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TMI Blog2018 (6) TMI 1447X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in favour of assessee - ITA No.1466/Chd/2017 And Cross Objection No. 03/Chd/2018 - - - Dated:- 28-5-2018 - SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER For The Assessee : Shri. K. M. Gupta And Shri. Harish Bisht For The Department : Dr. Gulshan Raj, DR ORDER PER ANNAPURNA GUPTA, A.M.: The present appeal filed by the Revenue and the Cross Objection of the assessee are directed against the order of CIT(A)-1 Chandigarh 31/07/2017. 2. Briefly stated the assessee had for the impugned year filed return declaring Nil income, which was assessed under section 143(3) of the Act making various additions therein. Thereafter the AO reopened the assessment under section 147 and made addition of ₹ 3,11,32,500/- to the income of the assessee by treating the royalty paid by the assessee amounting to ₹ 4.67 crores as capital expenses, as against revenue claimed by the assessee. The said order was challenged before the Ld. CIT(A) both on the legal ground of the validity of the assessment framed under section 147 of the Act as well as on the merits of the case. The Ld. CIT(A) upheld the validity of the order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That the Ld. CIT(A) failed to appreciate that there is no escapement of income for the year under consideration as no tangible material has come into existence after completion of original assessment and there was mere change of opinion on the part of Ld. AO. 5. Since the assessee has raised a legal ground before us challenging the validity of the order passed under section 147, we shall first be dealing with the Cross Objection filed by the assessee. 6. The sole argument of the Ld.Counsel for the assessee before us was that the reassessment proceedings were initiated in violation of the conditions prescribed in the proviso to section 147 of the Act ,which was attracted in the present case. Drawing our attention to the proviso which states as under: 147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the course of assessment proceedings for A.Y. 2009-10, it was noticed that the M/s DSM Sinochem Pharmaceuticals India Pvt. Ltd. claimed expenditure of 46.73 million as Revenue Expenditure on account of payment of Royalty under the head operating and other expenses. As per Agreement/license furnished by the assessee, the royalty is to be paid in installments. During the F.Y. 2007-08 relevant to A.Y. 2008-09, the assessee company has paid Royalty of ₹ 41.51 million and claimed it as a Revenue Expenditure. Since, such expenditure made under the head 'royalty' shall give enduring benefits to the assessee company in the ensuing years, therefore, the claim of the assessee of expenditure with reference to Royalty amounting to ₹ 41.51 Million appear to be unjustified. The stance of the derailment on this issue in A.Y. 2009-10 A Y . 2010-11 has also been confirmed by the DRP. Therefore, I have reasons to believe that the income to the tune of ₹ 4,15,10,000/- for the A. Y. 2008-09 has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961. Therefore, the proceedings in the case of the assessee for A. Y. 2008-09 are b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy decided the issue in favour of the assessee in one of the years ,i.e. A.Y 2009-10, vide its order in ITA. No. 155/Chd/2014,dt.16-03 15.Ld.Counsel contended that the AO therefore could not have any reason to believe that income had escaped assessment on account of allowing the claim of royalty expenses as revenue . Ld.Counsel for the assessee further pointed out that the said fact stood admitted by the AO also in his assessment order, and despite the same the AO proceeded with the assessment proceedings. Ld.Counsel for the assessee drew our attention to para 2 of the assessment order in this regard which read as under: 2. Later, while framing the assessment u/s 143(3) for the subsequent year A.Y. 2009-10, the then Assessing Officer noticed that the assessee company claimed expenditure of 46.73 million as Revenue Expenditure on account of payment of Royalty under the head operating and other expenses. As per Agreement/license furnished by the assessee, the Royalty is to be paid in instalments. The 1st installment of ₹ 41.51 million was paid by the assessee during the F.Y. 2007-08 relevant to A.Y. 2008-09. The Assessing Officer made an addition on this ground in A.Y. 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... differently treated. 5.3 Objection No. 5: The assessee's contention that relook at the existing material is impermissible has no basis in law and therefore, requires no comments. Further, the argument that the assessee had submitted the ITAT order for A.Y. 2009-10 wherein Royalty payment has been allowed as revenue expenditure also does not has any weight because as a matter of procedure, orders of the Hon'ble ITAT are given effect to only once they are formally received in the office of Commissioner of Income Tax. Moreover, the department is in process of contesting the order of the ITAT before the High Court. 11. Ld. DR further relied upon the following case laws in support of its contention: 1) Honda Siel Power Products Ltd. Vs. Dy.CIT [2012] 20 Taxmann.com 5 (SC) [2012] 206 Taxman 33 (SC) (MAG.) [2012] 340 ITR 64 (SC) [2012] 247 CTR 316 (SC) 2) Honda Siel Power Products Ltd. Vs. Dy.CIT [2012] 10 Taxmann.com 2 (Delhi)[ (2011] 1907 Taxman 415 (Delhi) [2012] 340 ITR 53 (Delhi) [2012] 247 CTR 322 (Delhi) 3) New Delhi Television Ltd.. Vs. [2017] 84 Taxmann.com 136 (Delhi) 4) CIT Vs. P.V.S. Beedies (P) Ltd. [1999] 103 Taxman 294 (SC) [1999] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue. Therefore clearly the assessee had explained the nature, purpose and even method of quantification of royalty expenses and substantiated it with the copy of Agreement also. 15. Therefore in such circumstances we fail to understand how the assessee can be charged with not disclosing material facts relating to the issue of royalty expenses. Clearly all primary facts pertaining to the said expenses were filed by the assessee. The revenue has not pointed out any suppression/ misrepresentation or falsification of any fact. Even the reasons recorded do not reveal what material fact was not disclosed nor do they charge the assessee with non disclosure of the same. There is no whisper of any such allegation in the reasons recorded. This being a sine qua non for initiating proceeding under section 147, in the absence of the same we hold the present proceedings to be bad in law. The reliance placed by Ld. Counsel for the assessee in this regard on the judgment of the jurisdictional High Court in the case of SBOP(supra) is apt, wherein on identical facts, wherein reopening was resorted to on the basis of disallowance of claim of depreciation made in succeeding year, the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the income of the assessee, chargeable to tax, had escaped assessment. There is no disputing the fact that the assessment for the said years, i.e., 2005-06 and 2006-07, under Section 143(3) had concluded on 28.11.2007 and 30.11.2007 and determination of tax upon the assessee was made on the basis of the assessment. The proviso to Section 147 provides that no action shall be taken under the said section, after the expiry of 4 years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment, by reason of failure on the part of the assessee to make the return or respond to the notice issued under Section 142(1) or Section 148. The other condition is that there should be disclosure of fully and truly all material facts necessary for the said assessment year. 12. The issue of initiating proceedings under Section 147 was considered by this Court in Duli Chand Singhania Vs. Assistant Commissioner of Income Tax (2004) 269ITR 192. wherein, it was held that in the absence of valid assumption of jurisdiction under Section 147, the notice after 4 years from the end of the assessment year in question, could not be initiated in the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As held in Duli Chand Singhania's case, absence of this finding makes the action of the Assessing Officer wholly without jurisdiction. Since the illegality of notice under Section 148 of the Act is apparent from the reasons recorded for initiation of proceedings under Section 147 of the Act, it is a fit case for interference in the exercise of our writ jurisdiction. Sending the petitioner back to the Assessing Officer to raise these objections and requiring him to pass an order thereon would be prolonging the proceedings unnecessarily. 14. Similarly, in Winsome Textiles Industries Ltd. Vs. Union of India others [2005] 278 ITR 470, it was held that once the assessment had been made under Section 143(3), the genuineness of the claims made in the return had to be examined and the failure of the AO to do so would not permit him to reopen the assessment which had already been completed and had become barred by limitation. Accordingly, the notices issued under Section 148 were quashed. Relevant portion of the judgment reads as under: 14. The limitation of four years provided in the proviso to Section 147 has been made applicable only to cases where assessments have al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it had disclosed all expenses in its return and books of accounts and it could not therefore be charged with failure to disclose any material facts. In this regard the Hon ble High Court held that material facts are those facts which would have an adverse effect on the assessee by the higher assessment of income than the one actually made and the assessee having not pointed out which expenses related to exempt income they had failed to disclose fully and truly material facts. In the said case clearly there was failure on the part of the assessee to disclose a material fact of the expenses which related to exempt income and the High Court therefore said mere disclosure of all expenditure in the return of income and the books of account would not be treated as disclosure of all material fact. The assessee had to necessarily disclose the fact of which expenses had been incurred for earning the exempt income and having not disclosed the same it had failed to disclose facts material to the assessment of income. The decision rendered is not applicable to the facts of the present case and in fact helps the present case of the assessee .As pointed out above the assessee in the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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