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Income Tax Appellate Tribunal, DELHI BENCH “D”, NEW DELHI
Before: SHRI R. K. PANDA & SMT. BEENA A. PILLAI
PER R. K. PANDA, AM : This appeal filed by the Revenue is directed against the order dated 05.10.2015 of the CIT(A)- 22, New Delhi relating to assessment year 2005-06.
The grounds raised by the Revenue are as under :-
“1. On the facts and in the circumstances of the case and in law the order passed by Ld. CIT(A) is erroneous and the learned CIT(A) has erred in holding that there is no non disclosure of material facts in the case.
2. On the facts and in the circumstances of the case and in law the order passed by Ld. CIT(A) is erroneous and the learned CIT(A) has erred in deciding the matter without considering the provisions of explanation 1 to 147 of the I.T. Act, 1961.
3. The appellant craves, leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”
Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing and trading of two-wheelers (Motor Cycles) and its spare parts. It filed its return of income on 31.10.2005 declaring loss of Rs.157,58,38,934/- which was revised on 22.05.2006 declaring a loss of Rs.154,17,88,934/-. The original assessment u/s 143(3) was completed on a loss of Rs.151,34,36,306/- u/s 143(3) vide order dated 30.12.2008.
Subsequently, the Assessing Officer reopened the assessment on 31.03.2010 by recording following reasons :-
“1. During the course of assessment proceedings, for A.Y. 2006-07 discrepancies with regard to quantity and model were found. After confronting the assessee, AO had rejected book results of the assessee company holding its books of accounts are incorrect, incomplete and unreliable and assessment was made in the manner provided in Section 144 of the Income Tax Act 1961. As a result, income to the tune of Rs.1060848000/- has been added to the income of the assessee and taxed.
2. Also the assessee company failed to submit proper details with regard to assets on which depreciation had been claimed. After confronting the assessee, AO had disallowed depreciation to the tune of Rs.10 crores and added back to the income of the assessee.
3. The assessee has been claiming royalty stated to have been paid to its parent company i.e., Yamaha Motor Co. Ltd. Japan. After discussion, the entire royalty to the tune of Rs.21,65,41,721/- has been disallowed and added back to the assessee’s income.
4. Further, the AO has made an addition on account of VRS to the tune of Rs.10 crore as assessee has made excessive claim and also could not properly explain it.
The assessee company has been claiming carry forward business losses and set-off against the income in every assessment year. On scrutiny, lot of discrepancies have been found in the claim. Therefore, after confronting the assessee carry forward business losses have not been allowed to be set off against the income of the assessee company and also not allowed to be carried forward in subsequent years. The above discussion on the issues have a bearing on all earlier assessment years including A.Y. 2005-06 as issues are same which needs to be addressed on the basis of findings given in the assessment order for A.Y. 2006-07. The assessee has debited 31,77,64,480/- to the P&L A/c of Advertisement Exp. out of this Rs.29.22 crores was reimbursed by it to its shareholding company which has not been credited into P&L A/c. This has resulted in under assessment of income involving potential tax effect of Rs.10.69 crores.
The assessment order u/s 143(3) r.w.s. 147 was completed on 31.12.2010 determining the total loss at Rs.32,03,60,442/-. Thereafter, the case was again reopened u/s 147 on 03.08.2011 by recording following reasons :-
“1. Assessee company had debited to the P&L A/c Rs.1,79,44,142/- on Process Development & Improvement Expenses which was capital in nature. 2. As per Notes of accounts the assessee had debited Rs.31,77,64,480/- to the P&L A/c on account of Advertisement Expenses. Out of these expenses the assessee had reimbursed Rs.29.22 crores from its holding company. However, the amount so reimbursed was not credit into P&L A/c.”
5. Thereafter, the Assessing Officer completed the assessment u/s 143(3)/147 determining the total loss of Rs.33,07,41,928/-.
Before the ld. CIT(A) apart from challenging the addition on merit, the assessee also challenged validity of the re-assessment proceedings. It was submitted that it is a case of mere change of opinion and there has been no non- disclosure of material facts before the Assessing Officer at the time of original assessment proceedings and at the first round of reassessment proceedings.
Referring to the reasons recorded by the Assessing Officer on both occasions, it was argued that the second reason recorded for issue of notice u/s 148 on 03.08.2011 is the same as the last reason recorded for issue of notice u/s 148 on 31.03.2010. This, according to the assessee, means that the said issue was examined at the time of reassessment proceedings in the first round and no addition was made and therefore, issue of notice u/s 148 on the same ground that too beyond the period of four years is not sustainable. The second round of re-assessment proceedings is a case of change of opinion on the set of facts. It was accordingly argued that the issue of notice u/s 148 on this issue cannot be held to be legally valid.
So far as the first reason for reopening of the assessment vide notice dated 03.11.2011 is concerned, it was argued that the debit of Rs.1,79,44,142/- as Process Development & Improvement Expenses, which was treated by the assessee as revenue in nature has been treated by the Assessing Officer as capital in nature, for which it should have been disallowed. It was argued that in the reasons recorded, the Assessing Officer has not mentioned as to which material facts necessary for the assessment were not truly and fully disclosed by the assessee. It was argued that the satisfaction of non-disclosure of material facts is necessary for reopening of a completed assessment u/s 143(3) beyond the period of four years in view of the first proviso to section 147. Since the assessment orders were passed in this case earlier u/s 143(3) and u/s 143(3) r.w.s. 147 of the I.T. Act, it was argued that although the assessee has raised this legal issue before the Assessing Officer vide letter dated 26.10.2012, the Assessing Officer rejected the said objections while appraising the issue. It was argued that the Cost Audit Report from which the figure of Rs.1,79,44,142/- was picked up, was very much available with the Assessing Officer during the assessment/reassessment proceedings. In the Cost Audit Report, it is clearly mentioned that it is for the period from 01.01.2004 to 31.12.2004. It was argued that on this issue there is no suppression of material facts by the assessee.
Referring to the reasons recorded by the Assessing Officer, it was submitted that the Assessing Officer has mentioned that the amount of Rs.1,79,44,142/- has been debited in the Profit & Loss Account. However, neither in the reasons recorded nor in the assessment order, the Assessing Officer has mentioned as to in which schedule of the annual accounts, this amount has been debited. It was argued that the actual amount that has been debited is only Rs.61,11,454/- under the head Miscellaneous Expenses. Relying on various decisions it was argued that the reopening of the assessment u/s 147 by issue of notice u/s 147 by the Assessing Officer beyond the period of four years is not valid.
Based on the argument advanced by the assessee, ld. CIT(A) annulled the assessment order passed by the Assessing Officer treating the reassessment proceedings as null and void. While doing so, he observed that the facts of the case clearly established that there has been no non-disclosure of material facts in the instant case. He held that the second reason for re-opening was mentioned in the reasons recorded in the first round of reassessment proceedings as well. Therefore, to that extent it is a case of mere change of opinion. In view of the above, he allowed the ground raised by the assessee challenging the validity of the reassessment proceedings and the notice u/s 148 on 03.08.2011 treating the same as void ab initio.
Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
We have heard the rival arguments made by both the sides and perused the orders of the authorities below and the Paper Book filed on behalf of the assessee. We also considered the various decisions cited before us. We find the Assessing Officer in the instant case has reopened the assessment u/s 147 by issue of notice u/s 148 on 31.03.2010. The reasons for such reopening has already been reproduced in the preceding paragraphs and the same was within four years. However, the second notice u/s 148 dated 03.08.2011 is beyond a period of four years from the end of the assessment year wherein the original assessment was completed u/s 143(3) on 30.12.2008. A perusal of the reasons recorded on both occasions show that the issue of advertisement expenses amounting to Rs.31,77,64,480/- is common in both the reasons. Once the case was reopened on this issue and order was passed u/s 143(3)/147, therefore, the assessment cannot be reopened on the same issue which, in our opinion, amounts to a mere change of opinion and, therefore, not legally tenable.
Now, coming to the second issue i.e. issue relating to process development and improvement expenses of Rs.1,79,44,142/- we find it is the case of the Assessing Officer that the same is capital in nature. We find from the details furnished by the assessee in the Paper Book that full details were given by the assessee during the course of assessment proceedings and there is no allegation by the Assessing Officer that there is failure on the part of the assessee to disclose all necessary material facts for completion of the assessment. Further, the reopening is after a period of four years from the end of the assessment year and, therefore, the same is barred by limitation as per the first proviso to section 147 of the I.T. Act.
So far as the ground raised by the Revenue that the ld. CIT(A) has decided the issue without considering the provisions of Explanation 1 to section 147 is concerned, we are of the opinion the same will not come to the rescue of the department once the reopening is barred by limitation as held by us in the preceding paragraphs. Since the ld. CIT(A) has given justifiable reasons for annulling the re-assessment proceedings on account of change of opinion as well as barred by limitation in view of first proviso to section 147, therefore, we do not find any infirmity in the order of the ld. CIT(A) on this issue.
Accordingly, the order of the ld. CIT(A) is upheld and the grounds raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on this 23rd February, 2018.