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TMI Blog2012 (10) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... - SHRI B.R.MITTAL AND SHRI RAJENDRA, JJ. Appellant by : Shri S.Venkatraman Respondent by: Shri Pravin Varma ORDER Per B.R.Mittal, JM: The assessee has filed this appeal for assessment year 2003-04 against order of ld CIT(A) dt.12.3.2010 on following grounds: 1. On the facts and circumstances of the case and in law, the assessee submits that the Commissioner (Appeals) failed to appreciate that the reassessment notice and the reassessment proceedings are without any jurisdiction, and bad in law and the learned CIT (A) erred in holding that the reassessment proceedings are valid under section 147 of the Income Tax Act, 1961 (the Act). 2. On the facts and circumstances of the case and in law, the assessee submits that the Commissioner (Appeals) failed to appreciate that in the absence of any tangible material, other than what was already on record, the learned Assessing Officer had no reason to believe that income had escaped assessment and consequently the learned CIT (A) erred in holding that the reassessment notice and the reassessment proceedings are valid under section 147 of the Act. 3.On the facts and circumstances of the case and in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges. In the assessment order the Assessing Officer after discussing the issue in detail disallowed an amount of Rs.2,62,50,350/- being capital expenditure and thereafter allowed depreciation at 60% on the said amount. As per Appendix 1 of [Rule (5)] of the Income Tax Rules, 1962, as amended with effect from 01.04.2003, from A. Y. 2003-04 onwards, on computer including computer software depreciation has to be allowed to the tune of 60%. With the inclusion of computer soil-ware in the depreciation chart as stated above, the entire expenditure of Rs. 7,03,36,291/- should have been capitalized and depreciation at 60% or 30% as applicable should have been allowed depending on the date of installation. Thus the assessee s claim of software charges of Rs. 4,40,85,941/- is not allowable and the assessee s income to the extent of Rs. 2,71,42, 796/- has escaped the assessment as worked out as under: - Total software expenditure debited 7,03,36,291 Less: Expenditure capitalized 2,62,50,350 Balance allowed as revenue expenditure 4,40,85,941 Purchased / installed upto 30.9.2002 : 1,23,91,210 Purchased/ installed from 1.10.02 3,16,94, 731 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t u/s.234B of the Act is leviable if the advance tax including TDS is less than 90% of the tax levied on the assessed income. This interest being a penal interest, no deduction is allowable to the assessee in computing the income. The Assessing Officer, therefore, rightly disallowed assessee s claim in the earlier assessment years. This action of the Assessing Officer did not amount to taxation of the interest hut only a disallowance of the claim. In such a situation, assessee s claim of deduction amounting to Rs.6,97,50,863/- on account of interest u/s. 234B of the Act is not allowable for A. 1 . 2003-04. Thus (he assessee s income to the extent of Rs.6,9 7,50,863/- has escaped the assessment. Therefore, I have reason to believe that in the case of the assessee, the income of the assessee chargeable to tax has escaped the assessment for A. Y. 2003-04. Issue notice u/s. 148 of the Act. 6. Pursuant to notice issued u/s.148, assessee filed a letter dt.8.4.2008 and requested to treat the return of income field on 24.11.2003 as return filed in response to notice u/s.148 of the Act. 7. The AO issued a show cause notice u/s.142(1) of the Act on 3.11.2008 requiring the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment cannot be reopened unless the AO has reason to believe that due to some inherent defect in the assessment, the income chargeable to tax had been under assessed or assessed at too low rate or excessive relief was granted. It is observed that assessee stated before ld CIT(A) that during the course of original assessment proceedings, AO issued a letter dt.3.2.2005 to the assessee calling for various information in regard to assessment, and as per question No.24 of the said letter, the assessee was asked to submit details of software expenditure claimed as revenue expenditure and also to explain as to why same should not be disallowed following the department s stand for A.Y. 2001-02 in assessee s own case. It is observed that assessee vide letter dt.5.9.2005 and furnished details of software charges of Rs.7,03,36,291 debited to its profit and loss account and claimed as revenue expenditure. It was contended that the AO vide para 12.1 to 12..4 at pages 27 to 30 of the assessment order dated 28.2.2006 allowed the sum of Rs..4,40,85,941 as revenue expenditure. We reproduce paras 12.1 to 12.4 of the assessment order, which read as under: In schedule K of the P L account, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee s submissions, reproduced above, regarding treatment of the entire expenditure as revenue expenditure is duly considered. I have also perused the ITAT, Jaipur Bench decision in the case of Business Information Processing Services Vs. ACIT. In the said case, the issue before the Tribunal was relating to expenses of Rs.85,000/- and Rs. 1,35,000/- in the assessment year 1989-90 and 1990-91 on development of software which were treated as capital expenditure. The capitalization of the above amount was confirmed by the CIT(A). However, Tribunal held that the expenses were revenue in nature only on the ground that the expenditure did not give any enduring benefit as assessee has to change this software within a short span of time i.e. 4 months or 6 months. The facts in the case of the assessee cannot be compared with the facts of the case before the Tribunal. As can be seen, in the case before the Tribunal not only the amount involved was very meager but the software itself was valid for a period not exceeding 6 months, thus, it could not partake the character of capital expenditure. In order to understand the application of capital vs. revenue expenditure vis- -vis software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are monitored through these software whereas the system software, is like a super structure which ensures the smooth running of the business activities. 12.3 In the light of the above discussion, the facts of software charges of Rs2,62,50,350/- included in the total software charges of Rs. 7,03,36,291/-show that the same have been incurred on SAP software installed for accounting and generating bills of its advertising revenue. Prior to the installation of the above software, assessee was using Ingress based System Restnet for its response department. The response department of the assessee takes all the bookings for advertising and is responsible for all the earnings / revenue from advertising. The SAP software is a sophisticated software which is an imported software sold through their agents in India. The total cost of this software is Rs. 1.18 crore which has been paid to SAP India Pvt. Ltd. and was installed in the response department of all the branches of the assessee throughout India over a period of 6 months through Siemens Informations Ltd., to whom the assessee made payment of Rs. 1.27 crore as consultancy services for project implementation on account of SAP an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and he allowed software charges of Rs.4,40,85,941 as revenue expenditure. It was contended that between the date of original assessment order and the date of forming of an opinion for reopening the assessment i.e. 19.3.2008, nothing new has happened, no new material or information has been received or brought on record, neither is there any change in the law. Therefore, it is merely a change of opinion to reopen the assessment. 10.2 Further, in respect of second reasons recorded by the AO to reopen the assessment that AO erroneously allowed Rs.5,78,43,310 to be carried forward as long term capital loss and thereby allowed an excess amount of Rs.24,73,492 to be carried forward, assessee stated that in the original assessment order at page 45, AO discussed the capital gain/loss carried forward to assessment year 2004-05. It was contended that carried forward of long term capital loss in the original assessment order dt.28.2.2006 did not in any way affect computation of income for A.Y. 2003-04 . On account of allowance of that loss to be carried forward, the income assessed for A.Y. 2003-04 remained unaffected. Thus, no income to the extent of Rs.24,73,492 has escaped assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and decided the issues after considering relevant information called for from the assessee. Ld A.R. submitted that assessee made true and complete disclosure of material facts in the return of income as well as at the time of assessment proceedings. Ld A.R. referred the decision of Hon ble Jurisdictional High Court in the case of Cartini India ltd vs. ACIT, 314 ITR 275 (Bom) and the decision in the case of Asteroids Trading and Investments Pvt Ltd vs. DCIT, 308 ITR 190 (Bom) and submitted that the reassessment on the basis of the very material which was considered during the original assessment cannot be made as it amounts to mere a change of opinion. Ld A.R. submitted that even after the amendment in section 147 of the Act. w.e.f. 1.4.1989, AO can reopen an assessment, provided there is tangible material to come to the conclusion that there was escapement of income from assessment. To substantiate his submission, he relied on the decision of Hon ble apex Court in the case of CIT vs. Kelvinator of India Ltd, 320 ITR 561(SC). Ld AR submitted that similar issue was also considered by the Tribunal in the case of ACIT vs Rolta India Ltd., 132 ITD 98 . He contended that the initiatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, but also the said fact is mentioned by the AO himself in the reasons recorded, as reproduced hereinabove in para 5. Similarly in respect of second ground taken by the AO to reopen assessment i.e. to allow carry forward of excess long term capital gains to the tune of Rs.24,73,492, we observe that the said issue was also considered by the AO in the assessment order in para 17 at page 38. Similarly, in respect of refund of interest of Rs.6,97,50,863, pertains to assessment year 1993-94, we observe that AO asked for details during the course of assessment proceedings and only after examining the same, he accepted the claim of the assessee while passing assessment order u/s.143(3)of the Act dt.28.2.2006. 17. Considering the above facts and on going through the reasons recorded by the AO, we observe that AO has initiated reassessment proceedings based on the materials already considered and adjudicated by him and, therefore, we find merit in the contention of ld A.R. that reopening of assessment on the same material which was already available with the AO while making original assessment order u/s.143(3) of the Act, would amount to reviewing assessment order by re-appreciating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue of notice and finally filed writ petition before the Hon ble High Court. Their Lordships held that there is only change of mind or change of opinion which is not justified and allowed the writ petition as under: That the assessee-company had fully disclosed material facts necessary for claiming deduction under section 80M of the Act and there was application of mind by the Assessing Officer in allowing the deduction claimed by the assessee in the assessment order. Though the notice under section 148 was issued on the ground that there was reason to believe that income had escaped assessment there was neither any change of law nor had any new material been brought on record between the date of the assessment order and the date of formation of opinion by the Deputy Commissioner of Income-tax. It was merely a fresh application of mind by the officer to the same set of facts and the reassessment proceedings were initiated based on the change of opinion of the officer. 19. The Hon ble apex Court in the case of Asian Paints Ltd vs DCIT, 308 ITR 195 (SC) held that the legislators while giving jurisdiction u/s.147 of the Act to the AO to reopen the assessment have not confer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order, we observe that AO while allowing software expenses of Rs.4,40,85,941 as revenue expenditure and to treat the balance amount of Rs.2,62,56,350 as capital in nature, considered in detail the nature of expenditure incurred by the assessee as well as claim of the assessee. Therefore, AO has duly applied his mind while deciding the said issue and making the original assessment order under section 143(3) of the Act. It is not the case of the department that assessee had not placed full facts before the AO nor it is the case of department that any new facts came to his knowledge later on. On the other hand, the AO considered the claim of the assessee in detail and no tangible material is available before the AO after the completion of assessment to enable him to form a belief that income chargeable to tax had escaped assessment by reason of expenditure. Similarly, in respect of other two issues of allowing excess carry forward of long term capital loss as well as refund of interest u/s.234B of the Act, AO has itself mentioned in the reasons recorded that the explanation given by the assessee at the time of making original assessment considered and, thereafter the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein it was held that in the absence of any tangible material which could persuade the AO to form the belief that income chargeable to tax had escaped assessment by reason of allowance of expenses, he could not issue notice u/s 148 of the Act even though notice had been issued within a period of four years from the end of the relevant assessment year. It was held that so long as assessment has been completed u/s.143(3) of the Act, merely because the issue on which notice was issued u/s.148 was not specifically adverted to in the assessment order, does not ipso facto give jurisdiction to the Assessing Officer to reopen the assessment, unless there is tangible material before the Assessing Officer to come to the conclusion that there is escapement of income. It is relevant to state that the Tribunal decided the validity of notice issued under section 148 of the Act in the above case after considering the decision of Hon ble Jurisdictional High Court in the case of IPCA Laboratories Ltd vd DCIT, 251 ITR 420(Bom) as also the decision of Hon ble Gujarat High Court in the case of Prafulla Chunilal Patel (supra), the cases on which AO has placed reliance in the assessment order to justify ..... X X X X Extracts X X X X X X X X Extracts X X X X
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