ITO, NEW DELHI vs. M/S. SUPERIOR FILMS (P) LTD., NEW DELHI

PER ANADEE NATH MISSHRA, AM

This appeal by Revenue is filed against the order of Learned Commissioner of Income Tax (Appeals)-XII, New Delhi, [“Ld. CIT(A)”, for short], dated 18.06.2012 for Assessment Year 2004-05. The grounds of appeal originally filed by Revenue in Form No. 36 dated 17.09.2012 were subsequently revised vide F.No. CIT-08/Del/Judl./CIT(A)- XII/2015-16/1065 dated 28.08.2015 of Pr. Commissioner of income –Tax, Delhi-08, New Delhi. The following are the Revised grounds of appeal:

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“1. That on the facts and circumstances of the case, the Ld. CIT(A) erred on facts and in law in quashing the re-assessment u/s 147/148 of the I.T. Act 1961. 2. The appellant craves to amend, modify, alter add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

(2) The Original Assessment order was passed U/s 143(3) of the Income Tax Act,

1961 (“I.T. Act”, for short) on 29.12.2006 wherein income was assessed at Rs.

87,27,232/-. Subsequently, the Assessment was reopened u/s 147 read with section 148

of I.T. Act by issuing notice dated 22.03.2011, U/s 148 of I.T. Act. The following reasons

were recorded by the Assessing Officer (“AO”, for short) for reopening of Assessment:

“In this case it has been noticed that the assessee has claimed and was allowed franchise fee of Rs. 2,40,00,000/-. The franchise fee being of capital nature was not allowable and should have been disallowed and added back to the income of the assessee after allowing depreciation at the rate of 25% amounting to Rs. 60,00,000/- and balance amount of Rs. 1,80,00,000/- should have been added back to the income of the assessee.”

(2.1) Fresh Assessment Order U/s 147 / 143(3) of I.T. Act was passed on 19.12.2011

wherein the income of the assessee was assessed at Rs. 2,54,32,275/- as under:

Income assessed U/s 143(3) 87,27,232 Less relief allowed by CIT(A) vide order 12,94,957 74,32,275 Add: Franchisee fee treated as capital 1,80,00,000 (As discussed above) 2,54,32,275

(2.2) Aggrieved, the assessee filed an appeal before Commissioner of Income Tax

(Appeals)-XII, New Delhi. Vide order dated 18.06.2012, the Ld. CIT(A) quashed the

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reassessment proceedings U/s 147/148 of I.T. Act. Relevant portion of the order of Ld.

CIT(A) is reproduced as under:

“……. ……. “A notice under section 148 was served upon the assessee on March 22, 2011. The Assessing Officer has recorded the reason for reopening as under:- “In this case it has been noticed that the assessee has claimed and was allowed franchise fee of Rs.2,40,00,000/-. The franchise fee being of capital nature was not allowable and should have been disallowed and added back to the income of the assessee after allowing depreciation at the rate of 25% amounting to Rs.60,00,000/- and balance amount of Rs.1,80,00,000/- should have been added back to the income of the assessee”

From the reason so recorded , the AO has not alleged any failure on the part of the assessee to disclose truly and fully all material facts which is a pre-condition for taking action u/s 148 where action is taken after expiry of 4 years. The assessee has disclosed full details in return of income accompanied by audited accounts and copy of agreement submitted during the course of assessment proceedings u/s 143(3). From the fact stated by the assessee as well as those recorded in the assessment order it appears that at the time of scrutiny assessment proceedings, the assessee had fully and truly disclosed all material facts and thereafter scrutinizing the details furnished by the appellant, the AO made the regular assessment u/s 143(3)and had formed an opinion that the appellant has correctly claimed these expenses as revenue in nature. Also the AO without bringing any new facts or material on record formed an opinion that this expenditure gave benefits of an enduring nature to the appellant and the same should be treated as capital expenditure in the nature of intangible asset. After perusal of the above facts and the facts stated in the assessment order I am of the opinion that this is a case of change of opinion as the successor Assessing Officer has merely recorded a different opinion in relation to an issue to which the earlier Assessing Officer who framed the original assessment has already applied his mind and come to a conclusion that payments are revenue in nature. Moreover this very issue of franchise payment has been accepted by the Department in the Asst. Year 2003-04 to 2009-10 which is as under:- S.No. A.Y. Franchisee Franchisee Assessed Assessing Fee Claimed Fee Allowed Authority 1. 2003-04 1925606 1925606 u/s 143(1) ITO, W-9(4)

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The assessee case supported by the following judgment is as under:- • M/s Kelvinator of India (Supreme court) [2010] 320ITR 0561 • Satnam ©verseas Limited and Aur. Vs ACIT (Delhi High Court) 329 ITR 237 • M/s Bhavesh Developers Vs Assessing Officer, CIT (Bombay High Court) [2010] 329 ITR 0249 • Aventis Pharma Ltd Vs ACIT (Bombay High Court) [2010J323 ITR 0570 • H K Buidcon Ltd Vs Income Tax Officer (Ahmedabad High Court) [2010J-TIOL- 254-HC-AHM-IT In the recent judgement in the case of CIT Vs Muujal Showa Ltd. in ITA No. 149/2011 & ITA 150/2011 has stated that:- “13... By another letter dated 11.2.04 the assessee had submitted a copy of technical and financial collaboration agreement. It is certain that the Assessing Officer in the assessment year 01-02 had specific ally gone into the question of payment of royalty. A query was raised and was answered with the explanation given by the assessee. A copy of the agreement was furnished. 14. It is noticeable that the respondent/assessee has been making payment of royalty since the assessment 94-95 onwards. For this purpose it has been entering into agreements with the foreign partner. These agreements were for a fixed stipulated periods but identical. They are similar in nature and have more or less identical clauses with few minor differences which are not relevant

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for the present issue. For the assessment year 94-95, the Revenue had disallowed the payment of royalty and held that it was capital expenditure and not revenue expenditure. The respondent/assessee had succeeded before the tribunal vide decision dated 9.1.09. The Revenue’s appeal being ITA No.56/2009 has been dismissed by a detailed order of a Division bench, after examining the relevant clauses of the then agreement It has been held that the royalty- paid was, in fact, revenue and not capital expenditure. It has been stated that this decision has been accepted by the Revenue. We fail to understand why, despite this matter being settled in the previous assessment yers, the Revenue feels compelled to stil up the same dispute in subsequent assessment years. 15. In view of the aforesaid discussion, we are clearly of the view that the present case falls in the category of change of opinion as at the time of original proceedings the Assessing Officer examined and gone into the question of royalty. Even if there was any legal error or illegality the same cannot be rectified and be made the subject matter of reassessment proceedings u/s. 147/148 of the Act. The Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. (2010) 2 SCC 723 has observed as under :- “5. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct^ Tax Laws (Amendment) bet, 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 1.4.89), they are given to go-by and only on 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 1.4.89, 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. 6. 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 precondition and if the concept of “change of opinion” is removed, as

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contended on behalf of the Department-then, in the grab of reopening the assessment, review would take place. 7. One must treat the concept of “change of opinion ” as an in-build text to check abuse of power by the assessing officer. Hence, after 1.4.89, 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.” 16. The aforesaid observations are apposite and applicable to the facts of the present case. Accordingly, we do not find any substantial question of law arise in the present appeals and the same are dismissed. No costs. ”

In view of the above facts and case laws cited above ground No. 1 to 4 regarding the re- assessment proceedings u/s 147/148 are hereby quashed.”

(2.3) The present appeal before Income Tax Appellate Tribunal, (“ITAT”, for short) has

been filed by Revenue against the aforesaid impugned order dated 18.06.2012 of Ld.

CIT(A). In the course of appellate proceedings in ITAT, a Paper Book and a case laws

compilation was filed from assessee’s side, containing following particulars;

“1. Written submissions filed before the Hon’ble Commissioner of Income Tax

(Appeals)-XII, New Delhi for Assessment Year 2004-05 on 08.05.2012.

Copy of letter dated 8th May, 2012 for admission of additional Ground under Rule 2. 46A of the Income Tax Rules, 1961 for assessment year 2004-05.

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Copy of Franchise Agreement dated 20th Dec., 2002 executed between M/s 6. Satyam Cineplexed limited and M/s Superior Films Private Limited fuly signed by both and parties.

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(i) Jute Corpn. Of India Ltd. vs. CIT 187 ITR- 688 (SC) (ii) N.T.P.C. vs. CIT 229 ITR 383(SC) (iii) Banashankari Medical & Onclogy vs. JCIT 316 ITR 407 (Karnataka) (iv) Essel Propack Ltd. vs. CIT 237 CTR 395 (Bom) (v) R.R.B. Consultants & Engg. Vs. DCIT 342 ITR 127 (Delhi) (vi) Vodaphone Essar Gujarat Ltd. vs. CIT 342 ITR 135 (Guj.)

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(2.4) The relevant portions of written submissions filed from assessee’s side as well as

from the side of Revenue are reproduced as under:

Written submissions from the assessee’s side:

“The appellant company M/s Superior Films Private Limited (in short "SFPL") had filed the aforesaid appeal against the impugned assessment order passed by the learned Assessing Officer u/sec. 147/143(3) of the Income Tax Act, 1961 in their case on 19.12.2011 whereby the learned Assessing Officer had treated the payment of "Franchise Fee" of Rs.2.40 crores paid by the appellant company to M/s Satyam Cineplex Limited (in short hereafter be referred as "SCL") as "Capital Expenditure" as against the claim of the appellant company as "Revenue Expenditure". The payment of franchise fee so paid by the appellant company to SCL was for the use of superstructure of Multiplex Cinema Building constructed by SCL on the land owned by the appellant company (SFPL) and for the use of installed plant and machineries for exhibition of films, installed furniture and fixture including sitting chairs, installed A.C. Plant and interior designing etc for a period of 7 years commencing from 20th Dec., 2002 on payment of business consideration of the Franchise Fee in terms of Clause No. (ii) of the Agreement dated 20.12.2002 - Copy of Agreement attached herewith from page No. 12 to 15 of the paper book. By treating the said payment as capital expenditure, he allowed depreciation thereon of Rs.60.00 lacs as depreciation and made a net addition of Rs.1.80 crores.

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In connection to the above, we wish to place on record the past brief history of the appellant company for your honour's kind consideration:-

M/s Superior Films Pvt. Ltd. (SFPL) is being assessed with the Income Tax Officer, Ward 9(4), New Delhi under Permanent Account Number AAACS-1360-C.

It had filed their return of income for assessment year 2004-05 on 01.11.2004 declaring "NIL Income" which was arrived at after adjustment of brought forward losses of Rs.76,80,953/- pertaining to earlier assessment year. This return of income was processed u/sec. 143(1) of the Income Tax Act, 1961 (hereinafter referred as "ACT") at declared income, however, it was finally assessed u/sec. 143(3) of the Act on 29.12.2006 at an income of Rs.10,46,279/-.

The assessee company being aggrieved by such order of the learned Assessing Officer had filed an appeal before the Hon'ble Commissioner of Income Tax (Appeals)-XII, New Delhi. The Hon'ble Commissioner of Income Tax (Appeals) vide his order dated 30.01.2009 in Appeal No. 156/2006-07 had granted relief of Rs.12,94,957/- to the assessee company. After providing the appeal effect to the orders of the Hon'ble Commissioner of Income Tax (Appeals), the assessed income became "NIL and there was "Nil" tax liability payable by the appellant company. Copy of assessment order and the co of Appellate order are enclosed herewith from page No. 303 to 306 of the paper book.

Subsequently, a notice u/sec. 148 of the Act dated 22nd March, 2011 was served on the appellant. Copy thereof is enclosed herewith on page No. 77 of the paper booj whereby the learned Income Tax Officer intend to reassess the income of the company for the year under reference and directed the appellant company to file the return of their income for the year under reference.

On receipt of the said notice, the assessee's counsel vide his letter dated 6th April, 2011 had submitted that the appellant company had already filed their return of

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income for the year under reference on 1.11.2004 which was also assessed u/sec. 143(3) of the Act on 29th Dec., 2006. Copy thereof is enclosed herewith from page No. 78 of the paper book. The assessee also submitted that the original return of income so filed by the appellant company may kindly be treated as return being filed in compliance to notice u/sec. 148 of the Act. Madam, in this letter, the assessee had also requested the concerned Assessing Officer to provide them the copy of reasons recorded by him for the reopening of assessment.

On 29th June, 2011, the appellant company was provided the copy of reasons so recorded by the learned Assessing Officer for initiation of proceedings u/sec. 147 of the Act. Copy thereof is enclosed herewith on page No. 79 to 80 of the paper book.

However, the for sake of brevity, the same are being reproduced hereinunder:- "In this case it has been noticed that the assessee has claimed and was allowed franchise fee of Rs.2,40,00,000/-. The franchise fee being of capital nature was not allowable and should have been disallowed and added back to the income of the assessee after allowing depreciation at the rate of 25% amounting to Rs.60,00,000/- and balance amount of Rs. 1,80,00,000/- should have been added back to the income of the assessee"

Madam, on perusal of the reasons so recorded by the learned Assessing Officer, it was observed that the learned Assessing Officer intend to treat the Franchise Fee of Rs.2.40 crores paid by the appellant company for the year under reference to SCL as "capital expenditure" as against the claim of appellant company as "Revenue expenditure" which had already been allowed as "revenue expenditure" in the original assessment of the company which was completed u/sec. 143(3) of the Act on 29.12.2006. Copy thereof is enclosed herewith from page No. 44 to 46 of the paper book. The appellant thereafter was served notices u/sec. 142(1) and 143(2) of the Act dated 13.12.2011 which were duly complied with by the appellant by submitting the required information vide letter dated 19.12.2011. Copy enclosed herewith from page No. 83 to 86 of the paper book.

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On the facts and in the circumstances of the case as explained hereinabove, the appellant's counsel during the course of hearing did not raise any objection for the issuance of notice u/sec. 148 of the Act for mere change of opinion but on 19th Dec., 2011 (the only date of hearing provided to the appellant), he conveyed the learned Assessing Officer that the company is shortly filing objection challenging the validity of issuance of notice. It was prepared on 28th Dec., 2011 and the same was submitted before the learned Assessing Officer but the learned Assessing Officer had denied to accept it by stating that he had already passed the assessment order. The appellant company had left no alternative but as a matter of precaution, the appellant filed the said objection on a dak counter of the ward on 30th Dec., 2011. Copy enclosed herewith on page No. 300 to 303 of the paper book. Madam, the appellant as stated above had filed the objection for the reopening of the assessment u/sec. 148 of the Act, 1961 but since such objection is a legal objection on the facts and circumstances of the case for the assumption of jurisdiction in passing the reassessment order u/sec. 147/143(3) of the Act, therefore, the same had been taken in the Grounds of Appeal (Ground No. 1) filed by the company for your honour's kind consideration, the same may please be considered. A separate application under Rule 46A of the Income Tax Rules, 1962 is also been filed herewith separately for its admission and consideration. This ground has been taken for the first time before your honour and the same had not been adjudicated by the learned Assessing Officer in the reassessment order. The same may please be admitted and considered. In this connection, reliance is placed by us on the decision of the Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. Vs. CIT (1991) 187 ITR-688 and N.T.P.C. vs. Cit (1998) 229 ITR-383 (SC). Copies of both the judgments are enclosed herewith from page No.308 to 315 of the paper book.

Madam, during the reassessment proceedings, keeping in view the reasons recorded for the reopening of the assessment, the company submitted the copy of Franchise Agreement dated 20th Dec., 2002 entered into by the appellant company with "SCL" in support of the Franchise Fee of Rs.2.40 crores paid by it to "SCL". Copy thereof is

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attached herewith from page No. 12 to 15 of the paper book. Copy of the said Agreement was attached with a detailed note on justification for allowability of payment of Franchise Fee as Revenue expenditure was also submitted before the Assessing Officer on 19th Dec., 2011. Copy enclosed herewith on page No. 83 to 86 of the paper book. These two documents were also filed during the course of original assessment proceedings before the then learned Assessing Officer on 29.08.2006. Copy enclosed herewith from page No. 42 to 43 of the paper book. Fie had considered the note on justification of allowability of these expenses as revenue expenditure in terms of the said agreement and he had allowed it as revenue expenditure while completing the original assessment u/sec. 143(3) of the Act on 29.12.2006. Copy of Assessment Order is enclosed herewith from page No. 44 to 46 of the paper book.

Madam, in this context, we have to submit to your honour that the aforesaid agreement datb 20.12.2002 was executed during financial year 2002-03 which was effective from 20th Dec, 2002 itself. In terms of clause No. (ii) of the said Agreement, the appellant company paid Rs.19.25 lacs as Franchise Fee to SCL for the period from 20th Dec., 2002 to 31st March, 2003. This amount of Franchise Fee was claimed as "Revenue Expenditure" by the appellant company in their books of account and had accordingly been debited to Profit & Loss Account for the year ended 31st March, 2003 which were duly audited. These audited statements of accounts for the year ended on 31st March, 2003 were submitted along with the return of income filed by the appellant for the assessment year 2003-04 on 12.12.2003. Copy enclosed herewith from page No. 1 to 11 of the enclosed paper book. This return of income was processed u/sec. 143(1) of the Act but not selected for scrutiny and no notice u/sec. 143(2) of the Act was issued. Thus prime facie the return of income was accepted as declared and accordingly the franchise fee of Rs.19.25 lacs was assessed as Revenue expenditure. On the other hand, M/s Satyam Cineplexes Limited who had received the said franchise fee of Rs.19.25 lacs had declared it as their revenue receipt in their books of accounts and in their return of income filed by them for assessment year 2003-04. It was assessed as revenue receipt in their assessment completed u/sec. 143(3) of the

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Act on 18.01.2006. Copy enclosed herewith for your ready reference on page No. 47 to 61 of the paper book.

Madam, the payment of Franchise Fee, as explained above, was allowed as Revenue Expenditure during assessment year 2003-04 and in the original assessment of the appellant company for assessment year 2004-05, therefore, in the absence of any material change on the similar facts as were available during the course of assessment for assessment year 2003-04 and at the time of original assessment for assessment year 2004-05, there was no justification for the learned Assessing Officer to take a different view in the matter for the reopening of assessment u/sec. 148 of the Act, which in the instant appeal had erroneously been taken by the learned Assessing Officer by issuance of notice u/sec. 148 of the Act which is not sustainable in law.

In this connection the appellant rely on the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang vs. CIT 193 ITR-321( SC) where it was held that:

"Strictly speaking res judicata does not apply to income tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply i8n the following year, where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be change in the subsequent year.”

On consistency issue, reliance is also placed on the decision of the Hon'ble Supreme Court in the case of Associated Cement Companies Ltd. Vs Commissioner of Custom [2001] 124 STC-59 (SC) where the Hon'ble Apex Court has held that:-

Res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of

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action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or precedential value of the earlier pronouncement. Where the facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a co-ordinate Bench, which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a Bench of superior jurisdiction.

This decision is also considered and relied upon by the Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Limited & Another vs. Union of India and Others [2006] 282 ITR-2783 (SC).

Madam, in view of the above statement of facts and the principle of consistency, the issuance of notice u/sec. 148 of the Act is totally invalid in law.

Madam, it is now well settled that the Assessing Officer cannot reopen the assessment on the issue which have been examined and considered at the time of original assessment. The Hon'ble Supreme Court on these issues in the case of CIT vs. Kalvinator of India Ltd.[2010 302 ITR-561 (SC) has held that:-

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"Therefore, post April, 1, 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 given 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 mush 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 fulfillment of certain preconditions 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 April, 1, 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 Director 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 'reasons 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".

In the present case/the appellant company has not failed or omitted to disclose all the material facts either deliberately or intentionally. On the other hand, full and true informations and details were furnished and given

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during the course of original assessment proceedings. Relevant and genuine facts were truly and fully disclosed. As per the case of the Revenue Department for reopening of the assessment, the learned Assessing Officer made an error of judgement and do not form a proper legal opinion. A wrong legal inference was drawn from the facts as stated by the Appellant which are already on records. Once the primarily facts have been disclosed then, it is for the Assessing Officer to drop proper legal conclusion and apply the provision for the statute in judicial manner. In the present case, it is not alleged by the learned Assessing Officer that any facts or factual details was embedded in the evidences/books of accounts which the learned Assessing Officer could have uncovered but failed to do so. Under these circumstances, it is very much clear that the precondition required for the reopen of the assessment order u/sec. 148 of the Act are not been satisfied in the present case and therefore, the reopening of assessment is totally invalid in law and not sustainable in law. Reliance is placed on the aforesaid decision of the Hon'ble Supreme Court in the case of CIT vs. Kalvinator of India Ltd.[2010 302 ITR-561 (SC), R. R. B. Consultants & Engg. Pvt. Ltd. Vs. DCIT (2012) [2012] 342 ITR-127 (Delhi) and Doshion Ltd. Vs. ITO [2012] 342 ITR-6 (Guj). Copy thereof are enclosed herewith from page No.323 to 326 of the paper book.

Madam, in support of the above, we are also pleased to furnish you a statement where the assessment status of the appellant company and the assessment status of SCL are given on page Nos. 89 and 198 of the paper book which are fully supported by the documentary evidences thereof which are also appearing on page No. 90 to 197 and 199 to 299 of the paper book.

On perusal of the said statements, your honour will kindly appreciate that in the assessment of the appellant company as well as of SCL for succeeding assessment years, the said payment of Franchise Fee have been assessed as Revenue Expenditure

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and revenue receipt respectively where the assessments was completed u/sec. 143(3) of the Act.

Since the appellant company had fully disclosed all the details in respect of payment of Franchise Fee during assessment year 2003-04 and 2004-05 i.e. the original assessment and also in the subsequent assessment year where assessments were completed u/sec. 143(3) of the Act, the claim of expenditure has been allowed as "Revenue Expenditure", therefore, there is no need for disturbing the admitted position of law. Under these circumstances and in view of the principle of consistency as explained hereinabove, the appellant respectfully pray to your honour that reassessment order passed by the learned Assessing Officer u/sec. 147 / 143(3) of the Act may kindly be quashed and annulled.

Madam, in the instant appeal, the appellant company, as explained hereinabove, had fully complied with the requirement of law by giving complete details and informations with documentary evidences in the return filed from assessment year 2003-04 and in assessment year 2004-05 during the course of original assessment completed u/sec. 143(3) of the Act for assessment year 2004-05 which were also considered by the learned Assessing Officer and only on being fully satisfied. He had assessed such payment of franchise fee as Revenue expenditure. Similarly, as explained above, in the assessments for assessment year 2003-04 and 2004-05, the receipts of franchise fee by SCL had been assessed as Revenue Receipts which were completed u/sec. 143(3) of the Act and even in the subsequent years it had also, been treated as revenue expenditure in the hands of the appellant company and revenue receipt in the hands of SCL. Depreciation on leased assets used by SFPL had been allowed to SCL. The Revenue Department has also not initiated any action u/sec. 263 of the Act in these years, therefore, the reopening of completed assessment in the hands of the appellant company for the year under appeal u/sec. 148 is totally invalid in law and consequently the reassessment completed u/sec. 147/143(3) is also invalid in law which may please be quashed / annulled.

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Madam, on merits of the case also, it is kindly submitted that the payment of franchise fee is a sort of lease rentals for the user of the assets leased out for a particular and defined period. On expiry of the leased period, the assets are reverted back to the lessor. The lessee (SFPL) does not acquire any asset of capital nature by obtaining a non exclusive licence for fixed period user right. The lessee (SFPL) since have no right over the ownership of the assets used by them, therefore, it has also no right to claim depreciation.

In the instant appeal, the term of agreement with SCL is for 7 (Seven) years which ended on 19th Dec., 2009 however for 1st April, 2009, SFPL had terminated the lease and leased assets were returned back to M/s Satyam Cineplexes Ltd. By M/s Superior Films Pvt. Ltd. Since SFPL did not acquire any asset of capital nature during the lease period, therefore, the franchise fee paid by the appellant company was of the nature of revenue expenditure.

Reliance is placed on the following decisions:-

i) Banashankar Medical & Oncology Research Centre vs. JCIT (2009) 316 ITR-407 (Kar.). ii) CIT vs. Essel Propeck Ltd. (2011) 237 CTR (Bom)-395. Copies of both judgements are enclosed herewith from page No.316 to 322 of the paper book.”

Written submissions from Revenue’s side:

“Sub: Written Submission in the above cse Sub: Written Submission in the above cse Sub: Written Submission in the above cse- reg. Sub: Written Submission in the above cse reg. reg. reg.

In the above case, it is humbly submitted that the following decisions may kindly be considered 1. Yuvrai v. Union of India [315 ITR 841 ISC) where Hon’ble Supreme Court held that points not decided while passing

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assessment order under section 143(3) was not a case of change of opinion. It was held that assessment was reopened validly. 2. 2. It was held in the following judgements also that when there is no discussion on 2. 2. the issue in the assessment order and no details were called for by the Assessing Officer or filed by the assessee on the issue, no finding either positive or negative was arrived at during the course of the original assessment proceedings there is no question of change of opinion:- i) A.L.A. Firm Vs CIT (Mad) 102 ITR 622 ii) Ess Kay Engineering Co. (P) Ltd. Vs CIT (SC) 247 ITR 818 iii) Revathy C.P. Equipments Ltd. Vs DCIT & Ors. (Mad) 241 ITR 856 iv) EMA India Ltd. Vs ACIT (AH) 30 DTR 82 3. 3. It was held in following judgement that change of opinion comes to rescue of 3. 3. assessee only when Assessing Officer has taken one of permissible views at the time of original proceedings and that a wrong application of law cannot be held as permissible view and that can always be changed for appreciating law, Reopening was held valid:- Som Dutt Builders (P) Ltd. vs. DCIT (ITAT, Kol) 98 ITD 78.” Som Dutt Builders (P) Ltd. vs. DCIT (ITAT, Kol) 98 ITD 78.” Som Dutt Builders (P) Ltd. vs. DCIT (ITAT, Kol) 98 ITD 78.” Som Dutt Builders (P) Ltd. vs. DCIT (ITAT, Kol) 98 ITD 78.”

(3) At the time of hearing before us, the Ld. Departmental Representative (“DR”, for

short) fairly accepted that assessment was reopened and notice U/s 148 of I.T. Act was

issued more than 4 years after the end of the relevant Assessment Year and he reiterated

the submissions made in the aforesaid written submissions, and placed special emphasis

on the case law reported at Yuvraj v. Union of India [315 ITR 84](SC). He contended that

the AO had not expressed any opinion in the original Assessment Order dated

29.12.2006, in respect of assessee’s claim on account of payment of franchisee fee.

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Therefore, the Ld. DR contended, the addition made in the fresh Assessment Order dated

19.12.2011 cannot be treated as change of opinion. He also placed reliance on the

following case laws in support of his aforesaid contention:

i) A.L.A. Firm vs. CIT (Mad) 102 ITR 622 ii) Ess Kay Engineering Co. (P) Ltd. vs. CIT (SC) 247 ITR 818 iii) Revathy C.P. Equipments Ltd. Vs. DCIT & Ors. (Mad) 241 ITR 856 iv) EMA India Ltd. vs. ACIT (ALL) 30 DTR 82

(3.1) The Ld. Authorized Representative (“AR”, for short) for the assessee placed

reliance on the aforesaid Paper Book and the case laws compilation filed from assessee’s

side during appellate proceedings in ITAT. He also placed reliance on the aforesaid

written submissions, already reproduced earlier in this order in the foregoing paragraph

(2.4). He also drew our attention to proviso to section 147 of I.T. Act and contended that

there was no failure on the part of the assessee either to make a return U/s 139 or to

disclose fully and truly all material facts necessary for assessment.

(4) We have heard both sides. We have perused the materials available on record,

carefully. We have also considered the judicial precedents brought to our attention, at

the time of hearing or referred to in the materials on record. We find that notice U/s 148

of I.T. Act was issued, thereby reopening the assessment, on 22.03.2011 which is more

than 4 years after 31.03.2005 (i.e. more than 4 years from end of the Assessment Year

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2004-05 with which we are concerned in this appeal). Therefore, the case of the

assessee is covered by proviso to section 147 of I.T. Act. For ease of reference, the

provisions of section 147 of I.T. Act are reproduced as under:

[Income escaping assessment. 147. 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 section 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 section 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 section 148or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: [Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year:] [Provided [also] that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that

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the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; [(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;] (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;] [(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub- section (2) of section 133C it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;] [(d) where a person is found to have any asset (including financial interest in any entity) located outside India.] [Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.] [Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.]See More

(4.1) On perusal of proviso to section 147 of the Act, it is clearly prescribed that no

action shall be taken u/s 147 of the Act after the expiry of four years from the end of the

relevant assessment year, unless any income chargeable to tax has escaped assessment

by reason of the failure on the part of the assessee to make a return u/s 139 or in

response to a notice issued under sub-section (1) of section 142 or section 148 or to

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disclose fully and truly all material facts necessary for his assessment, for that

assessment year. In the case before us, the undisputed facts are, that the assessee did

file return u/s 139 of the Act; the AO did pass assessment order u/s 143(3) of the Act on

19.12.2011; and re-assessment proceedings u/s 147 of the Act have been initiated on

22.03.2011 much after the expiry of more than four years from the end of the relevant

assessment year (AY 2004-05). Under these facts, no action u/s 147 of the Act can be

taken unless income has escaped assessment by reason of failure on the part of the

assessee to disclose all material facts fully and truly. In the instant case, the Revenue

has failed to show which material facts were not disclosed by the assessee. We have

perused the assessment order dated 19.12.2011 passed by AO u/s 143(3)/147 of the Act

and we have also perused the aforesaid impugned appellate order of Ld. CIT(A) dated

18.06.2012. We have further perused the reasons recorded by the AO for initiation of

proceedings u/s 147 of the Act and for issue of notice u/s 148 of the Act. Moreover, we

have perused our records carefully. There is nothing on the basis of which it can be said

that there was failure on the part of the assessee to disclose all material facts fully and

truly. Infact we are unable to even find any allegation by the AO to the effect that there

was failure on the part of the assessee to disclose all material facts fully and truly. Even

at the time of hearing before us, it was not the case of the Ld. DR that the assessee has

failed to disclose the material facts fully and truly. In these facts and circumstances, we

hold that Revenue has failed to show that there was failure on the part of the assessee to

disclose all material facts fully and truly.

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(4.2) When the assessee has filed a return u/s 139 of the Act or in response to

sections 142(1) or 148 of the I.T.Act and when an assessment order u/s

143(3) or u/s 147 of the Act has already been passed then the assessee enjoys

statutory protection under proviso to section 147 of the Act from any action

u/s 147 of the Act after the expiry of four years from the end of the relevant

assessment years; unless income chargeable to tax has escaped assessment

by reason of failure on the part of the assessee to fully and truly disclose all

material facts necessary for his assessment for that assessment year. Onus is

on Revenue to show that there was failure on the part of the assessee to fully

and truly disclose all material facts necessary for his assessment for that

assessment year and in the instant case, Revenue has failed to discharge this

onus. When it is not the case of the Revenue that there was failure on the part

of the assessee to disclose all material facts fully and truly, Revenue cannot

violate the statutory protection enjoyed by the assessee under proviso to

section 147 of the Act. In the facts and circumstances of this case, therefore, we hold

that the statutory protection enjoyed by the assessee under proviso to section 147 of the

Act was wrongly violated by Revenue. Therefore, we dismiss all the grounds of appeal in

this appeal filed by the Revenue, and hold that the assumption of jurisdiction u/s 147 of

the Act and initiation of proceedings u/s 147 r.w.s. 148 of the Act was erroneous in law in

the facts and circumstances of this case. In view of this conclusion, there is no need for

us to adjudicate whether the initiation of proceedings u/s 147 of the Act and the

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additions made in order dated 19.12.2011 u/s 143(3)/147 of the Act amounted to

“change of opinion” as this issue becomes purely academic. Accordingly, we decline to

interfere with the order of Ld.CIT(A) whereby she quashed the assessment order u/s

143(3)/147 of the Act dated 19.12.2011. For Coming to this conclusion, we take support

from the order of the Hon’ble jurisdictional High Court in the case of Bharti Infratel

Limited vs. DCIT 411 ITR 403 (Delhi) in which the Hon’ble Delhi High Court held that

when the proviso applies, the Assessing Officer must satisfy himself and state that there

has been failure on the part of the assessee to fully and truly disclose all material facts

necessary for assessment. We take further support from the order of Hon’ble Gujarat

High Court in the case of Hitech Outsourcing Services vs. Pr. CIT 408 ITR 129 (Guj.), in

which Hon’ble High Court held that reopening was not permissible when there was no

failure of the assessee to disclose necessary facts. Moreover, we take support from the

order of Hon’ble Calcutta High Court in the case of Ranglal Bagaria (HUF) vs. ACIT 384

ITR 477 (Cal.), in which it was held that if the reasons do not indicate that any material

fact relevant for the assessment had been suppressed or that any false assertion on the

part of the assessee in respect of the facts relevant for the assessment had been

discovered, a reassessment on the relevant ground cannot be undertaken.

(5) In these facts and circumstances and having regard to applicable law and decided

precedents already mentioned earlier in this order; and in view of the foregoing

discussions, we find no reason to interfere with the impugned order dated 18.06.2012 of

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Ld. CIT(A), wherein she quashed the assessment proceedings U/s 147 / 148 of I.T. Act.

Therefore, the grounds of appeal are dismissed; accordingly, Revenue’s appeal is

dismissed.

Order pronounced in the open court on 31st day of July, 2019.

Sd/- Sd/- (BHAVNESH SAINI) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 31 .07.2019 Pooja/-