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Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
These appeals are filed by the Revenue against the order dated 11/01/2013 passed by CIT(A)-III, New Delhi for Assessment Year 2003-04, 2004-05, 2005-06 & 2006-07 respectively.
For all the Assessment Years the grounds of appeal
s are similar. The grounds of appeal are as under:-
1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs.2,50,00,000/- made by the A.O, being expenses not incurred by the assessee wholly and exclusively for business purposes.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in not appreciating the reasons recorded by the A.O that this income has escaped assessment because of the failure on the part of the assessee to disclose fully and truly all facts in relation to this transaction that the payment made was not exclusively for the purpose of business of the assessee company and was in fact, a liability of the assessee company.
3. The order of the CIT(A) is erroneous and is not tenable on facts and in law.”
3. M/s. Shyam Antenna Electronics Limited i.e. Assessee is a holding company of Shyam Group and is involved in the business of investment in telecom and related ventures and to promote the formation and mobilization of capital and investments on behalf of its promoters. The details of the return of income tax filed by the assessee declaring loss for respective Assessment Years are as under: A.Y. Declaring loss (Rs.) Date of filing of Return 2003-04 7,91,25,464 25.11.2003 2004-05 4,61,13,830 31.10.2004 2005-06 5,01,79,717 31.10.2005 2006-07 4,78,02,847 30.11.2006 During the course of Assessment Proceedings u/s 143(3), it was seen in the computation of income that the assessee had claimed expense of Rs. 20.00 crores on account of one-time fee in lieu of corporate guarantee for purchase of certain equipment by Shyam Telelink Limited a group subsidiary company. The said expense was deferred for a period of 4 years and claimed accordingly in the computation of income. Necessary disclosure regarding the same was made in the Notes to Accounts in Note 4 and in the computation of income by way of Note. The Assessing Officer examined the issue in detail and allowed the expense but held that the deferment should have been considered for over a period of 8 years and accordingly, passed the order dated 28.03.2006 for A.Y. 2003-04, 29.12.2006 for A.Y.2004-05, 19.11.2007 for A.Y. 2005-06 and 19.09.2008 for A.Y. 2006-07 respectively deferring the expenses over 8 years instead of 4 years as claimed by the assessee. Subsequently, notices u/s. 148 dated 30.03.2010, 23.03.2011, 23.03.2011 and 18.03.2011 were issued to reopen the assessment on the said issue. The reasons recorded for re-opening of the assessment. The extract of the reasons for initiating proceedings under Section 148 for A.Y. 2003-04 is as under: “REASONS FOR INITIATING PROCEEDINGS U/S 148 Return of income declaring a loss of Rs.7,91,25,646/- was filed dated 30/3/2010 on 25/11/2003. Order u/s 143(3) of the Act was passed on 28/3/2006. It is seen that the assessee company had incurred expenditure of Rs. 20 crore for corporate guarantee and treated the same as deferred revenue expenditure. The assessee company apportioned expenditure of Rs. 20 crore over a period of 4 years and claimed an expenditure of Rs.5 crore in the year under consideration. As the expenditure was wholly and exclusively for business of the assessee, the entire amount of Rs. 20 Crores was not allowable. The A.O has disallowed only Rs. 2.5 Crores. Therefore, income to the extent of Rs.5 crores has escaped assessment during the year under consideration. This income has escaped assessment because of the failure of the assessee to disclose fully and truly all facts in relations to this transaction that the payment had been made was not exclusively for business purpose of the assessee company and was not in fact a liability of the assessee company. Keeping in view the same permission may be granted to initiate procedure u/s 147 of the I.T Act. It has been approved by the worth
CIT(Central)-III, New Delhi vide letter F. No. CIT(Central)- III/Judl./2009- 10/2711 dated 30/3/2010. Issue Notice u/s 148.”
In response to the notice u/s. 148 of the Act, the assessee submitted to the Assessing Officer that the original return filed needs to be treated as the return in response to Notice u/s 148 of the Act. The assessee also submitted the detailed submission challenging the reopening and gave the justification for the expenditure incurred as the same was wholly and exclusively for the purpose of business. The Assessing Officer rejected the reply and passed the orders dated 30.12.2010 and 05.12.2011 under Section 143(3)/148 of the Act and made the addition of Rs. 2.50 crores on account of the said expenditure on the ground that it was not incurred wholly and exclusively for business purpose.
The Assessee filed appeals before the CIT(A). The CIT(A) allowed the appeals of the Assessee by holding that in this case it is seen that the reasons were recorded and notices were issued u/s 148 for reopening on 30/3/2010 i.e. 4 years after the end of the relevant assessment year. Therefore, the CIT(A) was of the view that as per the provisions of Section 151, an assessment can be reopened if: (a) the A.O has “reason to believe” that income chargeable to tax has escaped assessment and (b) the assessee has “fallen short of his duty to disclose fully and truly all material facts” necessary to his assessment.
The CIT(A) further observed that the assessee filed his original return of income u/s 139(1) on 25/11/2003 with DCIT-CC (2), New Delhi, which was accompanied by the audited financial accounts, audit report and notes to accounts. Note No. 4 of the Schedule 16 of “Notes to Accounts” of the audited financial accounts clearly spells out that the details of the transaction pursuant to which the appellant paid Rs. 20 crores towards the “Corporate guarantee” and Note No. 4 clearly spells out that “the amount has been shown as deferred revenue expenditure to be written off in 4 years and 1/4th of the amount has been charged to revenue.” The CIT(A) further noticed that this Note. No. 4 was duly been considered by the Assessing Officer at the time of the assessment proceedings and he therefore concluded in his order passed u/s 143(3) on 28/3/2006 that the said deferred revenue expenditure of Rs.20 crores instead of to be set off in 4 years should be deferred to be set off in 8 years.
Being aggrieved by the orders of the CIT(A), the Revenue is in appeal before us. The Ld. DR submitted that the expenses was not incurred by the assessee for the business of its own company, but was incurred by the assessee for its subsidiary company as per the assessee’s submissions before the Assessing Officer. But there was no documentary evidence with regard to its connection with the company for which expenses have been incurred in the shape of payment in lieu of bank guarantee was furnished by the assessee during the course of reassessment proceedings. In facts, the Notes to Accounts reveals that there is no name of M/s. Sham Antenna Electronics Ltd. I.e. the assessee company. The assessee is a major stake holder in the Shyam Telecom Ltd. which in turn holds 100% equity of Telelink. This gives clear picture that the expenditure was incurred for a third party and the future income generated by Telelink will not be the part of its P&L Account. Thus, the Assessing Officer has rightly disallowed the same and made total addition of Rs. 2,50,00,000/- for A.Y. 2003-04.
The Ld. AR submitted that the reopening of the assessment proceedings under Section 147 was not legally valid. The assessee filed its return of income for the said assessment year i.e. 2003-04 on 25.11.2003 and the assessment thereof was concluded under Section 143(3) on 28.03.2006. The issue which was the subject matter of the proceedings under Section 148 was disclosed truly and fully and all material facts necessary for the purpose of assessment were submitted not only in the balance sheet and notes to accounts, but also during the assessment proceedings based on which the said Assessing Officer then formed a opinion and deferred the expenditure over a period of 8 years instead of 4 years as claimed by the assessee. The assessee made complete disclosure of the facts not only in the financial statement by way of Notes to Accounts and also in the computation of income filed with return of income. During the assessment proceedings u/s 143(3), the Assessing Officer had specifically asked for the details regarding the deferred revenue expenditure.
We have heard both the parties and perused all the relevant records. The assessee filed its return of income for the said assessment year i.e. 2003-04 on 25.11.2003 and the assessment thereof was concluded under Section 143(3) on 28.03.2006. The issue which was the subject matter of the proceedings under Section 148 was disclosed truly and fully and all material facts necessary for the purpose of assessment were submitted not only in the balance sheet and notes to accounts, but also during the assessment proceedings based on which the said Assessing Officer then formed a opinion and deferred the expenditure over a period of 8 years instead of 4 years as claimed by the assessee. The assessee made complete disclosure of the facts not only in the financial statement by way of Notes to Accounts and also in the computation of income filed with return of income. During the assessment proceedings u/s 143(3), the Assessing Officer had specifically asked for the details regarding the deferred revenue expenditure which was provided by the Assessee during 143(3) proceedings itself. The same can be seen from the Original Assessment Order. As per the provisions of Section 151 of the Act, an Assessment can be reopened if the Assessing Officer has “reason to believe” that income chargeable to tax has escaped assessment and the assessee has “fallen short of his duty to disclose fully and truly all material facts” necessary to his assessment. But in the present case the Assessee has fully and truly disclosed the details at the time of Original Assessment under Section 143(3) itself. The Reopening is not on any escaped income or that of non-disclosure from the assessee. The CIT(A) has rightly held that the reopening which was done on the basis of mere change of opinion on the same set of facts by the Assessing Officer is not permissible in law. The reopening in the case of Assessee is rightly held to be invalid. There is no need to interfere with the orders of the CIT(A). The facts are similar in all these appeals. Therefore, the orders of the CIT(A) are upheld.
In result, appeals of the Revenue are dismissed.
Order pronounced in the Open Court on 23rd MAY, 2017.