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2015 (9) TMI 1234 - AT - Income TaxReassessment proceedings - assessment order by CIT (A) by recording a perverse finding that the earlier Assessing Officer has applied mind to the royalty expenses being revenue in nature, was not justified - Held that - In response to the queries raised by the ld AO, the assessee in its submission dated 5.9.2008, has filed the details in respect of payment of royalty on sales along with agreement entered in respect of royalty, copy of challans of TDS on royalty and copy of approvals received from Ministry of Industry etc. Thus, at the time of scrutiny assessment the ld AO deemed to have applied his mind and he did not choose to make any addition on the issue. In the reason recorded the ld AO has not mentioned as to what is the material or information which has come to his possession or to the notice , on the basis of which he is making his belief that the royalty expenses should be treated as capital expenditure. Therefore respectfully following the judgment of the Hon ble Supreme Court in the case of Kelvinator (2010 (1) TMI 11 - SUPREME COURT OF INDIA) and decision of jurisdictional High Court in the case of Munjal Showa Ltd (2012 (4) TMI 239 - DELHI HIGH COURT ), the ld. AO cannot be permitted to change his opinion without any new facts before him. We find that the ld. CIT(A) has analyzed all the material which was submitted by the assessee before the ld. AO in response to queries raised during assessment proceedings u/s 143(3) of the Act and thereafter has given categorical finding on the issue of change of opinion by the Assessing Officer. Therefore there is no perversity in the order of the ld. CIT (A). It may be noted that on merit also the issue has been decided in favour of the assessee by the jurisdiction High Court in AY 2008-09. No error in the order of the ld. CIT(A) and therefore no interference is required in finding of the ld. CIT(A) quashing the reassessment proceeding. - Decided against revenue.
Issues Involved:
1. Validity of reopening the assessment under section 147 of the Income-tax Act, 1961. 2. Classification of royalty expenses as capital or revenue in nature. Detailed Analysis: 1. Validity of Reopening the Assessment under Section 147: The Revenue appealed against the order of the Commissioner of Income-tax (Appeals) [CIT(A)] which quashed the reassessment proceedings initiated by the Assessing Officer (AO) under section 147 of the Income-tax Act, 1961. The AO had issued a notice under section 148, claiming that the assessee's income had escaped assessment due to the incorrect classification of royalty expenses as revenue expenditure. The CIT(A) quashed the reassessment on the grounds of "change of opinion" by the AO, noting that all material facts regarding the royalty payments were fully and truly disclosed by the assessee during the original assessment proceedings. The AO had scrutinized these details and formed an opinion that the royalty payments were revenue in nature. No new facts or material were brought on record to justify the reassessment, and the successor AO merely recorded a different opinion. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in CIT vs. Kelvinator of India Ltd., which held that section 147 does not allow reassessment based on a mere change of opinion. The Tribunal emphasized that the AO must have "tangible material" to believe that income has escaped assessment. The Tribunal also cited the jurisdictional High Court's decision in CIT Vs. Munjal Showa Ltd., reinforcing that reassessment cannot be initiated on the basis of a change of opinion when the issue has already been examined during the original assessment. 2. Classification of Royalty Expenses: The AO had treated the royalty expenses of Rs. 2,39,60,828 paid to Sumitomo Mitsui Construction Co. Ltd. (SMCC) as capital expenditure, allowing depreciation at 25% and adding the balance amount to the assessee's income. The assessee argued that these expenses were revenue in nature and had been correctly claimed as such in the original assessment. The CIT(A) and the Tribunal both noted that the issue of royalty expenses had been thoroughly examined during the original assessment proceedings, where the AO accepted them as revenue expenditure. The Tribunal also referenced the coordinate bench's decision and the jurisdictional High Court's judgment in the assessee's own case for AY 2008-09, which held that the payment made on account of royalty and fee for technical services was revenue in nature. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to quash the reassessment proceedings. The Tribunal concluded that the reassessment was based on a change of opinion without any new material facts, which is not permissible under section 147. Additionally, the Tribunal upheld the classification of royalty expenses as revenue expenditure, consistent with prior judicial decisions in the assessee's case. Order Pronounced: The appeal of the Revenue was dismissed, and the order was pronounced in the Court on 23/09/2015.
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