ACIT, New Delhi V. M/s. Bharti Infotel Ltd., New Delhi

ITA 6343/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90870 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 24-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR SENIOR
• Keywords: Search and seizure; Bad and doubtful debts; Reason to believe; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 115JB; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.6343/DEL./2012 (ASSESSMENT YEAR : 2004-05) ACIT, CIRCLE 2 (1), VS. M/S. BHARTI INFOTEL LTD. NEW DELHI. (NOW BHARTI AIRTEL LTD.), H 5/12, QUTAB AMBIENCE, MEHRAULI ROAD, NEW DELHI. (PAN : AAACB2798R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANIL BHALLA, CA REVENUE BY : MS. Y. KAKKAR, SENIOR DR DATE OF HEARING : 13.04.2015 DATE OF PRONOUNCEMENT : 20.04.2015 O R D E R PER GEORGE GEORGE K., JM : THIS APPEAL, AT THE INSTANCE OF THE REVENUE, IS DIR ECTED AGAINST THE ORDER OF THE CIT (A)-X, NEW DELHI DATED 23.10.2012. THE RELEVANT ASSESSMENT YEAR IS 2004-05. 2. THE EFFECTIVE GROUNDS RAISED ARE AS FOLLOWS :- 1. THE LD. CIT (A) HAS ERRED ON FACTS IN LAW IN D ELETING THE ADDITION MADE ON ACCOUNT OF TECHNICAL KNOW-HOW FEES AMOUNTING TO RS.73248000/- IGNORING THE FACT THAT T HE ASSESSEE COMPANY AT THE TIME OF REASSESSMENT PROCEEDINGS WER E GIVEN ITA NO.6343/DEL./2012 2 AMPLE OPPORTUNITY TO SUBSTANTIATE ITS CLAIM AND WAS REQUESTED TO PROVIDE JUSTIFICATION/SUBMISSION/PROVIDE PROOF O F THE CLAIM. 2. THE LD. CIT (A) ERRED IN HOLDING THAT BECAUSE A T THE TIME OF INITIATION OF PROCEEDING U/S 147 THE AO HAD NOT RECORDED REASON TOWARDS CLAIM OF INCORRECT TECHNICAL KNOWHOW FEES, THE ADDITION MADE ON THIS GROUND SUBSEQUENTLY IN THE AS SESSMENT ORDER COULD NOT SURVIVE. 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS. THE ASS ESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING BASIC TELEPHON IC SERVICES. FOR THE RELEVANT ASSESSMENT YEAR, RETURN OF INCOME WAS FILE D ON 01.11.2004, DECLARING NIL INCOME. ASSESSMENT WAS COMPLETED VID E ORDER DATED 29.12.2006 WHEREIN THE TOTAL INCOME WAS ASSESSED AT RS.1.69 CRORES. SUBSEQUENTLY, ASSESSMENT WAS REOPENED ON 21.09.2007 BY ISSUANCE OF NOTICE U/S 148 OF THE INCOME-TAX ACT, 1961 (FOR SHO RT, THE ACT), FOR THE REASON THAT THE PROVISION FOR DOUBTFUL DEBTS OUGHT TO BE TAXED U/S 115JB OF THE ACT. IN THE COURSE OF REASSESSMENT PROCEEDINGS , IT WAS EXPLAINED THAT THE PROVISIONS FOR DOUBTFUL DEBTS ARE MADE AS PER T HE COMPANYS POLICY AND IT IS NOT A CONTINGENT LIABILITY IN TERMS OF SECTIO N 115JB OF THE ACT. IN SUPPORT OF THE CONTENTION, THE ASSESSEE RELIED ON T HE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF HCL COMET SYSTEMS AND SERVICES LTD. THE AO ACCEPTED THE SUBMISSIONS OF THE ASSESSEES COMPA NY AND MADE NO ADDITION. HOWEVER, THE AO ISSUED A SHOW-CAUSE NOTI CE ON 05.12.2008 STATING THAT ASSESSEE HAD CLAIMED TECHNICAL KNOW-HO W FEES AMOUNTING TO RS.7,32,48,000/- AS REVENUE EXPENDITURE AND WHY SAI D EXPENSES SHOULD NOT ITA NO.6343/DEL./2012 3 BE TREATED AS CAPITAL EXPENDITURE. THE REASSESSMEN T WAS COMPLETED VIDE ORDER DATED 29.12.2008 WHEREIN THE TECHNICAL KNOW-H OW FEES CLAIMED AS REVENUE EXPENDITURE WAS DISALLOWED AS CAPITAL EXPEN DITURE. 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE TH E FIRST APPELLATE AUTHORITY. BEFORE THE CIT (A), IT WAS SUBMITTED TH AT SINCE THE REASONS RECORDED FOR ISSUANCE OF NOTICE U/S 148 OF THE ACT WAS EXPLAINED AND NO ADDITION WAS MADE, THE ASSESSING OFFICER CEASED TO POSSESS JURISDICTION U/S 147 TO ASSESSEE ANY OTHER INCOME. FOR THE ABOVE PR OPOSITION, RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF RANBAXY LABORATORIES LTD. VS. CIT 336 ITR 136, WH ICH IN TURN HAD FOLLOWED THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JET AIRWAYS (I) LTD. 331 ITR 236. THE CIT ( A) ALLOWED THE APPEAL OF THE ASSESSEE BY HOLDING THAT REOPENING OF ASSESS MENT IS NOT VALID. THE CIT (A) FOLLOWED THE JUDGMENTS OF HONBLE DELHI HIG H COURT IN THE CASE OF RANBAXY LABORATORIES LTD. VS. CIT (SUPRA) AND HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JET AIRWAYS (I) LTD. ( SUPRA). THE CIT (A) DID NOT ADJUDICATE THE ISSUE ON MERITS, SINCE THE REOPE NING WAS HELD TO BE INVALID. THE RELEVANT FINDING OF THE CIT (A) READ AS UNDER :- 4. THE ISSUE INVOLVED AND THE SUBMISSIONS MADE BY T HE APPELLANT HAVE BEEN CONSIDERED. FROM THE ASSESSMEN T ORDER AND PAGE 14 TO 15 OF THE PAPER BOOK IT HAS BEEN SEE N THAT PROCEEDINGS U/S 147 WERE INITIATED ON THE ISSUE OF PROVISION FOR DOUBTFUL DEBTS BUT IN THE ASSESSMENT ORDER PA SSED ON 29.12.2008 NO ADDITION HAS BEEN MADE ON THIS ACCOUN T; RATHER ADDITION HAS BEEN MADE ON ACCOUNT OF TECHNIC AL ITA NO.6343/DEL./2012 4 KNOWHOW, WHICH IS NOT IN ORDER IN VIEW OF THE JUDGE MENTS REFERRED TO BY THE APPELLANT-THE AO HAD THE JURISD ICTION TO REASSESS ISSUES OTHER THAN THE ISSUES IN RESPECT OF WHICH PROCEEDINGS ARE INITIATED BUT HE WAS NOT SO JUSTIFI ED WHEN THE REASONS FOR THE INITIATION OF THOSE PROCEEDINGS CEA SED TO SURVIVE. THEREFORE THE ADDITION MADE THE AO IS DEL ETED AND THE GROUND OF APPEAL IS ALLOWED. 5. SINCE APPEAL IS ALLOWED ON LEGAL GROUND, GROUND OF APPEAL NO.2 IS NOT ADJUDICATED. 5. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. 6. THE LD. DR SUBMITTED THAT THE CIT (A) IS NOT JUS TIFIED IN FOLLOWING THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF RANBAXY LABORATORIES LTD. VS. CIT (SUPRA), SINCE THE SAID J UDGMENT HAS NOT CONSIDERED THE AMENDMENT TO THE THIRD PROVISO TO SE CTION 147 (AMENDMENT W.E.F. 1.7.2012 BY FINANCE ACT, 2012). IT WAS SUBMITTED BY THE LD. DR THAT THE JUDGMENT WAS RENDERED PRIOR TO THE AMENDMENT AND THEIR LORDSHIPS HAVE NO OCCASION TO CONSIDER THE AB OVE SAID AMENDMENT. ON THE OTHER HAND, LD. AR REITERATED THE SUBMISSION S MADE BEFORE THE INCOME-TAX AUTHORITIES. IT WAS FURTHER STATED THAT THE THIRD PROVISO TO SECTION 147, AS IT STANDS NOW, IN NO WAY, HELP/ADVA NCE THE CASE OF THE REVENUE. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SOLITARY ISSUE THAT ARISES FOR OUR CON SIDERATION IS WHETHER THE CIT (A) IS JUSTIFIED IN QUASHING THE REASSESSMENT. THE CIT (A) HAS QUASHED THE REASSESSMENT FOR THE REASON THAT WHEN N O ADDITION IS MADE FOR ITA NO.6343/DEL./2012 5 THE REASONS RECORDED FOR ISSUANCE OF NOTICE U/S 148 OF THE ACT, THE AO CEASED TO POSSESS JURISDICTION U/S 147 OF THE ACT T O TAX ANY OTHER INCOME. IN THE INSTANCE CASE, REASONS WERE RECORDED U/S 148 (2) OF THE ACT TO BRING TO TAX U/S 115JB OF THE ACT PROVISIONS FOR DOUBTFU L DEBTS. HOWEVER, NO ADDITION WAS MADE ON THIS ACCOUNT WHEN REASSESSMENT ORDER U/S 147 READ WITH SECTION 143(3) WAS PASSED ON 29.12.2008 RATHE R ADDITION WAS MADE ON ACCOUNT OF DISALLOWANCE OF TECHNICAL KNOW-HOW FE ES FOR THE REASON THAT THE SAID EXPENSES WERE NOT REVENUE IN NATURE. THE ABOVE ISSUE FOR OUR CONSIDERATION IS NO LONGER RES INTEGRA, SINCE THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RANBAXY LABORATORIES LTD. VS. CIT (SUPRA) HELD THAT WHEN REASONS ARE RECORDED FOR BRINGING TO TAX X I NCOME AND NO ASSESSMENT IS MADE ON THE X INCOME, THE AO DOES N OT POSSESS THE JURISDICTION TO TAX ANY OTHER INCOME IN THE REASSES SMENT ORDER. THE HONBLE JURISDICTIONAL HIGH COURT AGREED WITH THE J UDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JET AIRWAY S (I) LTD. (SUPRA). THE RELEVANT FINDING OF THE HONBLE BOMBAY HIGH COU RT, AFTER CONSIDERING THE EXPLANATION 3 TO SECTION 147, READS AS FOLLOWS :- 11. INTERPRETING THE PROVISION AS IT STANDS AND WITHOUT ADDING OR DEDUCTING FROM THE WORDS USED BY PARLIAME NT, IT IS CLEAR THAT UPON THE FORMATION OF A REASON TO BELIEV E UNDER SECTION 147 AND FOLLOWING THE ISSUANCE OF A NOTICE UNDER SECTION 148, THE ASSESSING OFFICER HAS THE POWER TO ASSESS OR REASSESS THE INCOME WHICH HE HAS REASON TO BELIEVE HAD ESCAPED ASSESSMENT AND ALSO ANY OTHER INCOME CHARGE ABLE TO TAX. THE WORDS AND ALSO' CANNOT BE IGNORED. THE INTERPRETATION WHICH THE COURT PLACES ON THE PROVIS ION SHOULD ITA NO.6343/DEL./2012 6 NOT RESULT IN DILUTING THE EFFECT OF THESE WORDS OR RENDERING ANY PART OF THE LANGUAGE USED BY PARLIAMENT OTIOSE. PARLIAMENT HAVING USED THE WORDS 'ASSESS OR REASSES S SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT', THE WORDS 'AND ALSO' CANNO T BE READ AS BEING IN THE ALTERNATIVE. ON THE CONTRARY, THE CORRECT INTERPRETATION WOULD BE TO REGARD THOSE WORDS AS BE ING CONJUNCTIVE AND CUMULATIVE. IT IS OF SOME SIGNIFICA NCE THAT PARLIAMENT HAS NOT USED THE WORD 'OR'. THE LEGISLAT URE DID NOT REST CONTENT BY MERELY USING THE WORD 'AND'. TH E WORDS 'AND' AS WELL AS 'ALSO' HAVE BEEN USED TOGETHER AND IN CONJUNCTION. EVIDENTLY, THEREFORE, WHAT PARLIAMENT INTENDS BY US E OF THE WORDS 'AND ALSO' IS THAT THE ASSESSING OFFICER, UPO N THE FORMATION OF A REASON TO BELIEVE UNDER SECTION 147 AND THE ISSUANCE OF A NOTICE UNDER SECTION 148(2) MUST ASSE SS OR REASSESS: (I). 'SUCH INCOME'; AND ALSO (II) ANY OTH ER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF T HE PROCEEDINGS UNDER THE SECTION. THE WORDS 'SUCH INCO ME' REFER TO THE INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND IN RESPECT OF WHICH THE ASSESSING OF FICER HAS FORMED A REASON TO BELIEVE THAT IT HAS ESCAPED ASSE SSMENT. HENCE, THE LANGUAGE WHICH HAS BEEN USED BY PARLIAME NT IS INDICATIVE OF THE POSITION THAT THE ASSESSMENT OR R EASSESSMENT MUST BE IN RESPECT OF THE INCOME IN RESPECT OF WHIC H HE HAS FORMED A REASON TO BELIEVE THAT IT HAS ESCAPED ASSE SSMENT AND ALSO IN RESPECT OF ANY OTHER INCOME WHICH COMES TO HIS NOTICE SUBSEQUENTLY DURING THE COURSE OF THE PROCEE DINGS AS HAVING ESCAPED ASSESSMENT. IF THE INCOME, THE ESCAP EMENT OF WHICH WAS THE BASIS OF THE FORMATION OF THE REASON TO BELIEVE IS NOT ASSESSED OR REASSESSED, IT WOULD NOT BE OPEN TO THE ASSESSING OFFICER TO INDEPENDENTLY ASSESS ONLY THAT INCOME WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURS E OF THE PROCEEDINGS UNDER THE SECTION AS HAVING ESCAPED ASS ESSMENT. IF UPON THE ISSUANCE OF A NOTICE UNDER SECTION 148( 2), THE ASSESSING OFFICER ACCEPTS THE OBJECTIONS OF THE ASS ESSEE AND DOES NOT ASSESS OR REASSESS THE INCOME WHICH WAS TH E BASIS OF THE NOTICE, IT WOULD NOT BE OPEN TO HIM TO ASSESS I NCOME UNDER SOME OTHER ISSUE INDEPENDENTLY. PARLIAMENT WH EN IT ENACTED THE PROVISIONS OF SECTION 147 WITH EFFECT F ROM 1ST APRIL 1989 CLEARLY STIPULATED THAT THE ASSESSING OF FICER HAS TO ITA NO.6343/DEL./2012 7 ASSESSEE OR REASSESS THE INCOME WHICH HE HAD REASON TO BELIEVE HAD ESCAPED ASSESSMENT AND ALSO ANY OTHER I NCOME CHARGEABLE TO TAX WHICH CAME TO HIS NOTICE DURING T HE PROCEEDINGS. IN THE ABSENCE OF THE ASSESSMENT OR REASSESSMENT THE FORMER, HE CANNOT INDEPENDENTLY AS SESS THE LATTER. SECTION 147 HAS THIS EFFECT THAT THE ASSESSING OFFI CER HAS TO ASSESSEE OR REASSESS THE INCOME ('SUCH INCOME') WHI CH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE F ORMATION OF BELIEF AND IF HE DOES SO, HE CAN ALSO ASSESS OR REASSESS ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE DURING THE COURSE OF THE PROCEE DINGS HOWEVER, IF AFTER ISSUING A NOTICE UNDER SECTION 14 8, HE ACCEPTED THE CONTENTION OF THE ASSESSEE AND HOLDS T HAT THE INCOME WHICH HE HAS INITIALLY FORMED A REASON TO BE LIEVE HAD ESCAPED ASSESSMENT, HAS AS A MATTER OF FACT NOT ESC APED ASSESSMENT, IT IS NOT OPEN TO HIM INDEPENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO, A FRESH NOTICE UNDER SECTION 148 WOULD BE NECESSARY, THE LEGALITY OF WHICH WOULD BE TESTED IN THE EVENT OF A CHALLENGE BY THE ASSESSEE. 8. IN VIEW OF THE ABOVE HONBLE HIGH COURT JUDGMENT , WE HOLD THAT THE CIT (A) IS JUSTIFIED IN QUASHING THE REASSESSMENT P ROCEEDINGS. 9. BEFORE CONCLUDING, IT IS NECESSARY TO DEAL WITH THE LD. DRS CONTENTION THAT THE THIRD PROVISO TO SECTION 147 OF THE ACT IN FACT ADVANCES THE CASE OF THE REVENUE. TO UNDERSTAND TH E CONTENTION OF THE LD. DR. THE THIRD PROVISO, AS IT STANDS NOW, IS REPROD UCED BELOW : PROVIDED [ALSO] THAT THE ASSESSING OFFICER MAY AS SESS OR REASSESS SUCH INCOME, OTHER THAN THE INCOME INVOLVI NG MATTERS WHICH ARE THE SUBJECT MATTER OF ANY APPEAL, REFERENCE OR REVISION, WHICH IS CHARGEABLE TO TAX AND HAS ESC APED ASSESSMENT. ITA NO.6343/DEL./2012 8 THE THIRD PROVISO WAS INSERTED B Y THE FINANCE ACT, 2008, W.E.F. 1.4.2008. HOWEVER, THE WORD ALSO WAS SUBSTITUTED FOR THE WO RD FURTHER BY FINANCE ACT, 2012 W.E.F. 1.7.2012. THE CONTENTION O F THE LD. DR IS THAT BY VIRTUE OF THE THIRD PROVISO, AS IT STANDS NOW, THE AO MAY NOW ASSESS OR REASSESS ANY INCOME IRRESPECTIVE WHETHER THE INCOME IS NOT ASSESSED FOR WHICH THE REOPENING HAS BEEN INITIATED. THIS CONTE NTION OF THE LD. DR, WE ARE AFRAID, IS DE HORS ANY MERIT. THE THIRD PROVIS O ONLY BRINGS ABOUT RESTRICTION IN ASSESSING INCOME INVOLVING MATTERS W HICH ARE SUBJECT MATTER OF ANY APPEAL, REFERENCE OR REVISION. IN NO WAY, T HE THIRD PROVISO HELPS THE CASE OF THE REVENUE. 10. IN THE RESULT, FOR THE AFORESAID REASONING, WE DISMISS THE APPEAL OF THE REVENUE. IT IS ORDERED ACCORDINGLY. ORDER PRONOUNCED IN OPEN COURT ON THIS 20 TH DAY OF APRIL, 2015. SD/- SD/- (T.S. KAPOOR) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 20 TH DAY OF APRIL, 2015 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-X, NEW DELHI 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.