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TMI Blog2015 (10) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... that royalty was allowed to be claimed as revenue expenditure by the Assessee for the years earlier to AY 2002-03. A copy of the agreement under which royalty was being paid was provided to the Revenue. In light of the legal position after the amendment to Section 147 of the Act, as explained in CIT v. Kelvinator of India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA), the Court is of the view that, in a case where the assessment is sought to be reopened in 2009, four years after it was originally made, i.e. 2005, the mere fact that there was a judgment of the Supreme Court of 1997 which was not noticed by the AO when he framed the original assessment cannot per se constitute the only material on the basis of which the assessment could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 147 of the Income Tax Act, 1961 in the facts of the case? 4. The Assessee filed its return of income for the Assessment Year ( AY ) 2002-03 on 31st October 2002 declaring income at ₹ 67,91,500. The Assessee s case was selected for scrutiny under Section 143(1) of the Act on 24th June 2003. An order was passed on 31st January 2005 under Section 143(3), assessing the income at ₹ 71,46,170. One of the items of expenditure was a sum of ₹ 20,71,489 under the head Royalty Cess . 5. On 5th September 2005, the Assistant Commissioner of Income Tax ( ACIT ) issued a notice under Section 154 of the Act to the Assessee seeking explanation on the ground that there was mistake apparent from the record since the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the income chargeable under the head 'profit and gain of business and profession'. The Hon'ble Supreme Court had held (232 ITR 359 - Southern Switchgears Ltd. vs. CIT dated 11.12.1997) that grant of technical aid fees for setting up factory and right to sell the products as per collaboration agreement is not allowable as revenue expenditure and was to be treated as capital expenditure. The perusal of asstt. records for the AY 02-03 reveals that the assessee has debited an amount of ₹ 2071489/- under the head 'royalty and cess' (Royalty ₹ 1973337/-) that was of enduring nature and hence was a capital expenditure and not allowable. As per the decision of the Hon'ble Supreme Court in the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se property was allowed as deduction on the ground that it was not assessable either as revenue or capital expenditure. When for the subsequent AY 1962-63 the Assessee filed its return showing nil income, the Income Tax Officer issued notice on 3rd September 1963 stating that the amount ought to have been brought to tax in AY 1961-62 in view of the decision of the Madras High Court in Ramachari Co. v. CIT (1961) 41 ITR 142. Following the reply given by the Assessee, the ITO issued a notice under Section 148 read with Section 147(b). The Assessee objected to reopening of the assessment. It was in the above facts and circumstances, that the Supreme Court held that the material which constituted information and the basis of which the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end of the relevant assessment year for which the original assessment was made. This brings in the requirement of the AO satisfying himself of the existence of either jurisdictional fact. The escapement of income should be occasioned by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section(1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 14. The Supreme Court in CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) has held that, even in terms of the amended Section 147 there has to be some tangible material for an AO to have reason to believe that income h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eopen an assessment which is beyond the period of four years from the end of the relevant assessment year, the condition that there has been a failure on the part of the Assessee to truly and fully disclose all material facts must be concluded with certain level of certainty. 16. In the present case, there was no failure on the part of the Assessee to disclose the material particulars with the return originally filed. On the contrary, the AO himself replied to the audit objection pointing out that royalty was allowed to be claimed as revenue expenditure by the Assessee for the years earlier to AY 2002-03. A copy of the agreement under which royalty was being paid was provided to the Revenue. The only reason for reopening the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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