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Income Tax Appellate Tribunal, BENGALURU BENCH A, BENGALURU
Before: SHRI SUNIL KUMAR YADAV
PER S. JAYARAMAN, ACCOUNTANT MEMBER :
This is an appeal filed by the Revenue against an order of the CIT (A) –V, Bengaluru, dt.14.10.2013, for the assessment year 2000-01.
M/s. M. N. Dastur & Co. P. Ltd, the asessee , a company in the business of consulting engineering & software services and also earns income from the investments , filed its original return declaring an income of Rs.2,02,803/- for a y 2000-01 on 30.11.2000. Its ITA.300/Bang/2014 Page - 2 assessment u/s 143(3) was completed on 28.3.2003, determining its total income at Rs. 2,29,63,350/-, after disallowing the deduction claimed u/s.8O-O. Subsequently, this case was reopened u/s 147 on 15.3.2004 and the assessment u/s 143(3) rws. 147 was completed on 26.3.2004 reassessing its income at Rs.33,24,63, 353/-. Later on, the A O found that in ay 2000-01, the assessee company incurred an expenditure of Rs.1,77,82,679/- to make the Computer Systems Y2K compliant, claimed it as a deduction u/s 36(1)(xi), which was duly allowed in the assessments made on 28.3.2003 & on 26.3.2004 also. However, as per the provisions "the deduction was allowable in respect of non Y2K compliant Computer system owned by the company and used for the purpose of business so as to make such computer systems as Y2K compliant. Since the assessee incurred the expenditure for the purchase of new computer system and not towards making the existing non Y2K compliant computer system as Y2K compliant, its claim u/s. 36(1) (xi) was not as per the law , the nature of such expenditure was capital and the assessee was eligible only for depreciation allowance at 60%. Thus , the assessee was found to have wrongly claimed deduction u/s. 36(1)
(xi) and admitted lower income of Rs.71,13,072/-and to that extent income chargeable to tax has escaped assessment , on such reason , the A O had reopened the assessment u/s 147 with the approval of the Commissioner of Income Tax dt. 31.8.2006, issued a notice u/s 148 dt. 8.9.2006. The assessee sought a copy of the reasons ITA.300/Bang/2014 Page - 3 recorded for reopening of the assessment and the A O was despatched an extract of the order sheet wherein reasons were recorded on 2.11.2006. Thereafter, the A O concluded the assessment rejecting assessee’s objections on the reopening of the assessment and holding that the income chargeable to tax which has escaped assessment by wrongly claiming deduction u/s 36(1)(xi) on the expenditure of Rs.1,77,82,679/- which is capital in nature on which only depreciation is allowed as per provisions in the IT Act. Aggrieved, the assessee filed an appeal before the CIT (A), inter alia, challenging the issue of notice u/s 148 for want of jurisdiction, assessment to have been barred by limitation, alleging the assessment proceedings to be bad in law and the assessment order not sustainable. The CIT (A) allowed the appeal. Against that order, the Revenue filed this appeal with the following grounds of appeal :
ITA.300/Bang/2014 Page - 4
The DR supported the assessment order. The AR challenged the assessment on the same grounds taken before the CIT (A) viz validity of the proceedings u/s 147. He has submitted that the notice issued u/s 148 is vague relying this Tribunal decision in its own case in Bang/2004 for ay 1994-95 dt 04.11.2004, it was not served as per law, proceedings are barred by limitation, change of opinion etc and tabulated the relevant dates as under : and supported the decision of the CIT(A). We have considered the rival submissions. The relevant portion of the CIT (A) order is extracted as under:
“ 8.4 There is no dispute that it is a case where assessment u/s 143(3) was made and the notice u/s 148 dated 8.9.2006 was issued after four years from the end of relevant assessment year 2000-01. It is also noticed from the assessment record that ITA.300/Bang/2014 Page - 5 the assessee has clearly claimed the Y2K expenses in the computation of income filed with the return. Further, vide note sheet entry dated 8.2.2002 various details were called including item (7) "Details of expenses in respect of Y2K compliance". The AR of the assessee appeared thereafter and the assessment was completed, without disturbing the claim.
8.5 Thus, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of income. It is also not a case that the Assessing Officer had not noticed the claim of Y2K expenses, which is evident from the query raised. Although, the audit report In Form No. 3BA (Rule 6ABB) as required to be filed under section 36(1)(xi) was not filed with the return or submitted during the assessment proceedings, fact remains that the claim was made, and examined/considered by the Assessing Officer. Failure of the Assessing Officer to make deeper and further investigation into a claim could not be the basis to hold that there has been any failure on the part of assessee. Therefore proviso to section 147 is applicable. The time limit for issue of notice u/s 148 got barred by limitation on 31.3.2005, where as the notice was issued on 8.9.2006. It is therefore held that the notice u/s 148 is barred by limitation. Hon'ble Supreme Court in case of Kelvinator India Ltd. 264 ITR 566 held that the fact which could have been discovered by the Assessing Officer at the time of original assessment, may not constitute a new information. There cannot be a fresh application of mind on the same set of facts, and such action would be mere change of opinion which cannot confer jurisdiction to initiate proceedings u/s 147 after 1.4.1989. 8.6. It is also clear that the AO failed to dispose of the objection of the assessee by a separate speaking order, before proceeding further, as required by the Apex Court ruling on the subject, as also decisions in 287 ITR 1 (Bom) and 279 ITR 61 (Madras). The reassessment proceeding is therefore vitiated, bad in law, and not sustainable, and hence set aside. All grounds on this issue are allowed.”
From the above, it is clear that the original assessment was completed u/s 143(3) on 28-03-2003. Subsequently, it was reopened u/s 148 on 15.03.2004 and the reassessment was also completed on 26.03.2004. The ITA.300/Bang/2014 Page - 6 impugned notice u/s 148 dated 08.09.2006 has been served on the assessee on 12.09.2006. As per proviso to section 147, where an assessment u/s 143(3) has been made, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. In this case, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of income. Therefore, the impugned notice issued u/s 148 is barred by limitation and hence the impugned assessment cannot be sustained.
Further, for all the reasons mentioned in the CIT (A) order, we hold that the reassessment proceeding is vitiated, bad in law, not sustainable and hence confirm the decision of the CIT (A) .All the grounds of the Revenue’s appeal fail.
In the result, the Revenue’s appeal is dismissed.
Order pronounced in the open court on 25th January, 2017.