TMI Blog2010 (2) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... ue raised is that the order of the ld. CIT(A) erred in holding that the order passed by the AO under section 143(3) read with section 148 of the IT Act is beyond jurisdiction, bad in law and void-ab-initio. 3. In this case the assessee is a company manufacturing of shock absorbers, struts and window balancers. For assessment year 2000-01 the original assessment was completed u/s 143(3) on 31.1.2003 and for assessment year 2001-02 the original assessment under section 143(3) was done on 20.2.2004. Subsequently, the assessment was reopened under section 147 of the IT Act and notice was issued under section 148 of the IT Act. On 29.3.2007 for assessment year 2000-01 and on 18.7.2005 for assessment year 2001-02. Assessee agitated before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facturing facility invoiced by the licensee less certain other cost for a period of five years. The assessee has paid a royalty for the acquisition of an exclusive privilege of manufacturing and selling the products. The acquisition of such a right may be treated partly towards capital and partly towards the revenue it gives rise to enduring benefit to the assessee. The Hon ble Supreme Court in the case of Southern Switch Gear Ltd. vs. CIT reported in 232 ;ITR 359 and Hon ble Madras High Court in the same case reported in 148 ITR 272 held that 25% of such royalty expenses constitutes capital expenditure as it gives rise to the assessee a benefit is of enduring nature and thereby constituting a capital asset. Thus, following the above judgem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the expiry of four years from the end of the relevant assessment year, was beyond jurisdiction and barred by limitation in terms of proviso to that section considering that (a) the original assessments for impugned year was completed under section 143(3) of the Act and (b) there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. 8. We have heard both the counsels and perused the records. We find that as per the admitted facts of the case assessee had debited the amount of royalty in the profit and loss account and the same was clearly before the AO while he was completing the assessment under section 143(3) of the IT Act. Subsequently, AO was of the opinion that on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent) Act, 1987, reopening could be done under above two conditions and fulfillment 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 re-open 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 re-open assessments on the basis of mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147. A number of representations were received against the omission of the words `reason to believe' from Section 147 and their substitution by the `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 these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tio. 11. For A.Y. 2000-01, it is also clear that assessment was done after 4 years from the end of the relevant assessment year and in this view of the mater the proviso to section 147 is very much applicable which mandates that when assessment has been done u/s 143(3), no reassessment will be done after the lapse of 4 years from the end of the relevant assessment year, unless it is due to failure on the part of the assessee to disclose fully and truly all materials facts and necessary for assessment. In this case, the amount of royalty claim was clearly mentioned in the profit and loss account. Hence, there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Hence for A. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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