2015 (6) TMI 451 - AT - Income Tax

Reopening of assessment - payment of royalty questioned - CIT(A) deleted reopening - Held that - the assessee has furnished break-up of sales and royalty agreement inter alia with other details during the course of the original assessment proceedings. Vide letter dt. 4.12.2003 which was submitted on 11.12.2003 once again the assessee has furnished the details of royalty payment alongwith other details. Thus, it can be seen that the payment of royalty has been duly examined by the AO before making the assessment u/s. 143(3) of the Act. After 4 years of making the assessment, reopening of the assessment to verify once again the payment of royalty vis- -vis sales is nothing but change of opinion and against the ratio laid down by the Hon ble Supreme Court in the case of Kelvinator of India (2010 (1) TMI 11 - SUPREME COURT OF INDIA). We, therefore decline to interfere with the findings of the Ld. CIT(A). - Decided against revenue. Additions made on account of recalculated sales - CIT(A) deleted addition - Held that - The undisputed fact is that there is a royalty agreement between the assessee and the Texas based company. It is also an undisputed fact that the payment of royalty is based on sales of grid material. We further find that no evidence whatsoever has been brought on record neither before the First Appellate authority nor before us to show that the assessee has made sales on discounted price. We also find that no such documentary evidences have been verified by the AO during the course of the assessment proceedings. Therefore, in the interest of justice and fair play, we set aside the findings of the Ld. CIT(A) and restore this issue to the file of the AO for denovo assessment. The assessee is directed to file necessary details alongwith supporting documentary evidences to justify that it has made sales at discounted price, to justify that there is no nexus between sales in India of grid material and the payment of royalty to Grid International Inc Texas USA. The assessee is further directed to substantiate its claim by bringing cogent material evidence on record to show that sales in India of Grid material is not based on US list price. - Decided in favour of revenue for statistical purpose

Summary

Issues Involved:
1. Reopening of assessment based on change of opinion for assessment year 2002-03.
2. Deletion of additions made on account of recalculated sales for assessment year 2007-08.

Issue 1: Reopening of assessment based on change of opinion for assessment year 2002-03:
The Revenue appealed against the Ld. CIT(A)'s decision regarding the reopening of the assessment for the year 2002-03. The Revenue contended that the AO's reopening of the assessment was challenged as being based on a change of opinion and hence not valid. The AO had reopened the assessment due to discrepancies in the reported income related to royalty payments and sales figures. The Ld. CIT(A) held that since all necessary details were already provided during the original assessment, there was no failure on the part of the assessee to disclose relevant material facts. The Ld. CIT(A) concluded that the reopening was indeed based on a change of opinion, which was not permissible. The Revenue further argued that the AO did not form any new opinion based on additional evidence. However, the Tribunal found that all relevant details, including break-up of sales and royalty agreements, were already submitted during the original assessment. Therefore, the Tribunal upheld the Ld. CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2: Deletion of additions made on account of recalculated sales for assessment year 2007-08:
In the appeal for the assessment year 2007-08, the Revenue challenged the deletion of additions made on account of recalculated sales. The AO recalculated the sales based on royalty payments, adding a significant amount as suppressed sales. The assessee argued that the sales could not be estimated accurately due to the lack of a direct link between sales in India and royalty payments to a US-based company. The Ld. CIT(A) found no evidence of unaccounted sales and deleted the additions. The Revenue contended that the assessee failed to provide details supporting discounted sales prices. The Tribunal observed that no evidence was presented to show sales at discounted prices or a lack of nexus between sales in India and royalty payments. As a result, the Tribunal set aside the Ld. CIT(A)'s decision and directed the AO to conduct a fresh assessment. The assessee was instructed to provide necessary details and evidence to justify their claims, and the AO was tasked with verifying these submissions before making a new decision.

In conclusion, the Tribunal dismissed the Revenue's appeal for the assessment year 2002-03 and treated the appeal for the assessment year 2007-08 as allowed for statistical purposes. The Cross objections filed by the assessee were also allowed for statistical purposes.