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TMI Blog2017 (9) TMI 815X X X X Extracts X X X X X X X X Extracts X X X X ..... be presumed in the absence of any such recording. In the case before us the assessee has filed the return of income for the relevant financial year and it is only from these documents that the audit party has raised its objections. Thus, there is no new material which has come to the notice of the audit party or the AO for raising such objection or forming a belief that there is escapement of income. When all the material facts were part of the record, even if there is loss of revenue, it cannot be reassessed after lapse of four years from the end of the relevant A.Y unless the loss has occurred due to failure on the part of the assessee to disclose fully and truly all material facts. Since the preconditions for initiation of proceedings u/s 147 of the Act by issuance of notice u/s 148 of the Act are not satisfied, we see no reason to interfere with the order of the CIT (A) and the Revenue’s appeal is accordingly dismissed. - ITA No.515/Hyd/2015 - - - Dated:- 13-9-2017 - Smt. P. Madhavi Devi, Judicial Member And Shri S.Rifaur Rahman, Accountant Member For The Revenue : Shri P. Chandra Sekhar, DR For The Assessee : Shri Ravi Bharadwaj ORDER Per Smt. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thereafter completed the assessment by making various disallowances and the consequent additions to the returned income of the assessee. Aggrieved, the assessee preferred an appeal before the CIT (A) raising the grounds against the validity of the re-assessment proceedings and also against the merits of the additions. Further, the assessee has also raised an additional ground that the learned AO has erred in initiating the re-assessment proceedings based on audit objection. In support of the grounds raised, the assessee filed detailed submissions before the CIT (A). The CIT (A) observed that the grounds 1, 2 and 10 are against the validity of the re-assessment proceedings and after considering the assessee s submissions at length, he held that the notice u/s 148 on the basis of audit objection and the consequent re-assessment proceedings are void ab initio. He relied upon various judicial precedents for coming to this conclusion. He therefore, did not deal with the merits of the other grounds of appeal raised by the assessee on merits of the additions. Against the relief given by the CIT (A) by quashing the re-assessment proceedings as void ab initio, the Revenue is in appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR placed reliance upon the following decisions: i) CIT vs. PVS Beedies Pvt. Ltd reported in (1999) 237 ITR 0013. ii) Indian Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (S.C) iii) CIT Cochin vs. National Tyres Rubber Co. of India Ltd reported in (2011) 15 Taxmann.com 3 (Ker.) Thus, according to him, the order of the CIT (A), holding the reassessment proceedings to be void ab initio, has to be set aside and prayed that the matter may be remitted to the CIT (A) with a direction to decide the appeal on merits of the additions challenged by the assessee. 4. The learned Counsel for the assessee, on the other hand, supported the order of the CIT(A) and submitted that the assessee has filed the return of income disclosing all the material facts necessary for the assessment of its income. He submitted that the notice u/s 148 has been issued after expiry of four years from the end of the relevant A.Y and therefore, the proviso to section 147 of the Act would apply. He submitted that the audit party has raised the objections after verifying the assessment records of the assessee and therefore, it is clear that all the relevant facts were part of the record and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CITIII vs. LGE C-NCC (Jt. Venture) in ITTA No.390 of 2014 b) Hon'ble Madras High Court in the case of CIT vs. Arvind Remedies Ltd (2015) (93 CCH 121) c) Hon'ble Supreme Court in the case of CIT v. Bhanji Lavji (1971) (79 ITR 582) d) Hon'ble Supreme Court in the case of CIT vs. Lucas T.V.S. Ltd (2001) (249 ITR 306) e) Hon'ble Bombay High Court in the case of CIT vs. DRM Enterprises (2014) (230 Taxman 61) 6. Having regard to the rival contentions and the material on record, we find that the question before us is whether the reassessment proceedings have been initiated only on the basis of the audit objection without any application of mind by the AO and whether the re-assessment u/s 147 is valid in law. Undisputedly, the assessment in the case of the assessee was completed u/s 143(3) of the I.T. Act by orders dated 15.12.2008 and the notice u/s 148 is dated 26.3.2013. The relevant A.Y 2005-06 ended on 31.03.2006. Therefore, the reopening of the assessment is clearly after a period of four years from the end of the relevant A.Y and in such circumstances, the proviso to section 147 of the Act would apply. It is also not in dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny debited an amount of ₹ 2,50,63,559/- towards 'Licence Fees' (Rs.1,60,41,152/- towards Licence Fee payment for using 'Central Auto Technology' and ₹ 90,,22,405/- towards 'Business Solutions license fee payment'). The payments were made to associated enterprises/group namely M/s.TNS U.K Ltd and M/s.TNS Singapore P. Ltd. The payments attracts the provisions of section 40(a)(i) and section 195 of the Act. Further, as seen from the nature of payment the 'Licence Fee' had an enduring benefit to the assessee company on its usage in the day to day business activity. Hence, in view of the nature of business and nature of payment made for acquiring 'Licence fee' from Group companies, the said expenditure needs to be capitalized under 'Intangible assets' and depreciation @ 25% on ₹ 2,50,63,559/- amounting to ₹ 62,65,890/- is only allowable and the balance of Rs.l,87,97,669/- needs to be brought to tax. 3) It is observed from Schedule-I - Administrative cost that an amount ofRs.1,14,58,641/- was debited towards 'Royalty payment' (including the Central Group Service charges) made to Group companies. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the A.Y concerned (hereafter in sections 148 to 153 referred to as the relevant A.Y . 8. Thus, it is clear that at the relevant point of time i.e. prior to 1.4.1989, the AO had the power to reopen the assessment without any time limit even where the assessee has disclosed all material facts truly and fully. Subsequent to the introduction of the proviso to section 147, the AO has the power to reopen the assessment only on satisfaction of the conditions mentioned therein. Thus, by virtue of this amendment, the power hitherto vested with the AO are subject to the conditions mentioned in the proviso. We are, therefore, satisfied that the decision of the Hon'ble Supreme Court in the above case is applicable only to the extent that audit objection can be considered as information brought to the notice of the AO and not for the proposition advanced by the learned DR that an assessment can be reopened on the basis of an audit objection. ( ii) Indian Eastern News Papers and Society v. CIT (119 ITR 996)(S.C) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty, the AO will be justified in revising the assessment within the period of limitation provided therein. It was further held that the re-assessment in the said case was within the period of 4 years, whereas, in the case before us, the reopening of the assessment is beyond 4 years. Therefore, in our opinion, this decision is not applicable to the facts of the case before us. ( iv) Haryana Agro Industries Corporation Ltd vs. CIT reported in (2016) (385 ITR 488 (P H) In this case, the Hon'ble Punjab Haryana High Court was considering the case of reopening of the assessment on the basis of audit objection within a period of 4 years and therefore, the said decision is also not applicable to the facts of the case before us. ( v) Franchise India Holdings Ltd vs. ACIT reported in (2016) (388 ITR 563) (P H ) ( vi) Dalmiya Brothers (P) Ltd vs. CIT reported in (2011) (204 Taxman 83) (Del.) In this case the Hon'ble Delhi High Court was dealing with a case where during the assessment proceedings the AO had asked the assessee to furnish complete details/confirmation in respect of sundry creditors amounting to ₹ 1,66,37,402 while the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case before us. 9) The learned Counsel for the assessee, on the other hand, had relied upon the following decisions: i) Unreported decision of Hon'ble A.P Telangana High Court in the case of CIT-II vs. LGE C-NCC (Jt.Venture) (ITTA No.390 of 2014) . The Hon'ble Andhra Pradesh High Court in this case has held that where the pre conditions for issuance of notice u/s 148 after four years and within six years, namely, the allegation of escapement of income on account of failure on the part of the assessee to make a return u/s 139 or in response to notice issued under subsection (1) of section 147 or section 148, or to disclose fully and truly all material facts necessary for its assessment for that A.Y, have not been fulfilled, initiation of proceedings u/s 147 is bad in law. ii) Hon'ble Madras High Court in the case of CIT vs. Arvind Remedies Ltd reported in (2015) (93 CCH 121) 10) The Hon'ble Madras High Court in the case of CIT vs. Arvind Remedies Ltd (Cited Supra) has at Para 12 of its order held as under: 12. In the light of the above, we hold that when the Assessing Officer had failed to record anywhere his sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant to the decision of the question before the assessing authority and once all the primary facts are before the AO, he requires no further assistance by way of disclosure. It is held that it is for the AO to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn and it is not for somebody else far less the assessee - to tell the assessing authority what inferences-whether of facts or law should be drawn. It has also been held that Explanation to the sub-section to section 34 of 1922 Act has nothing to do with the inferences to be drawn and deals only with the question whether primary material facts not disclosed, could still be said to be constructively disclosed on the ground that with due diligence, the Income Tax Officer has discovered them from the facts actually disclosed. From the above decision, it is clear that though the Audit Party can bring information to the knowledge of the AO that the income of the assessee has escaped the assessment, it is incumbent upon the AO to record a finding along with the reasons for reopening of the assessment, that the income has escaped assessment due to the failure of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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