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

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:

FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd.

“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 FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd. 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)

FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd.

4. 2006-07 24000000 24000000 u/s 143(3) Addl. CIT, R-9 5. 2007-08 24000000 24000000 u/s 143(1) DCIT, Cir.9(1) 6. 2008-09 11844819 11844819 u/s 143(3) DCIT, Cir.9(1)

7. 2009-10 9550033 9550033 u/s 143(1) DCIT, Cir.9(1)

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 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.

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 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.

contended on behalf of the Department-then, in the grab of reopening the assessment, review would take place.

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.

FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd.

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.

7. Computation of Franchise Fee paid for assessment year 2003-04.

FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd.

14. Copy of return of income of M/s Satyam Cineplexes Ltd. for assessment year 2004-05 along with Audited Statement of Accounts for financial year ended on 31.03.2004.

15. Copy of Assessment Order of M/s Satyam Cineplex Ltd. for assessment year 2004-05 passed u/sec. 143(3) of the act dated 30.11.2006.

FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd.

(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.)

FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd.

(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.

FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd.

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 FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd. 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.

FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd.

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 FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd. 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 FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd.

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 FIT FOR PUBLICATION Sd/- (ANM) Sd/- (BS) ITA No.- 4938/Del/2012. (AM) (JM) M/s Superior Films Pvt. Ltd. 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:-