TMI Blog2012 (10) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal filed by the Revenue against the order of the CIT ( A), Large Taxpayer Unit, Chennai, dated 30.09.2010, by raising the following grounds: 1. The order of the learned CIT ( A) is contrary to law and facts of the case. 2.1. The learned CIT ( A) erred in allowing the claim of the assessee and holding that the reassessment proceedings were not valid. 2.2. The learned CIT ( A) ought to have seen that as per explanation 1 to section 147, production before the Assessing Officer of account books or other evidence' from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure. 2.3 Having regard to the Hon'ble Delhi High Court judgment in the case of Consolidated Photo And Finvest Ltd. vs ACIT (281 ITR 394), the decisions the Hon'ble Supreme Court in the cases of the CIT ( A) ought to have dismissed the appeal. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT ( A) may be set aside and that of the Assessing Officer restored. 2. In all the above grounds of appeal, the Revenue has challenged the order of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l expenditure. Therefore, it is clear that the assessee has not produced the material facts fully and truly before the tax authorities. Hence, I have the reason to believe that the income has escaped the assessment by way of excess claim of deduction. 6. The CIT(A) has further recorded the submissions of the assessee before him, as under: "For the above Assessment year the appellant has claimed a sum of Rs.2,06,54,543/-as product Development expenses which included a sum of Rs. 69,95,385/ - as technical assistance fee with M/s.AVL List GMBH Austria for manufacture of SJ Series Engine. During the course of scrutiny assessment a notice u/s 143(2) was issued on 09-09-2003 requesting to furnish the details with respect to product development expenses and a detailed NOTE with regard to the claim of this expenditure as Revenue. The Appellant vide letter dated 28-09-2004 09-12-2004 furnished the details as required by the Assessing officer and the Assessing officer after considering the reply completed the assessment u/s. 143(3) dated 31.01.2005 without making any disallowance. 7. Now the Assessing officer has reopened the assessment by issue of notice u/ s.148 on 12- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eopened assessment as to what was not furnished by the assessee which has resulted in reopening. In the circumstances the reopening of the assessment to treat technical fee originally allowed as revenue expenditure as capital expenditure is merely a change of opinion of the A. 0., held Madras High Court in the case of CIT V. Cholamandalam Investment and Finance Co. Ltd 305 ITR 310, the AO cannot reopen the assessment beyond four years from the end of the assessment year if the assessee had filed all the particulars necessary for making assessment. The other decision cited by the assessee also supports this view. The Hon'ble Supreme Court in a decision in the case of CIT, Delhi v. M/s. Kelvinator of India Limited 2010-TIOL-06-SC-IT has held that the AO can reopen the assessment only if there is "tangible material" to come to the conclusion that there is escapement of income and not on change of opinion. Also the AO has no power to review and has the power to only re-assess. In view of the above authoritative precedents, I am of the considered opinion that the reassessment proceedings were not valid. Accordingly, the ground of appeal is allowed. The appellant succeeds on this groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shared with the other third party except with AVL s sub-suppliers. From this, he inferred that the technical assistance fee paid for development of prototype diesel engine as per the request of the assessee-company and subsequent to the development of prototype engine, drawings, designs have been supplied to the assessee-company for mass scale production of diesel engines in India with the supervision and consultancy of AVL List GMPH. Therefore, the expenditure incurred was capital expenditure. Since the assessee had not produced the materials fully and truly to the tax authorities, the Assessing Officer had reason to believe that there was escapement of income by way of excess claim of deduction. 12. On appeal, the CIT(A) has held the re-assessment proceedings to be invalid by following the order of the Tribunal in assessee s own case for assessment year 2001-02. 13. We find from the reasons recorded by the Assessing Officer as quoted by the CIT(A) in his order that similar issue was considered by the Assessing Officer in re-assessment proceedings for assessment year 2001-02. In assessment year 2001-02, the CIT(A) held the reassessment proceedings to be invalid which was confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses being part of its R D claim. Specific reason was also sought by the Assessing Officer, why such claim should be allowed as Revenue expenditure. According to the assessee, detailed reply was given by it to Assessing Officer on 17.2.2004 and break up also given for total expenditure of Rs. 4,02,65,172/-. This break up included technical assistance fees for development of new S.J. Series Engine as per agreement with one M/s AVL GMBH, Austria. Therefore, as per the assessee, clarifications were given and the Assessing Officer having satisfied himself on the reply given by assessee completed the assessment. Hence, it was argued that reopening was purely on a change of opinion. As per the assessee, there was no new information available with Assessing Officer nor was any information omitted by the assessee to be given to the Assessing Officer. Again, as per assessee, its R D department was developing basic engineering details for a new engine which was forwarded to Austria for comments of AVL and based on such comments, improvements suggested were carried out. Thereafter, R D department developed prototype engine and carried out testing again through AVL, Austria. Crux of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India) to measure the emission constituents. We carry out at ARAI development test to assess the present status of the product, type approval test to meet legislative requirements and conformity of production test ARAI is an approved certifying lab. To meet the competition and marked requirements, we develop newer products. For this activity, we avail external assistance during design and testing. Based on the above activities, we now have products meeting Bharat stage II(Euro IT) emission norms for vehicular engines. In the same way, our" tractor engines meet the current Indian regulation Term II. For export of tractors, we have emissionised product meeting US tier II norms. In the genset segment, we have products which meet current CPCB norms. The engines offered for industrial application meets the norms applicable for this segment. These activities are carried out in a separate setup in our company. We are equipped with necessary testing and design facilities for carrying out this activity. For design, we have Pro E software to create 3D models of our engines and components. 20 drawings are made for manufacturing. In testing, we have facilities to check combus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We also observe that the assessee, in reply to this letter, had written a letter on 28.9.2004 giving the details required by the Assessing Officer and the reply reads as under: As per section 35 (1) of the income tax act, any expenditure laid out or expanded all scientific research related to business is allowed in full in the previous year in which it was incurred. For details of expenditure, please refer Annexure-3. Simpson Co. Ltd manufactures Diesel Engines which are offered as original equipment for vehicles, tractors, industrial equipments and gensets. These products have to meet emission regulations which are being enacted by Govt. of India To meet this requirement and also in bringing out new products with lower fuel consumption, oil consumption and improved life, the R D Dept. is engaged in developing newer models of engines and upgrading the existing products. For achieving this, we carryout modifications on the existing products and test them at our end. We send engines after establishing satisfactory performance at our end to ARAI, (Automobile Research Association of India) to measure the emission constituents. We carry out at ARAI development tes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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