DCIT, NEW DELHI vs. M/S SMCC CONSTRUCTION INDIA LTD.,, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘G’: NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER and SHRI A.T. VARKEY, JUDICIAL MEMBER ITA No.4282/Del./2013 (ASSESSMENT YEAR : 2005-06) DCIT, Circle 9 (1), vs. M/s. SMCC Construction India Ltd., New Delhi. 23, Local Shopping Centre, Madangir, New Delhi – 110 062.

(PAN : AAACM7822P) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri G.C. Srivastava, Advocate and Shri Saurabh Srivastava, FCA REVENUE BY : Shri Bibhu Dutt Mishra, CIT DR Date of Hearing : 21.09.2015 Date of Pronouncement : 21.10.2015

O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :

This appeal, at the instance of the revenue, is directed against the order of the Commissioner of Income-tax (Appeals)-XII, New Delhi dated 17.04.2013 for the assessment year 2005-06.

the assessment proceedings u/s 147/148 of the Income-tax Act, 1961 (hereinafter ‘the Act’) by the CIT (A).

2 ITA No.4282/Del/2013 3. Brief facts of the case are that the assessee, SMCC Construction India

Limited (earlier known as Mitsui Kensetsu India Limited) was incorporated on

12.12.1996 as a joint venture between Mitsui Construction Co. Ltd., Japan and

M/s. Kairali Construction, India. The assessee commenced its business

operations in August 1997 and the first year of assessment was AY 1998-99.

During the Financial Year 2005-06, the name of the assessee company was

changed to SMCC Construction India Pvt. Ltd. The assessee company is

incorporated in India and is engaged in the business of providing engineering

services, undertakes turnkey construction and renovation works of industrial

undertakings, etc.

3.1 The return of income for the year under consideration was filed on

30.10.2005 declaring taxable income of Rs.2,96,99,382. Assessment

proceedings under section 143(2) of the Act were initiated and the same were

completed vide order under section 143(3) of the Act dated 11.12.2008 at an

income of Rs.3,04,47,740/-. A notice u/s 148 of the Act was issued on

23.03.2012 after recording the reasons. In response to notice u/s 148, the

assessee filed reply dated 20.04.2012 stating that the original return of income

filed for the relevant year i.e. 2005-06 be treated as return filed in compliance to

notice issued u/s 148 of the Act and requested for copy of reasons recorded for

reopening the assessment. The AO provided the same to the assessee on

15.10.2012. Subsequently, notice u/s 143 (2) was issued to the assessee. Vide

3 ITA No.4282/Del/2013 letter dated 28.02.2013, the assessee raised objections against reopening of the

assessment which was disposed off vide order dated 28.02.2013. Against the

same, the assessee filed a reply which was considered and not accepted by the

AO. The AO observed that the explanation given by the assessee could not be

accepted because section 194C of the Act nowhere limits the deduction of any

particular type of payment made to the sub-contractor and as such, the assessee

was liable to deduct TDS on the balance payment of Rs.6,13,90,130/- which the

assessee had failed to comply with. So, the AO made an addition of

Rs.6,13,90,130/- on account of TDS not deducted under the prescribed heads

were added back to the income of the assessee and completed the reassessment

on total income of Rs.9,18,37,870/-.

3.2 Aggrieved, the assessee filed an appeal before the first appellate authority

challenging the order of the AO u/s 147/148 of the Act. The CIT (A) quashed

the assessment u/s 147/148 of the Act by holding as under :-\

“Ground No.1 to 4 are together: I have perused the facts stated in the re-assessment order as well as the facts stated by the assessee in his submissions. The return for assessment year 2005-06, was filed on October 30, 2005 declaring taxable income of Rs.2,96,99,382. The return was duly processed under section 143(1) of the Act. Assessment was made under section 143(2) on December 11, 2008. A notice under section 148 was issued on March 23, 2012. The reason recorded for reopening of assessment proceedings were provided to the appellant as under: "In the instant case, as per column 27(a) of the Audit Report, it is stated that the assessee has not deducted tax at source in accordance with the provisions of chapter. It has now been noticed that the

4 ITA No.4282/Del/2013

assessee has not deducted TDS on the following payments thereby violating provisions of section 40( a)(ia) of the Act.

S.No. Name of items Amount 1 Contract and Sub-Contract works 24,02,624 2 Royalty 2,39,60,828 3 Legal and Professional Services 1,95,924 4 Payment to Contractor 16,42,338 5 Rent 84,68,904 6 Royalty on sales 2,52,06,791 7 Security service charges 11,82,701 Total 6,30,60,110

Thus, I have reasons to believe that there is escapement of income to the tune of Rs.6,30,60,110/- which is due to the failure on the part of the assessee to truly and fully disclose all the material facts necessary for the assessment." It has been observed that during the assessment proceedings u/s 143(3) of the Income Tax Act, 1961, the AO has issued detailed questionnaire to the appellant seeking information relating to contract and sub-contract works, supervision fee, legal & professional Services etc and TDS compliance thereon. The appellant has duly complied with the above notice by submitting complete information and any further information sought by the learned AO thereon. Copies of the questionnaire dated 27 October, 2008 seeking such information Vide question no. 19 and submissions was filed by the appellant on 26 November, 2008 and 03 December, 2008 have also been examined from where it can be observed that the appellant has not failed to disclose any material fact to the AO.

It is apparent that the appellant has truly and completely disclosed all material facts relating to all the expenses at the time of scrutiny assessment proceedings itself. The AO, after scrutinizing the details furnished by the appellant in the course of scrutiny assessment, formed an opinion that the appellant has correctly claimed these expenses. In view of these facts, no new facts are brought on record which gives reasons to believe that the income of the appellant has escaped assessment. Therefore, the reopening of assessment in the present case has been merely on the basis of change of opinion. It is seen that the reopening u/s 147 was done subsequent to the four- year period stipulated in the proviso to Section 147 and, consequently, the same could only be initiated if any income chargeable to tax had escaped assessment by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice under Section 142(1) or Section 148 or "to disclose fully and truly all material facts necessary for his assessment" for that assessment year.

There has been no failure which could be attributed to the assessee of not disclosing fully truly all relevant primary material facts necessary for completion assessment because in the reasons itself it is mentioned as per

5 ITA No.4282/Del/2013

column 27(a) of the Audit Report, it is stated that the assessee has not deducted tax at source in accordance with the provisions of chapter ...." It is evident that reasons recorded are based on the audit report of the assessee which were furnished with the return of income. Further it is self evident that the information was available in course of original assessment and all the material information necessary for framing an assessment. It is also seen that no new facts or material had been brought on record which provides reasons to believe that the income of the appellant has escaped assessment. In view of the above facts this is not a fit case for reopening of assessment.

My attention was further drawn to the proviso to section 147:

"Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year."

This case is squarely covered by my order in the case of JCIT(OSD), Circle 9(1), New Delhi Vs SMS Demang Pvt. Ltd. the ITAT Delhi Bench 'G' in ITA No. 5666/Dell2011 vide order dated 08/02/2013 has upheld the similar issue and has stated that.-

" .. .In the present case before us as discussed above the Assessing Officer during original assessment proceedings had raised a question on the issue of the claimed bad debt and on the provision of warranty and current liabilities vide query no. 12 of the questionnaire and being convinced with the submission of the assessee made in this regard he had accepted the claim. The tax Audit Report filed by the assessee was already there on record on the basis of which reopening of assessment u/s 147 has been initiated after recording the reasons.

Under these circumstances we find that the ld. CIT(A) has rightly accepted the objection of the assessee that initiation of reopening proceedings u/s 147 of the Act in the present case after the expiry of 4 years from the end of the relevant assessment year was not valid as per the proviso to section 147 of the Act since there was no failure on the part of the assessee to disclosed fully and truly all material facts necessary for its assessment for assessment year under consideration...

We do not find reason to interfere with the findings of the ld. CIT(A) that initiation of reopening proceedings in the present case was barred under the proviso of section 147 of the Act and hence we are of the view that the ld. CIT(A) has rightly quashed the assessment u/s

6 ITA No.4282/Del/2013

147/143(3) of the Act made in furtherance to the invalid notice issued u/s 148 of the Act.”

Further, in appellant's own case for the assessment year 2004-05 with the honourable IT AT Bench of Delhi where it was held that

" .....it is evident that in the original assessment, the assessee claimed certain expenses which are in the nature of purchase of designs and drawings to be revenue expenditure and the same were disallowed as such. Now, in the opinion of the Assessing Officer, it is in the nature of capital expenditure. Thus, as per the Assessing Officer himself there is no failure on the part of the assessee to disclose any material fact necessary (or assessment. It is a clear case of change of opinion wherein the succeeding Assessing Officer is of the opinion that the expenditure which was allowed in the original proceedings as revenue expenditure is in the nature of capital expenditure. However, as per the proviso to Section 147, unless there is any failure on the part of the assessee to disclose any material fact, the assessment cannot be reopened."

Reliance in this respect is also placed on the following judgment is as under:-

In the case of CIT vs USHA International Ltd. In ITA No. 202612010 dated September 21, 2012 where in the court reiterated that onus is on AO to prove that there is failure on the part of the assessee to disclose truly and fully of all particulars of income which resulted into an escaped assessment. In case of the non-observation of the same, the entire proceedings in pursuant of the same are void and bad in law.

Hon'ble Supreme Court judgement in case of M/s Kelvinator of India Limited [2010-TIOL-06-SC-IT-LB] where it was held after considering the various amendments u/s 147 of the LT. Act, held that:

"the Assessing Officer cannot re-open assessments on the basis of mere change of opinion and if the same is done it would give arbitrary powers to the AO to reopen the past assessments on mere change of opinion and this is not permissible even as per legislative intent. "

The Bombay High Court in the case of OHM Stock Brokers (P) Ltd. Vs Commissioner of Income Tax & Anr. in writ petn. Nos.79 to 82 of 2013 vide order dated 20th February, 2013 wherein it is held that:-

"Though the power of the AO to reopen as assessment within a period of four years is indisputably wider than when an assessment is sought to be reopened beyond four years, the power is nonetheless not unbridled. After the amendment which was brought in by the Direct Tax Laws (Amendment) Act, 1987 w.e.f 1st April 1989, the AO must have reason to believe that income has escaped the assessment. At the same time, the AO is not conferred with the power to review an assessment and he cannot reopen as assessment only because of a mere change in the opinion. The AO must, in

7 ITA No.4282/Del/2013

other words, have tangible material to come to the conclusion that there is an escapement of income. The mere fact that the order of assessment did not specifically deal with the issue as to whether the payment fell within the purview of s. 36(1)(ii) is not dispositive in the present case. The test is as to whether the assessee had furnished to the AO all the primary facts on the basis of which a deduction was claimed in respect of the commission that was paid to the two directors for services rendered. The record indicates that the assessee had specifically placed before the AD by its letter dt. 4th Sept., 2009, copies of the agreement dt. 16th June, 2005 between the assessee and its directors in pursuance of which remuneration was paid to them for the relevant year which included the payment of commission. The attention of the AO was clearly and specifically drawn to the quantum of the fixed monthly remuneration and in addition to the payment of commission which is computed at a stipulated proportion of the net profits. The assessee explained the basis on which a decision was taken to make the payment of commission at a fixed monthly remuneration and the rest at a proportion of the net profit. According to the assessee, this decision was based on the volatility of the stock market and having regard to the fact that the income of the assessee from share business had reduced and in fact, it was Rs.35.51 crores in comparison to the income of Rs.57.07 crores for the previous year, This is therefore, a case where the nature of the payment, the basis of the computation and the rationale for computing the remuneration to the two directors with reference to a fixed remuneration in part and a proportion of the net profits in balance was brought in focus before the AO. Hence, all the primary facts for the purpose of a deduction under s. 36(1)(ii) were placed before the AD. That the order of assessment under s. 143(3) accepted the claim on this issue is what matters. 1t is not in dispute that the two directors have been assessed under s. 143(3) on the amounts paid by the assessee to them as salary income. The Revenue has admittedly treated the amounts paid to the directors in question as salary income in their hands and their assessments have been completed accordingly. In this view of the matter, the reopening of the assessments must be held to be based on a pure change of opinion and not on tangible material. Therefore, the conclusion is that the reopening of the assessment was on a mere change of opinion and was impermissible in law. For these reasons, the conclusion is that the reopening of the assessments under s. 147 for assessment years 2007-08 and 2008-09 is contrary to law. The notices issued under s. 148 for the aforesaid years are quashed and set aside - CIT Vs Kelvinator of India Ltd. (2010) 228 CTR (SC) 488: (2010) 34DTR (SC) 49: (2010) 320 ITR 561 (SC)

In the case of Commissioner of Income-tax Vs Purolator India Ltd. [2012] 343 ITR 155 (Delhi High Court) it is held that:-

"... One of the jurisdictional pre-conditions for reopening of an assessment after four years is that there should be failure on the part of the assessee to disclose material facts necessary for assessment. The expression "material facts" in Explanation J to section 147 of the Income-tax Act, 1961 refers to primary facts. The term "primary facts" or "material facts" are those facts which are material and relevant for the decision of the question before the Assessing Officer and non-disclosure of which would have a material

8 ITA No.4282/Del/2013

bearing on the question of escapement of income from assessment. Whether or not "primary facts" have been disclosed is normally a question of fact and depends upon the facts and circumstances of each case. The requirement of Explanation 1 is that there should be full and true disclosure of the primary or material facts and not beyond that. It is the obligation of the assessee to disclose fully and truly the primary facts. It is not the obligation of the assessee to indicate and state what legal inference can be drawn from the primary facts.

The assessee had claimed special deduction for the assessment year 2000-01 under section 80HHC. The deduction was reduced by the Assessing Officer. The original return of income was accompanied by audited accounts and auditor's report required to be submitted in terms of section 80HHC (4) of the Act. Similarly, the assessee had claimed deduction under section 80-IB of the Act, which was specifically mentioned in the audited accounts and the auditor's report. The special deductions were allowed. Subsequently, in March, 2006, reassessment proceedings were initiated by the Assessing Officer after recording that the computation of deduction under section 80HHC was allowed without reducing the deduction claimed and allowed under section 80-IB as required by section 80-IA(9), which is also applicable to section 80-IB. The tribunal held that the reassessment proceedings were not valid. On appeal to the High Court:

Held, dismissing the appeal, that there was no indication that the assessee had failed or admitted to disclose the material or primary facts. These were available on record. The Assessing Officer had failed to draw correct legal inferences at the time of original assessment from the primary facts. This was not an error or omission on the part of the assessee. It was not alleged that the assessee had suppressed, misrepresented or falsified the record/facts. It was also not alleged that there was any subsequent factual information on the basis of which it was found that the assessee had not fully disclosed the primary facts or had falsified or disclosed incorrect primary facts. The reassessment proceedings were not valid ... "

Atma Ram Properties Pvt. Ltd. vs. DCIT[2012] 343 ITR 141(Delhi) the Delhi High Court has stated as under.-

" ...In order to initiate proceedings for reassessment after four years, there should have been a failure on the part of the assessee to disclose material facts necessary for assessment. If the Assessing Officer had failed to apply legal provisions/section of the Income-tax Act, 1961, the fault cannot be attributed to the assessee. The requirement is that the assessee should have failed or omitted to make full and true disclosure of material facts. The assessee is not required to disclose, state or explain the law ... "

BLB Limited Vs Assistant Commissioner of Income-tax [2012]343 ITR 129 (Del)

" ... Held, allowing the petition, that the assessee had disclosed fully and truly all material facts relevant for the assessment. The reasons recorded

9 ITA No.4282/Del/2013 did not disclose or state that there was failure or omission to disclose fully and truly all material facts. There was no indication and it was not alleged that there was some material or information available on record when reasons to reopen were recorded, to show that the assessee had concealed or had not disclosed fully and truly all material facts. In the original assessment proceedings the Assessing Officer had considered and examined whether or not the non-compete fee payment was of capital or revenue nature. The Assessing Officer accepted the stand of the assessee and treated the non- compete fee as a revenue expenditure. The reassessment proceedings could not, therefore, be initiated on the ground that the Assessing Officer was legally wrong and had misapplied and wrongly understood the law/legal position." The Assessing Officer was not correct in his action to assume jurisdiction over the appellant for the year under consideration in view of the proviso to section 147 of the Act. Additionally reasons recorded are based on audit report furnished with return of income and accepted in original assessment. The case was selected for scrutiny and assessment proceedings u/s 143(2) were initiated by the Assessing Officer and the same were completed U/S 143(3). It is a case of change of opinion i.e. reappraisal of same facts. On which earlier Assessing Officer had taken a view on which the new Assessing Officer differs. In view of the above, it is submitted that, proceedings initiated u/s 147 of the Act and completion of assessment u/s 1471143(3) of the Act is ab-initio void and illegal is therefore quashed.”

made by the CIT (A) and submitted that the order of the AO is erroneous as the

same was passed without considering the first proviso to section 147 which

provides that where an assessment has been completed u/s 143(3) of the Act,

reassessment u/s 147 cannot be initiated after expiry of four years from the end

of the relevant assessment year unless there is an omission or failure on the part

of the assessee to disclose fully and truly all material facts necessary for the

10 ITA No.4282/Del/2013 assessment. He further submitted that there has been no failure on the part of

the assessee to disclose fully and truly all material facts which were necessary at

the time of the assessment proceedings. He submitted that the reassessment is

made only on the basis of a mere change of opinion which could not be a

ground for reopening assessment proceedings. Ld. AR submitted that all the

relevant information was submitted at the time of assessment proceedings and

also at the time of reassessment proceedings. He submitted that the ld. CIT (A)

has rightly quashed the reassessment proceedings and wanted us not to interfere

with the order of the ld. CIT (A).

take note that the reopening u/s 147 was done subsequent to the four-year period

stipulated in the proviso to Section 147 and, consequently, the same could only

be initiated if any income chargeable to tax had escaped assessment by reason

of the failure on the part of the assessee to make a return under Section 139 or in

response to a notice under Section 142(1) or Section 148 or "to disclose fully

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

year. We take note that during the original scrutiny assessment proceedings u/s

143(3), the AO had issued detailed questionnaire to the assessee seeking

information relating to contract and sub-contract works, supervision fee, legal &

professional Services etc and TDS compliance thereon; and the assessee has

duly replied the questionnaire and complied with the said notice by submitting

11 ITA No.4282/Del/2013 information regarding the same and further information sought by the AO

thereupon has been found to have been complied with. We further take note

that questionnaire of AO dated 27.10.2008 sought information pertaining to the

impugned reopening vide question no. 19 and the assessee in response to it had

filed reply to it on 26.11.2008 and 03.12.2008 which have also been before the

AO during the original assessment. So, it cannot be said that the assessee has

failed to disclose any material fact before the AO during the original scrutiny

assessment. We further concur with the view of the ld. CIT (A) that there has

been no failure which could be attributed to the assessee of not disclosing fully

and truly all relevant primary material facts necessary for completion of

assessment because in the reasons itself it was mentioned, “as per column 27(a)

of the Audit Report, it is stated that the assessee has not deducted tax at source

in accordance with the provisions of chapter ....". This averment in the reasons

recorded for reopening is itself copied from the very same audit report of the

assessee which was furnished with the original return of income. Thus, we find

that the assessee has truly and completely disclosed all material facts relating to

all the expenses at the time of scrutiny assessment proceedings itself and the

AO, after scrutinizing the details furnished by the assessee in the course of

scrutiny assessment, has passed the original assessment order u/s 143 (3) of the

Act. Therefore, we concur with the CIT (A) that no new facts were brought on

record which can be the basis for reasons to believe that the income of the

assessee had escaped assessment and, therefore, the reopening of assessment in

12 ITA No.4282/Del/2013 the present case had been merely on the basis of change of opinion, which is not

permissible in the eyes of law. Therefore, we uphold the view of the ld. CIT

(A) that this is not a fit case for reopening of assessment.

7.2 In view of the above, we hold that this is a case of change of opinion and

the ld. CIT (A) has rightly quashed the reassessment. Accordingly, we uphold

the order of the ld. CIT (A).

Order pronounced in the Open Court on this 21st day of October, 2015.

Sd/- sd/- (N.K. SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: the 21st day of October, 2015 TS Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A)-XII, New Delhi. 5. DR:ITAT

ASSISTANT REGISTRAR ITAT, New Delhi