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ACIT Circle-9 (1) , New Delhi Versus SMCC Construction India Ltd.

2015 (9) TMI 1234 - ITAT DELHI

Reassessment proceedings - assessment order by CIT (A) by recording a perverse finding that the earlier Assessing Officer has applied mind to the royalty expenses being revenue in nature, was not justified - Held that:- In response to the queries raised by the ld AO, the assessee in its submission dated 5.9.2008, has filed the details in respect of payment of royalty on sales along with agreement entered in respect of royalty, copy of challans of TDS on royalty and copy of approvals received fro .....

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e Supreme Court in the case of Kelvinator (2010 (1) TMI 11 - SUPREME COURT OF INDIA) and decision of jurisdictional High Court in the case of Munjal Showa Ltd (2012 (4) TMI 239 - DELHI HIGH COURT ), the ld. AO cannot be permitted to change his opinion without any new facts before him. We find that the ld. CIT(A) has analyzed all the material which was submitted by the assessee before the ld. AO in response to queries raised during assessment proceedings u/s 143(3) of the Act and thereafter has g .....

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-2015 - Sh. H. S. Sidhu, JM And Sh. O. P. Kant, AM For the Appellant : Sh. Sujit Kumar, SR. DR For the Respondent : Sh. Vikrant Suri, C.A. ORDER Per O. P. Kant, A. M. This appeal of the Revenue is directed against the order dated 29th May, 2012 of learned Commissioner of Income-tax (Appeals) - XII, New Delhi passed under section 250 of the Income-tax Act, 1961. The Revenue in its solitary ground has raised that the quashing of assessment order by the ld Commissioner of Income-Tax (Appeals) by re .....

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377; 16,09,43,870/-. The learned Assessing Officer (in short AO ) assessed the total income at ₹ 17,13,70,780/- u/s 143(3) of the Income Tax Act, 1961 (in short Act ) on 24.12.2008 after making certain additions. Thereafter, he issued a notice u/s 148 of the Act on 30-03-2011 for re-opening of the assessment stating that income of the assessee had escaped assessment. The ld. AO recorded following reasons for issue of notice u/s 148 of the Act: The return of income was filed on 30/11/2006 d .....

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2,39,60,828/- as the TDS was paid on this amount in the FY relevant to the A Y 2006-07. As the payment of royalty was in the nature of capital and gives enduring benefit to the business of the assessee, the same is not allowable as revenue expenditure. The royalty being intangible assets, after allowing 25% depreciation on ₹ 2,39,60,828/- i.e. ₹ 59,90,2077- should be disallowed and added to the income of the assessee. This resulted in under assessment income by ₹ 1,79,70,621/- .....

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hnical services to the assessee. The ld. AO finally reassessed the total income of the assessee at ₹ 17,89,14,500/- under section 147 of the Act on 30.12.2011. In the reassessment order, the ld. AO held that the royalty expenses of ₹ 2,39,60,828/- paid to SMCC was capital in nature as against the expense claimed by the assessee as revenue and after allowing depreciation @ 25% of ₹ 2,39,60,828/- i.e. ₹ 59,90,207/-, he added the balance amount of ₹ 1,79,70,621/- to th .....

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g of the CIT(A) is reproduced as under :- From the facts stated by the assessee and from earlier assessment order u/s 143(3) during the course of original assessment proceedings, the appellant vide its submission dated 05.09.2008 filed the details regarding the payment of royalty expenses on sales amounting to ₹ 6,97,49,506/- and the same was enclosed as Annexure - 11 and claim of royalty was discussed at length during the course of assessment proceedings. Thus, the assessee vide submissio .....

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urnished by the appellant, The AO making the regular assessment had formed an opinion that the appellant has correctly claimed these expenses. Further, no new facts or material had been brought on record which provides reasons to believe that the income of the appellant has escaped assessment. Also the AO without any new facts or material brought on record formed an opinion that this expenditure gave benefits of an enduring nature to the appellant and the same should be treated as capital expend .....

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5. Aggrieved, the Revenue is before us. 6. The learned Senior Departmental Representative (DR) relied on the order of the Assessing Officer and submitted that while passing order u/s 143(3) of the Act, the assessing officer did not apply his mind on the issue of royalty and therefore no opinion was formed by him on the issue, so the issue of change of opinion does not arise. 7. The ld. Authorized Representative (AR) on the other hand, vehemently argued that all the facts regarding royalty expens .....

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ecisions already submitted before the ld. CIT(A), which are mentioned at Pages 6 to 13 of the order of the ld CIT(A). Further, the ld. AR drawn our attention to the decision of the coordinate bench of Income Tax Appellate Tribunal (ITAT), in ITA No.5260/Del/2012, for the assessment year 2008-09 in the case of the assessee itself, wherein the bench has held that the payment made on account of royalty and fee for technical service was revenue in nature. This view of the tribunal has been further c .....

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l assessment was completed u/s 143(3) of the Act and the notice u/s 148 of the Act has been issued within 4 years from the end of the relevant assessment year. The assessment has been sought to be reopened on the ground that the assessee has not disclosed the material facts in respect of royalty truly and fully in assessment. 9. In CIT vs. Kelvinator of India Ltd. 256 ITR 1 the Full Bench of the Hon ble Delhi High Court was considering a case of reopening u/s 147 within 4 years from the end of t .....

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t, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reope .....

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. But reassessment has to be based on fulfillment of certain preconditions and if the concept of " change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of " change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is " tangible material .....

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t omission of the words " reason to believe", Parliament reintroduced the said expression and deleted the word " opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as follows : "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ' reason to believe' in section 147.-A number of re .....

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ese fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression ' has reason to believe' in place of the words ' for reasons to be recorded by him in writing, is of the opinion' . Other provisions of the new section 147, however, remain the same." 7. For the afore-stated reasons, we see no merit in these civil appeals filed by the Department ; hence, dismissed with no order as to costs. 10. Further in the case of CIT Vs. Munjal Showa Ltd in ITA .....

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tified and be made the subject matter of reassessment proceedings u/s. 147/148 of the Act. …………………….. 11. Coming to the facts of the case, it is evident that in response to the queries raised by the ld AO, the assessee in its submission dated 5.9.2008, has filed the details in respect of payment of royalty on sales amounting to ₹ 6,97,49,506/-, along with agreement entered in respect of royalty, copy of challans of TDS on royalty and .....

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