DCIT-9(1)(2), MUMBAI vs. ATC INDIA TOWER CORPORATION PVT. LTD, MUMBAI

IN THE INCOME-TAX APPELLATE TRIBUNAL“A”BENCH, MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA No.2620/Mum/2016 (Assessment Year 2008-09) In the matter of Deputy Commissioner of Income-tax -9(2) Room No. 260A, 2nd Floor, Aayakar Bhawan, M. K. Road, Mumbai-400020 ------- Appellant/ Revenue (Revenue through Sh. Rajesh Kumar Yadav Sr DR Versus M/s ATC India Tower Corporation, 404, 4th Floor, Skyline Icon, Andheri Kurla Road, Andheri East, Mumbai- 400049 PAN: AAJCS7669H -------- Respondent / Assessee (Assessee through Sh. Satyen Sethi Advocate Reserve for order : 02.05.2018 Date of Pronouncement : 31.07.2018 Order under Section 254(1) of Income -Tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue under section 253 of Income-tax Act is directed against the order of Commissioner (Appeals)-16, Mumbai dated 22nd January 2016, which arise from assessment order passed under section 143(3) read with section 147 dated 25th March 2013 for Assessment Year

2008-09. 2. Brief facts of the case are that the assessee company engaged in providing Infrastructure facilities to telecom operators, filed its return of income for assessment year 2008-09 on 30th September 2008, declaring total loss of Rs.22,97,69,9510/-. Further, a revised return was filed on 22nd of March 2010 declaring total loss at Rs. 26,82,78,992/-. The assessment was

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd completed on 29th December 2010 under section 143(3) assessing total loss of Rs. 25,28,21,632/-. Subsequently, the assessment was reopened under section 147. Notice under section 148 dated 28 March 2012 was served upon the assessee. In response to the notice under section 148, the assessee filed its reply dated 2nd May 2012. In the reply the assessee contended that the return of income filed on 22nd March 2010 may be treated as return of income in response to the notice under section 148. The assessee asked for the reasons recorded. The reasons recorded were supplied to the assessee. Assessee filed its objections against the validity of the re-opening. The objections of the assessee were rejected holding that the re-opening is not based on change of opinion. The assessment was reopened by assessing officer on his view, that the revenue anticipated to be earned from straight line was not offered to tax, though; the same was credited to profit and loss account, excess depreciation of Rs. 16,94,926/- was claimed and that Capital Expenditure of Rs. 39,50,120/- it was not disallowed. The assessment was completed on 25th March 2013 under section 143(3) read with section 147. The assessing officer while passing the reassessment order made no disallowance on account of excess depreciation. However, the assessing officer made addition of Rs. 5,88,33,728/- IP fee straight line income, addition of Rs.4,17,85,995/- being Capital in nature, holding that as per tax Audit Report, the assessee has not brought any evidence on record to prove that 2

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd these amounts were not Capital in nature. The amount of disallowance of

Rs.4,17,85,995/-, consist of Syndicate fee of Rs. 50,000/-,

Rs.2,81,45,175/- on account of expenditure incurred on listing with

Alternative Investment Market (AIM) of London Stock Exchange and

Rs.86,33,820/- interest on borrowed capital.

invalid. However, on merit the learned Commissioner (Appeals) also

deleted the addition of Rs.5,88,33,728/- IP fee straight line income and

Rs. 4,17,85,995/- holding it is revenue in nature and not Capital.

Therefore, aggrieved by the order of Commissioner (Appeals) the

revenue has filed present appeal before us. The revenue has raised

following grounds of appeals;

(i) "On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in holding that the reopening of assessment was on the basis of change of opinion, ignoring the fact that nowhere in the assessment order has the AO shown to have formed a belief on the allowability of the said expenses/ income. (ii) "On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in relying on the decision of the Hon'ble Apex Court in the case of Kelvinator India Ltd. ignoring the fact that the facts of the current case are distinguishable from the said decision. (iii) "On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the addition on account of straight lining income ignoring the fact that the assessee was following mercantile system, wherein the assessee was required to offer income/ expense on accrual basis. (iv) On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the addition on account of straight lining income ignoring the fact that the as per the mercantile system of accounting the assessee was required to offer income/expense on accrual basis, which has been correctly offered in the books, however for the purpose of income tax the same has been reduced without any justifiable reason. (v) On the facts and in the circumstances of the case and in law; whether the Ld. CIT(A) was justified in deleting the addition on AIMS Listing Expenses of 3

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd Rs. 2,81,45,175/-, ignoring the fact the statutory auditor has in his audit report classified the expenses to be capital in nature and since the said expense pertains to increase in the capital base of the company, the CIT(A) erred in ignoring the principle as laid down by the Apex Court in Brook Bond Case (91 Taxman 26)

revenue and perused the material available on record. Ground No. (i) &

(ii) relates to validity of re-opening. The learned DR for the revenue

submits that the assessment was reopened within four year from the end

of relevant assessment year. The assessing officer during the assessment

has not raised specific quarry, only the general information was called

from the assessee. The assessing officer while passing the assessment

order has not referred single sentences as to what information was

gathered or the reply furnished by the assessee. The reopening was not

based on the change of opinion, rather the income escaped from the

assessment on the issues, on which it was reopened. In support of his

submission the ld DR for the revenue relied on the decision of Hon’ble

Apex Court in case of ACIT Vs Rajesh Jhaveri Stock Brokers (P) Ltd

[2007] 161 Taxman 316(SC) and the latest decision in ITO Vs TechSpan

India Private Ltd & Others in CA No.2732of 2017 dated 24.04.2018.

was based merely on the change of opinion. No fresh material was

referred by the assessing officer, which came to his notice, while making

the reopening. The assessing officer cannot review his decision in

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd absence of any tangible material. The assessee has disclosed everything at

the time of filing the return of income. The assessee has discharge his

duty in furnishing all the particulars in the return of income in its profit

and loss account. It is not in the hand of assessee as to how the Income

Tax Officer/ assessing officer write (frame) the assessment order. The ld.

AR for the assessee also brought in our notice the reasons recorded for

reopening (page 55 of PB) and submits that the reasons recorded by

assessing officer is not correct and therefore, re-opening is not valid. The

assessing officer while recording the reasons observed that “on

verification of the record following omission is observed......”. It was

submitted that during the assessment proceeding detailed inquiry was

conducted by the Assessing Officer related to straight lining income and

on AIM Listing expenses. During the assessment, the Assessing Officer

vide its notice dated 02.08.2010, vide question no.8 asked the assessee to

explain the allowability of deduction on account of provisions for straight

lining income and AIM listing expenses. The assessee furnished detailed

reply vide its reply dated 08.10.2010 explaining the all quarry. Copy of

notice dated 02.08.2010 is placed on record (page no. 29 to 31 of PB).

Further, the copy of reply dated 08.10.2010 is also placed on record. The

assessing officer after his satisfaction passed assessment order. In support

of his submissions the ld AR for the assessee relied on the decision of

CIT Vs Kalvinator of India Ltd [2010] 320 ITR 561(SC), Aroni 5

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd Commercial Ltd Vs DCIT (2014) 362ITR 403 (Bom), Aroni Commercial Ltd Vs ACIT (2014) 367 ITR 405 (Bom), CIT Vs Jet Speed Audio P. Ltd 372 ITR 762(Bom), ITO Versus TechSpan India (P)Ltd [2018] 92 taxmann.com 361 (SC), CIT Versus Reliance Communication Infrastructure (2013) 212 ITR 177 (Bom), CIT Versus Virtual Soft System Ltd (2018) 92 taxmann.com 370 (SC), CIT Versus Nimbus Communication Ltd ITA No. 4244/2010 dated 18th December 2011, Nimbus Communication Ltd Versus ACIT 38 SOT 246(Bombay) and Vimal Oil Foods Ltd Versus JCIT ITA No.2515/Ahd/2010 dated 05 July 2013. 6. We have considered the rival submissions of the parties and have gone through the orders of the authorities below. We have seen that original assessment was completed on 29th December 2010 under section 143(3). The assessment was reopened under section 147. Notice under section 148 dated 28 March 2012 was served upon the assessee. In response to the notice under section 148, the assessee filed its reply dated 2nd May 2012. In the reply the assessee contended that the return of income filed on 22nd March 2010 may be treated as return of income in response to the notice under section 148. The assessee asked for the reasons recorded. The reasons recorded were supplied to the assessee in the following manner;

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd “"In this case, the original assessment was completed u/s 143(3) determining total loss of Rs.25,28,21,632/-. On verification of record following omissions is observed which would result in revenue loss of Rs.1,34,26,460/-. 1. It is seen from the records that the assessee has offered income of Rs.5,88,33,728/- as IP fee straight lining in the profit and loss account. Also the assessee claimed that the said income is offered in accordance with Accounting Standard 19 - Accounting for leases, recognizes the entire revenue anticipated to be earned on straight line basis from commencement of the contract. However, the same was deducted while computing of income. Since the assessee has followed the mercantile system of accounting, the same should have been offered as income as per AS-19. 2. It is further seen that the assessee has constructed towers of Rs.1,26,37,90,353/- during the year and the same has been capitalized in his books of accounts, but in depreciation chart for income tax, the assessee has shown the amount of Rs.1,27,50,89,862/- and claimed excess depreciation of Rs.16,94,926/-. 3. It is also seen that Tax Auditor has certified as per clause No.17(a) expenses being capital in nature debited to the profit and loss account an amount of Rs.5,58,17,936/- and the assessee has added back Rs.l,63,16,728/- instead of Rs.5,58,17,936/-. In his computation of income which resulted the total income short by Rs.3,95,01,208/- (55817936-16316728). Further, it is seen that only Rs.l,63,16,728/- have been disallowed and the balance amount of Rs.3,95,01,208/- has not been disallowed nor an y reason given for not making the disallowance. The tax effect involved is Rs.l,34,26,460/-. In view of the above, I have reason to believe that income chargeable to tax exceeding Rs.1,00,000/- has escaped assessment for the Asstt. Year 2008-09 in terms of section 147 of the I. T. Act, 1961. Therefore, I may kindly be given permission to issue notice u/s 148 to re-open the assessment u/s 147 of the I.T. Act for A.Y. 2008-09."

objection, the assessee contended that no new material has come on

record before Assessing Officer, the re-assessment amounts to reopening

of the assessment merely on the basis of change of opinion. The assessee

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd has furnished all material, primary facts in relation to IP fees straight

lining income, on account of difference in addition to fixed asset,

disallowance of capital expenses as Tax Audit Report (TAR). It was

further contended that as per Accounting Standard-19 (AS-19), in case of

operating lease, lease income and lease payment are to be recognized in

the Profit & Loss A/c on straight line basis. In line with the principles of

AS-19 and based on mercantile system of accounting which is employed

by assessee regularly, the company/assessee followed the policy of

recognizing all lease income and lease expenses in P & L A/c on straight

line basis. The objection of assessee was rejected by Assessing Officer.

The Assessing Officer rejected the objection holding that the re-opening

is not based on change of opinion. The Assessing Officer proceeded to

make the re-assessment order. 8. We have noted that assessment was reopened by assessing officer on his

view, that the revenue anticipated to be earned from straight line was not

offered to tax, though; the same was credited to profit and loss account,

excess depreciation of Rs. 16,94,926/- was claimed and that Capital

Expenditure of Rs. 3,95,01,208/- it was not disallowed. The assessing

officer while passing the reassessment order made no disallowance on

account of excess depreciation. However, the assessing officer made

addition of Rs. 5,88,33,728/- IP fee straight line income, addition of

Rs.4,17,85,995/- being Capital in nature, holding that as per tax Audit 8

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd Report, the assessee has not brought any evidence on record to prove that

these amounts were not Capital in nature. The amount of disallowance of

Rs.4,17,85,995/-, consist of Syndicate fee of Rs. 50,000/-,

Rs.2,81,45,175/- on account of expenditure incurred on listing with

Alternative Investment Market (AIM) of London Stock Exchange and

Rs.86,33,820/- interest on borrowed capital. 9. We have noted that during the submissions the ld. AR for the assessee

mainly focused that the re-opening was mere a change of opinion. The ld.

AR for the assessee brought in our notice that the assessing officer during

the assessment proceeding raised a specific queries regarding straight lining income, vide question No. 8 of notice dated 2nd August 2010.

Similarly, in respect of a statement of income on account of addition on

account of AIM listing expenses, as per Auditor certificate was furnished

that the expenses were capital in nature, but the assessee company and it

only Rs. 1,63,16,728 /-. We have noted that vide question No. 9, 15(iii)

and 25, a notice dated 02.08.2010 the assessing officer examined all

expenses which were part of Rs.5,58,17,936/-. We have further noted that

in response to the various questions raised by assessing officer the

assessee filed detailed written submission on different occasions during

the assessment. The assessee has furnished its written submission before

us, in the form of paper book. We have further noted that after

considering the replies of assessee, the assessing officer took one of the 9

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd possible view about the allowability of income in respect of income of

Rs. 5,88,33,728/- as IP fees Straight lining income, claim of expenses

certified as capital in nature as certified by the Auditors of the assessee.

In our view the reopening under section 147 was a result of change of

opinion. The Hon’ble Supreme Court in case of CIT vs Kalvinator of

India Ltd (supra) held that prior to Direct Tax Law (Amendment) Act

1987, reopening could be done under only to condition, if (a) the

assessing officer has reason to believe that, by reasons of omission or

failure on the part of assessee to make a return under section 139, or any

assessment year to the assessing officer ought to disclose fully and truly

all material facts necessary for assessment for that year, income

chargeable to tax has escape assessment for that year, or be the assessing

officer has in consequence of information in his possession reason to

believe that income chargeable to tax at escape assessment for any

assessment year. The fulfilment of the said condition alone confront

jurisdiction on the assessing officer to make a back assessment, but in section 147 with effect from 1st April 1989, those condition are given a

co-by and only one condition has remained i.e. the assessing officer has

reason to believe that income has escape assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1st April 1989,

power to reopen is much wider. However, one needs to give a schematic

interpretation to the words ‘reason to believe’, failing which, we afraid, 10

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd section 147 would give arbitrary power to the assessing officer to reopen

assessment on the basis of ‘mere change of opinion’ which cannot be per-

se reason to reopen. One must also keep in mind the conceptual

difference between power to review and power to re-assess. The

assessing officer has no power to review; he has the power to reassess,

but the reassessment has to be based on the fulfilment of certain

precondition and if the concept of ‘change of opinion’ is removed as

contended on behalf of Department, then the garb of reopening of the

assessment, revenue would take place. One must treat the concept of

‘change of opinion’ as inbuilt test to check abuse of power by the

assessing officer. The assessing officer has power to reopen, provided

there is ‘tangible material’ to come to the conclusion that there is a

escapement of income from assessment. Further, the Bombay High Court

in case of CIT Vs Jet Speed Auto (P) Ltd 372 ITR 762 held that when

during original assessment proceeding a quarry was made with regard to

mad depths which was responded by the assessee and on satisfaction of

the same, the assessing officer as passed assessment order. The reopening

of assessment on the issue in respect of which a quarry was raised and

responded to by the assessee would amount to change of opinion. The

case law relied by ld. DR for the Revenue is not helpful to the Revenue in

case of Rajesh Jhaveri, the return of income was initially processed under

section 143(1) and was reopened on audit objection. However, in the 11

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd present case, the Assessing Officer passed order after making full-fledged

inquiry. The other case law relied by ld. DR in ITO vs. TechSpan India

Pvt. Ltd. (supra), the Hon’ble Apex Court held that before interfering in

proposed reopening of the assessment on the ground that same is based

only on change of opinion, before ought to verify whether assessment

earlier has made either expressly or by necessary implication expressed

an opinion on a matter which is basis of alleged escapement of income

that was taxable. The Court further held that if the assessment order is

non-speaking, cryptic or perfunctory in nature, it may be difficult to

attribute to Assessing Officer any opinion on question that are raised in

the proposed assessment proceeding. In the present case, all necessary

queries were raised by the Assessing Officer during the original

assessment, while passing assessment order dated 29.12.2010, though the

Assessing Officer has not elaborately discussed those issues in

assessment order. Therefore, in our view the assessment order was passed

after satisfaction of related queries. 10. Considering the above factual and legal position we are of the view that

assessing officer passed the assessment of order after considering the

reply of the assessee in response to the queries raised during the original

assessment. Therefore, in our view the case and hand is squarely covered

by the decision of Hon’ble Supreme Court in Kalvinator of India Ltd

ITA No. 2620/M/2016 ATC India Tower Corporation Pvt Ltd (supra) and by the decision of Bombay High Court in Jet speed auto (P)

Ltd (supra). Hence the ground No.(i) &(ii) raised by assessee is allowed. 11. Since we have already held that the reopening is invalid and endorsed the

decision of ld. Commissioner (Appeals). Therefore, the discussions on

merit i.e. on ground No. (iii) to (iv) become academic. 12. In the result, appeal filed by assessee is allowed.

Order pronounced in the open court on 31.07.2018. Sd/- Sd/- G.S. PANNU PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 31.07.2018 SK Copy of the Order forwarded to : 1. Assessee 2. Respondent 4.The concerned CIT 3. The concerned CIT(A) 5. DR “A” Bench, ITAT, Mumbai 6. Guard File BY ORDER, Dy./Asst. Registrar ITAT, Mumbai