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TMI Blog2013 (11) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... aktijit Dey, Judicial Member. This appeal filed by the department is directed against the order passed by the CIT (A)-II, Hyderabad dated 20-3-2009 passed in ITA No.0268/CIT (A)-II/08-09and it pertains to the assessment year 2003-04. 2.. Briefly the facts are, the assessee is a partnership firm engaged in the business of film distribution. For the assessment year under dispute, initially the assessment was completed u/s 143(3) of the I T Act on 17-11-2005 determining the income at Rs.10,84,870/-. Subsequently, assessment was reopened by issuing a notice u/s 148 of the Act. The re-opening of the assessment was on the reason that the assessee had entered into an agreement with M/s Suresh Production for purpose of rights of exploiting the film "Nee Premakai". As per the agreement dated 1-4-2002 the cost of acquisition was Rs.2.25 crores out of which Rs.Rs.75 lakhs was to be paid as down payment and the balance of Rs.1.50 crores was to be paid in instalments starting with the year ending 31-3-2006. The assessee had claimed the entire amount of Rs.2.25 crores in the Profit Loss A/c as expenditure as against the actual payment of Rs.75 lakhs. The Assessing Officer therefore came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that when M/s Suresh Productions has admitted in its return the cost of the asset at Rs.75 lakh which is also in conformity with the clauses 3 and 4 of the agreement, the claim of the assessee that the liability of Rs.2.25 crores accrues on the date of agreement is not acceptable. Accordingly, the Assessing Officer treated the amount of Rs.1.50 crores claimed as expenditure as escaped income and added it to the total income of the impugned assessment year while completing the assessment u/s 143(3) read with section 147 of the Act. The assessee being aggrieved of the assessment order preferred an appeal before the CIT (A). 4. Before the CIT (A), the assessee challenged the order both on legal grounds as well as on merits. It was contended by the assessee before the CIT (A) that during the original assessment proceedings, copies of the agreement on purchase of rights of the film were submitted before the Assessing Officer and the assessee had also explained in the course of assessment proceedings that since the assessee is consistently following mercantile system of accounting, the claim of deduction in purchase of rights for Rs.2.25 crores was correct. The Assessing Officer aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contend that the amount paid for purpose of Rule 9B read with section 43(2) means incurring the liability to acquire rights of feature film obtained on 99 years lease. The assessee in sum and substance submitted that liability for payment of the entire amount of Rs.2.25 crores having accrued to the assessee, it is entitled to claim deduction of the same. The CIT (A) on examining the record noted that in course of original assessment proceedings u/s 143(3) of the Act the Assessing Officer has called for the details of the transaction and contract/agreement in respect of payment of royalty for the film " Nee Premakai" vide letter dated 26-10-2005. In response to such letter of the Assessing Officer, the assessee had filed its reply along with copy of the agreement. The Assessing Officer had completed the assessment u/s 143(3) after considering the agreement. 6. The CIT (A) further noted that there is no material change in the set of facts as existed at the time of finalisation of original assessment u/s 143(3) and the Assessing Officer has reopened the assessment by considering the same set of facts on mere change of opinion which is not permissible in view of the decision of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpreting the agreement with respect to each of the party to the agreement. 9. Any other ground that maybe urged at the time of hearing." 7. Ground Nos. 1 and 9 are general in nature and hence they do not require any adjudication. 8. Ground No.2 is a legal ground on the validity of proceedings initiated u/s 147 of the Act. 9. The learned Departmental Representative submitted before us that the CIT (A) was not justified in holding the reassessment proceedings to be mere change of opinion. He submitted that though the Assessing Officer at the time of completing the original assessment has allowed the entire expenditure of Rs.2.25 crores, no opinion was expressed whether the same is allowable or not. Hence, it cannot be said that the Assessing Officer has formed an opinion with regard to the allowability of the expenditure. It was submitted that in case of Consolidated photo Finewest Ltd. Vs. ACIT (281 ITR 394) the Hon'ble Delhi High Court held that the reassessment based on material available on record, cannot amount to change of opinion and the reopening cannot be challenged if the assessment order passed by the Assessing Officer is silent on a particular aspect. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment in order sheet entry dated 26-3-2008 reads as under:- "During the year, assessee firm has debited an amount of Rs.2.25 crores towards rights of exploiting the firm "Nee Premakai". As per the agreement between assessee firm and holder of rights and assessee has only paid an amount of Rs.75 lacs during the year and claimed Rs.2.25 crores during the year. Hence, a excess claim of Rs.1.5 crores, which was not paid during the year. Hence income has escaped assessment. In view of this, issue notice u/s 148." A reading of the reasons recorded gives an impression that basis for reopening the assessment was on interpreting the terms of the agreement entered between the assessee and M/s. Suresh Productions. On perusal of the order of the CIT (A), it is quite evident that the CIT (A) has held the reopening of the assessment to have been made on mere change of opinion as the reopening was made by considering the same set of facts and material which were considered at the time of completion of the original assessment. In support of such finding of the CIT (A), the ld. AR at the time of hearing before us has submitted a letter dated 17-11-2005 claimed to have been submitted before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such letter was actually submitted before the AO and there is any entry in the order sheet made by the AO acknowledging the submissions of such letter and agreement. This is so because from the order of the CIT (A), we are not in a position to appreciate how the CIT (A) has come to a conclusion that there is an enquiry by the AO or application of mind by the AO on the issue by considering the letter dated 17-11-2005 and the agreement. The CIT (A) before coming to the conclusion that it is a change of opinion by the AO while reopening the assessment is required to give a finding that there was formation of opinion by the AO on the basis of materials available on record on this issue. Once the materials are found to be on record and the AO has directly or indirectly gone into the issue, the same issue cannot be considered for reopening without any fresh tangible material. This fact is required to be verified as the letter which was produced by the ld. AR at the time of hearing does not bear any signature and seal of the IT Department in token of its submissions. This fact could not be verified by us also as the assessment record was not produced at the time of hearing. If in fact, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after April 1, 1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words 'reason to believe', Parliament re-introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No. 549, dated October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as follows:- '7.2 Amendment made by the Amending Act, 1989, to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riting had been raised by the Assessing Officer. The aspects and questions examined during the course of assessment proceedings itself may indicate that the Assessing Officer must have applied his mind on the entry, claim or deduction, etc. It may be apparent and obvious to hold that the Assessing Officer would not have gone into the said question or applied his mind. However, this would depend upon the facts and circumstances of each case." In the aforesaid judgment, one of the learned Judges further held in the following manner:- "Quite apart from the fact that A. L. A. Firm (supra) was a case where a binding judgment of the jurisdictional High Court was overlooked when the original assessment was made, the earlier part of the observations of the Supreme Court in the aforesaid paragraph show the reluctance or disinclination of the court to accept the broad proposition, that even if full and true particulars had been furnished by the assessee at the time of the original assessment, it cannot be said that the Assessing Officer had applied his mind to the claims or contentions put forth by the assessee. The observation of the court that" ... it is opposed to normal human conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material and primary facts at the time of original assessment. In such a case if the assessment is reopened in respect of a matter covered by the disclosure, it would amount to change of opinion. I do not in the circumstances consider it necessary to answer the broad question as to what are all the circumstances under which section 114(e) of the Evidence Act can be applied." 14. Considered in the light of the principles laid down in the judicial precedents referred to above, there must be tangible material before the AO for coming to a conclusion that income has escaped assessment. The AO cannot reopen the assessment by re-appreciating or re-appraising the same set of facts and materials which were considered at the time of original assessment. If the AO while completing the original assessment proceedings has considered the agreement between the assessee and M/s Suresh Productions with regard to the assignment of rights of the film "Nee Premakai" and has completed the assessment after considering the same, the same material cannot form the basis for reopening the assessment as it will amount to change of opinion. Considering totality of facts and the circumstances, we remit the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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