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TMI Blog2015 (4) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered office at the address mentioned in the cause title. It is engaged, inter alia, in the business support services. The first Respondent before this Court is the Deputy Commissioner of Income Tax and who has issued the impugned notice and, the second Respondent is the officer who has passed the impugned order rejecting the Petitioner/Assessee's objections to the reopening of the assessment for the assessment year 2007-08. The third Respondent is Union of India. 5. For the above assessment year, return of income was filed electronically on 31st October, 2007 declaring loss of Rs. 13,13,16,597/-. The case was selected for scrutiny by the Assessing Officer. The notice under section 142(1) of the Income Tax Act, 1961 (for short the "IT Act") was issued on 16th July, 2009. The Petitioner claims that the questionnaire was issued at the relevant time and based on that, the Petitioner gave a detailed note on the nature of its business. It placed on record the balance sheet and profit and loss account along with all enclosures. Further details were also asked in the course of assessment proceedings. 6. The Assessee of course has undergone a change in its name, it is common grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be precise nearly six years, then, the matter falls within the first proviso to section 147. In that, the requirement is of the Assessee having allegedly failed to disclose material facts truly and fully. Our attention has been invited by Mr.Naniwadekar to the reasons for reopening the assessment (page 144 of the paper book). He submits that the reason No. 1 is that they paid the management fees under the shared service agreement for acquisition of two US contact center from TRX Inc., USA. The second reason is that the expenditure is capital in nature when it is made for the initiation of the business or for extension of a business or for a substantial replacement of equipment. The enduring nature of the product is a precondition to determine whether the expenditure is capital. According to the Revenue, the expenditure is incurred in connection with procurement of the US contact centers which is obviously an capital asset. The expenditure of management fees is incurred with a view to bring into existence an asset for the enduring benefit of the business. In the circumstances, the Assessee did not disclose all material facts at the time of assessment and therefore, the income cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Court in this case concluded that when initiation of reassessment proceeding was based merely on change of opinion as no new material, tangible or otherwise, has been relied upon, then, that is impermissible in law. Mr.Naniwadekar emphasizes that in this Judgment, the same view taken by the Division Bench earlier has been reiterated, namely that the Assessing Officer has not set out in the reasons which fact or other material was not disclosed by the Assessee that led to income escaping. If the conclusion is based on material already supplied and before the Assessing Officer, then, the reopening is not permissible and in that regard, para 5 of this decision is relied upon. 13. On the Other hand, Mr. Tejveer Singh appearing for the Revenue would submit that section 147 of the Income Tax Act is merely a procedural provision. Explanation 1 to section 147 of the IT Act would denote as to how mere production of documents or account books would not suffice. That does not mean that the Assessing Officer had a look at them and considered their contents. If the Assessee did not seek the reasons in time in this case and the officer has clearly opined as to how the income has escaped ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the reasons for reopening of the assessment for the assessment year 2007-08. In the present case, it is undisputed that the assessment is sought to be reopened after six years of the assessment. At request, therefore, reasons were supplied and which indicate that the return of income for assessment year 2007-08 on 31st October, 2007, declaring loss of 13,13,16,597/- was taken up for scrutiny and the scrutiny assessment was completed on 14th December, 2009 accepting the loss. The notice therefore issued on 30th March, 2014 ought to conform with section 147 and what is provided in the first proviso. That enables reopening of the assessment after the expiry of four years, if the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the Assessee to make a return under section 139 of the IT Act or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. We are not concerned with the other two provisos. For, they are not applicable here. 16. Mr. Tejveer Singh refers to Explanation 1 to section 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f management fees is incurred with a view to bring into existence on assets for the enduring benefit of the business. The assessee did not disclose all material facts at the time of assessment. There is failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment and for the at assessment year under proviso I of section 147 of IT Act. The facts regarding the issue have not been put up before AO which framing the assessment. In view of the above facts and findings, I have reason to believe that there is excess carry forward of loss to the extent of Rs. 984.80 lakhs which has been escaped assessment. Hence case needs to be reopened u/s 147 of the IT Act, 1961. Issue notice u/s 148 of the IT Act, 1961. (Vipul D. Waghmare) Dy. Commissioner of Income Tax Circle 1(2), Pune." 18. A bare perusal of the reasons would indicate as to how the Assessing Officer now says and on going through the profit and loss account that the Assessee has debited Rs. 984.80 lacs as management fees. The Assessing Officer himself refers to the notes of accounts and states that the Assessee has paid the management fees under shared service agreement for acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009. On perusal of the assessment order, it is clear that the Assessing Officer has applied his mind to the facts of the case, to the Assessee's submission and then he has allowed the management fees of Rs. 984.80 lacs as revenue expenditure. Reliance was placed upon para 3 of the assessment order and the findings therein. 20. The Assessee, therefore, objected and pointed out that the reassessment is proposed but without looking into the facts and material for the purposes of the treatment given to the said expenses. The director's report and which was before the Assessing Officer as well has been referred to. In the director's report, under the head "international operations", all details as to how the acquisition was made and under what documents with all the salient features and the benefit occurring to the company have been pointed out. Reference was also made to note No. 10 in the notes forming part of the profit and loss account. It is in these circumstances that we are of the view that there is merit in Mr. Naniwadekar's submission that the reassessment is undertaken only on account of change of opinion. Now it is proposed to give different treatment and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilure has some specific legal connotation. Here, material facts are pertaining to the expenses under the head "management fees". It is apparent that the words employed are material facts. It is not just facts but material facts. The word "material" in the context means "important, essential, relevant, concerned with the matter, not the form of reasoning" (see Oxford Dictionary Concise Eighth Edition). Just as disclosure of every fact would not suffice but for proceeding under section 147 non disclosure ought to be of a material fact. The Assessee disclosed that loss under this head is derived from the acquisition of two centers. If that is known to the Revenue in this case, then, what further facts were expected to be disclosed so as to make the assessment has not been indicated. Mr.Naniwadekar is therefore right in urging that when the material facts have been disclosed and with full particulars truthfully, then, it is not enough to allege that there is a distortion of facts and as per the convenience of the Assessee. If there was distortion, then, we do not know as to how the Revenue contended before us and concluded in the reasons that the loss occasioned because of acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court and which has been repeatedly relied upon and followed, namely, Commissioner of Income Tax vs. Kelvinator of India Limited reported in 320 ITR 561. Mr.Naniwadekar's reliance on the two Division Bench Judgments is also apposite. 22. We are of the clear view that there was no failure to disclose material facts and failure to place a version favourable to the Revenue cannot be a reason to reopen the assessment. The conclusion that the Assessing Officer never applied his mind on this issue and therefore change of opinion is not the basis on which the assessment is sought to be reopened cannot be sustained. In the light of the undisputed factual material and referred by us extensively, it is apparent that the reopening was fully impermissible in law. Rather we do not find any reference to the specific stand taken by the Petitioner while objecting to the notice under section 148 of the IT Act. The Petitioner pointed out as to how the assessment was finalized. Reference has been made to the letter dated 16th July, 2009 from the Assessing Officer and the response thereto on 5th August, 2009. There is no denial of the fact that the Assessing Officer has applied his mind to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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