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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI CHANDRA POOJARI
Per Chandra Poojari, Accountant Member This appeal by the assessee is against the order of the CIT(Appeals)-5, Bengaluru dated 22.02.2019 for the assessment year 2009-10.
The assessee has raised the preliminary ground on the reassessment proceedings as follows:-
“3. Initiation of reassessment proceedings under section 147 of the Act is without authority of law and jurisdiction
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3.1 The learned CIT (A) has erred in law & facts in upholding the action of the AO in initiating reassessment proceedings under section 147 of the Act beyond the period of 4 years, when the Appellant has filed/ submitted/ disclosed all requisite facts and material during the original assessment proceedings under section 143(3) of the Act 3.2 The learned CIT (A) has failed to appreciate that the initiation of reassessment proceedings was made based on audit objection, which amounts to change of opinion, therefore the order is not sustainable under law. 3.3 The learned CIT(A) has erred in law and on facts in applying principles in the case of Kalyanji Mavji & Co vs CIT (S) 102 ITR 287 while upholding the action of the AO so far as it relates to initiation of reassessment proceedings under section 147 of the Act. 3.4 The learned CIT(A) has failed to appreciate that the order passed by the learned AO is bad in law in as much as the learned AO has passed the re-assessment order without disposing of the objection of the assessee which goes to the root of the matter and therefore the order passed by the learned AO is ought to be quashed. 3.5 The learned CIT(A) and the learned AO has erred in facts in not considering the return filed by the appellant in reply to the notice under section 148 of the Act.” 3. The assessee has also filed petition for admission of additional grounds stating that certain observations of the CIT(Appeals) came to the notice of assessee pursuant to filing of the appeal before the Tribunal which was inadvertent bonafide mistake on the part of assessee and prayed that the same may be admitted for adjudication. The additional grounds are as follows:-
“8. The learned AO/CIT(A) has erred in law and facts in not giving the benefit of short term capital loss amounting to
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Rs. 24,97,62,558 as computed by the Appellant in the return of income. 9. The learned AO/CIT(A) has erred in law and facts by not allowing the carry forward of short term capital loss amounting to Rs. 24,97,62,558 as claimed in the return of income by the Appellant. 10. The learned AO/CIT(A) has erred in law and facts in adding the apportioned cost of goodwill amounting to Rs. 32,76,86,270, to the income of the Appellant, arbitrarily without any basis and rationale.” 4. The ld. DR opposed admission of additional grounds.
We have heard both the parties. In our opinion, the under a bonafide belief that it had raised all the grounds before the Tribunal inadvertently committed an error in not raising the grounds which are now sought to be raised by way of additional grounds. There is no necessity of investigation into fresh facts so as to adjudicate the same. Accordingly by following the Hon’ble Supreme Court decision in the case of National Thermal Power Corporation v. CIT, 229 ITR 383 (SC), we admit the additional grounds for adjudication.
The assessee filed its original return on 30.9.2009 declaring total income of Rs.47,88,62,424 and claimed short term capital loss of RS.24,97,62,558 on slump sale of its wireless division to NF Wireless India Pvt. Ltd. [NFWIPL]. Assessment was completed u/s. 143(3) r.w.s. 144C of the Income-tax Act, 1961 [the Act] on 14.3.2013. The assessee went in appeal against the original assessment order before the CIT(Appeals). The AO issued final assessment order on 30.4.2013 wherein the following adjustments/disallowances were made after due verification of the submissions made by the assessee:-
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(i) Considering networking equipments, active components and computer server racks (or 19 inch heavy racks) as ‘plant and machinery’ instead of ‘computers’, applied lower rate of depreciation of 15% on the adjusted opening balance, thus disallowing depreciation amounting to Rs.22,31,232. (ii) TP adjustments amounting to Rs.281,131,440 pursuant to the order of TPO dated 11.1.2013. 7. Since the AO passed the impugned assessment order u/s. 143(3) r.w.s. 147 r.w.s. 254 of the Act, the assessee filed appeal before the CIT(Appeals). The CIT(Appeals) in his ex parte dismissed all the grounds of appeal raised by the assessee. Against this, the assessee is in appeal before us.
The assessee’s main grievance is with regard to initiation of reassessment proceeding u/s. 147 of the Act without any authority of law whatsoever. It was submitted that the assessment was reopened by recording the following reasons:-
“" The assessee company has made Slump sale during the year to M/s.N.F.Wireless India Private Limited for a consideration of Rs.13,96,91,650/-. After making adjustment towards assets and liabilities the net worth is arrived at Rs.38,94,54,208/-. In the computation of capital gains on slump sale the assessee has reduced Rs.38,94,54,208/-. In the computation of capital gains on slump sale the assessee has reduced Rs.32,76,86„270/- being "goodwill allocated based on form 3cn". As per the Local Business Transfer Agreement dated: 22.07.2008, Goodwill is not treated as a part of consideration in the Business Transfer Agreement. Hence, the assessee had made a wrong claim of Rs.32,76,86,370,1- as goodwill in the computation of capital gains. 1 therefore, have reason to believe that income of Rs.32,76,86,370/- has escaped assessment within the meaning of section 147 of the Income Tax Act, ig6i which requires re- opening of the case. Therefore, I have reason to believe that
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income chargeable to tax has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961.” 9. The ld. AR submitted that all the material facts including the financial statements, tax audit report, computation of short term capital loss, copy of business transfer agreement, details of assets & liabilities of slump sale, etc. in connection with slump sale of wireless division to NF India was furnished by the Assessee during the proceedings and no adjustments were made in the order passed under section 143(3) of the Act in this regard after due scrutiny of the information filed. However, the assessment was reopened merely based on the change of opinion on the same set of facts which were already furnished during the scrutiny assessment. submit that no income has escaped assessment and the reasons provided for initiation of the subject proceedings under Section 147 of the Act are not valid for taking up the case for reassessment. Without prejudice to the merits of the case, it was submitted that initiation of reassessment proceedings u/s. 147 of the Act is without authority of law and jurisdiction. The ld. AR relied on the following decisions:-
SI.No. Particulars Reopening of Assessment without any new material on record or without reasons to believe that income has escaped Assessment is invalid ITO vs. Nawab Mir Barkat Ali Khan Bahadur (1947) 97 ITR 239 1. (Supreme Court) 2. Asian Paints Limited vs DCIT and Another (308 ITR 195) (Bombay High Court) 3. DCIT vs Suyash Chemicals 2010 TIOL 128 ( Mumbai ITAT ) Coca-Cola Export Corporation vs ITO and ANR 231 ITR 200 (1998) 4. (Supreme Court) Jal Hotel Co. Ltd vs ADIT (2009) 184 Taxman 1 (Delhi High Court) 5. Jindal Photo Films Ltd vs Deputy CIT (1988) 234 ITR 170 (Delhi High 6. Court)
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Reopening of assessment on a mere change of opinion is invalid Techspan India Pvt Ltd v ITO (2006) 283 ITR 212 (Delhi 7. High Court) CIT vs Kelvinator of India Ltd (2010) 320 ITR 561 (Supreme 8. Court) Legato System (India) Pvt Ltd vs DCIT (2010) (187 Taxman 9. 294) (Delhi High Court) CIT Vs Ramakrishna Hegde (326 ITR 347) (2010) (Karnataka 10. High Court) Reassessment based on audit objection is void ab initio Indian and Eastern Newspaper Society vs CIT (119 ITR 996) (Supreme 11. Court) Raj Ratna Metal Industries Ltd vs ACIT (SLP No. 7140 of 2014) (Gujarat 12. High Court) Commissioner of Income Tax -12 vs DRM Enterprises [2015] 55 13. Taxmann 181 (Bombay High Court) Reassessment based on audit objection is void ab initio Indian and Eastern Newspaper Society vs CIT (119 ITR 996) (Supreme 14. Court) Raj Ratna Metal Industries Ltd vs ACIT (SLP No. 7140 of 2014) (Gujarat 15. High Court) Commissioner of Income Tax -12 vs DRM Enterprises [2015] 55 16. Taxmann 181 (Bombay High Court) Notice for reassessment proceedings issued beyond expiry of four years is time barred in case of no failure on the part of the Assessee to disclose facts 17. CIT vs Foramer France [129 Taxman 72] (Supreme Court)
CIT vs Corporation Bank Ltd. (2002) 254 ITR 791 (Supreme Court) S Ganga Saran and Sons Pvt Ltd vs ITO & Ors 3 SCC 143 (1981) 19. (Supreme Court) Supreme Traverse (P) Ltd vs CIT & U013231TR 323 (2009) (Bombay 20. High Court) Haryana Acrylic Manufacturing Company vs CIT 308 ITR 38 (2009) 21. (Delhi High Court) Gujarat Ginning & Mfg Co Ltd vs CIT 108 ITR 674 (1977) (Gujarat High 22. Court) Modepro India Private Limited vs DCIT (2010 — TIOL — 325 — ITAT- 23. MUM) (Mumbai ITAT) Oil and Natural Gas Corporation Limited vs DCIT [262 ITR 648] (Delhi 24. High Court) Commissioner of Income Tax vs Elgi Finance Ltd. (2006) 286 ITR 674 25. (Madras High Court)
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Commissioner of Income Tax vs Chamundeswari 2007 (290 ITR 580) 26. (Madras High Court) 27. CIT vs S.R. Construction (257 ITR 502) (Madhya Pradesh High Court) McDermott International Inc vs Additional Commissioner of Income Tax 28. 259 ITR 138 (2003) (Uttaranchal High Court) Allowability of goodwill as cost against sale of business
CIT vs Raffiuddin (242 ITR 57) (Madras High Court)
Parthas Trust vs CIT (173 ITR 615) (Kerala High Court)
ALPS Technologies vs DCIT (81 Taxman.com 225) (Gujrat High Court)
On the other hand, the ld. DR submitted that the appellant has been given ample opportunity to appear before CIT(Appeals). However, neither the appellant nor any of his representatives appeared nor filed any submissions but took adjournment on 4.8.2017 and 20.11.2017. None appeared further on 28/08/2017 and 04/12/2017. Thereafter a final hearing notice dated 21/12/2017 fixing on 02/01/2018 at 11:30 am has also been issued. However, neither the appellant nor any of his AR appeared nor filed any submissions and also not took adjournment on the above mentioned dates for appearing. Subsequently the CIT(A)’office called the appellant many a times to appear before but the appellant neither himself nor his AR appeared. In view of the same the CIT(A) was of the opinion that the appellant is not seriously interested in pursuing his appeals. The law aids those who are vigilant and not those who sleep upon/over their rights. This principle is embodied in well known dictum Vigilantibus non Dormantibus Jura sub Veniunt which has been followed in the case of CIT Vs. Multiplan India Ltd. reported in 38 ITD 320 by the Hon'ble Delhi High Court. Therefore, the grounds of appeal should have been dismissed for want of prosecution. However, for the advancement of substantial cause of justice
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and equity, the grounds raised by the appellant were decided on merits based on the material available on record.
Therefore, the CIT(A) passed ex parte order after considering the material on record. On the issue of re-opening the assessment, the CIT(A) observed that the condition for reopening can be stated that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment u/s.147. Where assessment u/s.143(3) or u/s.147 made earlier and reopening is done after expiry of four years from the end of the relevant assessment year reopening is possible only if income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return u/s.139 or in response to notice issued u/s.142(1) or u/s.148 or to disclose fully and truly all material facts necessary for his assessment. The expression "has reason to believe" is wider than "is satisfied" as reasons must have a live link with the formation of belief. "Information" for reopening may come from external sources or even from materials already on record or may be derived from the discovery of new and important matter or fresh facts. Word "information" would also include true and correct state of law derived from relevant judicial decisions either of the I.T. authorities or Courts of law. Taxpayer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority as held in the case of Kalyanji Mavji & Co. Vs CIT(S) 102 ITR 287. The basis for re-opening of the assessment would certainly be the source of information. When an income liable to tax has escaped assessment in the original assessment proceedings due to oversight and inadvertence or a mistake committed by the ITO, he has jurisdiction to re-open the assessment. Reassessment is permissible even if the information is obtained after proper investigation from the material on record or from any enquiry or research into facts or
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law. Information need not be from external source as held in the case of CIT & Anr Vs. Rinku Chakraborthy (Kar) 56 DTR 227 and Kalyanji Mavji & Co. Vs CIT(S) 102 ITR 287. In view of the above discussion, the CIT(Appeals) was of the opinion that the Assessing Officer has got jurisdiction in reopening the assessment by issuing the notice u/s.148 of the Act as the communication received by the Assessing Officer in discharge of official duty is information for issue of notice and therefore the ground on challenging the re-opening of the assessment was dismissed.
We have heard both the parties and perused material on record. In this case, original assessment was completed u/s. 143(3) of the Act for this AY 2009-10 and draft assessment order was passed on 14.3.2013. The assessee filed appeal before the CIT(Appeals). Thereafter, the AO passed final assessment order on 30.4.2013. The assessee filed appeal against this order before the CIT(Appeals) on 12.6.2013 with regard to adjustment made by the AO on the TP issue. The CIT(Appeals) vide his order dated 20.10.2004 upheld the TP adjustment made by the AO, However, he directed the AO to grant depreciation at the prescribed rate applicable to furniture & fittings in respect of server racks, however with regard to depreciation on networking equipment/active components etc., the CIT(Appeals) decided the issue in favour of assessee allowing depreciation @ 60% against which the revenue filed appeal before the Tribunal.
With regard to non-grant of depreciation on the basis of additional ground in respect of depreciation on goodwill which was acquired by NXP India from Philips Electronics India Ltd. and Conexant India at the time of slump sale, the assessee filed appeal before the Tribunal.
The Tribunal vide order dated 12.8.2015 and 22.7.2015 remanded the matter back to the file of AO for fresh consideration. In the meanwhile,
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the AO vide notice dated 22.3.2016 initiated reassessment proceedings u/s. 148 of the Act for this AY 2009-10, pursuant to which the assessee filed return of income on 23.4.2016 requesting the AO to provide reasons for initiating reassessment proceedings. The AO vide letter dated 27.10.2016 informed the assessee that reassessment proceedings were initiated as per BTA dated 22.7.2008 between the assessee and NF India, goodwill is not treated as part of consideration, hence the assessee made a wrong claim of deducting the goodwill amounting to Rs.32,76,86,270 from the sale consideration received. The assessee filed objections against the reassessment proceedings vide letter dated 13.12.2016 questioning the validity of the proceedings. However, the AO overlooking the objection of the assessee, passed combined assessment order giving effect to the ITAT Order dated 22.7.2015 and 12.8.2015 and the reassessment order on 29.12.2016. Against this, the assessee filed appeal before the CIT(Appeals). The CIT(Appeals) also disposed of the appeal by the impugned order dated 22.2.2018. The assessee is in appeal before the Tribunal.
After going through the records, we are of the opinion that the AO passed a combined order giving effect to earlier orders of Tribunal with regard to original assessment and also reassessment order u/s. 143(3) r.w.s. 147 of the Act which is incorrect. The AO must have passed distinct and separate orders giving effect to the Tribunal’s orders which is emanating from the assessment order passed u/s. 143(3) and fresh reassessment order which is emanating from reassessment notice dated 23.3.2016. As such, we vacate the combined assessment order dated 29.12.2016 passed u/s. 143(3) r.w.s. 147 r.w.s. 254 of the Act and direct the AO to pass distinct and separate assessment orders one in respect of order giving effect to the Tribunal’s orders emanating from the assessment
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order u/s. 143(3) and another in respect of reassessment order u/s. 143(3) r.w.s. 147 of the Act. Accordingly, the issue in dispute is remitted in its entirety to the file of Assessing Officer to pass separate assessment orders as directed above, after giving opportunity of being heard to the assessee.
Since we have remitted the issue in its entirety to the file of Assessing Officer for passing distinct and separate orders as above, we refrain from going into grounds of appeal raised by the assessee before us.
In the result, the appeal by the assessee is allowed for statistical purposes.
Pronounced in the open court on this 18th day of March, 2021.
Sd/- Sd/- ( N V VASUDEVAN ) ( CHANDRA POOJARI ) VICE PRESIDENT ACCOUNTANT MEMBER
Bangalore, Dated, the 18th March, 2021.
/Desai S Murthy /
Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order
Assistant Registrar ITAT, Bangalore.