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TMI Blog2019 (1) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... he statement constituting the breakup of the total expenditure incurred on sales and promotions was considered in the assessment order as some of the expenses forming part of the breakup of sales and promotions expenses had been disallowed in the assessment order dated 18th March, 2015 passed under Section 143(3). This would clearly indicate that the impugned notice has been issued on account of change of opinion and it is an attempt to review the Assessment Order dated 18th March, 2015 passed under Section 143(3). AO is entitled to rely upon the order passed in assessment proceedings for the subsequent year, as tangible material to initiate reassessment proceedings. The tangible material so obtained must be processed i.e. its applicability to the assessee for the subject assessment year is to be examined so as to form a reasonable belief that income chargeable to tax has escaped assessment. The tangible material in the assessment order for A.Y. 2015 -16 was the agreement dated 6th March, 2014. This is an agreement post the period with which the impugned notice is concerned. This, by itself could not form the basis for the AO to have come to a reasonable belief that income chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. 5. On 28th March, 2018, the impugned notice was issued seeking to reopen the assessment for Assessment Year 2011 12. The reasons in support of the impugned notice reads as under : In this case, the assessee filed original return of income of A.Y. 2011 12 on 24.11.2011 declaring total income at ₹ 972,95,45,281/ under normal provision of Income Tax Act, 1961 (the Act ) and 1122,83,00,000/ u/s 115JB of the Act. Subsequently, the assessment was completed u/s 143(3) r.w.s. 144C(3) of the Act on 18.03.2015 determining total income at ₹ 1058,42,40,442/ under normal provision of the Act and at ₹ 1122,83,00,000/ u/s 115JB of the Act. Since, the tax on income assessed under normal provision of the Act was more than the tax on Book Profit computed under MAT provision, income assessed under normal provision of the Act at ₹ 1058,42,40,442/ . 2. During the Course of the assessment proceedings for A.Y. 2015 16, it is seen that the assessee company has incurred an amount of ₹ 32,44,46,533/ towards Colour Idea Store and debited the expense in the profit loss account as Advertisement Sales promotion Expenses . In this regard, during assessment proceedings, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, design, creatives and concepts; Based on the above representation of the Dealer, Asian Paints hereby agrees to associate with Dealer and the Dealer agrees to promote Asian Paints products through the Designated Shop Area, make displays and the Dealer has agreed to this business arrangement on the terms and conditions appearing hereunder; NOW THIS AGREEMENT WITNESSETH THAT for and in consideration of the mutual covenants and promises hereinafter set out the parties hereto agree as follows; (1) TERM : This Agreement is for a period of 5 years commencing on 1st February, 2014 and terminating on 31st January, 2019 unless otherwise terminated in writing by the parties. This Agreement may be renewed for such period and upon such terms and conditions as may be mutually agreed to by both the parties. (2) COMMERCIAL UNDERSTANDING : The Parties hereby agree that the said arrangement under this Agreement is for brand promotion activity of Asian Paints and through which the Dealer shall also benefit by way of consumer mileage. For the above purpose, the parties agree by way of sharing of costs incurred for the setting up of the Designated Shop area and the parties shall share the cost in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the customer. The Dealer must not use the Designated Shop Area in any other manner than as specified by Asian Paints. Any other product or display material shall be kept out of the Designated Shop Area unless specified by Asian Paints. The Designated Shop Area shall not be used for display of any other companies' products for either stocking or display. The dealer shall adhere to the design process of construction / fabrication as mutually agreed before the work commences. Any change in the same can be done only at the behest of Asian Paints. The dealer shall permit and cooperate in any every manner with the consultants and contractors of Asian Paints and their men / employees and agents to execute the construction / fabrication work inter alia the designing erection and installation of graphics, decors, visuals etc. The Dealer shall not share the design of the shop or any other plans with anyone not employed by Asian Paints unless specified under written instructions of Asian Paints. All running operational costs including but not limited to any electric bills, water and sewerage taxes if any for the term of the Agreement shall be borne by the Dealer. The Dealer shall use t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erogatives, benefits discounts, rebates or schemes as compared to other dealers by virtue of this Agreement. 2.2. On perusal of the agreement, it clearly emerges that the assessee company and the dealer of the assessee has entered into an agreement to create a 'fixed assets' for promoting their business Interest under the concept of Colour Idea Store . As per the agreement, the assessee company and dealer shares the expenses incurred for the same. Further, the logic of the assessee that the 'assets' is not at the premise assessee, it is submitted that, nowhere, in the act, there is any per condition of owning the premise for capitalizing the furniture fixture. 2.3. In view of above, the expenses for Colour Idea Store incurred by the assessed company was disallowed as revenue expenditure and allowed as capital expenditure to be capitalized as Furniture Fixture . Accordingly, the amount of ₹ 32,44,46,533/ was disallowed and depreciation of ₹ 3,24,44,653/ (10% of 32,44,46,533/ ) was allowed to the assessee. The net dis allowance works out to ₹ 29,20,01,880/ . 3. As discussed with the assessee,it is also found that the assessee has incurred expenses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment completed under Section 143(3) of the Act. Thus, in the absence of any failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment, the notice is hit by the first proviso to Section 147 of the Act; (b) The Assessing Officer, during the course of assessment proceedings had an occasion to consider the petitioners' submission dated 16th September, 2014 in response to the query of the Assessing Officer, wherein a specific reference was made to the advertisement and sales promotion expenses by giving its breakup. This breakup indicated that the expenses incurred towards Colour Idea Stores amongst other expenses. This break up was considered as the assessment order under Section 143(3) of the Act, disallowed certain expenditure which was claimed as a part of the advertisement and sales promotion expenses. Thus, indicating the application of mind to the appellant's claim while passing an order under Section 143(3) of the Act; and (c) Lastly, the concept of Colour Idea Stores is that the petitioner assessee undertake to share a part of the renovation expenses of its dealers' shops so as to attract customers to purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... breakup of the total expenditure incurred on sales and promotions was considered in the assessment order as some of the expenses forming part of the breakup of sales and promotions expenses had been disallowed in the assessment order dated 18th March, 2015 passed under Section 143(3) of the Act. This would clearly indicate that the impugned notice has been issued on account of change of opinion and it is an attempt to review the Assessment Order dated 18th March, 2015 passed under Section 143(3) of the Act. 12. Besides, we do note that the Assessing Officer is entitled to rely upon the order passed in assessment proceedings for the subsequent year, as tangible material to initiate reassessment proceedings. However, the tangible material so obtained must be processed i.e. its applicability to the assessee for the subject assessment year is to be examined so as to form a reasonable belief that income chargeable to tax has escaped assessment. The tangible material in the assessment order for A.Y. 2015 16 was the agreement dated 6th March, 2014. This is an agreement post the period with which the impugned notice is concerned. This, by itself could not form the basis for the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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