ACIT, NEW DELHI vs. M/S AMSERVE CONSULTANTS LTD., NEW DELHI

The grievance of the revenue read as under :-

On the facts and circumstances of the case the Ld. CIT(A) has erred in law quashing proceedings u/s 147 and the consequent assessment thereof.

Subsequently reassessment proceedings were initiated after recording of the following reasons :- “The assessee had paid Data processing charges to it's joint holding company Amway India which is a wholly owned subsidiary of the American Coglomerate Amway. Disallowance of Rs. 14,38,57,868/ u/s 40A(2) was made to the assessee's income during A. Y. 2009-10. The addition was confirmed by the Ld. CIT(A). Since the issue may have implications in other years, the Ld. CIT(A) has directed to take necessary action on the issue in the preceding years. Since, the assessee failed to disclose fully and truly all material facts necessary during the assessment proceedings for the assessment year 2007-08, an income of more than Rs. one lakh chargeable to tax may have escaped assessment for the assessment year 2007-08. "

Approval was taken from the competent authority as per the relevant provisions of the Act and notice u/s. 148 was issued and served upon the assessee. In response to the notice, the assessee company stated that the return of income field u/s. 139 (1) of the Act may be treated as return filed in pursuance of notice u/s.148 of the Act.

Thereafter notice u/s.143 (2) and u/s.142 (1) alongwith questionnaire were also issued and served on the assessee.

The bone of contention was the expenditure incurred by the assessee towards data processing charges paid to M/s. Amway India Enterprises. The assessment was completed by disallowance of excessive unreasonable expenditure as under :-

Accordingly the addition of Rs.1,75,66,745/- was made by the Assessing Officer and the total income was assessed at Rs.1,00,706,060/-.

The assessee carried the matter before the CIT(A) and challenged the validity of the notice u/s. 148 of the Act and the consequent order framed u/s.147 r.w.s. 143 (3) of the Act.

Before the CIT(A) the assessee strongly contended that their exist no reason to believe that any income chargeable to tax as escaped assessment in the assessment year. It was brought to the notice of the CIT(A) that the pre-requisite condition for initiation of reassessment proceedings has not been fulfilled as the assessee had made adequate disclosure of facts in the return of income filed. It was also brought to the notice of the CIT(A) that the Assessing Officer has reopened the assessment on the ground that CIT(A) has directed to take necessary action on the issue of disallowance of data processing charges to M/s. Amway India Limited u/s. 40A (2) (b) of the Act in the order for A. Y.2009-10. It was strongly contended that reopening has been done on the basis of direction of CIT(A).

After considering the facts and the submissions of the CIT(A) found that there is no such direction issued in the order of the CIT(A) for A. Y. 2009-10, therefore, formation of believe by the Assessing Officer is based on wrong presumptions and there is no material fact available on the record. The CIT(A) was convinced that reopening of the assessment was illegal and same was without application of mind by the Assessing officer and accordingly quashed the assessment.

The DR strongly contended that since the original assessment was framed u/s. 143 (1) of the Act and since there was no scrutiny of the assessment, therefore, for making the impugned additions/ disallowances reopening is justified.

Per contra the counsel for the assessee reiterated what has been stated before the CIT(A) and in support of his contention reliance was placed in the case of M/s. Silver Oak Laboratories Private Limited and another in WP (C) 17719-20/2006 judgment of Hon’ble High Court of Delhi dated 18.12.2008.

We have carefully considered the orders of the authorities below. The reasons for reopening the assessment are mentioned elsewhere. We are of the considered view that the reasons recorded for reopening the assessment are devoid of any application of mind because the Assessing Officer has mentioned that “since the assessee failed to disclose fully and truly all material facts necessary during the assessment proceedings for A. Y. 2007-08”. We fail to understand when the return was processed u/s.143 (1) of the Act how can the Assessing Officer say that the assessee failed to disclose during the assessment proceedings.

We further find that the basis for reopening the assessment is the disallowance made u/s.40A(2)(b) of the Act in respect of data processing charges paid to Amway in subsequent years.

Documents on record show that the disallowance made in A.Y. 2009-10 were deleted by the Tribunal and the revenue has not preferred any appeal against the order of the Tribunal and the issue has attained finality. We also find that similar disallowances were made in A.Y.2010-11 and A.Y.2011-12 and such disallowances were deleted by the Tribunal vide order for the respective assessment years.

When the very basis for reopening the assessment has been removed the assessment proceedings does not survive any more. For this proposition, we draw support from the judgment of the Hon’ble High court of Delhi in the case of M/s. Silver Oak Laboratories (surpa). The relevant findings of the Hon’ble High Court read :-

Considering the facts of the case in the light of the decision of the Hon’ble Delhi High Court (supra) we do not find any error or infirmity in the order of the CIT(A) in so far as quashing of assessment order is concerned. Since the assessment order has been quashed the CIT(A) did not find it necessary to dwell into the merits of the case and we do not find any reason to interfere with the order of the CIT(A). The appeal filed by the revenue is accordingly dismissed.

In the result, the appeal filed by the revenue is accordingly dismissed. Order pronounced in the open court on 26.07.2019.