2015 (9) TMI 900 - AT - Income Tax

Reopening of assessment - payment made to M/s Mahindra 9, 23, 23, 607/- - Held that - As held that the entire expenditure is capital in nature and mere fact that the capital expenditure is spread over period of time does not make any difference. Therefore the argument that the expenditure incurred during the year under consideration was only 9, 23, 23, 607/- does not hold any water.- Decided against assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/148 of the Income Tax Act.
2. Nature of expenditure incurred for obtaining exclusive vendor status-whether capital or revenue.
3. Correctness of the disallowance amount computed by the Assessing Officer.
4. Levy of interest under Section 234B of the Act.
5. Levy of interest under Section 234D of the Act.
6. Initiation of penalty proceedings under Section 271(1)(c) of the Act.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The appellant contended that the reassessment proceedings initiated under Section 147/148 were based on a mere change of opinion, which is not permissible as per the Supreme Court's ruling in 'CIT v. Kelvinator of India Ltd.' The original assessment was completed under Section 143(3), where the issue of allowability of payment for exclusive vendor status was examined and allowed. However, it was found that there was no evidence indicating that the agreement with M/s Mahindra & Mahindra was presented during the original assessment. Therefore, the Assessing Officer had no opportunity to form an opinion on the nature of the agreement. Hence, the reassessment proceedings were deemed valid as they were not based on a mere change of opinion.

2. Nature of Expenditure:
The appellant argued that the payment to M/s Mahindra & Mahindra for obtaining exclusive vendor status was a normal trade/volume discount and should be allowed as a revenue expenditure under Section 37(1) read with Section 28 of the Act. However, the agreement indicated that the appellant acquired an exclusive right to supply seating systems, which provided an enduring benefit to the business. Applying the principles from the Supreme Court's decision in Assam Bengal Cement Vs. CIT, the expenditure was deemed to be capital in nature, as it was a protection acquired for the business as a whole, enhancing the capital value of the business.

3. Correctness of Disallowance Amount:
The appellant contended that the total expenditure incurred and claimed during the year was only INR 92,323,607, not INR 140,899,500 as computed by the Assessing Officer. However, since the expenditure was held to be capital in nature, the manner of its spread over time did not alter its character. The CIT(A) also did not admit additional evidence on this issue, as there was no sufficient cause for not presenting it during the assessment proceedings. Consequently, the disallowance amount computed by the Assessing Officer was upheld.

4. Levy of Interest under Section 234B:
The appellant challenged the levy of interest under Section 234B. However, as this issue was consequential to the primary findings, it did not require separate adjudication.

5. Levy of Interest under Section 234D:
Similar to the issue under Section 234B, the levy of interest under Section 234D was also consequential and did not require separate adjudication.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The appellant challenged the initiation of penalty proceedings for furnishing inaccurate particulars of income. As this issue was also consequential to the primary findings, it did not require separate adjudication.

Conclusion:
The appeal filed by the assessee was dismissed, and the reassessment proceedings, disallowance of expenditure, and consequential levies of interest and initiation of penalty proceedings were upheld. The decision was pronounced in the open court on 9th September 2015.