE C. 36(1) (II) IS NOT 9 ATTRACTED IF THE PAYMENT OF COMMISSION IS PART OF SALARY PAID BY THE COMPANY IN TERMS OF THE APPOINTMENT ORDER, WHICH IS APPROVED AT THE ANNUAL GENERAL MEETING. A COPY OF THIS ORDER OF THE ITAT HAS BEEN MADE AVAILABLE. 1 4 . IN VIEW OF T HE ABOVE SUBMISSIONS, WE FIND THAT THE VERY ADDITION MADE BY A DISALLOWANCE OF RS.23,07,349 ON ACCOUNT OF COMMISSION AND EX - GRATIA PAYMENT MADE TO DIRECTORS OF THE ASSESSEE COMPANY BY INVOKING SEC. 36(1)(II) OF THE ACT, WHICH REMAINED THE SUBJECT MATTER OF PENALTY IN QUESTION, HAS BEEN DELETED BY THE ITAT. THE ITAT HAS ALSO APPROVED THE FIRST APPELLATE ORDER IN THIS REGARD ON AN IDENTICAL ISSUE FOR THE ASSESSMENT YEAR 2004 - 05 IN ITA NO.3821/DEL/2008 , FOLLOWING WHICH THE LEARNED CIT(APPEALS) IN THE ASSESSMEN T YEAR UNDER CONSIDERATION HAS HELD THE LEVY OF PENALTY AS UNJUSTIFIED ON THE BASIS THAT IN THE ASSESSMENT YEAR 2004 - 05, THE LEARNED CIT(APPEALS) HAS ALLOWED THE APPEAL OF THE ASSESSEE ON THE ISSUE. WE THUS DO NOT FIND ANY REASON TO INTERFERE WITH THE FIRS T APPELLATE ORDER. THE SAME IS UPHELD. THE GROUND IS ACCORDINGLY REJECTED. 1 5 . IN RESULT, THE APPEAL IS DISMISSED. 1 6 . IN SUMMARY, BOTH THE APPEALS PREFERRED BY THE REVENUE ARE DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 25 . 0 2 . 201 5 SD/ - ( T.S. KAPOOR ) SD/ - ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 25 / 0 2 /201 5 MOHAN LAL 10 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR DATE DRAFT DICTATED ON 24.02.2015 DRAFT PLACED BEFORE AUTHOR 25.02.2015 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 25.02.2015 APPROVED DRAFT COMES TO THE SR.PS/PS KEPT F OR PRONOUNCEMENT ON FILE SENT TO THE BENCH CLERK 26.02.2015 DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.