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TMI Blog2014 (4) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... re-assessment proceedings under section 147 initiated by the learned AO was valid in law. The learned CIT(A) failed to appreciate, and ought to have held, that the proceedings under section 147 was not sustainable in law. Your appellant, therefore, prays that reassessment order passed under section 143(3) r.w.s. 147 be quashed. 2. On the facts and in the circumstances of the case, and also in law, the learned CIT(A) erred in confirming the disallowance of Rs. 24,42,898/- made by the learned AO out of total technology expenses of Rs. 33,03,623/-, on the ground that the said expenditure was capital in nature and was covered by section 35D of the Act. Your appellant, therefore, prays that said expenditure be fully allowed as revenue expenditure. FOR AY 2003-04: Being aggrieved by the order dated 26.12.2011 passed by learned Commissioner of Income Tax (Appeals) - 6, Mumbai. ["CIT(A)"] under section 250 of the Income-tax Act, 1961 ("Act"), your appellant prefers this appeal, among others, on the following grounds of appeal, each of which is without prejudice to, and independent of, the other: &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Reliance Communication Infrastructure Ltd. (RCIL) and pays lease charges and technical expenses, to RCIL, for providing and managing the network. This usage of leased network system is done only for the extension of the existing business. 4. These facts have remained the same and identical in all the three impugned years. According to the AR, the modus operandi remained unchanged in all the three years. 5. The case history is as follows: S. No. Asst. Year Date of Filing of Return Section under which assessment is framed Date of regular Asst. Date of issuing notice under section 148 Date of asst. framed under section 143(3) read with sec. 148 1 2002-03 29.10.02 143(3) 21.03.05 20.03.09 23.11.09 2 2003-04 28.11.03 143(1) - 20.03.09 20.11.09 3 2004-05 30.10.04 143(3) 28.12.06 19.03.09 20.11.09 6. From the above chart, we find that: (a) In assessment year 2002-03, regular assessment was framed and the revenue authorities proceeded to reopen the proceedings after the lapse of 4 years. (b) In assessment year 2003-04, summary assessment was made under section 143(1) and the reopening of the proceedings is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable to tax which has escaped assessment for the AY 2002-03 amounts to Rs. 38,31,581/-. As such, the assessment for the A.Y. 2002-03 needs to be reopened. On the basis of the above mentioned reasons recorded by me, I am satisfied that this is a fit case for issue of notice under section 148 of the I.T. Act, 1961". 9. The assessee vide letter dated 12.10.2009, objected to the reopening proceedings wherein it was submitted, "2.1 At the outset, we submit that the re-assessment proceedings under section. 147 of the Act is legally not sustainable, as the same does not comply with the mandate of the proviso to s. 147. For the above assessment year, assessment was completed under section. 143(3) of the Act vide the assessment order dated 21.03.2005. The notice under section.148 has been issued on 20.03.2009, i.e. clearly beyond the period of 4 years from the end of the assessment year, which period, to be precise, expired on 31/3/2007. As such our case is clearly covered by the proviso to s 147 of the Act, which, inter alia, provides that where an assessment under section. 143(3) has been made for the relevant assessment year, then no action shall be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the above, we submit that the reopening of the assessment is not valid in law, and, therefore, should be dropped. We further request you to kindly dispose of our preliminary objection to the reopening before considering the matter on merits. 3. Explanation why there is no escapement of income: 3.1 Without prejudice to our above submissions objecting to the very reopening of the assessment under section. 147, we would also like to place our submissions on the merit of the matter, as under. 3.2 We submit that technology expenses of Rs. 47,89,477/- charged during the year, details of which were submitted in the course of original assessment, consisted of two components. Out of the total expenditure of Rs. 47,89,477/-, the expenses of Rs. 33,05,472/- were actually incurred in the previous year pertaining to AY 2002-03, and balance of Rs. 14,84,005/- were in the nature of deferred revenue expenses, which were incurred in preceding previous year, but were written off in the current year. It was further submitted vide letter dated 14.02.2005 that the amount of Rs. 25,27,517/- paid to Search Internet Development Services Pvt. Ltd., included Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Services Pvt. Ltd (SIDS). This amount was debited as a part of total Technology Expenses of Rs.47,89,477/-. Said amount was disallowed for want of reconciliation of the amount paid to SIDS as shown in the expenditure statement submitted in the course of hearing and amount confirmed by SIDS. The matter was carried before the Hon'ble ITAT in ITA No. 4592/M/06 and it was heard on 07.07.2009. The order is awaited. 3.6 We are resubmitting the statement of technology expenses, giving the break-up of the expenses actually incurred in the AY 2002-03 and expenses incurred in preceding previous year but charged to the Profit and Loss account in current year as a part of deferred revenue expenditure. We further submit that expenditure incurred in the current year and claimed as revenue expenditure is basically maintenance cost of the website and cost of feeding /inserting latest data on the website for the benefit of its users. Thus, the expenditure was rightly claimed by' the Company as revenue expenditure. 3.7 As regards the issue of applicability of the provisions of s. 35D, we reiterate the same submissions as are made for the AY 2003-04, vide our submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance-shee4 profit and loss account or account books and details will not necessarily amount to disclosure within the meaning of the proviso. In the present case, as can be seen from the records the Assessing Officer overlooked the aforestated items under re-assessment. Therefore, at the time of passing the original order of assessment, he could not be said to have opined on the above item. This issue is supported by Hon'ble Bombay High Court's decision in the case of Dr. Amin's Pathology Laboratory vs. JCIT and other reported in 252-ITR-673. The assessee's objections were, therefore, rejected.' 2.1 In course of appeal proceedings, the appellant reiterated that it has disclosed fully and truly all material facts necessary for assessment and as all material facts were disclosed in the assessment made uls.143(3) the reopening is bad in law. 2.2 I have gone through the order of the AO and submission of the appellant. It is obvious that in the assessment proceedings under section.143(3), the material fact about the website development cost being capital expenditure was not examined nor the appellant disclosed the mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons, the AR submitted that in the reasons, there is no mention with regard to the factum that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and also that such failure caused escapement of income. The fact that there has to be application of section 35D and 1/5th expense had to be allowed was the subject matter of dispute in the regular assessment proceedings, which had reached the ITAT. 17. The mere fact that the reopening was initiated on this aspect, it is a change of opinion, which bars the department to such facts of reopening. It was submitted that a burden has been cast on the department to prove, (a) there was an escapement of income in the return of income and (b) this fact came to light in the interim period between completion of regular assessment and recording of reasons for reopening. This burden, the department has failed to discharge. 18. The DR placed reliance on the orders of the revenue authorities and submitted that the issue pertaining to the claim was never looked into by the AO, and that itself, opens the doors for the revenue authorities, to resort to and take recourse to the ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following grounds of appeal, each of which is without prejudice to, and independent of, the other: 1. On the facts and in the circumstances of the case, and also in law, the learned CIT(A) erred in holding that the re-assessment proceedings under section 147 initiated by the learned AO was valid in law. The learned CIT(A) failed to appreciate, and ought to have held, that the proceedings under section 147 was not sustainable in law. Your appellant, therefore, prays that reassessment order passed under section 143(3) r.w.s. 147 be quashed. 2. On the facts and in the circumstances of the case, and also in law, the learned CIT(A) erred in confirming the disallowance of Rs. 16,36,162/- made by the learned AO out of total technology expenses of Rs. 20,45,201/-, on the ground that the said expenditure was capital in nature and was covered by section 35D of the Act. Your appellant, therefore, prays that said expenditure be fully allowed as revenue expenditure." 26. In the instant year regular assessment was framed under section 143(3) on 28.12.2006. The AO initiated the reassessment proceedings by the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by me, I am satisfied that this is a fit case for issue of notice under section 148 of the I.T. Act,1961.". 27. Thereafter, the assessee filed its objections, which are as follows, "Objection to reopening of assessment under section.147: 2.1 We object to the reopening of the assessment under section.147 since the same is based on mere change of opinion formed by the successor AO on the same set of facts/material already on record. 2.2 In our case, for the above assessment year; assessment order under section. 143(3) was passed on 28.12.2006. During the course of the assessment, we had furnished complete details of the technology expenses, which were considered by the then AU. This is evident from the fact that in respect of one of the items, the AU held the same to be capital expenditure and disallowed the same; though he allowed depreciation @ 60%. This disallowance was contested by us in appeal before the learned CIT(A). Thus, it is submitted that the original assessment was passed after duly considering the material placed on record and taking a certain view of the matter by the then AO. Now, on perusal of the reasons recorded under section. 148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is utilized for updating data on the web site. This is nothing but utilization of the data contents on the website in better manner and is purely in the nature of revenue expenditure. 3.6 The company has also paid Rs. 35,000/- M/s Techgyan, for buying licensed version of software namely, "Adobe Photoshop Ver. 7.0". Copy of bill was given in the course of assessment proceedings under section 143(3). Said expenditure is basically incurred to enhance utility value of the website owned and run by the Company. It may be relevant to note that learned AO, while completing assessment under section 143(3) of the Act has considered this as capital expenditure and disallowed under section 37. The teamed AO, however, allowed depreciation under section 32 @ 60% of Act. The company carried the matter before Hon'ble CIT(A), who allowed the aforesaid expenditure as revenue expenditure vide his appellate order No. CIT(A)-XXX/IT2O7/Rg.2(3)/07.08 dated 15.12.2008 for the said year. To this extent the assessment order passed under section 143(3) is merged with that of the order of CIT(A). 3.7 From the explanations submitted ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the annexures appended to the Balance Sheet and Profit & Loss Account for the year under consideration. 30. The basic issue pertains to the treatment of technology expenses incurred by the assessee. It is an undisputed fact that entire material and evidence pertaining to the treatment of the expense was examined by the AO in the regular assessment proceedings, complete with all details and vouchers and that basis, as a result of which, the AO made certain additions. The issue has traveled upto ITAT stage, where, however, the issue was set aside by the coordinate Bench. 31. Subsequently, as late as 20.03.2009, the AO initiates the reassessment proceeding on the same issue. As observed earlier, the issue was examined by the AO thread bear, is apparent from the fact that the disallowance made by the AO on technological expenses traveled upto the ITAT, itself proves the issue against the revenue authorities, that they were proceeding on the aspect with a different reasoning. This, has been examined by the various authorities and fora, from time immemorial, and in catena of decisions, that the law does not allow proceedings based on change of opinion from one incumbent to the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y allowed as revenue expenditure." The AR submitted that the AO, as in the other assessment years, initiated reassessment proceedings in the current year as well, which for the sake of record, it was submitted that the initiation was after the lapse of four years. The reasons, as supplied to the assessee, are as follows: "Reasons for reooenina of the assessment In this case return of income has been filed declaring a net loss of Rs. 2,46,16,610/- as seen from profit & loss account. The some was only processed under section.143(1) of the IT Act On perusal of the records It was observed from the records for AY 2003-04 that the assessee's business is of dedicated portal and e-commerce and earning income from advertisement, web-casting, user database event management, celebrity management fee, sponsor ship, sole of content and commission on ecommerce. Assessee has his own website. Besides it has token on rental base a network from Reliance Communication Infrastructure Ltd. and paying rental service charges and paying technology expenses mainly for providing managing the network so taken on rental basis. The network taken on renta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statement it may be noticed that payments were min1y made/reimbursed to Walchand Capital Limited, a group company, who in turn paid to GTL Ltd and Reliance Industries Limited. 4. Our explanation is now sought as to why these expenses should not be covered under section 35D of the IT Act, 1961 as allegedly incurred for extension of an "Industrial Undertaking". This is factually and legally not correct. To fall under section. 35D, assessee must own Industrial Undertaking, and expenses are to be incurred for extension thereof. It is clarified that assessee does not own any industrial undertaking; hence the question of its extension does not arise at all. 5. Expenses sought to be branded as for extension of industrial undertaking is nothing but normal recurring expenditure incurred for maintaining our website and continuous updating thereof with fresh mew data content to be used/viewed by the web visitor. The expenses incurred are merely in the nature of web hosting charges charged periodically by the service provider with whom servers are hosted. 6. From statement you will find that Rs.2,090/- were paid to M/s Direct Information Pvt Ltd. for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation and appended therewith, as the details were appended in the two corresponding years, and the matter travelled upto the appellate stages. 39. It is also a fact that neither the AO nor the DR was able to pinpoint, as to what material was gathered or came to light, which was resulted or indicated that there was an escapement of income, to attract reassessment proceedings. Also, the issue which travelled upto the ITAT level, itself proves that there are doubts with regard to escapement of income. In our considered opinion that once the assessee has produced complete details, on which the claim has been made and till such time those details are not derailed by the revenue authorities, the burden stays on the revenue authorities to prove their case, which has not been discharged by them. 40. In such a case, we cannot sustain the reopening of assessment even in summary assessments. We also gather strength to demolish the case of the revenue authorities, from the fact that we have quashed reassessment proceedings on the identical facts and grounds in the preceding year and in the subsequent year in this consolidated order. 41. On the basis of the above observations, we quash t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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