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TMI Blog2013 (1) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... eopening “based on information received from Revenue Audit” - Assessment year 2004-05 - within the period of four years - Held that:- It is difficult to sustain the notice issued u/s. 148 as the audit objection is only an inference that the royalty payment resulted in a capital benefit, such an opinion expressed by the audit cannot constitute tangible material on the basis of which the assessment can be reopened. As decided in Indian Eastern and Newspaper Society v. CIT, (1979 (8) TMI 1 - SUPREME COURT) information as to correct legal position must come from a formal source or body which is competent to pronounce upon the issue and that revenue audit is not competent to pronounce on issues of law. The alleged non-deduction of tax from the royalty which would authorise the disallowance under section 40(a)(i) is a fact that is mentioned for the first time in the counter-affidavit and it does not find place in the reasons recorded. As noted earlier, it is impermissible to look into any record other than the reasons recorded to judge the validity of the reopening of the assessment. Further, the statement in the counter- affidavit that the facts relating to the past years disclosed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income or to furnish fully and truly all material facts relating to his assessment at the time of the original assessment. This is a jurisdictional pre-condition. 4. For the assessment year 2002-03, the reasons recorded u/s. 148(2) for reopening the assessment are as follows: The assessment of M/s Xerox India Ltd. for the assessment year 2002-03 was completed under scrutiny in March 2005 determining an income of Rs.7836.96 lakhs. The assessed income was however reduced under section 250/154 to Rs.1136.81 lakhs. 2. The assessee company had claimed and was allowed an expenditure of Rs.438.59 lakh on account of royalty paid to a foreign company in foreign exchange in lieu of rendering technical assistance. Since this expenditure has provided the assessee a benefit of enduring nature, this expenditure ought to have been treated as capital expenditure in accordance with the judgment of Supreme Court in the case of Southern Switchgear Ltd. vs CIT and another reported at 232 ITR 359. The omission resulted in underassessment of income of Rs.438.59 lakh. 3. Further, the assessee claimed and was allowed a loss of Rs.317.43 lacs on account of provision for securitisation. It being o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f res judicata is not applicable to income-tax proceedings, that the rule of consistency does not hold good on the facts of this case and that in these circumstances the reopening was valid. It is pointed out that the contents of the supplementary agreements 1 2 were not submitted by the petitioner during the original assessment proceedings. 7. In respect of the assessment year 2003-04 also, the royalty of Rs.359.59 lakhs was separately shown in the Schedule-O which sets out the details of the material and manufacturing expenses . A questionnaire was issued by the AO on 06.02.2006 in which 28 queries were raised by him, including query No.23 in which the petitioner was directed to furnish evidence that royalty has been paid within the time prescribed u/s. 43B and file evidence of TDS from royalty . The petitioner submitted the details asked for under cover of letter dated 15.02.2006. On 23.03.2006 the petitioner again gave certain clarifications about the TDS from royalty payments in response to the queries raised by the respondent by letter dated 17.03.2006. The assessment was completed on 23.03.2006. The counter-affidavit filed by the respondents is substantially the same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. The other reasons recorded relating to provision for securitisation, contingent liability, gratuity/superannuation etc. are not reproduced since the objections of the petitioner with respect to those issues were accepted by the respondent by order passed u/s.154 on 11.02.2010. 13. The contention of the petitioner is that the notice issued u/s. 148 is without jurisdiction on the basis of the Full Bench judgment of this court in CIT v. Kelvinator of India Ltd., (2002) 256 ITR 1, which stands affirmed by the Supreme Court in CIT v. Kelvinator of India Ltd., (2010) 320 ITR 561. The contention is that once an assessment is completed under sec. 143(3), the assessing officer is presumed to have applied his mind to all the issues and he cannot thereafter reopen the assessment on the ground that he did not form any opinion with respect to any particular issue; he must have tangible material before him on the basis of which he can entertain a reason to believe that income chargeable to tax has escaped assessment. It is contended that there is no reference to any tangible material in the reasons recorded and that all that is stated therein is that the expenditure by way of royalty confe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change of opinion. It is also averred that the assessing officer received information by way of revenue audit report from the DG Audit, Central Revenue, IP Estate, New Delhi vide letter dated 03.09.2007 accompanied by a statement of facts which was thoroughly examined by the AO and only after he was fully satisfied and formed an opinion that income chargeable to tax had escaped assessment by way of Royalty payment that reasons were recorded and notice u/s 148 was issued on 30.03.2010.... , that thus the reopening was based on information received from Revenue Audit and that an examination of records with reference to the Revenue Audit Objection also revealed that the petitioner had not disclosed full and true facts about the capital nature of Royalty payments . It is denied that the reopening is based on a mere change of opinion. 17. It is difficult to sustain the notice issued u/s. 148. The audit objection is only an inference that the royalty payment resulted in a capital benefit; such an opinion expressed by the audit cannot constitute tangible material on the basis of which the assessment can be reopened. In the case of Indian Eastern and Newspaper Society v. CIT, (197 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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