2015 (9) TMI 2 - AT - Income Tax

Reopening of assessment - whether CIT(Appeals) has erred in annulling the assessment order under section 143(3)/147 - Held that - In the Assessment year under consideration before us this material aspect of the case has not been rebutted that the issue of allowability of royalty of expenses was duly considered by the Assessing Officer while framing the original assessment under sec. 143(3) of the Act on 29.12.2006 and since then there was no change of law or material and the decision of the Hon ble Supreme Court in the case of Southern Switch Gear Ltd. vs. CIT (1997 (12) TMI 105 - SUPREME Court) was very much in existence when the original assessment order was framed on 29.12.2006. We are thus respectfully following the ratios laid down by the Hon ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) hold that the Learned CIT(Appeals) has rightly come to the conclusion that the Assessing Officer was not justified in reopening of the assessment under sec. 147 of the Act holding the same as void ab initio and consequently the assessment in question as annulled. We thus hold that there is no infirmity in the first appellate order on the issue. The same is upheld. - Decided in favour of assessee. Penalty imposed under sec. 271(1)(c) - whether CIT(Appeals) while deleting the penalty has ignored the fact that assessee had made a wrong claim of 23, 07, 349 in relation to the commission of the ex-gratia paid to its directors even though the same was not allowable as per the provisions of sec. 36(1)(ii)? - Held that - the very addition made by a disallowance of 23, 07, 349 on account of commission and ex-gratia payment made to directors of the assessee company by invoking sec. 36(1)(ii) of the Act which remained the subject matter of penalty in question has been deleted by the ITAT. The ITAT has also approved the first appellate order in this regard on an identical issue for the assessment year 2004-05 following which the Learned CIT(Appeals) in the assessment year under consideration has held the levy of penalty as unjustified on the basis that in the assessment year 2004-05 the Learned CIT(Appeals) has allowed the appeal of the assessee on the issue. We thus do not find any reason to interfere with the first appellate order. - Decided in favour of assessee.

Summary

Issues:
1. Validity of reopening assessment under section 147.
2. Deletion of penalty imposed under section 271(1)(c).

Issue 1: Validity of reopening assessment under section 147:
The Revenue challenged the first appellate order questioning the reopening of assessment under section 147 of the Income-tax Act, 1961. The Assessing Officer contended that income had escaped assessment due to royalty payment capitalization issues, following the decision in Southern Switch Gear Ltd. vs. CIT. However, the Learned CIT(Appeals) annulled the assessment order under section 143(3)/147, deeming the reopening as invalid based on a mere change of opinion. The ITAT analyzed the case, noting that the issue of royalty expenses had already been scrutinized during the original assessment under section 143(3). The ITAT upheld the Learned CIT(Appeals)'s decision, citing the principle that mere change of opinion does not justify reopening under section 147, as established in the case of CIT vs. Kelvinator India Ltd. The ITAT concluded that the reassessment was based on the same material available during the original assessment, hence confirming the annulment of the assessment under section 147.

Issue 2: Deletion of penalty imposed under section 271(1)(c):
The Revenue contested the deletion of penalty under section 271(1)(c) by the Learned CIT(Appeals), arguing that the assessee made a wrong claim related to ex-gratia payment to directors. The Revenue claimed that the penalty was justified due to deliberate tax evasion. However, the assessee's representative pointed out that the ITAT had previously decided on the validity of the addition made for commission payments to directors, ruling in favor of the assessee. The ITAT upheld the deletion of the penalty, as the addition made on commission payments was found invalid, following a decision by the Hon'ble jurisdictional High Court. The ITAT concluded that since the addition was deleted, there was no basis for the penalty. The ITAT upheld the decision of the Learned CIT(Appeals) and rejected the Revenue's grounds for the penalty.

In summary, both appeals by the Revenue were dismissed by the ITAT. The judgment provided detailed analysis on the validity of reopening assessments under section 147 and the deletion of penalties imposed under section 271(1)(c), ensuring adherence to legal principles and precedents set by higher courts in similar cases.