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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SH. AMIT SHUKLA & SH. O.P. KANT
ORDER PER O.P. KANT, A.M.: This appeal by the Revenue is directed against the order of learned Commissioner of Income Tax (Appeals)-LTU, New Delhi, dated 03.12.2013, raising the following grounds:
1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in quashing the assessment by holding the assessment order as bad in law.
2. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in granting relief to the assessee by quashing the assessment order without going into the merits of the claims of the assessee. 3. On the facts and circumstances of the case in law, the learned Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs.1,25,18,924/- made by the Assessing Officer by treating the same as revenue receipts instead of capital, without appreciating the facts of the case. 4. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in deleting the addition of Rs.13,92,085/- made by Assessing Officer by treating the same as capital expenditure instead of revenue, without appreciating the facts of the case. 5. The appellant craves leave to add, alter, amend or vary the above grounds of appeal at or before the time of hearing.
2. The facts in brief of the case are that original assessment under section 143(3) of the Income tax Act, 1961 (in short “the Act”) was completed on 04/12/2006 at total income of Rs.1,01,07,500/-. Subsequently, notice under section 148 of the Act dated 23/03/2011 was served upon the assessee and case was reopened. The reassessment was completed on 22/12/2011 at total income of Rs.2,40,18,509/- as against the returned loss of Rs.3,10,23,275/- after making following additions/disallowances:
S. No. Particulars Amount (in Rs.) 1. Addition by treating capital receipts Rs.1,25,18,924/- as Revenue 2. Addition on account of treating Rs.13,92,085/- ‘consumable tools’ as Capital expenditure
3. The Ld. Commissioner of Income-tax (Appeals), quashed the reassessment proceeding and deleted both the additions.
Before us, Ld. Senior DR relying on the order of the Assessing Officer submitted that the assessment proceeding were validly reopened and the order of the Assessing Officer need to be restored. In support of the contention, Ld. DR relied on the decision of the Tribunal in the case of Control and Switchgear Contractors Ltd. Vs. DCIT in ITA No. 697/Del/2010.
On the contrary, the Ld. Authorized Representative relied on the order of the Ld. Commissioner of Income-tax (Appeals).
We have heard the rival submission and perused the relevant material on record. The Ld. Commissioner of Income-tax (Appeals) has quashed the reassessment proceedings with following observations:
“7.2 On careful consideration of the facts of the case, I find that in the case of the appellant, the assessment order was earlier passed u/s 143(3) on 04.12.2006. The Ld. AO, for the purpose of impugned proceeding, issued noticed u/s 148 on 23.03.2011. Therefore, it is evident that the notice u/s 148, based on which the impugned proceedings were initiated, was issued beyond the period of 4 years from the end of the relevant assessment order. As per proviso to Section 147(1), where assessment under Section 143(3) has been made, no action shall be taken u/s 147 unless any income chargeable to tax has escaped assessment for such assessment year by the reasons of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In the case of the appellant, on perusal of the computation of income filed with original return of income, I find that the appellant had, with respect to the main ground i.e. the treatment of compensation received from M/s Schneider, had given a specific note in the computation of income explaining the nature of such receipt and as to why the same was held as capital in nature by the appellant. Regarding the 'consumable tools', the appellant had claimed an amount of Rs.50,74,497/- as revenue expenditure in line with accounting practice consistently followed by the appellant, who is in the manufacturing business, where such 'consumable tools' are consumed during manufacturing. I also find that during the course of assessment proceeding u/s 143(3), no adverse observation thereon was made and the claim was allowed as such, which is in line with the stand of Department in earlier years. No new facts have been brought out by the Ld. AO, while re-opening the assessment and thereafter during the impugned proceeding. Interestingly, the Ld. AO in the impugned proceeding has also given credence to the appellant's admitted position with regard to the majority of such expenses, which were allowed as 'consumable tools' and however Rs.13,92,085/- by holding the same as capital in nature, even though such items of expenditure were claimed to be routine items used in the manufacturing activity and which have been allowed by the AO in the original proceedings. No new finding with respect to such expenditure was made by the Ld. AO even in the impugned order. 7.3 It is evident that the Ld. AO initiated proceeding u/s 147 in the case, where the assessment order was passed u/s 143(3), and therefore, onus was to be discharged by the AO by proving that the appellant had not made 'full and true disclosure' of all material facts. On the other hand, it is evident that the appellant had made full disclosure of the facts in dispute. In particular, in the computation of income, a specific note was given on the capital nature of the receipt from M/s Schneider and the reasons for it were specified. The Ld. AO in the original assessment proceedings accepted the appellant's contention and hence no addition was made thereon. So far as the 'consumable tools' are concerned, the appellant had been consistently treating the same as revenue expenditure which has been allowed by the department in earlier years and also by the AO in the original assessment proceeding. In fact, in the impugned order as well, after reopening the assessment, the Ld. AO after re- examining the issue had allowed bulk of 'consumable tools' as revenue. It is evident that in respect of the remaining' items under this head, the Ld. AO was not in possession of any specific information that such items were capital in nature and in respect of which the appellant had not made full and true disclosure. In view of this, I find the impugned proceedings as a classical example of 'change of opinion' on both grounds in respect of which reasons were recorded by the Ld. AO. Moreover, whether an item of expenditure in the manufacturing business is capital or revenue could only be decided on the basis of examination of its use in the manufacturing activity, which, in the absence of any adverse specific information, cannot be a ground for holding the escapement of income. In view of the above, I hold that the Ld. AO's assumption of jurisdiction u/s 147 was without due authority of law as the necessary onus of proving that the appellant had not disclosed fully and truly all material facts, was not discharged by the AO and the allegation does not stand proved in any way. In view of the above, the impugned order is held as bad in law and is liable to be quashed. Both additions made by the Ld. AO are accordingly deleted.”
We find that relevant assessment year involved in this appeal is AY 2004-05 and the original assessment was completed under section 143(3) of the Act. The reassessment proceeding in the case was initiated on 23/03/2011, which is after expiry of four years from the end of the relevant assessment year. In view of first provisio to section 147 of the Act, the case where assessment under section 143(3) of the Act is completed, cannot be reopened after the expiry of four years from the end of the relevant assessment year unless income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year.
Since in the present case, the assessment completed under section 143 (3) of the Act has been reopened beyond the period of four years from the end of the relevant assessment year, the issue for examination before us is whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. For this purpose, it is sine qua non to examine the reasons recorded by the Assessing Officer. The Ld. CIT-A has reproduced the reasons recorded before issue of notice under section 148 of the Act, on page 3 of the impugned order, which are extracted as under: "1. In this case, assessment u/s 143(3) was completed on 04.12.2006 at income Rs.1,01,07,500/- wherein the assessee claimed and was allowed an expenditure of Rs.50,74,797/- towards consumable tools such as scientific apparatus. As per section 43(3), the scientific apparatus is defined as capital asset. Thus the expenditure is capital in nature and the assessee should have capitalized it.
The assessee company was having a joint venture M/s. Schneider Electric S.A., a foreign company. This company wanted to set up its own business in India independently, for which it needed NOCfrom the assessee as per instructions by GOI on this subject. Therefore, the assessee gave NOC as required by M/s. Schneider Electric and in lieu it received an amount of Rs.1,25,18,924/-as compensation. 2.1 The compensation so received was treated as capital receipt by the assessee and invested it in bonds for claiming deduction u/s 54EC. The deduction u/s 54EC is available to an assessee if the capital gain is invested in the prescribed bonds. The assessee has not transferred any capital asset and hence there is no capital gain. Therefore, the claim u/s 54EC is not correct. Another aspect is that of treatment of receipt as capital in nature is also not correct as the assessee has a business arrangement with M/s. Schneider Electric and by giving the NOC it has curtailed that arrangement. Thus the receipt is directly related to its business and ought to have been treated as revenue in nature.
I have therefore, reason to believe that income has escaped assessment within the meaning of Section 147 which warrants issue of notice u/s 148."
On perusal of the above reasons, we find that the Assessing Officer has nowhere recorded that there was a failure on the part of the assessee to disclose fully and truly all material facts in respect of the additions proposed by him.
The Ld. CIT-A has observed that with respect to the treatment of compensation received from M/s Schneider, the assessee had given a specific note in the computation of income explaining the nature of such a receipt and as to why the same was treated as capital in nature. Similarly, regarding the second issue of ‘Consumable tools’, the assessee had claimed the amount of Rs.50,74,497/- as revenue expenditure in line with accounting practice followed by the assessee in Assessing Officer in original assessment proceeding. The Ld. CIT-A has also noted that majority of the expenditure on the ‘consumable tools’ has been allowed by the Assessing Officer in the reassessment proceeding also and only an amount of Rs.13,92,085/- was held as capital in nature. In view of this factual position, in our considered opinion, there was no failure on the part of the assessee to disclose fully and truly all the materials in respect of the two issues of addition. 11. Further, on perusal of the above reasons recorded, we also find that there is no reference of any new information or tangible material for reasons to believe that income of the assessee was escaped assessment. We agree with the contention of the Ld. Authorized Representative that in absence of any new information on tangible material for reopening the assessment, framing the reassessment on the basis of the same material amounted to review or change of opinion and which is not permitted in view of the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Kelvinator of India, 320 ITR 561(SC). 12. In the case of Control and Switchgear Contractors Ltd Vs. DCIT (supra), relied upon by the Ld. DR, the original assessment was completed under section 143(1) of the Act and therefore the first provisio to section 147 of the Act was not applicable in that case and, therefore, ratio of the said case, as far as reopening of the assessment is concerned, is not applicable over the instant case. 13. In view of above discussion, in our opinion, the order of the Ld. CIT(A) on the issue in dispute is comprehensive and well reasoned and no interference is required on our part. Accordingly, the ground No. 1 and 2 of the appeal are dismissed.
Since we have already upheld the quashing of reassessment proceeding, we are not adjudicating on merit of the addition challenged in ground No. 3 and 4 of the appeal. Thus, both the grounds are rendered infractuous and dismissed accordingly.
In the result, appeal of the Revenue is dismissed.
The decision is pronounced in the open court on 20th March, 2017.