ACIT, New Delhi V. M/s. Socomec HPL (P) Ltd., Gurgaon

ITA 4925/DEL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7586 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 01-06-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 17-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIMA BARNWAL SENIOR
• Keywords: Search and seizure; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.4925/DEL./2012 (ASSESSMENT YEAR : 2006-07) ACIT, CIRCLE 9 (1), VS. M/S. SOCOMEC HPL (P) LTD., NEW DELHI. 756, PACE CITY II, SECTOR 37, GURGAON 122 001. (PAN : AAECS2270D) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SMT. ANIMA BARNWAL, SENIOR DR DATE OF HEARING : 01.06.2016 DATE OF ORDER : 07.06.2016 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, ACIT, CIRCLE 9 (1), NEW DELHI (HEREINAF TER REFERRED TO AS THE REVENUE), BY FILING THE PRESEN T APPEALS SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 11.06.2012 PASSE D BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-XII, NEW DELHI QUA THE ASSESSMENT YEAR 2006-07 ON THE GROUNDS INTER ALIA T HAT :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) IS NOT JUSTIFIED IN QUASHING THE REASSE SSMENT PROCEEDINGS UNDER SECTION 147 / 148 OF THE I.T. ACT . ITA NO.4925/DEL./2012 2 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) ERRED IN NOT ADJUDICATING THE ISSUE OF DISALLOWANCE U/S 40(A)(IA) AND CLAIM OF EXPENSES IN CURRED FOR TECHNICAL KNOW-HOW. 2. BRIEFLY STATED THE FACTS OF THIS CASE ARE : ON T HE BASIS OF RETURN OF INCOME FILED BY THE ASSESSEE ON 30.11.2006 DECLA RING AN INCOME OF RS.3,14,24,280/-, ASSESSMENT WAS COMPLETED ON 16 .06.2008 UNDER SECTION 143 (3) OF THE INCOME-TAX ACT, 1961 ( HEREINAFTER THE ACT). SUBSEQUENTLY, THE AO ISSUED A NOTICE DATED 31.03.2011 U/S 148 OF THE ACT CALLING UPON THE ASSESSEE TO SHOW CA USE AS TO WHY AMOUNT OF RS.2,62,68,290/- SHOWN UNDER THE HEAD SE LLING AND DISTRIBUTION SHOULD NOT BE ADDED TO HIS INCOME AS THE ASSESSEE HAS VIOLATED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND FURTHER CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY THE A MOUNT OF RS.39,35,858/- INCURRED ON TECHNICAL KNOW-HOW FEES SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. FINDING THE SUBMIS SIONS MADE BY THE ASSESSEE NOT TENABLE, AO MADE AN ADDITION OF RS .2,04,00,000/- FOR VIOLATION OF PROVISIONS OF SECTION 40(A)(IA) AN D FURTHER MADE AN ADDITION BEING THE CAPITAL EXPENDITURE FOR DEBITING THE AMOUNT OF RS.29,51,901/- OUT OF RS.39,35,858/- IN THE PROFIT & LOSS ACCOUNT BEING TECHNICAL KNOW-HOW FEES AND THEREBY ASSESSED THE TOTAL INCOME OF THE ASSESSEE U/S 147/143(3) OF THE ACT AT RS.5,47,76,200/-. ITA NO.4925/DEL./2012 3 3. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT ( A) WHO HAS DELETED THE ADDITION BY PARTLY ALLOWING THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBU NAL BY WAY OF FILING THE PRESENT APPEAL. 4. ASSESSEE HAS NOT PREFERRED TO PUT IN APPEARANCE DESPITE ISSUANCE OF THE NOTICE OF 21.04.2016 AND CONSEQUENT LY, WE PROCEEDED TO DECIDE THE PRESENT APPEAL WITH THE ASS ISTANCE OF THE LD. DR AS WELL AS ON THE BASIS OF DOCUMENTS AVAILABLE O N THE FILE. 5. LD. DR CHALLENGING THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) RELIED UPON THE ORDER DATED 26.12.2011 PASS ED BY THE AO. HOWEVER, ON THE OTHER HAND, FROM THE PERUSAL OF THE DOCUMENTS, IT IS OBSERVED INTER ALIA THAT REOPENING OF THE ASSESS MENT BY THE AO U/S 148 IS BARRED BY LIMITATION; THAT BOTH THE EXPE NDITURE DISALLOWED BY THE AO WERE CLAIMED BY THE ASSESSEE I N THE PROFIT & LOSS ACCOUNT WHICH WERE ALLOWED BY THE LD. CIT (A) BY APPLYING HIS MIND; THAT THE AO HAS NO ADDITIONAL MATERIAL TO REOPEN THE ASSESSMENT WHICH IS A CONDITION PRECEDENT AS PER JU DGMENT CITED AS CIT VS. KELVINATOR OF INDIA LTD. (2010) 320 ITR 5 61 (SC). 6. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE F OR THE REVENUE TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.4925/DEL./2012 4 7. FOR FACILITY OF REFERENCE, THE REASONS RECORDED BY THE AO FOR ISSUANCE OF NOTICE U/S 148 OF THE ACT FOR AY 2006-0 7 ARE REPRODUCED AS UNDER :- RETURN IN THIS CASE WAS FILED ON 30.11.2006 DECLARING AN INCOME OF RS.3,14,24,280/-. ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT WAS COMPLETED ON 16.06.2006 ACCEPTED THE RETURNED INCOME. DURING THE YEAR, THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.2,62,68,290/- UNDER THE HEAD 'SELLING AND DISTRIBUTION EXPENSES. IN THE CASE OF THE ASSESSEE , IT HAS BEEN REVEALED THAT IN OTHER YEARS THE ASSESSEE HAS MADE VARIOUS PAYMENTS UNDER THIS HEAD WITHOUT DEDUCTING TAX ON SUCH PAYMENTS THEREBY VIOLATING PROVISIONS OF SE C. 40(A)(IV) OF THE ACT. FURTHER, THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.39,35,858/- BEING TECHNICAL KNOW HOW FES PAID. T HE SAME BEING NOT ALLOWABLE AS REVENUE EXPENDITURE SHO ULD HAVE BEEN DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT AN AMOUNT OF RS.2,62,68,290/- AND RS.39,35,858/- H AS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 14 7 OF THE I.T. ACT, 1961. 8. UNDISPUTED FACTS NECESSARY FOR ADJUDICATION OF T HE CONTROVERSY AT HAND ARE INTER ALIA THAT THE ASSESSM ENT IN THIS CASE WAS COMPLETED U/S 143(3) ON 16.06.2008; THAT THE NO TICE U/S 148 WAS STATED TO BE ISSUED ON 31.03.2011 BUT WAS SERVE D UPON THE ASSESSEE ON 02.11.2011; THAT IN THE PROFIT & LOSS A CCOUNT RELIED UPON BY THE ASSESSEE BOTH THE DISPUTED AMOUNT OF RS .2,62,68,290/- ITA NO.4925/DEL./2012 5 AND AN AMOUNT OF RS.39,35,858/- DEBITED UNDER THE H EAD SELLING & DISTRIBUTION EXPENSES AND CLAIMED BEING TECHNICAL KNOW-HOW FEES RESPECTIVELY, HAVE BEEN DULY SHOWN. 9. IN THE BACKDROP OF THE AFORESAID UNDISPUTED FACT S, REASONS RECORDED BY THE AO FOR ISSUANCE OF THE NOTICE U/S 1 48, TWO QUESTIONS ARISE FOR DETERMINATION IN THIS CASE ARE : (I) AS TO WHETHER ASSESSING OFFICER WAS HAVING NO ADDITIONAL MATERIAL SUFFICIENT TO ACQUIRE JURISDICT ION TO REOPEN THE ASSESSMENT U/S 147 OF THE ACT; AND (II) AS TO WHETHER REASSESSMENT ORDER DATED 26.12.2011 PASSED BY THE ASSESSING OFFICER AMOUNTS TO CHANGE OF OPINION? 10. HONBLE APEX COURT IN JUDGMENT CITED AS CIT VS. KELVINATOR OF INDIA LTD. (SUPRA) EXAMINED THE IDENTICAL ISSUE, THE OPERATIVE PART OF WHICH IS REPRODUCED AS UNDER :- 6. ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MADE 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 CONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFIC ER TO MAKE A BACK ASSESSMENT, BUT IN SECTION 147 OF THE ACT (WIT H EFFECT FROM 1ST APRIL, 1989), THEY ARE GIVEN A GO-BY AND ONLY O NE CONDITION HAS REMAINED, VIZ., THAT WHERE THE ASSESSING OFFICE R HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, CONF ERS JURISDICTION TO REOPEN THE ASSESSMENT. THEREFORE, P OST-1ST APRIL, 1989, POWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS 'REASO N TO BELIEVE' FAILING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIV E ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMEN TS ON THE ITA NO.4925/DEL./2012 6 BASIS OF 'MERE CHANGE OF OPINION', WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CON CEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REA SSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW ; HE HAS T HE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFI LMENT OF CERTAIN PRE-CONDITIONS AND IF THE CONCEPT OF 'CHANG E OF OPINION' IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMEN T, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' A S AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFIC ER. HENCE, AFTER 1ST APRIL, 1989, THE ASSESSING OFFICER HAS PO WER TO REOPEN, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO TH E CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BEL IEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SECTION 147 O F THE ACT, AS QUOTED HEREINABOVE. UNDER THE DIRECT TAX LAWS (AMEN DMENT) ACT, 1987, PARLIAMENT NOT ONLY DELETED THE WORDS 'R EASON TO BELIEVE' BUT ALSO INSERTED THE WORD' OPINION' IN SE CTION 147 OF THE ACT. HOWEVER, ON RECEIPT OF REPRESENTATIONS FRO M THE COMPANIES AGAINST OMISSION OF THE WORDS 'REASON TO BELIEVE', PARLIAMENT REINTRODUCED THE SAID EXPRESSION AND DEL ETED THE WORD 'OPINION' ON THE GROUND THAT IT WOULD VEST ARB ITRARY POWERS IN THE ASSESSING OFFICER. WE QUOTE HEREINBEL OW THE RELEVANT PORTION OF CIRCULAR NO. 549 DATED OCTOBER 31, 1989 ([1990] 182 ITR (ST.) I, 29), WHICH READS AS FOLLOW S: 7.2 AMENDMENT MADE BY THE AMENDING ACT, 1989, TO REINTRODUCE THE EXPRESSION 'REASON TO BELIEVE' IN S ECTION 147.-A NUMBER OF REPRESENTATIONS WERE RECEIVED AGAINST THE OMISSION OF THE WORDS 'REASON TO BELIEVE' FROM SECTION 147 AND THEIR SUBSTITUTION BY THE 'OPINION' OF THE ASSESSING OFFI CER. IT WAS POINTED OUT THAT THE MEANING OF THE EXPRESSION, 'RE ASON TO BELIEVE' HAD BEEN EXPLAINED IN A NUMBER OF COURT RU LINGS IN THE PAST AND WAS WELL SETTLED AND ITS OMISSION FROM SEC TION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICE R TO REOPEN PAST ASSESSMENTS ON MERE CHANGE OF OPINION. TO ALLA Y THESE FEARS, THE AMENDING ACT, 1989, HAS AGAIN AMENDED SE CTION 147 TO REINTRODUCE THE EXPRESSION 'HAS REASON TO BELIEV E' IN PLACE OF THE WORDS 'FOR REASONS TO BE RECORDED BY HIM IN WRI TING, IS OF THE OPINION'. OTHER PROVISIONS OF THE NEW SECTION 147, HOWEVER, REMAIN THE SAME.' FOR THE AFORESTATED REASONS, WE SEE NO MERIT IN THE SE CIVIL APPEALS FILED BY THE DEPARTMENT; HENCE, DISMISSED W ITH NO ORDER AS TO COSTS. ITA NO.4925/DEL./2012 7 11. WHEN UNDISPUTEDLY THE ASSESSEE HAS DEBITED AN A MOUNT OF RS.2,62,68,290/- UNDER THE HEAD SELLING & DISTRIBU TION EXPENSES IN THE PROFIT & LOSS ACCOUNT AT THE TIME OF FILING ORIGINAL RETURN OF INCOME, WHICH HAS BEEN ACCEPTED BY THE AO BY APPLYI NG HIS MIND, AGAIN TAKING COGNIZANCE BY ISSUANCE OF THE NOTICE U /S 148 TO MAKE AN ADDITION THEREON ON WHATEVER REASON CERTAINLY AM OUNTS TO CHANGE OF OPINION WHICH IS NOT PERMISSIBLE AS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. (SUPRA). 12. SIMILAR IS THE FATE OF ADDITION OF RS.29,51,901 /- MADE BY THE AO OUT OF THE AMOUNT OF RS.39,35,858/- CLAIMED BY T HE ASSESSEE BEING TECHNICAL KNOW-HOW FEES PAID DURING THE YEAR UNDER ASSESSMENT. THIS AMOUNT WAS ALSO SHOWN IN THE ORIG INAL RETURN OF INCOME FILED ON 30.11.2006 AS WELL AS CLAIMED IN TH E PROFIT & LOSS ACCOUNT AND THE AO, AFTER APPLYING HIS MIND, ALLOWE D THE SAME. NO DOUBT, THE AO HAS WIDE POWER TO REOPEN THE ASSES SMENT IF HE HAS REASON TO BELIEVE THAT THE INCOME HAS ESCAPED A SSESSMENT, ONLY ON THE BASIS OF TANGIBLE MATERIAL BUT UNDER THE GAR B OF REOPENING HE IS NOT ALLOWED TO REVIEW HIS OWN DECISION BY RESORT ING TO THE CHANGE OF OPINION. 13. APART FROM THE FACT THAT THIS APPEAL IS NOT SUS TAINABLE ON MERITS AS DISCUSSED IN THE PRECEDING PARAS, THE NOT ICE ISSUED BY THE ITA NO.4925/DEL./2012 8 AO U/S 148 AND SERVED UPON THE ASSESSEE ON 02.11.20 11 IS HOPELESSLY TIME BARRED HAVING BEEN SERVED AFTER A P ERIOD OF FOUR YEARS. PROVISO TO SECTION 147 OF THE ACT IS CATEGO RIC ENOUGH TO BAR THE AO FOR TAKING SUCH ACTION U/S 148 AFTER EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR, PARTICULA RLY WHEN ASSESSEE HAS FULLY AND TRULY DISCLOSED ALL THE MATE RIAL FACTS NECESSARY FOR ITS ASSESSMENT IN THE YEAR UNDER ASSE SSMENT. IN THE INSTANT CASE, ASSESSEE HAS FULLY AND TRULY PLACED T HE ENTIRE MATERIAL, INCLUDING THE AMOUNT IN QUESTION ON THE BASIS OF WH ICH ADDITION HAS BEEN MADE BY PASSING A REASSESSMENT ORDER, BEFORE T HE AO WHICH WAS ACCEPTED BY COMPLETING THE ASSESSMENT U/S 143 ( 3). 14. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, BOTH THE AFORESAID QUESTIONS FRAMED FOR DETERMINATION OF THE CONTROVER SY AT HAND ARE ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE A SSESSEE AND CONSEQUENTLY, PRESENT APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 7 TH DAY OF JUNE, 2016. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 7 TH DAY OF JUNE, 2016 TS ITA NO.4925/DEL./2012 9 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.