ITO 3(1)(1), MUMBAI V. FRANKLIN TEMPTLETON INTERNATIONAL SERVICES (INDIA) P.LTD, MUMBAI

ITA 4959/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71304 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2004-2005
• Appeal Filed On: 01-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHWANI KUMAR SINHA
• Assessee Lawyers: F V IRANI
• Keywords: Reopening of assessment; Depreciation; Audit objection; Tangible material; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

F IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . , . , BEFORE SHRI D. MANMOHAN , VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, A M ./I.T.A. NO. 4959/M/2012 ( / ASSESSMENT YEAR: 2004 - 2005 ) ITO - 3(1)(1), R.NO. 607, AAYAKAR BHAVAN, MUMBAI 400 020. / VS. FRANKLIN TEMPTLETON INTERNATIONAL SERVICES (INDIA) INDIABULLS FINANCE CENTRE, TOWER - 2, 13 TH FLOOR, SENA PATI BAPAT MARG, ELPHINSTONE (W), MUMBAI 400 013. ./ PAN : AAACF 6496 L ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI ASHWANI KUMAR SINHA / RESPONDENT BY : SHR I F.V. IRANI / DATE OF HEARING : 17.9.2013 / DATE OF PRONOUNCEMENT : 25 .9.2013 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE REVENUE ON 1.8.2012 IS AGAINST THE ORDER OF CIT (A) - 6, MUMBAI DATED 11.5.2012 FOR THE ASSESSMENT YEAR 2004 - 2005 . REVENUE QUESTION ED THE DECISION OF THE CIT (A), WHO HELD THAT THE REOPENING OF ASSESSMENT WAS MERE LY A CHANGE OF OPINION AND THEREFORE, SUCH REOPENING U/S 147/148 OF THE ACT CONSTITUTES BAD IN LAW. REVENUE RAISED ARGUMENTATIVE QUA GROUND NO. 2 TO 4 GIVING REASONS FOR R EOPENING AND JUSTIFYING THE SAME FOR ONE REASON OR OTHER. 2. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AND IN LAW, THE LD CIT (A) WAS RIGHT IN HOLDING THAT THE REOPENING OF ASSESSMENT WAS DUE TO MERE CHANGE IN OPINION AND THEREFORE, BAD IN LAW, WITHOUT APPRECIATING THE FACT THAT THE 2 ASSESSMENT WAS REOPENED IN VIEW OF CLEAR POSITION OF LAW REGARDING THE ALLOWABILITY OF DEPRECIATION ON SOFTWARE LICENSE WHICH IS CLAIMED BY THE ASSESSEE @ 60%. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE REVENUE IS BOUND TO ACCEPT THE CASES IN WHICH CLEAR - CUT VIOLATION OF PROVI SIONS OF ACT IS ESTABLISHED, ONLY ON THE GROUND THAT A REGULAR ASSESSMENT WAS COMPLETED EARLIER. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) HAS FAILED TO APPRECIATE THAT REOPENING OF THE ASSESSMENT WAS NOT DONE IN VIEW OF THE REVENUE AUDIT OBJECTION BUT IN VIEW OF CLEAR POSITION OF LAW REGARDING THE ALLOWABILITY OF DEPRECIATION ON SOFTWARE LICENSE WHICH IS WRONGLY CLAIMED BY THE ASSESSEE @ 60%. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN HOLDING THAT THE DEPRECIATION ON SOFTWARE LICENSE BE ALLOWED @ 60%, WITHOUT APPRECIATING THAT THE SOFTWARE LICENSE IS CLASSIFIED AS INTANGIBLE ASSET IN PART - B OF SCHEDULE ON WHICH DEPRECIATION IS ALLOWABLE @ 25%. 3. DURING THE PROCEEDINGS BEFORE US, SHRI F.V. IRANI, LD COUNSEL FOR THE A SSESSEE MENTIONED THAT THIS IS A CASE WHERE THE ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF I.T. ENABLED SERVICES FILED THE RETURN OF INCOME ON 1.11.2004 AND THE REGULAR ASSESSME NT WAS COMPLE TED ON 8.12.2006. DURING THE MAKING OF THE ASSESSMENT, THERE WAS AN INQUIRY INTO THIS ISSUE RELATING TO THE ALLOWABILITY OF DEPRECIATION ON SOFTWARE LICENSE WHICH IS THE SUBJECT MATTER OF THE REASSESS MENT . A SSESSEE MADE A WRONGFUL CLAIM @ 60%, AGAINST T HE ALLOWABLE DEPRECIATION RATE OF 25% AS PER PART - B OF THE DEPRECIATION SCHEDULE. AFTER EXAMINING THE ISSUE, THE AO ALLOWED THE CLAIM, WHICH THE AO DESIRES TO CORRECT NOW BY THE IMPUGNED REASSESSMENT PROCEEDINGS. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATT ENTION TO THE QUESTION NAIRE DT 14.9.2006 ISSUED DURING THE ORIGINAL ASSESSMENT BY THE ASSESSING OFFICER . THE SAME IS PLACED AT PAGE 11 OF THE PAPER BOOK, AND READ OUT THE ITEM NO.3 , WHEREIN THE UNDISPUTED QUESTIONING FIGURING THERE CLEARLY RELATED TO THE I SSUE UNDER CONSIDERATION, WHICH IS THE SUBJECT MATTER OF THE REOPENING. IN RESPONSE, ASSESSEE REPLIED VIDE LETTER DATED 6.10.2006 AND EXPLAINED THAT THE CLAIM IS JUSTIFIABLE AND THE RELEVANT REPL Y IS POINTED OUT AT PAGE 14 OF THE PAPER BOOK. FURTHER, REF ERRING TO THE SHOW CAUSE NOTICED ISSUED BY THE AO U/S 148 OF THE ACT, WHICH IS PLACED AT PAGE 22 OF THE PAPER BOOK, LD COUNSEL MENTIONED THAT THE REASONS FOR REOPENING ARE PROVIDED IN PAGE 23 OF THE PAPER BOOK AND IT RELATES TO THE SAID ISSUE WHICH WAS ALR EADY EXAMINED AND AN OPINION IS FORMED . LD COUNSEL ALSO MENTIONED THAT THE ASSESSING OFFICER HEAVILY RELIED ON THE PAPERS FILED DURING 3 THE RETURN OF INCOME FOR REOPENING AND CONCLUDED THE ASSESSMENT AFTER DUE VERIFICATION OF THE IMPUGNED ISSUE RELATING TO THE APPLICABILITY OF RATE OF DEPRECIATION ON THE SOFTWARE LICENSES. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO THE PAGE 1 OF THE PAPER BOOK TO DEMONSTRATE THAT THE ORIGINAL SOURCE OF THIS INFORMATION IS A TAX AUDIT REPORT (TAR) AND ANNEXUR E - 2(A) ATTACHED TO THE TAR WHICH IS PART OF THE RETURN FILED BY THE ASSESSEE . AO HAS NOT GOT ANY INCRIMINATING MATERIAL WHICH CONSTITUTES ANY TANGIBLE MATERIAL BEFORE RESORTING TO ISSUE OF NOTICE U/S 148 OF THE ACT. THUS, LD COUNSEL DEMONSTRATED THAT THE SOURCE OF INFORMATION IS THE RETURN OF INCOME AND ANNEXURES THERETO FOR ISSUE OF NOTICE U/S 148 OF THE ACT. FURTHER, HE RELIED ON VARIOUS DECISIONS TO MENTION THAT SUCH A DECISION CONSTITUTES A CHANGE OF OPINION AND THE SAID DECISIONS HAVE TO BE FOLLOWED BY THE AO AS A MATTER OF THE DISCIPLINE. FURTHER, REFERRING TO THE IMPUGNED ORDER OF THE CIT(A), LD COUNSEL BROUGHT OUR ATTENTION TO THE PARA 3 OF THE IMPUGNED ORDER, WHEREIN THE CIT (A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND GRATED THE RELIEF , THAT THE SAID ORDER OF THE CIT(A) SHOULD NOT BE DISTURBED. 4. ON THE OTHER HAND, LD DR FAIRLY RELIED ON THE ORDER OF THE CIT (A) AND THE ASSESSMENT ORDER. HE ADMITTED TO THE FACT THAT THERE IS NO TANGIBLE MATERIAL WITH THE AO FOR INITIATING THE REASSESSMENT PROCE EDINGS EXCEPT THE MATERIAL AVAILABLE ON RECORDS. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND THE PAPERS FILED BEFORE US. IT IS AN UNDISPUTED FACT THAT THE TAR WAS THE PART OF THE RETURN OF INCOME. COLUMN NO.14 OF THE TAR DEALS WITH THE FURNISHING OF THE PARTICULARS OF DEPRECIATION. IN COMPLIANCE, THE AUDITORS HAVE DULY FURNISHED THE REQUIRED PARTICULARS VIDE ANNEXURES - 2(A) AND 2(B). THE SAID COPY OF THE TAR IS PLACED AT PAGE OF THE PAPER BOOK. AUDITORS CONFIR M THE FURNISHING OF REQUISITE INFORMATION WHICH IS THE BASIS FOR AO FOR WRITING REASONS FACILITATING HIM TO ISSUE OF NOTICE U/S 148 OF THE ACT. IN ADDITION, WE HAVE ALSO PERUSED THE QUESTION NAIR E ISSUED BY THE AO DATED 14.9.2006 WHEREIN, ITEM NO.3 DEALS W ITH THE REQUISITE DETAILS RELATING TO CLAIM OF DEPRECIATION AND THE SAME READS AS UNDER: 3. DETAILS OF CLAIM OF DEPRECIATION ALONG WITH ADDITION TO FIXED ASSETS AND COPIES OF BILLS EVIDENCING THE SAME. IT IS SEEN FROM THE DEPRECIATION CHART THAT DEPRECIAT ION 4 ON COMPUTER ACCESSORIES HAS BEEN CLAIMED AT 60%. PLEASE EXPLAIN WHY THE SAME SHOULD NOT BE RESTRICTED TO 25% AS APPLICABLE TO P & M. 6. IN COMPLIANCE, THE ASSESSEES REPLY DATED 6.10.2006 VIDE PARA 3, WHICH IS AVAILABLE AT PAGE 14 OF THE PAPER BOOK, R EADS AS UNDER: EXPLANATION AS TO WHY THE DEPRECIATION @ 60% SHOULD BE ALLOWED INSTEAD OF 25%. THE COMPANY SUBMITS THAT THERE HAS BEEN LOT OF DEVELOPMENTS IN THE FIELD OF SOFTWARE AND NEWER AND NEWER VERSIONS OF SOFTWARE ARE AVAILABLE EVERY YEAR. ENTERP RISE RESOURCE PLANNING (ERP) PACKAGES ARE ALSO OBTAINED BY THE INDIAN COMPANIES FOR ORGANIZING THEIR BUSINESS MORE EFFICIENTLY. WITH THE LATEST TECHNOLOGIES AND NEWER VERSIONS OF SOFTWARES BEING AVAILABLE, MOST OF THE COMPANIES WERE UPGRADING THE SOFTWARE S. THE COMPANY SUBMITS THAT THE AMOUNT OF RS. 33,61,148/ - WHICH HAS BEEN CAPITALIZED IS TOWARDS THE PURCHASE OF STANDARDIZED COMPUTER SOFTWARE LIKE ORACLE 9I ENTERPRISE EDITION ETC. GENERALLY, WHEN THE COMPANY ENTERS INTO AGREEMENT WITH THE SUPPLIER OF CO MPUTER SOFTWARES, THEY ARE BEING GRANTED LICENSE TO USE THE SOFTWARE FOR THE SPECIFIED NUMBER OF YEARS WITH LIMITED USE RIGHT. IN ADDITION, THE COMPANY HAS TO PAY FOR UPGRADATION OR RENEWAL OF LINCESE ETC. THE COMPANY DOES NOT REALLY OWN SUCH SOFTWARE, W HAT HE IS ALLOWED IS ONLY TO USE FOR OWN PURPOSE AND HE IS NOT ALLOWED TO TRANSFER OR MODIFY OR COMMERCIALLY EXPLOIT THE SAME. IN THE MEANTIME, THE INCOME TAX RULES WERE AMENDED W.E.F. 1.4.2003 SO AS TO PROVIDE FOR 60% DEPRECIATION ON COMPUTER SOFTWARE. T HIS SPECIFICALLY BRINGS OUT THE FACT THAT ALL THE PAYMENTS TOWARDS THE PURCHASE OF COMPUTER SOFTWARE SHOULD BE ALLOWED DEPRECIATION @ 60%. 7. THE ABOVE CONTENTS SUFFICIENTLY PROVE THE ISSUE THE AO WANTED TO EXAMINE UNDER SECTION 1 48 OF THE ACT , WAS ALREAD Y EXAMINED DURING THE REGULAR ASSESSMENT PROCEEDINGS AND HAD ALREADY FORMED AN OPINION ON THE IMPUGNED ISSUE REALTING TO THE APPLICABLE RATE OF DEPRECIATION ON THE COMPUTER SOFTWARE , BEFORE CONCLUDING THE ASSESSMENT ACCEPTING THE CLAIM OF THE ASSESSEE. THE REFORE, THE QUESTION IS WHY DID HE ACCEPT SUCH CLAIM AND IS REOPENING THE CONCLUDED ASSESSMENT U/S 147 OF THE ACT IS THE SUSTAINABLE ROUTE FOR CORRECTING SUCH MISTAKE? NOW THE AO WANTS TO REOPEN THE CONCLUDED ASSESSMENT FOR DENYING THE CLAIM OF THE ASSESSE E. IN OUR OPINION, THESE ATTEMPTS OF THE ASSESSING OFFICER SHOULD CONSTITUTE CHANGE OF OPINION AS HELD BY THE CIT (A) IN THE IMPUGNED ORDER. FURTHER, WE HAVE ALSO PERUSED THE ORDER OF THE CIT (A). PARA 3 OF THE CIT (A)S ORDER IS RELEVANT HERE AND THE SAME READS AS UNDER: 3. I HAVE GONE THOUGHT THE ORDER OF THE AO AND SUBMISSION OF THE APPELLANT. THE APPELLANT APPEAL IS ALLOWABLE ON ACCOUNT OF FOLLOWING: - 5 (I) THE APPELLANT HAS DISCLOSED ALL MATERIAL FACTS PERTAINING TO CLAIM OF DEPRECIATION ON COMPUTER S OFTWARE LICENSE IN ITS RETURN OF INCOME AND THE AO HAS CONSIDERED ALL THOSE DOCUMENTS IN THE ASSESSMENT ORDER U/S 143(3) DATED 8.12.2006 AND ALLOWED DEPRECIATION @ 60% AND AS THE 4 YEARS FROM THE END OF ASSESSMENT YEAR WAS COMPLETED ON 31 ST MARCH, 2009, T HEREFORE, IN VIEW OF THE FIRST PROVISO OF SECTION 147 OF THE INCOME TAX ACT, THE REOPENING OF ASSESSMENT IS FOUND TO BE BAD IN LAW. 8. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT (A) HELD THAT THE REOPENING IS BAD IN LAW BY OBSERVING THAT ASSESSEE HAD DISC LOSED ALL MATERIAL FACTS DURING THE ORIGINAL ASSESSMENT. IN OUR OPINION, IT IS THE CASE OF REUSE BY AO OF THE ALREADY FURNISHED INFORMATION FOR OPINING DIFFERENTLY , WHICH AMOUNTS TO ABUSE OF THE PROVISIONS OF SECTION 147 OF THE ACT. NO CASE IS MADE BY THE AO THAT THE ASSESSEE HAS NOT DISCLOSED RELEVANT BASIC FACTS NECESSARY FOR MAKING OF THE ASSESSMENT. AO MUST DEMONSTRATE THE DEFAULT OF DISCLOSURE AS PER THE PROVISIONS OF THE PROVISO TO SECTION 147 OF THE ACT TO VALIDATE THE NOTICE ISSUED UN THIS SECTION. IN OUR OPINION, THE ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE LEGAL GROUND RAISED IS ALLOWED IN FAVOUR OF THE ASSESSEE. 9. REGARDING THE OTHER GROUNDS ON MERITS, C ONSIDERING THE DECISION AGAI NST THE REVENUE ON THE LEGAL ISSUE, THE LABOUR OF ADJUDICATION OF THE OTHER GROUNDS ON MERITS WILL ONLY REMAIN AN ACADEMIC EXERCISE. THEREFORE, THE LEGAL GROUND RAISED VIDE GROUND NO.1 BY THE REVENUE IS DISMISSED AND THE OTHER GROUNDS 2 TO 4 ARE ALSO DISM ISSED AS ACADEMIC. GROUND NO.5 IS GENERAL IN NATURE AND THEREFORE, THE SAME IS DISMISSED . 10 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOU NCED IN THE OPEN COURT ON 25 TH SEPTEMBER, 2013. SD/ - SD/ - (D. MANMOHAN ) (D. KARUNAKARA RAO ) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI ; 25 .09.2013 . . ./ OKK , SR. PS 6 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI