Moser Baer India Ltd., New Delhi V. ACIT, New Delhi

ITA 5268/DEL/2010

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6856 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 10-07-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Keywords: Depreciation; Period of limitation; Tangible material; Difference of opinion; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 37(1); 147; 148

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH E, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 5268/DEL/2010 ASSESSMENT YEAR: 2002-03 MOSER BAER INDIA LTD., 43, OKHLA INDUSTRIAL ESTATE, NEW DELHI. PAN: AAACM0322J (APPELLANT) VS. ACIT, CIRCLE 5(1), NEW DELHI. (RESPONDENT) ASSESSEE BY SHRI UPVAN GUPTA, C.A. REVENUE BY SHRI S.R. SENAPATI, SR. DR ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)- VIII, NEW DELHI DATED 27.09.2010 FOR THE ASSESSMENT YEAR 2002-03 ON THE FOLLOWING GROUNDS : 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT H OLDING THAT THE ASSESSMENT COMPLETED UNDER SECTION 147 OF THE INCOM E-TAX ACT, 1961 ('THE ACT') WAS BAD IN LAW AND VOID AB INITIO. 2. THAT THE COMMISSIONER OF INCOME-TAX (APPEAL S) ERRED ON FACTS AND IN LAW IN NOT HOLDING THAT THE REASSESSMENT PROCEEDING S WERE BASED ON MERE CHANGE OF OPINION AND, THEREFORE, WERE UNLAWFUL AND LIABLE TO BE QUASHED. 2.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE PROCEEDINGS UNDER SECTION 147 OF THE ACT WERE I NITIATED BEYOND LIMITATION OF 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR IN TERMS OF THE PROVISO TO SECTION 147 OF THE ACT AND WERE, THEREFORE, BARRED BY LIMITATION AND LIABLE TO BE QUASHED. DATE OF HEARING 25.06.2018 DATE OF PRONOUNCEMENT 25 .07.2018 ITA NO. 5268/DEL./2010 2 2.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THERE BEING NO FAILURE ON THE PART OF APPELLANT TO DISCLO SE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, THE REASSE SSMENT PROCEEDINGS INITIATED AFTER 4 YEARS FROM THE END OF THE RELEVAN T ASSESSMENT YEAR WERE ILLEGAL AND BAD IN LAW AND THE IMPUGNED ORDER IS, T HEREFORE, LIABLE TO BE QUASHED. 3. THAT THE COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED ON FACTS AND IN LAW IN SUSTAINING DISALLOWANCE TO THE EXTENT OF 25% OF PAYMENT OF ROYALTY AMOUNTING TO RS.38,45,56,962 PAID TO KONINK LIJKE PHILLIPS ELECTRONICS N.V. AND RS. 57,22,008 TO NISSAI SANGYO (SINGAPORE) PTE LTD. HOLDING THE SAME TO BE PARTLY ON CAPITAL ACCOU NT. 4. THAT THE COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED ON FACTS AND IN LAW IN HOLDING THAT A PART OF THE PAYMENT MADE I N TERMS OF AGREEMENT WITH KONINKLUKE PHILLIPS ELECTRONICS N.V. WAS TOWARD S TECHNICAL ASSISTANCE, KNOW-HOW OBTAINED IN ORDER TO PUT THE P RODUCTION FACILITY READY FOR PRODUCTION. 5. THAT THE COMMISSIONER OF INCOME-TAX (APPEA LS) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE PAYMENT TO NISSAI SANGYO (SINGAPORE) PTE LTD. WAS IN TERMS OF ARTICLE 3 OF THE AGREEMENT DATED 30 -06-2001 BETWEEN MITSUBISHI CHEMICAL CORPORATION, NISSAI SANGYO (SIN GAPORE) PTE. LTD. AND, THEREFORE, THE SAME WAS CAPITAL IN NATURE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSM ENT OF THE ASSESSEE COMPANY WAS COMPLETED U/S. 143(3) OF THE IT ACT ON 28.07.2008, WHEREBY THE CLAIM OF ASSESSEE MADE U/S. 37(1) WITH RESPECT TO A LLOWANCE OF CAPITAL EXPENDITURE BY WAY OF PAYMENT OF ROYALTY OF RS.39,5 7,72,326/- PAID TO FOREIGN COMPANY IN LIEU OF TECHNICAL KNOW HOW/ACQUI RING PATENT RIGHTS AND DEPRECIATION OF RS.1,12,43,106/- ON FIXED ASSETS WE RE ALLOWED. HOWEVER, SUBSEQUENTLY, THE ASSESSING OFFICER HAVING NOTICED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCHGEARS L TD. V. CIT[1998] 232 ITR ITA NO. 5268/DEL./2010 3 359 (SC), REOPENED THE CASE OF ASSESSEE U/S. 148/1 47 OF THE ACT AFTER RECORDING THE FOLLOWING REASONS : 01. INCORRECT ALLOWANCE OF CAPITAL EXPENDITUR E : IT IS SEEN FROM RECORDS THAT AN AMOUNT OF RS. 39,57 ,72,326 HAS BEEN DEBITED TO P&L ACCOUNT AS ROYALTY PAID TO A FOREIGN COMPANY IN LIEU OF TECHNICAL KNOW-HOW/ACQUIRING PATENT RIGHTS FROM THE M, WHICH WAS IN THE NATURE OF ENDURING ADVANTAGE TO THE ASSESSEE. HON'B LE SUPREME COURT HAS HELD IN A JUDGEMENT IN THE CASE OF SOUTHERN SWITCH- GEAR LTD VS CIT 232 ITR 359 DATED 11.12.97 THAT THE GRANT OF TECHNICAL A ID FEES FOR SETTING UP FACTORY AND RIGHT TO SELL THE PRODUCTS AS PER COLLA BORATION AGREEMENT IS NOT' ALLOWABLE AS 100% REVENUE EXPENDITURE AND WAS TO BE TREATED AS 25% CAPITAL EXPENDITURE. HENCE, OUT OF THE ROYALTY OF RS. 39,57,72,326 PAID BY THE ASSESSEE, RS. 9,89,43,082 WAS CAPITAL IN NAT URE AND NOT ALLOWABLE. 02. INCORRECT ALLOWANCE OF DEPRECIATION IT IS SEEN FROM RECORDS THAT AN AMOUNT OF RS. 1,12, 43,106 (RS. 1,11,72,852 + 70,255) WAS CLAIMED AS DEPRECIATION ON PLANT AND MACHINERY AMOUNTING TO RS. 4,45,91,411 AND RS. 5,62,039, WHICH WAS PUT TO USE ON 1.7.02 AND 5.10.02 RESPECTIVELY. AS THE PLANT AND MACHINERY WA S PUT TO USE AFTER THE END OF PREVIOUS YEAR, THE DEPRECIATION CLAIMED WAS NOT ALLOWABLE. IN VIEW OF THE ABOVE, I HAVE REASONS TO BELIEVE THA T INCOME OF RS. 11,01,86,188/-, WHICH IS CHARGEABLE TO TAX HAS ESCA PED ASSESSMENT. ACCORDINGLY, REASSESSMENT PROCEEDINGS ARE INITIATED UNDER SECTION 147 OF THE INCOME TAX ACT, 1961 FOR A.Y. 2002-03. SINCE MORE THAN FOUR YEARS HAVE EXPIRED FROM THE EN D OF RELEVANT ASSESSMENT YEAR, NECESSARY APPROVAL OF THE LD. COMM ISSIONER OF INCOME TAX, DELHI-II REQUIRED AS PER PROVISO TO SECTION 151 (1) OF THE ACT HAS BEEN TAKEN FOR ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT. THUS, BASED ON THE ABOVE REASONS AND ADHERING TO TH E ABOVE DECISION OF HONBLE SUPREME COURT, THE ASSESSING OFFICER DISALL OWED 25% OF THE TOTAL ROYALTY PAYMENT AMOUNTING TO RS.39,57,72,326/- VIDE REASSESSMENT ORDER. IN APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE ASS ESSING OFFICER VIDE IMPUGNED ITA NO. 5268/DEL./2010 4 ORDER, WHICH HAS BEEN CHALLENGED BY THE ASSESSEE BY WAY OF PRESENT APPEAL BEFORE THE TRIBUNAL. 3. THE LEARNED AR AT THE OUTSET OF HEARING SUBMITTE D THAT THE ASSESSING OFFICER IS NOT JUSTIFIED TO REOPEN THE CASE U/S. 14 7/148 AFTER A PERIOD OF FOUR YEARS BECAUSE THE ASSESSMENT WAS MADE U/S. 143(3) W HEN ALL THE MATERIALS WERE DECLARED FULLY AND TRULY NECESSARY FOR ASSESSM ENT. THERE IS NO NEW TANGIBLE MATERIAL FOUND BY THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT. THE JUDICIAL PRECEDENT IN THE CASE OF SOUTHERN SWIT CH GEAR, WHICH LED THE ASSESSING OFFICER TO REOPEN THE CASE WAS DECIDED BY HONBLE SUPREME COURT ON 11.12.1997, I.E., MUCH BEFORE THE ORIGINAL ASSES SMENT WAS MADE BY THE ASSESSING OFFICER. THEREFORE, THE REOPENING OF ASSE SSMENT ON THIS BASIS BEYOND THE PERIOD OF LIMITATION OF FOUR YEARS IS NO T SUSTAINABLE BEING BASED ON CHANGE OF OPINION. THE LD. AR ALSO RELIED ON THE FO LLOWING JUDGMENTS : (I). COPERION IDEAL PRIVATE LIMITED VS. CIT, 378 I TR 525 (DEL) (II). XEROX MODICORP LIMITED VS. DCIT, 350 ITR 308 (DEL) (III). CIT VS. VINIYAS FINANCE AND INVESTMENT PVT. LTD., 357 ITR 646. HE FURTHER SUBMITTED THAT IN ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2005-06, THE COORDINATE BENCH OF TRIBUNAL HAD ACCEP TED THAT THE PAYMENT MADE FOR TECHNICAL KNOWHOW IS ROYALTY PAYMENT TO IP OWNERS. HE, THEREFORE, SUBMITTED THAT THE LD. AUTHORITIES BELOW ARE NOT JU STIFIED TO INITIATE REASSESSMENT PROCEEDINGS AGAINST THE ASSESSEE AND T O MAKE AND SUSTAIN THE IMPUGNED ADDITIONS. 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTL Y REOPENED THE CASE AND HAS ITA NO. 5268/DEL./2010 5 RIGHTLY MADE THE IMPUGNED ORDER AFTER RELYING ON TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCH GEAR L TD. (SUPRA). 5. AFTER HEARING BOTH THE SIDES AND PERUSING THE EN TIRE MATERIAL AVAILABLE ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSMENT U/S. 143(3) WAS MADE FOR THE IMPUGNED ASSESSMENT YE AR AND THE ASSESSING OFFICER ISSUED NOTICE DATED 27.03.20009 U/S. 148 ON THE BASIS OF JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF SOUTHERN SWITC H GEAR LTD. (SUPRA). THIS DECISION WAS RENDERED BY HONBLE APEX COURT ON 11.1 2.1997, I.E., MUCH BEFORE THE ORIGINAL ASSESSMENT ORDER WAS PASSED BY THE ASS ESSING OFFICER. BASED ON THESE FACTS, THE CONTENTION OF THE ASSESSEE HAS BEE N THAT NO NEW TANGIBLE MATERIAL WAS AVAILABLE WITH THE ASSESSING OFFICER T O ACQUIRE LEGALLY VALID JURISDICTION FOR REOPENING THE COMPLETED ASSESSMENT . MOREOVER, IT IS NOT IN DISPUTE THAT THE IMPUGNED REASSESSMENT HAS BEEN MAD E AFTER FOUR YEARS FOR WHICH IT IS IT IS INCUMBENT UPON THE ASSESSING OFFI CER THAT THE BELIEF OF ESCAPEMENT OF INCOME WAS DUE TO THE FAILURE ON THE PART OF ASSESSEE TO DISCLOSE ALL MATERIAL FACTS NECESSARY FOR ASSESSMEN T. THE ASSESSING OFFICER WAS ALSO REQUIRED TO SATISFY THAT THERE WAS TANGIBLE MA TERIAL IN HIS POSSESSION TO REOPEN THE CASE OF THE ASSESSEE. THE MATERIAL, WHIC H LED THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT OF ASSESSEE WAS THE DECISI ON OF HONBLE APEX COURT IN THE CASE OF SOUTHERN SWITCHGEARS LTD. VS. CIT(SU PRA). IN THE IDENTICAL CIRCUMSTANCES, HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COPERION IDEAL (P) LTD. (SUPRA), HAS HELD AS UNDER : 16. IN THE PRESENT CASE, THERE WAS NO FAILURE ON THE PA RT OF THE ASSESSEE TO DISCLOSE THE MATERIAL PARTICULARS WITH THE RETURN O RIGINALLY FILED. ON THE CONTRARY, THE AO HIMSELF REPLIED TO THE AUDIT OBJEC TION POINTING OUT THAT ROYALTY WAS ALLOWED TO BE CLAIMED AS REVENUE EXPEND ITURE BY THE ASSESSEE ITA NO. 5268/DEL./2010 6 FOR THE YEARS EARLIER TO AY 2002-03. A COPY OF THE AGREEMENT UNDER WHICH ROYALTY WAS BEING PAID WAS PROVIDED TO THE REVENUE. THE ONLY REASON FOR REOPENING THE ASSESSMENT WAS THAT THE DECISION IN S OUTHERN SWITCHGEARS LTD. V. CIT[1998] 232 ITR 359 (SC), WHICH WAS RENDERED BY THE SUPREME COURT SEVERAL YEARS EARLIER ON 11 TH DECEMBER, 1997 WAS NOT NOTICED BY THE A.O. AT THE TIME OF FINALIZATION OF ASSESSMENT AT T HE FIRST INSTANCE ON 31 ST JANUARY, 2005 UNDER SECTION 143(3) OF THE ACT. 17. IN LIGHT OF THE LEGAL POSITION AFTER THE AMENDM ENT TO SECTION 147 OF THE ACT, AS EXPLAINED IN KELVINATOR INDIA LTD. (SUPRA], THE COURT IS OF THE VIEW THAT, IN A CASE WHERE THE ASSESSMENT IS SOUGHT TO B E REOPENED IN 2009, FOUR YEARS AFTER IT WAS ORIGINALLY MADE, I.E. 2005, THE MERE FACT THAT THERE WAS A JUDGMENT OF THE SUPREME COURT OF 1997 WHICH WAS NOT NOTICED BY THE AO WHEN HE FRAMED THE ORIGINAL ASSESSMENT CANNOT PER S E CONSTITUTE THE ONLY MATERIAL ON THE BASIS OF WHICH THE ASSESSMENT COULD HAVE BEEN REOPENED. WHEN ON THE SAME MATERIAL, FOUR YEARS AFTER THE ASS ESSMENT YEAR FOR WHICH THE ORIGINAL ASSESSMENT IS FINALISED, AO SEEK S TO REOPEN THE ASSESSMENT ON THE BASIS OF A JUDICIAL PRECEDENT DEL IVERED MORE THAN EIGHT YEARS EARLIER, IT WOULD BE A CASE OF MERE 'CHANGE O F OPINION', SOMETHING CLEARLY HELD IMPERMISSIBLE BY KELVINATOR INDIA LTD. (SUPRA), THE THRESHOLD REQUIREMENT OF THAT THE AO SHOULD, ON THE BASIS OF SOME TANGIBLE MATERIAL, CONCLUDE THAT THERE WAS ESCAPEMENT OF INCOME ON ACC OUNT OF THE ASSESSEE FAILING TO DISCLOSE MATERIAL PARTICULARS, IS NOT FU LFILLED IN THE PRESENT CASE. CONSEQUENTLY, THE REOPENING OF THE ASSESSMENT IN TH E FACTS OF THE PRESENT CASE, NOT JUSTIFIED. 6. IN THE CASE OF ASSESSEE ALSO, THE TECHNICAL KNOW -HOW PAYMENT WAS ALLOWED U/S. 37(1) IN THE ORIGINAL ASSESSMENT PROCE EDINGS, BUT LATER ON, THE ASSESSING OFFICER CHANGED HIS OPINION ONLY ON THE B ASIS OF HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF SOUTHERN SWITCHGEAR S LTD. V. CIT (SUPRA), WHICH HAD BEEN RENDERED ON 11.12.1997, I.E., MUCH B EFORE THE ORIGINAL ASSESSMENT WAS PASSED AND THUS, IN VIEW OF THE ABOV E DECISION OF HONBLE JURISDICTIONAL HIGH COURT, NO NEW TANGIBLE MATERIAL S WERE THERE WITH THE ASSESSING OFFICER FOR REOPENING OF THE ASSESSMENT. THUS, RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT, WE QUASH THE REOPENING OF ITA NO. 5268/DEL./2010 7 ASSESSMENT. ACCORDINGLY, THE PROCEEDINGS U/S. 147 A RE QUASHED BEING INVALID AND THE CONSEQUENTIAL REASSESSMENT, THUS, BECOMES V OID. 7. ONCE, IN VIEW OF OUR ABOVE FINDINGS, THE REASSES SMENT MADE BY THE ASSESSING OFFICER STANDS QUASHED ON LEGAL ASPECTS O F THE CASE, WE NEED NOT TO ADJUDICATE UPON THE ARGUMENTS ADVANCED AND CASE LAW S CITED ON THE MERITS OF ADDITIONS, AS THE SAME BECOME ACADEMIC IN NATURE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2018. SD/- SD/- (AMIT SHUKLA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 25 TH JULY, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI