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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI
Before: SHRI KULDIP SINGH & SHRI PRASHANT MAHARISHI
ASSESSEE BY : None REVENUE BY : Smt. Anima Barnwal, Senior DR Date of Hearing : 01.06.2016 Date of Order : 07.06.2016
O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, ACIT, Circle 9 (1), New Delhi (hereinafter referred to as ‘the revenue’), by filing the present appeals sought to set aside the impugned order dated 11.06.2012 passed by the Commissioner of Income-tax (Appeals)-XII, New Delhi qua the assessment year 2006-07 on the grounds inter alia that :- “1. That on the facts and circumstances of the case the ld. CIT (A) is not justified in quashing the reassessment proceedings under section 147 / 148 of the I.T. Act.
2. That on the facts and circumstances of the case the ld. CIT (A) erred in not adjudicating the issue of disallowance u/s 40(a)(ia) and claim of expenses incurred for technical know-how.”
Briefly stated the facts of this case are : on the basis of return of income filed by the assessee on 30.11.2006 declaring an income of Rs.3,14,24,280/-, assessment was completed on 16.06.2008 under section 143 (3) of the Income-tax Act, 1961 (hereinafter ‘the Act’). Subsequently, the AO issued a notice dated 31.03.2011 u/s 148 of the Act calling upon the assessee to show cause as to why amount of Rs.2,62,68,290/- shown under the head ‘Selling and Distribution’ should not be added to his income as the assessee has violated the provisions of section 40(a)(ia) of the Act and further called upon the assessee to explain as to why the amount of Rs.39,35,858/- incurred on technical know-how fees should not be treated as capital expenditure. Finding the submissions made by the assessee not tenable, AO made an addition of Rs.2,04,00,000/- for violation of provisions of section 40(a)(ia) and further made an addition being the capital expenditure for debiting the amount of Rs.29,51,901/- out of Rs.39,35,858/- in the profit & loss account being technical know-how fees and thereby assessed the total income of the assessee u/s 147/143(3) of the Act at Rs.5,47,76,200/-.
Assessee carried the matter before the ld. CIT (A) who has deleted the addition by partly allowing the appeal. Feeling aggrieved, the revenue has come up before the Tribunal by way of filing the present appeal.
Assessee has not preferred to put in appearance despite issuance of the notice of 21.04.2016 and consequently, we proceeded to decide the present appeal with the assistance of the ld. DR as well as on the basis of documents available on the file.
Ld. DR challenging the impugned order passed by the ld. CIT (A) relied upon the order dated 26.12.2011 passed by the AO.
However, on the other hand, from the perusal of the documents, it is observed inter alia that reopening of the assessment by the AO u/s 148 is barred by limitation; that both the expenditure disallowed by the AO were claimed by the assessee in the profit & loss account which were allowed by the ld. CIT (A) by applying his mind; that the AO has no additional material to reopen the assessment which is a condition precedent as per judgment cited as CIT vs. Kelvinator of India Ltd. – (2010) 320 ITR 561 (SC).
We have heard the ld. Departmental Representative for the revenue to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
For facility of reference, the reasons recorded by the AO for issuance of notice u/s 148 of the Act for AY 2006-07 are reproduced as under :-
Return in this case was filed on 30.11.2006 “ declaring an income of Rs.3,14,24,280/-. Assessment u/s. 143(3) of the Income Tax Act was completed on 16.06.2006 accepted the returned income.
During the year, the assessee has debited an amount of Rs.2,62,68,290/- under the head "Selling and Distribution Expenses”. In the case of the assessee, it has been revealed that in other years the assessee has made various payments under this head without deducting tax on such payments thereby violating provisions of sec. 40(a)(iv) of the Act.
Further, the assessee has claimed an amount of Rs.39,35,858/- being Technical Know How Fes paid. The same being not allowable as revenue expenditure should have been disallowed and added to the income of the assessee.
In view of the above, I have reason to believe that an amount of Rs.2,62,68,290/- and Rs.39,35,858/- has escaped assessment within the meaning of section 147 of the I.T. Act, 1961.”
Undisputed facts necessary for adjudication of the controversy at hand are inter alia that the assessment in this case was completed u/s 143(3) on 16.06.2008; that the notice u/s 148 was stated to be issued on 31.03.2011 but was served upon the assessee on 02.11.2011; that in the profit & loss account relied upon by the assessee both the disputed amount of Rs.2,62,68,290/- and an amount of Rs.39,35,858/- debited under the head ‘Selling & Distribution Expenses’ and claimed being technical know-how fees respectively, have been duly shown.
In the backdrop of the aforesaid undisputed facts, reasons recorded by the AO for issuance of the notice u/s 148, two questions arise for determination in this case are :
“(i) as to whether Assessing Officer was having no additional material sufficient to acquire jurisdiction to reopen the assessment u/s 147 of the Act; and (ii) as to whether reassessment order dated
26.12.2011 passed by the Assessing Officer amounts to “change of opinion”?”
Hon’ble Apex Court in judgment cited as CIT vs. Kelvinator of India Ltd. (supra) examined the identical issue, the operative part of which is reproduced as under :-
“6. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, 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 are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-conditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word" opinion" in section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) I, 29), which reads as follows:
“7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe' in section 147.-A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same."
For the aforestated reasons, we see no merit in these civil appeals filed by the Department; hence, dismissed with no order as to costs.”
When undisputedly the assessee has debited an amount of Rs.2,62,68,290/- under the head ‘Selling & Distribution Expenses’ in the profit & loss account at the time of filing original return of income, which has been accepted by the AO by applying his mind, again taking cognizance by issuance of the notice u/s 148 to make an addition thereon on whatever reason certainly amounts to change of opinion which is not permissible as laid down by the Hon’ble Apex Court in the case of CIT vs. Kelvinator of India Ltd. (supra).
Similar is the fate of addition of Rs.29,51,901/- made by the AO out of the amount of rs.39,35,858/- claimed by the assessee being technical know-how fees paid during the year under assessment. This amount was also shown in the original return of income filed on 30.11.2006 as well as claimed in the profit & loss account and the AO, after applying his mind, allowed the same.
No doubt, the AO has wide power to reopen the assessment if he has reason to believe that the income has escaped assessment, only on the basis of tangible material but under the garb of reopening he is not allowed to review his own decision by resorting to the change of opinion.
Apart from the fact that this appeal is not sustainable on merits as discussed in the preceding paras, the notice issued by the AO u/s 148 and served upon the assessee on 02.11.2011 is hopelessly time barred having been served after a period of four years. Proviso to section 147 of the Act is categoric enough to bar the AO for taking such action u/s 148 after expiry of four years from the end of relevant assessment year, particularly when assessee has fully and truly disclosed all the material facts necessary for its assessment in the year under assessment. In the instant case, assessee has fully and truly placed the entire material, including the amount in question on the basis of which addition has been made by passing a reassessment order, before the AO which was accepted by completing the assessment u/s 143 (3).
In view of what has been discussed above, both the aforesaid questions framed for determination of the controversy at hand are answered against the revenue and in favour of the assessee and consequently, present appeal stands dismissed.
Order pronounced in open court on this 7th day of June, 2016.