ACIT, Madurai V. Fenner Conveyor Belting (P) Ltd., Madurai

ITA 578/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4843 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 11-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S RENGA RAJAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Reopening of assessment; Depreciation; Revenue expenditure
• Section: 143(3); 147; 148

Judgement Text

, , [ : ] IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI [ CAMP: MADURAI ] . . . ! , ' # $ %& .()(*, , # - BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER $./ ITA NOS.578 & 579/MDS/2016 ' * /* / ASSESSMENT YEARS : 2007-08 & 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE I, MADURAI. V. M/S FENNER CONVEYOR BELTING (P.) LTD., MADURAI-DINDIGUL ROAD, NAGARI, VADIPATTI TK, MADURAI 625 221. PAN : AABCJ 3010 D (12/ APPELLANT) (3412/ RESPONDENT) 12 5 6 / APPELLANT BY : SHRI S. RENGA RAJAN, JCIT 3412 5 6 / RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE 5 7, / DATE OF HEARING : 16.02.2017 89/ 5 7, / DATE OF PRONOUNCEMENT : 27.04.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGA INST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) -1, MADURAI, DATED 16.12.2015 AND PERTAIN TO ASSESSMENT YEARS 2007- 08 AND 2008-09. WE HEARD BOTH THE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2 I.T.A. NOS.578 & 579/MDS/16 2. SHRI S. RENGA RAJAN, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERA TION IS REOPENING OF ASSESSMENT. THE ASSESSING OFFICER REOPENED THE ASS ESSMENT ON THE GROUND THAT INCOME OTHERWISE CHARGEABLE TO TAX TOWARDS PAYMENT OF ROYALTY AND MANAGEMENT FEE HAS ESCAPED T AXATION. THE CIT(APPEALS), HOWEVER, FOUND THAT THE ASSESSMENT WA S REOPENED AFTER EXPIRY OF FOUR YEARS, HENCE, THE REASSESSMENT WAS WITHOUT JURISDICTION. REFERRING TO EXPLANATION 1 TO SECTIO N 147 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'), THE LD. D.R. SUBMITTED THAT MERE PRODUCTION OF BOOKS MAY NOT BE SUFFICIENT. AC CORDING TO THE LD. D.R., THE ASSESSEE HAS FAILED TO FURNISH NECESS ARY DETAILS BEFORE THE ASSESSING OFFICER, THEREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN HOLDING THAT THERE WAS NO FAILURE ON THE PART OF TH E ASSESSEE IN DISCLOSING THE MATERIAL FACTS. 3. ON THE CONTRARY, SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAS PRODUCED ALL THE DETAILS OF ROYALTY AND MANAGEMENT FEE BEFORE THE ASSESSING OFFICER. IN FACT, THE ASSESSING OFFICER AFTER CALLING FOR ENTIR E DETAILS, COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT ON 2 4.12.2009. AFTER EXPIRY OF FOUR YEARS, THE ASSESSING OFFICER I SSUED NOTICE ONCE 3 I.T.A. NOS.578 & 579/MDS/16 AGAIN ON THE GROUND THAT THE ASSESSEE CLAIMED PAYME NT OF ` 1,42,10,396/- TOWARDS ROYALTY AND PAYMENT OF ` 79,83,833/- TOWARDS MANAGEMENT SERVICE CHARGES. THE ASSESSING OFFICER PICKED UP THIS FIGURE ONLY FROM THE MATERIAL FURNISHED BY THE ASSE SSEE IN THE COURSE OF REGULAR ASSESSMENT, THEREFORE, IT IS OBVI OUS THAT THE ASSESSEE HAS FURNISHED ENTIRE DETAILS BEFORE THE AS SESSING OFFICER AT THE TIME OF ORIGINAL ASSESSMENT. FROM THE REASO NS RECORDED FOR REOPENING, THERE IS NO NEGLIGENCE ON THE PART OF TH E ASSESSEE IN FURNISHING THE REQUIRED PARTICULARS FOR COMPLETING ASSESSMENT. ACCORDING TO THE LD. COUNSEL, REOPENING OF ASSESSME NT AFTER EXPIRY OF FOUR YEARS CANNOT BE SUSTAINED SINCE THERE WAS N O ALLEGATION THAT THE ASSESSEE FAILED TO FURNISH REQUIRED PARTICULARS . IN FACT, THE ENTIRE PARTICULARS FOR COMPLETING ASSESSMENT UNDER SECTION 143(3) OF THE ACT WERE AVAILABLE BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER HIMSELF PICKED UP THE PAYMENT OF ROYALTY AN D MANAGEMENT FEE ONLY FROM THE MATERIAL FILED BY THE ASSESSEE, T HEREFORE, REOPENING OF ASSESSMENT WAS RIGHTLY HELD TO BE INVA LID. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 4 I.T.A. NOS.578 & 579/MDS/16 143(3) OF THE ACT ON 24.12.2009. AFTER EXPIRY OF F OUR YEARS, THE ASSESSING OFFICER REOPENED THE ASSESSMENT BY ISSUIN G NOTICE UNDER SECTION 148 OF THE ACT ON THE GROUND THAT THE PAYME NT MADE BY THE ASSESSEE TOWARDS ROYALTY AND MANAGEMENT FEES WERE A LLOWED AS REVENUE EXPENDITURE WHICH IS ACTUALLY CAPITAL IN NA TURE. FROM THIS, IT APPEARS THAT THE ROYALTY AND MANAGEMENT SERVICE CHA RGES ARE VERY MUCH AVAILABLE ON RECORD AT THE TIME OF COMPLETING ORIGINAL ASSESSMENT. THEREFORE, IT IS OBVIOUS THAT THE MATE RIAL RELATING TO PAYMENT OF ROYALTY AND MANAGEMENT SERVICE FEES WERE FURNISHED BY THE ASSESSEE DURING THE COURSE OF ORIGINAL ASSESSME NT. 5. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 147 OF THE ACT. PROVISO TO SECTION 147 OF THE ACT CLEARLY SAYS THAT WHEN THE ASSESSMENT WAS COMPLETED UNDER SECTION 143 (3) OF THE ACT, THE SAME CANNOT BE REOPENED AFTER EXPIRY OF FO UR YEARS IN CASE THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE IN FURNISHING THE REQUIRED MATERIAL FOR COMPLETING ASSESSMENT. IN TH IS CASE, AS RIGHTLY SUBMITTED BY THE LD.COUNSEL FOR THE ASSESSEE, THERE WAS NO ALLEGATION THAT THE ASSESSEE FAILED TO FURNISH REQU IRED PARTICULARS FOR COMPLETING ASSESSMENT. MOREOVER, THE PARTICULARS ARE AVAILABLE ON RECORD AT THE ORIGINAL ASSESSMENT STAGE ITSELF. TH EREFORE, REOPENING 5 I.T.A. NOS.578 & 579/MDS/16 OF ASSESSMENT AFTER EXPIRY OF FOUR YEARS FROM THE E ND OF THE RELEVANT ASSESSMENT IS NOT JUSTIFIED. THEREFORE, THIS TRIBU NAL IS OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTL Y FOUND THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE IN PROVIDING REQUIRED MATERIAL FOR COMPLETING ASSESSMENT. HENCE , THE REASSESSMENT PROCEEDING CANNOT BE JUSTIFIED IN THE EYE OF LAW. 6. IN VIEW OF THIS, IT MAY NOT BE NECESSARY FOR THE TRIBUNAL TO GO INTO THE MERITS OF THE ADDITION MADE BY THE ASSESSI NG OFFICER. 7. NOW COMING TO ASSESSMENT YEAR 2008-09, THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO MANAGEME NT AND SERVICE CHARGES. 8. SHRI S. RENGA RAJAN, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE PAYMENT MADE BY THE ASSESSEE TOW ARDS MANAGEMENT SERVICE CHARGES IS IN THE NATURE OF CAPI TAL EXPENDITURE. THE ASSESSING OFFICER HAS ALLOWED DEPRECIATION. AC CORDING TO THE LD. D.R., THE PAYMENT MADE BY THE ASSESSEE WOULD GI VE ENDURING BENEFIT, THEREFORE, IT WAS CONSTRUED AS CAPITAL EXP ENDITURE. IN FACT, THE MANAGEMENT AND SERVICE CHARGES WERE PAID TO M/S J.H. FENNER LTD., UK IN ORDER TO IMPROVE PROFITABILITY IN CONTR OLLING THE 6 I.T.A. NOS.578 & 579/MDS/16 EXPENDITURE. THE SERVICES WERE PROVIDED WITH REGAR D TO MANAGERIAL, TECHNICAL AND ADMINISTRATIVE SIDE. SINCE THE SERVI CE RECEIVED BY THE ASSESSEE PROVIDES FOR ENDURING BENEFIT, THE ASSESSI NG OFFICER HAS RIGHTLY TREATED THE SAME AS CAPITAL IN NATURE AND A LLOWED DEPRECIATION AT THE RATE OF 25%. 9. ON THE CONTRARY, SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE SERVICES WERE RENDERED BY M/S J.H. FENNER LTD., UK IN GENERAL AND SPECIFIC MANAGERIAL, TECHNICAL AND ADMINISTRATIVE ASSISTANCE TO IMPROVE THE PROFITABIL ITY OF THE ASSESSEE. THE ACTUAL PAYMENT WAS MADE ON THE SERVI CE RENDERED IN EACH QUARTER. IN FACT, THE PAYMENT WAS VARYING BASED UPON THE ACTUAL SERVICE RENDERED. IT IS NOT THE FEES OF FIX ED SUM. THEREFORE, THE CIT(APPEALS) FOUND THAT THE ASSESSEE HAS NOT DE RIVED ANY ENDURING BENEFIT. IN FACT, THE PAYMENT WAS MADE FO R INCREASING THE PROFIT OF THE ASSESSEE, THEREFORE, IT HAS TO BE TRE ATED AS REVENUE EXPENDITURE. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE PAYMENT WAS MADE BASED UPON THE SE RVICE RENDERED IN EACH QUARTER. IN FACT, THE PAYMENT VAR IED WITH RESPECT 7 I.T.A. NOS.578 & 579/MDS/16 TO THE ACTUAL SERVICE RENDERED BY THE PARENT COMPAN Y. THEREFORE, AT ANY STRETCH OF IMAGINATION, IT CANNOT BE SAID THAT THE ASSESSEE RECEIVED ENDURING BENEFIT FROM THE SERVICE RENDERED BY THE PARENT COMPANY, NAMELY, M/S J.H. FENNER LTD., UK. THEREFO RE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE PAYM ENT MADE BY THE ASSESSEE TO M/S J.H. FENNER LTD., UK HAS TO BE TREA TED AS REVENUE IN NATURE. THEREFORE, THIS TRIBUNAL DO NOT FIND AN Y REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 11. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE STAND DISMISSED. ORDER PRONOUNCED ON 27 TH APRIL, 2017 AT CHENNAI. SD/- SD/- (%& .()(* ) ( . . . ! ) (ABRAHAM P. GEORGE) (N.R.S. GANESAN) , #/ ACCOUNTANT MEMBER ' # /JUDICIAL MEMBER /CHENNAI, ;$ /DATED, THE 27 TH APRIL, 2017. 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