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2015 (4) TMI 302 - PUNJAB & HARYANA HIGH COURT

2015 (4) TMI 302 - PUNJAB & HARYANA HIGH COURT - [2015] 377 ITR 266 (P&H) - Reopening of assessment - royalty payment claimed as revenue expenditure - Held that:- Assessing Officer and Transfer Pricing Officer were not only aware of the payment of Royalty but had taken the same into consideration at every stage. The Assessing Officer infact expressly called for the said information. It cannot be held, therefore, that the Assessing Officer was not aware of the “Royalty” and had not taken the same .....

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pinion which is not permissible. - Decided in favour of assessee. - CWP No. 23887 of 2011 - Dated:- 10-3-2015 - S. J. Vazifdar, Acting Chief Justice And G. S. Sandhawalia,JJ. For the Petitioner : Mr. Rohit Jain, Advocate For the Respondent : Mr. Tajinder Joshi, Advocate ORDER S. J. Vazifdar, Acting Chief Justice (Oral) Rule. Rule returnable forthwith and heard finally. 2. The petitioner has challenged the notice issued under Section 148 of the Income Tax Act, 1961 (for short Rs.the Act') dat .....

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levant reasons read as under: The case was finalised under section 143(3) of the Income Tax Act, 1961 vide order dated 20.11.2009 at an income of ₹ 172794009/-. It is noticed from the P & L Account that the assessee is making payment of royalty at ₹ 8741302/- for technology transfer and patent license. The assessee has claimed the entire payment as revenue expenditure. In view of the judgment of the Hon'ble Supreme Court in the case of M/s Southern Switch Gears (232 ITR 359) .....

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th regard to the nature of this credit amount. Prima facie it appears to be under assessment of income as the assessee company itself is mentioning it as exchange profit. 4. This is clear case of the notice having been issued only on a change of opinion or rather a difference of opinion. The entire facts pertaining to the issue had been disclosed on each and every stage of the proceedings. Indeed the material in this regard was sought by the Transfer Pricing Officer (TPO) as well as by the Asses .....

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/- for the financial year 31.3.2006. Schedule 14 enumerated the significant Accounting Policies and notes to the Accounts. The relevant part thereof reads as under: Royalty Payment of technical know-how in the form of Royalty for manufacturing of ECUs and Distributors is being accounted for on accrual basis as per the Technology Transfer and Patent License Agreement with Mitsubishi Electric Corporation, Japan. Schedule 14 also referred to expenditure in foreign currency. The Royalty was referred .....

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ions in intangible property as per Appendix E thereto which in turn referred to the Royalty payments to the Mitsubishi Electric Corporation, Japan of the sum of ₹ 87,41,302/-. The petitioner also forwarded to the Assessing Officer and Transfer Pricing Officer the tax audit report for the year 31.3.2006 which referred to the payment for Royalty and technical fees to Mitsubishi Electric Corporation, Japan. 8. Details were furnished in Enclosure VI thereto which referred to the payment of Roy .....

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at the Transfer Pricing Officer by his order dated 31.8.2009 (Annexure P-9) referred to the fact that a Reference has been received by him from the Assessing Officer to determine the arm's length price in respect of the international transactions. One of the transactions related to Royalty payment at 5% sales in the sum of ₹ 81 lacs. Thus, even the order of the TPO expressly referred to Royalty payment. It cannot, therefore, be said that the TPO was not aware of and had not taken into .....

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e with the TDS deducted expenditure wise. 11. The queries were replied to by the petitioner's letter dated 16.11.2009. The relevant part thereof reads as under: 20. Detail of royalty paid alongwith copy of Technology transfer agreement is enclosed herewith for your reference & verification.(page 148- 173) 24. Detail of month-wise TDS deducted and deposited alongwith copy of TDS/TCS returns. (page 179-200). 12. It is established, therefore, that the Assessing Officer and Transfer Pricing .....

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ice dated 24.3.2011. However, the same were dropped holding that it was a debatable issue which would be apparent from the affidavit filed by D.C.I.T. Dated 20.11.2014 in the present case. 13. The impugned notice under Sections 147 and 148, therefore, are clearly based only on change of opinion which is not permissible. 14. It is sufficient to refer to the judgment of the Supreme Court in Commissioner of Income Tax Vs. Kelvinator of India Ltd.(2010) 320 ITR 561 (SC). The Supreme Court held as un .....

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believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-Ist April, 1989 power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of mere change of opinion , which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between po .....

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Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in section 147 of the Act. However, on receipt o .....

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of representations were received against the omission of the words 'reason to believe' from Section 147 and their substitution by the Rs.opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay t .....

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