M/S. IBM INDIA PVT LTD,BANGALORE vs. JOINT COMMISSIONER OF INCOME TAX, (LTU), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE

BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.1916/Bang/2018 Assessment Year : 2004-05

M/s. IBM India Private The Joint Limited, Commissioner of No. 12, Subramanya Arcade, Income-tax, vs. Bannerghatta Main Road, Large Taxpayers Bangalore – 560 029. Unit (‘LTU’), PAN: AAACI4403L Bangalore. APPELLANT RESPONDENT

Appellant by : Shri Ajay Rotti, CA Respondent by : Shri Smarak Swain, JCIT (DR)

Date of hearing : 11.02.2019 Date of Pronouncement : 15.02.2019

O R D E R Per Shri A.K. Garodia, Accountant Member This appeal is filed by the assessee and the same is directed against the order of ld. CIT (A)-12, Bangalore dated 31.03.2018 for Assessment Year 2004-05.

ITA No. 1916/Bang/2018 Page 2 of 6 proceedings initiated under section 147 of the Act are invalid, unlawful and grossly without jurisdiction, as pre-conditions prescribed in law were not satisfied. 2.2. The learned CIT(A) has erred in law, in upholding the initiation of the reassessment proceedings by the learned AO by disregarding the settled positions of law. 2.3. The learned CIT(A) has erred in not appreciating that the learned AO has failed to substantiate the test of "reason to believe" which is sine qua not i for initiating the reassessment proceedings. 2.4. The learned CIT(A) has erred in concluding that there was new tangible material noticed and that there was no change in opinion by the learned AO. 2.5. The learned CIT(A) has erred in in ignoring the correct and relevant facts on record and concluding that the Appellant failed to disclose truly and fully all material facts. 3. Disallowance of write back of provision for property registration charges 3.1. The learned CIT(A) has erred in upholding the action of the learned AO in disallowing the deduction claimed for write back of provision for property registration charges amounting to INR 96,00,000 during the said assessment year. 3.2. The learned CIT(A) has erred in upholding the reasoning provided by the learned AO that the Appellant in not eligible for deduction claimed as the amount pertains to provision reversed and no actual payment is made. In doing so, the learned CIT(A) has failed to appreciate that the said disallowance/ addition leads to double taxation since the provision for property registration charges has already been charged to tax in the earlier assessment years and the said provision was reversed/ credited to P&L account during the AY 2004-05. 4. Levy of interest under section 234B 4.1. The learned CIT(A) has erred in not adjudicating on the ground raised by the Appellant that the learned AO has wrongly computed interest under section 234B(1) of the Act on total income determined on the reassessment order as against the tax determined in the regular assessment. 4.2. The learned CIT(A) has erred in not adjudicating on the ground raised by the Appellant that the learned AO has wrongly computed interest without considering the foreign tax credit claimed by the Appellant, thereby levying excess interest under section 234B of the Act.

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4.3. The learned CIT(A) has erred in law and on facts, by directing the learned AO to verify the foreign tax credit claimed by the Appellant to compute interest under section 234B, without appreciating the fact that the learned AO has already granted foreign tax credit and it is only the computation of interest under section 234B which is erroneous as stated in the above grounds. The Appellant craves leave to add to, delete, amend or modify any or all of the above grounds of appeal, at any time before or during the hearing of the appeal.” 3. The ld. AR of assessee submitted that ground no. 1 is general and ground no. 2 is regarding validity of reassessment proceedings. Ground no. 3 is regarding merit of the disallowance made by the AO of Rs. 96 Lakhs. Ground no. 4 is regarding levy of interest u/s. 234B. He submitted that ground no. 1 is general and ground no. 4 is consequential and accordingly, we hold that no adjudication is called for regarding these two grounds. 4. Ground no. 2 regarding validity of reassessment, it was submitted by ld. AR of assessee that reasons for reopening recorded by the AO are reproduced by the AO on page no. 2 of the assessment order. He pointed out that as per the reasons recorded by the AO and reproduced by him on page no. 2 of the assessment order, it is noted by the AO that an amount of Rs. 96 Lakhs being “Property Registration Charges” was claimed as deduction on payment basis and this is the objection of the AO that the amount spent on Property Registration Charges is an expenditure in connection with acquisition of an immovable property and therefore, capital expenditure and hence, not allowable even u/s. 43B of IT Act. He submitted that because of these facts, the reopening is not valid. The ld. DR of revenue supported the orders of authorities below. 5. We have considered the rival submissions. This issue regarding reopening of assessment was decided by CIT (A) as per paras 3.2 to 3.5 of his order and these paras are reproduced hereinbelow for ready reference. “3.2 FINDINGS I have given my careful consideration to the arguments of the appellant and the contentions of the AO. It is seen from record that the assessee company had filed its original return on 01.11.2004 and a revised return was filed on 26.10.2005. Order u/s 143(3) was passed on 29.12.2006. Notice under section 148 was issued on 18.02.2011 broadly for the reason that the claim for allowability of registration

ITA No. 1916/Bang/2018 Page 4 of 6 charges (Rs 96,00,000/-) 'on payment basis' is incorrect as this amount is only a reversal of the provision (detailed reasons are captured at page 2 of the assessment order). 3.3 The reopening of the assessment in this case u/s 148 has been done beyond a period of four years from the end of the relevant assessment year. The jurisdictional requirement that must be fulfilled in such a case is that there must be a failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment for that assessment year. It is also trite law that an assessment cannot be reopened on the basis of a mere change of opinion. There must be tangible material before the Assessing Officer before he can reopen an assessment. Beyond the period of four years, it must also be demonstrated that there was a failure on the part of the assessee to make a true and full disclosure of material facts necessary for the assessment. 3.4 As mentioned in the Order dated 23.09.2013 disposing of objections, (referred to in the Order under consideration at page 4), there was material which has come on the record for assessment year 2002-03 that a provision was created in AY 2002-03 for this amount of Rs 96,00,000/-. Though in the year under consideration, it was shown as a reversal of provision, the TAR qualified this expense u/s 43B. In that regard, the disclosure was not full and true, Further, this issue was never examined during the course of the original assessment. Therefore, it is incorrect to say there is any change of opinion. 3.5 Considering the above, the action of the AO to reopen the assessment is upheld. This ground is therefore dismissed.” 6. From the above paras reproduced from the order of CIT (A), it is seen that as per tax audit report, it was stated that this claim is u/s. 43B and this is accepted factual position that no payment was made in the present year and therefore, deduction u/s. 43B is not allowable in the present year u/s. 43B. As per the relevant portion of tax audit report on pages 90 and 91 of paper book, it is seen that it has been shown that property registration fees was paid out of opening balance of Rs. 96 Lakhs which has been paid during the present year and regarding date of remittance, it is said that Note no. 3 is relevant and note no. 3 says that paid / adjusted during the year and when this is admitted position of fact that payment was not made in the present year and there is no evidence to claim in the tax audit report, in our considered opinion, the reopening is valid because at the stage of reopening, only a prima facie case has to be made out by the AO that some

ITA No. 1916/Bang/2018 Page 5 of 6 income has escaped assessment and the AO has done so in the present case. In this view of the matter, we uphold the reopening. Ground no. 2 is rejected. 7. Regarding ground no. 3 in respect of merit of the disallowance made by the AO and confirmed by CIT (A), it was submitted by ld. AR of assessee that in the present year, there is no claim of expenses by way of debit to P&L account. He pointed out that as per page nos. 178 and 179 of paper book, provision was created in Assessment Year 2002-2003 & 2003 – 04 of Rs. 24 Lakhs and Rs. 72 Lakhs total of Rs. 96 Lakhs by way of debit to rent account and credit to provision account and disallowance was made in the relevant year u/s. 43B. Thereafter he drawn our attention to pages 182 and 183 of the paper book and he pointed out that such provision is reversed in the present year by way of debit to provision account and credit to rent account. He submitted that since the provision made in the earlier year is already disallowed in the earlier year and in the present year, there is reversal of such provision which is already disallowed in the year of provision, amount credited to the rent account in the present year cannot be brought to tax in the present year and therefore, disallowance made by the AO is not sustainable. The ld. DR of revenue supported the orders of authorities below. He also submitted that even if this claim of the assessee is accepted then for factual verification, the matter should be restored back to the file of AO. 8. We have considered the rival submissions. We find that the disallowance was made by the AO and confirmed by CIT(A) on this basis that the assessee has claimed deduction u/s. 43B but the claim is not supported by any proof of payment in the present year. In view of the arguments made by ld. AR of assessee and in view of the relevant portion of the paper book i.e. pages 178, 179, 182 and 183, the claim of the assessee is not this that any payment was made in the present year in respect of any expenditure of earlier year for which deduction is claimed u/s. 43B of IT Act. The claim of the assessee is this that in earlier year, certain provisions was made and the same was disallowed in the respective year u/s. 43B and in the present year, such provision is reversed by debit to provision account and credit to

ITA No. 1916/Bang/2018 Page 6 of 6 rent account. This is the claim of the assessee that such credit to rent account in the present year by way of reversal of the earlier provision having been already disallowed in the respective year, cannot be taxed in the present year. If the facts stated by ld. AR of assessee are correct then the claim of assessee is acceptable. But since this factual aspect has never been examined by AO or CIT (A), we feel it proper to restore the matter back to the file of AO for factual verification of this aspect of the matter. Accordingly we set aside the order of CIT (A) and restore the matter back to the file of AO for fresh decision after examining the factual aspect of the matter. We direct the AO that he should examine the factual aspect and if this is found that this amount of Rs. 96 Lakhs is credited in the rent account in the present year on account of reversal of provision which was made in earlier year and the said provision in earlier year was already disallowed in the respective year, then reversal of such provision cannot be brought to tax in the year of reversal since it has already been brought to tax in the earlier year being the year of provision. Hence if the assessee can establish these factual aspects, then no disallowance is called for in the present year. Ground no. 3 is allowed for statistical purposes. 9. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on the date mentioned on the caption page.

Sd/- Sd/- (PAVAN KUMAR GADALE) (ARUN KUMAR GARODIA) Judicial Member Accountant Member Bangalore, Dated, the 15th February, 2019. /MS/ Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order

Assistant Registrar, Income Tax Appellate Tribunal, Bangalore.