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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI RAMIT KOCHAR, AM ITA No.1282/Mum/2006 (A.Y:1998-1999)
Dy. Commissioner of Income Tax, Novartis India Ltd. Circle 7(1) Sandoz House, Dr. Annie ACIT Circle 7(1), Vs. Besant Road, Mumbai-400 018 Aayakar Bhavan, Mumbai-20 PAN No. AAACH2914F Appellant .. Respondent
ITA No.1953/Mum/2006 (A.Y: 1998-1999)
Novartis India Ltd. Dy. Commissioner of Income Tax, Sandoz House, Dr. Annie Besant Circle 7(1) Road, Mumbai-400 018 Vs. ACIT Circle 7(1), Aayakar Bhavan, Mumbai-20 PAN No. AAACH2914F Revenue by .. Shri Sanj Kumar Agarwal, DR Assessee by .. Shri J.D. Mistry, AR Date of hearing .. 13-04-2017 Date of pronouncement .. 13-04-2017 O R D E R PER MAHAVIR SINGH, JM:
These Cross appeals, one by the Revenue and one by assessee are arising out of the order of CIT(A)-XIX, Mumbai, in appeal No. CIT(A)-XIX/IT-34/05- 06 dated 30-11-2005. The Assessment was framed by ACIT Circle 7(1), Mumbai for the A.Ys. 1998-99 vide order dated 28-02-2005 under section 143(3)/148 of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in assessee’s appeal in ITA No.1953/Mum/2006 is as regards to the order of CIT(A) confirming the action of the AO in assuming the jurisdiction under section 147/148 of the Act, by reopening the completed assessment beyond 4 years despite the fact that there is no charge that the assessee has failed to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year. For this assessee has raised following ground No.1:- : -
ITA No.1282 & 1953/Mum/2006 Novartis India Ltd; AY: 98-99
“Ground No.1
(a) The Commissioner of Income-tax (Appeals)-XIX, Mumbai [hereinafter referred to as the CIT(A)] erred in confirming the action of the AO in re-opening the assessment under section 147/148 of the Income-tax Act, 1961(the Act).
The appellants submit as under:
(i) The re-opening is void and/or in excess of jurisdiction and otherwise contrary to the provisions of the Income-tax Act and bad in law and consequently the order passed by the AO, should be cancelled.
(ii) The appellants had disclosed all material facts necessary for the assessment. The order passed by the AO represents a change of opinion on the same set of facts which were available to him at the time of passing of the original order.
(b) Without prejudice to the above, the CIT(A) ought to have held that the AO erred in exceeding his jurisdiction in revising the assessment.
The appellants submit that notwithstanding that the issues for which the assessment was re-opened were partly dropped, the AO erred in considering other issues while passing the order under appeal.”
At the outset, the learned Counsel for the assessee Shri JD Mistry Senior Counsel narrated the brief facts that for the relevant assessment year original assessment was completed by additional CIT special range 23 for the relevant AY 1998-99 under section 143(3) of the Act vide order dated 19-02-2001. Subsequently, notice under section 148 of the Act was issued and for issuance of
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notice the AO recorded the following reasons (which are reproduced in the assessment order) : - “i) Expenses by way of interest and Bank charges paid in foreign currency amounting to Rs.26.66 lakhs were allowed although the assessee has not produced any evidence to show that the tax has been deducted at source as per the provisions of Sec 195. According to the provisions of section 40(a)(i), such expenses are not deductible if the tax has not been deducted at source. This has resulted in excess allowance of Rs.26.66 lakhs and consequently under assessment of income to the same extent.
ii) Capital expenditure by way of write off of fixed assets & capital expenditure by way of write off of capital work- in-progress of Rs.1,12,27,809 was claimed in the P&L account and was wrongly allowed”
The learned Counsel for the assessee stated that in respect to the reasons for reopening that the TDS is not deducted under section 195 of the Act and expenses are disallowable by invoking the provisions of Section 40(a)(i) of the Act was dropped by the himself during the Assessment proceedings. As regards to the second reason of disallowance by way of write off of fixed assets and capital work in progress of Rs. 1,12,27,809/-, the learned Counsel for the assessee stated that part of this i.e. the write off of fixed assets of Rs. 32,44,959/- which had been added back in the computation of income by the assessee itself and therefore, the AO dropped the same during re-assessment proceedings. For the balance learned Counsel for the assessee took us through page 41 of the assessee’s paper book whereby an audit report is enclosed at page 42 annexuer- 1, states the information as under: - Annexure-I Note: In case of a dealer in goods, give quantitative details on the lines specified under the heading “finished products” in item 12 below. Page 3 of 10
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Amount expenditure incurred by the assessee by way of, or on, i) Capital expenditure debited to the Rs. 3,84,432/_ (Annexure II) profit and loss account Notes: The above excludes i) The amount debited to profit and loss account on account of write off of capital work-in-progress Rs. 1,12,27,809/- and write off of fixed assets. ii) Expenses (including stamp duty) incurred on merger/ demerger as the company contends that this expenditure has been incurred in the course of carrying on their business.
The learned Counsel for the assessee argued that the reopening is beyond 4 years from the end of the relevant AY and assessee has disclosed fully and truly all material facts necessary for this assessment year for the relevant A 1998-99 before the AO. During the course of assessment proceedings and also at the time of filing of return of income these details were available. Accordingly, to him this information is disclosed in the tax audit report in respect of write off of capital work in progress as reproduced above. According to the learned Counsel, once there is no failure on the part of assessee to disclose fully and truly all material facts necessary for its assessment, assessee companies case falls under the proviso of Section 147 of the Act and reopening is bad in law and the same is required to be quashed. 6. On the other hand, the learned Sr. DR, argued that disclosure made in the audit tax report in respect to write off of capital work in progress is not fully and truly disclosed rather it should have been explained to the AO. He also argued that reopening will not harm the assessee company in case the assessee has merit in its case. When a query was made by the Bench, the learned Sr. DR could not reply whether the AO has required any information from the assessee and which has been withheld by the assessee. 7. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the facts narrated above by the learned Counsel of the assessee are admitted by Revenue also. Admittedly, the reopening
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is beyond four years and there is no failure on the part of the assessee to disclose fully and truly all material facts for framing of assessment for the relevant AY. We find that this issue is squarely covered in favor of the assessee and against Revenue by the decision of Hon’ble Supreme Court in the case CIT vs. Foramer France (2003) 264 ITR 566 (SC) has taken the view that the first proviso to section 147 of the Act lays down an exception whereby the AO is not permitted to exercise his jurisdiction in reopening the assessment beyond a period of four years from the end of the relevant assessment year. Once the exception carved out by proviso to s. 147 of the Act comes into play, the case would fall outside the ambit of s. 147 of the Act. As per proviso to s. 147 of the Act, no action under this section can be taken after expiry of four years from the end of the relevant assessment year, unless inter alia, income chargeable to tax had escaped assessment by reason of failure of the assessee to make full and true disclosure of all material facts necessary for assessment. In case, there being no whisper in the reasons supplied to assessee that income escaped assessment by reason of assessee’s failure to make a full and true disclosure of all material facts necessary for assessment, notice under s. 148 of the Act issued beyond four years from the end of relevant assessment year was barred by limitation under proviso to s. 147 of the Act, hence without jurisdiction. If either of these conditions is not fulfilled the notice is without jurisdiction. If the notice issued u/s 148 fails to satisfy either of the conditions, it deserves to be quashed. However, the officers have many time issued notices for reopening the assessments even beyond four years from the end of the assessment year without fulfillment of any of the legal conditions as stipulated in the first proviso to this section. Such an action of the revenue authorities is strictly challenged by the taxpayers at large in the court of law and courts have quashed the notice issued by Revenue authorities or quashed the re-assessment orders. Hon’ble Supreme Court affirmed the judgment of Hon’ble Allahabad High Court in the case Foramer vs. CIT (2001) 247 ITR 436 (All) wherein Hon’ble Allahabad High court has considered the issue as under: -
“Having heard the learned counsels for the parties, we are of the view that these petitions deserve to be allowed. Page 5 of 10
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It may be mentioned that a new section substituted section 147 with effect from 1-4-1989. The relevant part of the new section 147 is as follows :
"147. Income escaping assessment.—If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, 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 make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year."
This new section has made a radical departure from the original section 147 inasmuch as clauses (a) and (b) of the original section 147 have been deleted and a new proviso added to section 147.
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In Rakesh Aggarwal v. Asstt. CIT[1997] 225 ITR 4961, the Delhi High Court held that in view of the proviso to section 147 notice for reassessment under section 147/148 should only be issued in accordance with the new section 147, and where the original assessment had been made under section 143(3), then in view of the proviso to section 147 the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO[2000] 242 ITR 612.
In our opinion, we have to see the law prevailing on the date of issue of the notice under section 148, i.e., 20-11- 1998. Admittedly, by that date, the new section 147 has come into force and, hence, in our opinion, it is the new section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.
The learned departmental counsel relied on section 153(3)(ii) of the Act and submitted that there was no bar of limitation in view of the said provision. We do not agree. Section 153 relates to passing of an order of assessment and it does not relate to issuing of notice under section 147/148. Moreover, this is not a case where reassessment is sought to be made in consequence of, or to give effect to, any finding or direction contained in the order of the Tribunal in Boudier Christian's case. As already stated above, Boudier Christian's case related to the employees of the company, whereas the impugned notice has been issued to the company. Hence, it cannot Page 7 of 10
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be said that the proposed reassessment in consequence of the impugned notice would be in consequence of, or to give effect to, any findings of the Tribunal in Boudier Christian's case.
A direction or finding as contemplated by section 153(3)(ii ) must be a finding necessary for the disposal of a particular case, that is to say, in respect of the particular assessee and in relevance to a particular assessment year. To be a necessary finding it must be directly involved in the disposal of the case. To be a direction as contemplated by section 153(3)(ii) it must be an express direction necessary for the disposal of the case before the authority or court vide Rajinder Nath v. CIT[1979]120 ITR 141 (SC); Gupta Traders v. CIT[1982] 135 ITR 5042 (All.); CIT v. Tarajan Tea Co. 236 ITR 4773 (SC) and CIT v. Goel (P.) Ltd.[1999] Bros.[1982] 135 ITR 5114(All.), etc. The case of an expatriate employee was to be decided on the basis of the provisions of article XIV of the treaty, whereas corporate income was to be decided on the basis of either article III or article XVI of the treaty or section 44BB. Hence, the observation of the Tribunal in Boudier Christian's case was not a direction necessary for the disposal of the appeal relating to the petitioner. The eligibility of income of the petitioner from manning and management contracts was never an issue directly or indirectly involved in the case of Boudier Christian.
Moreover, the Tribunal in the appeal relating to the assessment of the petitioner's own case, vide Dy. CIT v. O.N.G.C. As agent of Foramer France[1999] 70 ITD 468 (Delhi), has considered the decision of the Tribunal in Boudier Christian's case. It is settled law that an appeal is a continuation of the original proceedings and, hence, when the Tribunal in the appeal relating to Page 8 of 10
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the petitioner has considered the decision of the Tribunal in Boudier Christian's case, the impugned notice under section 147/148 would obviously be on the basis of a mere change of opinion by the income-tax authorities, which would not be valid as held by the Supreme Court in Indian & Eastern Newspaper Society v. CIT[1979] 119 ITR 996 1 ;Gemini Leather Stores v. ITO[1975] 100 ITR 1 (SC) and Jindal Photo Films Ltd. v. Dy. CIT[1998] 234 ITR 1702(Delhi), etc.
In the decision of the Tribunal in the assessee's own case O.N.G.C.'s (supra), it has been held that the income from the contract between the parties was business income and not fee for technical services.
Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply, even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessee-company had considered the Tribunal's earlier decision in Boudier Christian's case, it will obviously amount to mere change of opinion, and, hence, the notice under section 147/148 would be illegal.”
In view of the above facts and the judgment of Hon’ble Supreme court in the case of Foramer France (supra), we quashed the assessment proceedings and allow the appeal of the assessee. As regards to the Revenue’s appeal in ITA No. 1282/Mum/2006 which is on merits, since, we have adjudicated the issue in assessee’s appeal and quashed the reassessment proceedings initiated under section 147 read with section 148 of the Act, we need not to adjudicate this Page 9 of 10
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appeal of Revenue. Accordingly, the appeal of Revenue is dismissed and assessee’s appeal is allowed. 9. In the result, assessee’s appeal is allowed and Revenue’s appeal is dismissed Order pronounced in the open court on 13 -04-2017.
Sd/- Sd/- (RAMIT KOCHAR) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 13-04-2017 Sudip Sarkar /Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, Assistant Registrar //True Copy// ITAT, MUMBAI
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