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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal has been preferred by revenue against the order dated 18th June 2010 passed by learned Commissioner of Income-tax (Appeals)-VIII, New Delhi for Assessment Year 2002-03. The revenue has raised four effective grounds of appeal as under:-
1. The order of Ld. CIT(A) is wrong, perverse, illegal and against the provisions of law, liable to be set aside.
Page 2 of 7 2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of Rs.14,76,14,400/- on account of prior period expenses.
3. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of Rs. 1,22,23,280/- on account of foreign exchange fluctuation loss.
On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of Rs. 29,22,516/- on account of payment of remuneration to Directors.
5. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”
Against this the assessee has preferred an cross objection in C.O. No.355/Del.2010, wherein the following two grounds of appeal
have been raised:- “1. That the Commissioner of Income Tax (Appeals) ['CIT(A)'] has erred in concluding that the assessment proceedings were validly initiated by the Assessing Officer ('AO'). The AO has erred in re-opening the assessment already completed under section 143(3) by calling for the same information which was provided during the scrutiny assessment, which is a mere change of opinion. All the relevant documentation/ information/ material facts have been furnished as part of the return of income or during the course of assessment proceedings for which sufficient clarifications were provided and accordingly, all the issues had already been taken into account while completing the assessment under scrutiny.
2. That the notice issued under section 148 is illegal, bad in law and without jurisdiction and the re-assessment order passed is illegal, bad in law and without jurisdiction.”
3. As the CO of the assessee is challenging the validity of notice issued u/s 148 of the Act, We take up this issue first. The two grounds of cross objections are regarding that the AO has reopened the assessment proceedings on the appraisal of same material which was available before the AO at the time of original assessment.
4. The brief facts of the case is that the assessee filed its return of income on 31.10.2002 showing total loss of Rs.19,92,92,153/-. This return was revised on 02.12.2003 declared total loss Rs.16,90,39,649/-. The assessment u/s 143(3) was passed on 24th March 2005 assessing on loss of Rs.15,81,50,832/-. Subsequently the notice was issued u/s 148 of the Income Tax Act was issued on 19th March 2007. The reasons recorded by the AO were more precisely stated in letter dated 18.06.2007 of the AO wherein on three grounds the assessment was attempted to be reopen:-
Page 3 of 7 “In connection with the assessment for AY 2002-03 you are required to furnish the following details/information/explanation, 1. You have claimed Technical Service fee of Rs.2398.78 which included an amount of Rs.14,76,14,400/- pertaining to prior period. Please explain why it should not be disallowed as you are following mercantile system of accounting.
2. You have claimed an amount of Rs.1,22.23,280/- on account of foreign exchange fluctuation loss on the basis of restatement of liability which is not allowable being a notional loss. You are requested to explain why it should not be disallowed and added to your income.
Clause 21(a) of Notes to the Financial Statement reveals that remuneration of Rs.29,22,516 has been incurred by the company for its Managing Director which is in excess of the limits laid down in the Companies Act, 1956. Please explain why it should not be disallowed and added to your income.
The assessment was reopened. The ld AO made an addition of total of Rs.16,27,60,196/- determining the income of Rs.17,94,659/-. The assessee challenged this order on merits as well as on the issue of reopening, the learned Commissioner of Income-tax (Appeals) deleted the addition but dismissed the appeal on technical issue and upheld the validity the notice u/s 148. Therefore now the cross objection is before us challenging the validity.
The ld AR of the appellant stated that reopening is intended to be made on reappraisal of the same set up of facts and no fresh tangible material is come into possession of the assessee and therefore the reopening has been made on the reappraisal of the same material which is not valid. For this he relied on the decision of Hon’ble Supreme Court of India in the case of Kelivinator India Ltd. Vs. CIT reported 187 Taxmann 312. He further relied on the decision of Honourable Delhi high court in case of CIT V Tupperware India Pvt Limited ITA 415/2015 dated 1/8/2015.
Against this the ld DR supported that reopening has been validly initiated. Ld DR submitted that a. CO of the assessee is not maintainable in view of the decision of Ahmadabad tribunal In case of DCIT V Sandip M patel [ 22 taxmann.com 288]{Ahd} and Kanpur Industrial Works V Cit [59 ITR 407(All)] b. for reopening of assessment there is no need of new tangible material and AO can gather the evidence for reason to believe on the very Page 4 of 7 same record as had been matter of completed assessment. For this he relied on the decision of Honourable Delhi high court in case of Consolidated Photo & Finvest limited V ACIT 151 taxmann 41 (Delhi) 8. In response to this LD AR submitted CO is maintainable in view of the specific provision for section 253(4) of the act for this he relied on several decisions and prominent amongst them is the decision of CIT V Silver Line ] dated 4.11.2015.
We have carefully considered the rival contentions. Looking to the reasons recorded by the AO it intends to about certain expenses a. Certain prior period expenditure have been made amounting to Rs.14,76,14,400/- are prior period expenditure. This expenditure are part of technical service fees. These details have been furnished before AO at the time of original assessment . Further note No (i) also disclosed the details of prior period expenses. b. Further an amount of Rs.1,22,23,280/- is taken foreign exchange fluctuation loss, which is a notional loss is not allowable. Vide letter dated 10.3.2005 assessee has explained the details of Foreign Exchange loss to the AO . Further vide letter dated 14.3.2005 these details of foreign exchange loss were once again explained to the AO. Further note no (d) of notes to the financial statements apparently discloses the facts about the foreign currency transactions of the assessee. Further note No (i) also disclosed the details of foreign exchange loss c. AO perused clause 21(1) of notes of account stating that remuneration of Rs.29,22,516/- incurred by the company for its Managing Director is not allowable as it is in excess of limits laid down in the Companies Act, 1956. Further note no (d) of notes to the financial statements apparently discloses the facts about the foreign currency transactions of the assessee. Further note No (i) also disclosed the details of foreign exchange loss.
On looking at the facts of the case and reasons recorded all these facts are available on record at the time of original assessment. On perusal of the Page 5 of 7 order also we could not find any tangible material based on which the assessment is reopened. In view of the above facts we hold that issue is squarely covered in favour of the assessee as reassessment has been made based on the appraisal of the same facts and it is change of opinion and there is no tangible material to reopen the case of the assessee. We do not refer to many judgments submitted before us but only based on the decision of Hon’ble Supreme Court of India wherein it has been held that “6. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words " reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of " mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain 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 1st April, 1989, the Assessing Officer has power to reopen, provided there is " tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words " reason to believe" but also inserted the word " opinion" in section 147 of the Act. However, on receipt of representations from the companies against omission of the words " reason to believe", Parliament reintroduced the said expression and deleted the word " opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as follows : " 7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ' reason to believe' in section 147.—A number of representations were received against the omission of Page 6 of 7 the words ' reason to believe' from section 147 and their substitution by the ' opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, ' reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression ' has reason to believe' in place of the words ' for reasons to be recorded by him in writing, is of the opinion' . Other provisions of the new section 147, however, remain the same." Further it is held by honorable Delhi high court in case of CIT V Usha International limited 348 ITR 485 that assessments cannot be validly reopened under section 147 of the Act even within four years, if an assessee had furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made under section 143(3). So long as the assessee has furnished full and true particulars at that time of original assessment and so long as the assessment order is framed under section 143(3) of the Act, it matters little that the Assessing Officer did not ask any question or query with respect to one entry or note but had raised queries and questions on other aspects. Apparently in this case assessment is made u/s 143(3) originally and also AO has raised the questions. Based on above decisions it is clear that AO has power to reopen the completed assessment provided there is tangible material to come to a conclusion that there is an escapement of income from assessment. We do not find any tangible material come into the possession of the assessee but it is appraisal of the same material . Hence we reverse the finding of the CIT (A) and quash the notice issued u/s 148 of the act holding that reassessment is invalid.
The ld DR has raised an issue that CO is not maintainable and, he relied on the decision of Ahmadabad Bench in the case of DCIT Vs. Sunil M Patel. We have considered the decisions of the coordinate bench in that case and the cross objections were dismissed as withdrawn by the assessee. This is not the fact here, here the assessee pursuing the cross objection. Furthermore we have perused the provisions of section 253(4) of the Act which says that every cross objections is an appeal before the Tribunal. Therefore we reject the contention of the ld Departmental Representative.