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TMI Blog2015 (5) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... his decision making power by choosing to solely rely on the audit objection or follow such direction without his subjective satisfaction. In the instant case, therefore, the petitioner has succeeded on this ground alone and notice of reopening does need to be quashed. The amount paid for prepaid service was contended to be the outright purchase of "Recharge" by Prepaid Connection Customers and not an advance to be appropriated against the future use of services. The petitioner followed mercantile system of accounting and yet recognized the revenue only when the services were rendered to the prepaid customers.It was the stand of the petitioner that as long as no services were rendered by the assessee to the customers, income cannot be recognized by the assessee. It is only at the time of actual use made of the network of the assessee by the customers that he would be required to render the services. Such issue was threadbare examined by the Assessing Officer and therefore also, it cannot be said that the assessee failed to disclose fully and truly all material facts. As far as the second question was concerned, Section 35ABB provides for amortization of license fees paid for o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture charged to P L Account was allowed as deduction resulting into under assessment of income. 2.3 It is the say of the petitioner that, on issuance of notice under Section 148 of the Act dated 07.03.2012 for reopening the assessment of the Assessment Year 2007-2008, the assessment is sought to be reopened on the very grounds which were already earlier scrutinized by the Assessing Officer as specific queries were raised under Section 142(1) of the Act alongwith detailed questionnaires therefore, this notice is nothing but a change of opinion. 2.4 On petitioner's request, reasons recorded for such reopening of assessment vide communication dated 02.05.2012 have been provided which are as follows: 1. Section 145 of the I.T. Act, 1961 provide that the income chargeable under the head Profit and gains of business or profession shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Assessee was a cellular service provider in the state of Gujarat. It followed mercantile system of accounting. Schedule 10: Current Liabilities of the Balance Sheet reflected an amount of ₹ 103,82,20,000/- with narr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges that the assessee had charged ₹ 583898027 to the Profit Loss account, being royalty paid to Wireless Planing Commission of Govt. of India. This expenditure, as stated by the assessee, was in the nature of fee paid to Wireless Planning Commission as percentage of Revenue. It was further seen from Annexure 6 of assessee's submission dated November 11, 2009 (i.e. copy of agreement between telecom operators and Department of Telecommunication- para 19.3 Radio spectrum Charges) that in addition to license fee payable to the DOT, the cellular licensees pay spectrum charges on revenue share basis of 2% of Adjusted Cost Revenue (AGR) towards WPC charges covering royalty payment for the use of cellular spectrum and License fee for Cellular Mobile handsets Cellular Mobile Base Stations and also for possession of wireless telegraphy equipment as per the details prescribed by Wireless Planning Coordination wing (WPC). Any additional band width, if allotted subject to availability and justification shall attract additional License fee as revenue share. It was observed that although the license fee paid to the Department of telecommunication was disallowed and amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him. 4. Learned Senior counsel Mr. Saurabh Soparkar, appearing with learned counsel Mr. Bandish Soparkar for the petitioner-company, has urged that it is a well settled law that if the Assessing Officer has not acted independently nor had a reason to believe that any income had escaped assessment and instead, had acted on the basis of the audit objection exclusively, such notice for reopening cannot be allowed to be proceeded with. He further urged that the grounds on which notice under Section 148 of the Act has been issued, were scrutinized by the Assessing Officer on petitioner having furnished the materials and after scrutinizing assessment under Section 143(3) of the Act and therefore also, this is nothing but a change of opinion on the part of the Assessing Officer. He relied on the decision of the Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) and urged that the assessee is under no obligation to assist the Assessing Officer in drawing legal inferences. Cumulatively, it was argued that this is nothing but a change of the opinion on the part of the Assessing Officer. 5. Learned counsel Ms. Paurami Sheth for the revenue-department has urged this Court that thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome had therefore escaped assessment. Despite such opinion of the Assessing Officer, when ultimately the impugned notice came to be issued the only conclusion we can reach is that the Assessing Officer had acted at the behest of and on the insistence of the audit party. It is well settled that it is only the Assessing Officer whose opinion with respect to the income escaping assessment would be relevant for the purpose of reopening of closed assessment. It is, of course true, as held by the decisions of the Apex Court in the case of P.V.S. Beedies Pvt. Ltd. (supra) and Indian Eastern Newspaper Society (supra), if the audit party brings certain aspects to the notice of the Assessing Officer and thereupon, the Assessing Officer forms his own belief, it may still be a valid basis for reopening assessment. However, in the other line of judgment noted by us, it has clearly been held that mere opinion of the Audit Party cannot form the basis for the Assessing Officer to reopen the closed assessment that too beyond four years from the end of relevant assessment year. 6.5 Also in case of Jagat Jayantilal Parikh v. Deputy Commissioner of Income tax in Special Civil Application No.1606 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Significant Accounting Polices, it was disclosed that, where, as per billing plan, customers were billed in subsequent period, income was offered on accrual basis. However, as far as Prepaid Service was concerned customer in this category were required to pay for the service in advance by purchase of Recharges . The advance so paid was non-refundable even if the service could not be ultimately utilized by the customer. Even where such customer opts to cancel using assessee's service, the unutilized balance was not refundable. Thus, the amount paid for prepaid service was for outright purchase of Recharge and not an advance to be appropriated against future use of the service. The customer derives the absolute right to utilize the service. Thus, the income from Prepaid Service crystallizes as soon as customers make payment. The right to received the income vests with the assessee as soon as the Recharges are purchased by customers. The H'ble S.C. held in CIT v. Ashokbhai Chimanbhai (56 ITR 42) that income accrues when assessee acquire right to receive it. Since assessee employed mercantile system of accounting, income accrues with receipt and it cannot be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 583898027/- as charged to the Profit Loss account was allowed as deduction. This resulted in under assessment of income of ₹ 530816388/- with impact on revenue to the extent of ₹ 23,76,34,818/-. In view of the above I have reasons to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act.' 9. It can be further noted that Asstt. Commissioner of Income-tax, Circle-8, while addressing a letter to the Commissioner of Income-tax, Ahmedabad-4, dated 27.07.2011, noted that the assessment for the Assessment Year 2006-2007 in case of the assessee was completed where a request was also made for necessary direction from the office of CIT-IV as for Assessment Year 2006-2007. Similar objections were raised and they were dealt with on such guidance. On the issue of amortization of license fees paid to operate telecommunication services, it is contended that identical objections when raised, the audit had accepted the department's stand and on the very same ground, inconsistent and whimsical stand is taken by audit for Assessment Year 2007-2008 for which, verification needs to be sought from the audit. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee failed to disclose fully and truly all material facts. 12.3 As far as the second question was concerned, Section 35ABB provides for amortization of license fees paid for operating telecommunication services. Petitioner's claim for the Assessment Year 2008-2009 was disallowed to the extent of ₹ 98,29,17,915/- charged to P L account but one eleventh (1/11 th) of which was allowed as deduction for considering the same for amortization. It is the stand of the petitioner that the royalty paid to the Wireless Planning Commission of Government of India is not paid for obtaining the license this being revenue expenditure not capital expenditure for obtaining license, is not amortizable under Section 35ABB. The respondent-Assessing Officer thus, already had raised the said issue of amortization of royalty paid to the Wireless Planning Commission of Government of India while framing the assessment under Section 143(3) of the Act. 13. Heavy reliance is placed on the decision in case of CIT v. Kelvinator India Ltd. reported in (2010) 320 ITR 561 by the petitioner to insist that the Assessing Officer has no right to reopen on changing his mind. Not only there is abse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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