TMI Blog2014 (4) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... als are filed by the assessee against the orders of CIT(A) 6, Mumbai, all dated 26.12.2011. Since the basic issue involved in all the three appeals are common, we, for the sake of convenience and brevity are passing a consolidated order. 2. In all the three appeals the following grounds have been taken: FOR AY 2002-03: 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: 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3. The facts, common in the three impugned years are that the assessee has a website and besides using its own website, it takes on lease, network from 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.Y.2002-03, it is seen from P L A/c at Schedule J is Website development and maintenance cost that assessee has debited Rs. 47,89,477/- and the whole such expenditure was allowed instead of restricting it to 1/5th for the each year and 4/5th for rest or next four years. Thus, within the meaning of the above said provisions laid down in the I. T. Act, has resulted in excess deduction of Rs. 38,31,581/- being handed over to the assessee for A.Y 2002-03 which has resulted in to short levy of tax accordingly. Therefore, I am satisfied and have reason to believe that income chargeable to tax, amounting to Rs. 38,31,581/- has escaped assessment for the A.Y. 2002- 03. The total income chargeable 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-assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Mere change of opinion, therefore, is not sufficient to trigger action under section.147. In this context, we rely on the following judicial pronouncements: Sr.N. Case laws Covered by 1 Grindwell Norton Ltd. v/s. Jagdish Prasad Jangid, ACIT 267 ITR 673(Bom) 2 Shri Warana Sahakari Dudh Utpadak Sang v/s. ACIT 284 ITR 477(Bom) 3 Mangalore Refinery Petrochemicals v/s. ACIT 282 ITR 516(Bom) 4 Hindustan Lever Ltd. v/s. R. B. Wadkar, ACIT 268 ITR 332(Bom) 5 Bhor Industries Ltd. v/s. DCIT 267 ITR 161(Bom) 6 Caprihans India Ltd. v/s. Tarun Seem, Dy. CIT 266 ITR 566(Bom) 7 ICICI Bank Ltd. v/s. K. J. Rao, Dy. CIT 268 ITR 203(Bom) 2.3 In view 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as deferred revenue expenses to be written off over a period of two years, but for tax purposes, it was treated as capital expenditure, and claimed depreciation thereon as per IT Rules. However, the amount debited to the P L A/c. as deferred revenue expenditure was disallowed in computing the business income. Thus, our Company has actually claimed expenses of Rs.33,05,4721-in the current financial year as revenue expenditure, which in fact was the actual expenditure incurred during the current year. 3.5 We further invite your kind attention to the fact that in the course of original assessment under section 143(3), the then Assessing Officer disallowed Rs. 9,11,988/- out of the Rs.25,27,517/- paid to Search Internet Development 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature, recorded the reasons for reopening the assessment and issued notice under section. 148 to the appellant. The appellant filed a letter requesting to treat the return of income filed originally as filed in response to notice under section.148. The appellant filed a letter before AO dated 12.10.2009 stating that there was no failure of assessee to make full and true disclosure of material facts and the case cannot be reopened beyond 4 years. The AO passed a detailed order rebutting assessee's objection dated 11.02.2009 and the same is also reproduced in the assessment order and the AO at Para 5 observed as under: 'The mere production of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details asked for which included technological expenditure, the detail has also been placed as marked as separate annexures. In further reply dated 21.02.2005, the assessee further produced the details on technological expenses along with the details of remittances. The AR, therefore, submitted complete details had been filed pertaining to technological expenses. 15. The AR also submitted that the expenses were deferred in the two preceding years and in the current year, it had been claimed, which became the subject matter of investigations, conducted by the AO in the regular assessment proceedings. 16. On the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings and as a consequence thereof, the consequential proceedings are annulled. 23. Since we have quashed the reassessment proceedings, we are not going into the merits, which become infructuous. 24. The appeal filed by the assessee is, therefore, allowed. Assessment year: 2004-2005 : ITA 1527/Mum/12: 25. The assessee has raised the following grounds of appeal: 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: 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 fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for AX 2004-05 which has resulted in to short levy of tax accordingly. Therefore, I am satisfied and have reason to believe that income chargeable to tax, amounting to Rs.1 6,36. 61/- has escaped assessment for the A.Y.- 2004- 05. The total income chargeable to tax which has escaped assessment for the Y 2004-05 amounts to Rs. 16,36,161/-. As such, the assessment for the Y. 2004-05 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. . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n turn paid to M/s Reliance Communication Infrastructure Limited. The charges paid to them were mainly consisting of web hosting charges, data transfer charges and load balancing charges. 3.5 The Company has also paid Rs. 1,811/- for acquiring software, which 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/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted by the AO as in assessment year 2002-03. These details and figures have been picked up by the AO from the computation of income attached to the ROI 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 authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by section 35D of the Act. Your appellant, therefore, prays that said expenditure be fully 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. From the 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 the renewal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the reassessment proceedings in the instant year a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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