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2013 (1) TMI 160 - HC - Income TaxReopening of assessment - proceedings initiated after a period of four years - disallowance of the royalty paid as capital expenditure - assessment years 2002-03 and 2003-04 - Held that:- The assessing authority cannot keep improving his case from time to time and that the reassessment proceedings have to stand or fall on the basis of what was stated in the reasons recorded u/s. 148(2) and nothing more. No failure to furnish full and true particulars relating to the royalty payments, including the failure to file the relevant agreements, has been alleged in the reasons recorded. If anything, the reasons are an admission that it was the assessing officer who did not draw the inference that the royalty payments were capital in nature. It was for him to draw the appropriate inference and not for the assessee to tell him what inference of fact or law should be drawn from the primary facts furnished. See Calcutta Discount Co. Ltd., (1960 (11) TMI 8 - SUPREME COURT) - thus the reassessment notices for the assessment years 2002-03 and 2003-04 are quashed . Reopening “based on information received from Revenue Audit” - Assessment year 2004-05 - within the period of four years - Held that:- It is difficult to sustain the notice issued u/s. 148 as the audit objection is only an inference that the royalty payment resulted in a capital benefit, such an opinion expressed by the audit cannot constitute tangible material on the basis of which the assessment can be reopened. As decided in Indian Eastern and Newspaper Society v. CIT, (1979 (8) TMI 1 - SUPREME COURT) information as to correct legal position must come from a formal source or body which is competent to pronounce upon the issue and that revenue audit is not competent to pronounce on issues of law. The alleged non-deduction of tax from the royalty which would authorise the disallowance under section 40(a)(i) is a fact that is mentioned for the first time in the counter-affidavit and it does not find place in the reasons recorded. As noted earlier, it is impermissible to look into any record other than the reasons recorded to judge the validity of the reopening of the assessment. Further, the statement in the counter- affidavit that the facts relating to the past years disclosed that the petitioner was wholly dependent on the parent company for the technical inputs goes against the revenue, in the sense that it was always known to the revenue that the petitioner did not develop any technology of its own but was dependent on the technology from the parent company. Moreover, it is not for the petitioner to advise the assessing officer as to what inference he should draw as to nature of the expenditure – whether it is revenue or capital in nature. thus the notice issued u/s. 148 for the AY 2004-05 is also without jurisdiction & be quashed - appeal in favour of assessee.
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