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TMI Blog2012 (6) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and indisputably, the assessee submitted a detailed reply no point of hiding any information – against revenue. - ITA No.2945/Del/2011 - - - Dated:- 27-4-2012 - Diva Singh, A N Pahuja, JJ. For Appellant: Shri Y K Sharma, AR For Respondent: Shri S K Upadhyay, DR ORDER Per: A N Pahuja: This appeal filed on 3.06.2011 by the Revenue against an order dated 22-3-2011 of the ld. CIT(A)-VIII, New Delhi, raises the following grounds:- 1. The order of the learned CIT(A) is erroneous and contrary to facts and law. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in annulling the assessment passed u/s 147/143(3) of the Income-tax Act. 2.1 The learned CIT(A) ignored the finding recorded by the Assessing Officer and the fact that the assessment was reopened u/s 147/148 of the Income-tax Act after following due process laid down by the law. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of Rs.10,70,000/- being the 25% of royalty capitalized. 3.1 The Ld. CIT(A) ignored the finding recorded by the Assessing Officer and the fact that rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the territory. The acquisition of such a right may be treated partly towards capital and partly towards the revenue. 4. Therefore, I have reason to believe that on account of failure on the part of the assessee to disclose truly fully all material facts necessary fro it assessment for that year, the income chargeable to tax has escaped assessment within the meaning of section 147 of the It act, 1961 because of wrong claim of royalty of 10,70,000 as revenue expenditure." 2.1 Accordingly, a notice u/s 148 of the Act issued on 29.3.2007 was served upon the assessee. In response, the assessee filed return on 12.04.2007. The objections raised by the assessee against the issuance of notice u/s 148 of the Act were disposed of vide order dated 17.12.2007 in the light of decision of Hon'ble Supreme Court in the case of Southern Switchgear Ltd., 232 ITR 359 (SC) . Subsequently, assessment was completed on nil income with the disallowance of 25% of the royalty paid by the assessee in terms of agreement entered into with M/s Kyungshin Industrial Corporation Ltd. (KIC) Korea for the purpose of utilizing the specialized technology of KIC and for the purpose of manufacturing wiring ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d myself in agreement with the learned counsel for the appellant that the reopening of assessment in the present case is as a result of change of opinion and the same is not permissible in law as held by the Hon'ble Delhi High Court in the following cases:- i) Legato Systems (I) (P) Ltd. Vs. DCIT; ii) Jindal Photo Films Ltd. Vs. DCIT 234 ITR 170; iii) CIT Vs. Ashoka Builders (P) Ltd. 212 CTR 413; iv) CIT Vs. Kelvinator of India Ltd. 256 ITR 1 (Full Bench) . Subsequently confirmed by the Hon'ble Supreme Court in 320 ITR 561 . v) Sita World Travels (I) Ltd. Vs. CIT 274 ITR 186 In view of the aforesaid discussion and also taking into consideration the factual errors pointed out by the learned counsel in the reasons recorded by the learned Assessing Officer. I have no hesitation in holding that the initiation of proceedings u/s 147/148 of the Income-tax Act, 1961 is not sustainable for the assessment year under consideration. Therefore, the reassessment proceedings and the impugned reassessment is being annulled." 4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR while relying upon the decision dated 26.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full and true disclosure of material facts in relation to royalty expenses. The assessee made disclosure of royalty expenses in its accounts for the year under consideration. Besides, during the course of assessment proceedings the AO had raised a specific query relating to royalty expenses and indisputably, the assessee submitted a detailed reply dated 17.1.2003 placed on page 31 to 38 of the paper book. We find that the facts mentioned in the aforesaid reasons were available with the AO even at the time of finalizing the initial assessment completed u/s 143(3) of the Act on 24.3.2003. On the basis of same material, if the AO takes a different view subsequently, after expiry of 4 years from the end of the assessment year, that would not confer any jurisdiction on the AO to issue notice u/s 148 of the Act. The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassess the income for any assessment year beyond the end of four years from the end of relevant assessment year must be omission or failure on the part of an assessee to make a return under section 139 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for that year and that the Income-tax Officer has reason to believe that the income chargeable to tax has escaped assessment for that year. In the absence of any such omission or failure on the part of the assessee, taking action for assessment or reassessment is not permissible for any year after the expiry of four years from the relevant assessment year. The scope of the assessee's duty to disclose fully and truly all material facts necessary for assessment in the context of the provisions of section 34 of the Indian Income-tax Act, 1922, has been succinctly stated by the Supreme Court by their Lordships in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191. The court observed: "There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee." The court further said: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5.3 In the case of Mercury Travels Ltd. Vs. DCIT Another, 258 ITR 533 (Cal.) , Hon'ble High Court in the light of facts of the case concluded that no income chargeable to tax had escaped assessment for those assessment years due to failure of the assessee to disclose fully and truly all material facts necessary for its assessment. 5.4 In Priyanka Carbon Chemical Industries (P) Ltd. vs. DCIT (2008) 15 DTR (Guj.) 31 , Hon'ble High Court held that when factual data was available with the AO at the time of assessment, on the same very material, if the AO takes a different view subsequently and that too after expiry of four years from the end of the relevant assessment year, that would not confer any jurisdiction on the AO to issue notice u/s 148 of the Act. Similar view was taken in ACIT vs. Jagdishbhai Nanubhai Tekrawala (2008) 12 DTR (Guj) 270 . 5.5 In Vareli Weavers Pvt. Ltd. vs. DCIT (1999) 240 ITR 77 (Guj) also notices under section 148 read with section 147 of the Act were quashed by the Hon'ble High Court, there being no whisper in the reasons recorded by the AO about failure on the part of the assessee to disclose truly and fully all material facts . 5.6 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue that there was any omission or failure on the part of the assessee to disclose fully and truly all material facts relevant for the assessment of the assessment year in question, impugned notice under s. 148 issued beyond a period of four years from the end of the relevant assessment year is bad in law and without jurisdiction. 5.12 In Cadila Healthcare Ltd. vs. Dy. CIT [2010] 41 DTR 145 (Guj) , Hon'ble High Court concluded that in the absence of any averment in the reasons recorded by the AO for reopening the assessment that the petitioner has failed to disclose fully and truly any material fact necessary for its assessment for the year under consideration or any new material or facts coming to the notice of the AO leading to the conclusion that income had escaped assessment, the ingredients of the proviso to s. 147 are not satisfied and, therefore, entire proceedings under s. 147 initiated pursuant to the impugned notice after expiry of four years from the end of the relevant assessment year were without jurisdiction and cannot be sustained. 5.13 In Mihir Textiles Ltd. vs. Jt. CIT [2010] 43 DTR 11 (Guj) , Hon'ble High Court held that the petitioner having submitted audite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing Officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our viewpoint, we hold that the notice dated 29-3-2004 under section 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated 2-3-2005 are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above." 5.16 Now adverting to decisions relied upon by the ld. DR, in Dalmia Pvt. Ltd.(supra). In this case, Hon'ble jurisdictional High Court found that despite the fact the assessee did not file confirmations of sundry creditors of Rs.52,84,058/-, the AO added only an amount of 19,86,551/- u/s 41(1) of the Act and there was no explanation why no addition was made for the amount of Rs.32,97,507/- while the assessee failed to furnish details of all the creditors. On these facts, the Hon'ble High Court upheld the reopening of assessment while referring to decision in Honda Siel Power Products Ltd.(supra). In this latter decision, Hon'ble High Court found that as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of opinion", whereas, in the case of existing material, no conscious attempt has been made, it would tantamount to mistake in not considering the relevant point or proposition and it would not be a "change of opinion". 5.18 As regards change of opinion, we may reiterate that the assessee made disclosure of royalty expenses in the accounts for the year under consideration. Besides, during the course of assessment proceedings the AO raised a specific query relating to royalty expenses and indisputably, the assessee submitted a detailed reply dated 17.1.2003 placed on page 31 to 38 of the paper book. These facts have not been disputed before us. In this context, we find that Hon'ble Apex Court while affirming the decision of Hon'ble Delhi High Court in Kelvinator of India Ltd.(supra) and going through the changes made to section 147 of the Act observed as under: " .., we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umber of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." For the aforestated reasons, we see no merit in these civil appeals filed by the Department; hence, dismissed with no order as to costs." 5.19 The aforesaid observations of the Hon'ble Apex Court when viewed in the light of facts and circumstances in the case before us, lead us to an inescapable conclusion that the AO reopened the assessment in relation to royalty expenses merely on the basis of change of opinion and no 'tangible material' was brought on record before initiating action u/s 147 of the Act. 5.20 Moreover, Hon'ble Madras High Court in their decision dated 3.8.201 in CIT vs. M/s Baer Shoes (India) Pvt. Ltd, In ITA no.706 of 2010 , following the view taken by Hon'ble Gujrat High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed orders, the AO reopened the assessment completed on 24.3.2003 u/s 143(3) of the Act merely on the basis of facts already available before him at the time of original assessment proceedings. Not even a whisper is evident from the reasons recorded or the facts narrated in the impugned orders as to whether or not there was any failure on the part of the assessee in disclosing fully and truly all material facts necessary for his assessment. The reasons do not indicate why and how the assessee failed to make full and true disclosure of material facts in relation to royalty expenses. We are of the opinion that any such failure as is envisaged in the proviso to sec. 147 of the Act, is a matter of fact alone and there can be no deemed failure. In these circumstances, in absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the notice under section 148 of the Act having been issued after the expiry of a period of four years from the end of the relevant assessment year, the very initiation of proceedings under section 147 of the Act stands vitiated and as such cannot be su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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