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TMI Blog2016 (3) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer representing excess depreciation claimed in the past. 3. The facts of the issue are that the Assessing Officer stated that various assets were added to the fixed assets during the years 1999 to 2002 and depreciation was claimed in the concerned assessment years as per the IT Rules. Subsequently, when it was noticed that an amount of Rs. 43,88,000/- was found to be excess, the same was revered by the assessee during the current year. It was also noticed by the AO from the statement filed by the assessee that an amount of Rs. 23,92,470/- was claimed as depreciation on the above value of Rs. 43,88,000/- upto the assessment year 2004-05. Since the above provision was withdrawn during the current year, the corresponding depreciation claimed by the assessee in the earlier years to the extent of Rs. 23,92,470/- was added back u/s.41(1) of the Act by the Assessing Officer to the total income. Aggrieved, the assessee went in appeal before the CIT(Appeals). 4. On appeal, the Commissioner of Incometax( Appeals) observed that the assessee has reversed Rs. 43,88,000/- being the asset capitalized earlier, which is reflected in Annexure-4A containing "fixed assets - addition - 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of Rs. 43,88,000/- found to be excess in the value of the assets, the same was reversed by the assessee during the current year and depreciation allowed on that amount on earlier occasion has to be withdrawn and to be added back in this year, as otherwise, the assessee company will get double benefit, which is not justified. In view of this, we hold that the depreciation claimed by the assessee on the above value of Rs. 43,88,000/- in earlier year, which the assessee is not entitled, need to be brought back to tax u/s.28(iv) of the Act as the value of benefit is arising from the business of the assessee. After reducing the said amount of depreciation granted earlier from the amount of Rs. 43,88,000/-, the balance amount is to be reduced from the closing written down value of block of assets. Accordingly, we direct the AO to bring back to tax, the amount of depreciation granted to the assessee in the earlier years on the alleged amount of Rs. 43,88,000/- u/s.28(iv) of the Act and re-determine the closing written down value of block of assets in the year under consideration. This ground of appeal of the Revenue is allowed. 8. The next ground in this appeal is with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. If it is established that the penalty is not for breach of any law but is compensatory in nature, then it can be claimed as revenue expenditure. The CIT(Appeals) placed reliance in CiT v. J.K. Cotton Spinning & Weaving Mills Cc. [123 ITR 911], wherein the Allhabad High Court held that payment of damages may be wrongly termed as penalty, but it is quite different and distinct from imposition of penalty for infraction of law. The former is an ordinary incident of business and may be allowable as a business loss or expenditure but the later arises on a wrongful act and is not allowable. The premium paid for premature redemption of debenture is neither an offence nor is prohibited under the law so as to be considered for disallowance as per Explanation to sec. 37(1) of the Act. In the present case, it is only a mutation of contract and for such changes in contract,. the amount paid as compensation is a liability which has arisen in the course of business. In fact, the net saving in interest cost to assessee due to this swapping is Rs. 5.32 crores. Hence, the CIT(Appeals) held that the Assessing Officer wrongly invoked provisions of Explanation to sec, 37(1) of the Act. 10.1 Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred towards premium on pre-closure of loan paid during the financial year relevant to the Assessment Year 2005-06 is revenue in nature and has to be fully allowed. Accordingly, he directed the Assessing Officer to delete the addition. Against this, the Revenue is in appeal before us. 11. The ld. DR relied on the order of the AO. He has also placed reliance on the judgment of the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. v. CIT (225 ITR 802) and in the case of Tube Investments India Ltd. (261 ITR 753). 12.1 On the other hand, the ld. AR relied on the decision of the Tribunal in the case of Overseas Sanmar Overseas Financial Ltd. v. JCIT (86 ITD 602) and submitted that it is a capital expenditure. 13. We have heard both the parties and perused the material on record. In this case, the assessee has raised an amount of Rs. 100 crores by issue of redeemable nonconvertible debentures at the rate of 12% with face value of Rs. 10 lakh per debenture at par value for Rs. 50 crores with an option to retain oversubscription upto Rs. 50 crores for a tenure of 8 years with redemption condition of 23 quarterly instalments starting at the end of 30th month f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould therefore be a re venue expenditure. 5.2. The issue whether a particular expenditure should be treated as capital expenditure or revenue expenditure incurred for the purpose of business must be determined on consideration of all facts and circumstances of the case and by application o e principles of commercial trading, in the context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on, or conduct of the business, that it may be regarded as an integral part of the profit-making process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. Any liability incurred for the business of obtaining a loan would be revenue expenditure. 6. Then the question arises whether the deduction of such revenue expenditure could be spread over. The revenue expenditure, which is incurred wholly and exclusively for the purpose of business, must be allowed in its entirety in the year in which is incurred and it cannot be spread over a number of years, even if the assessee has written it off in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures and consequently, allowable as deduction in a particular assessment year." Accordingly, we are of the opinion that the above expenditure is a revenue expenditure and this ground of appeal of the Revenue is dismissed. 14. The next ground in this appeal is with regard to deleting the addition made on account of difference in arm's length under Transfer Pricing on a sum of Rs. 12,66,160/-. 15. The facts are that the Transfer Pricing Officer has refused to consider the variation of 5% between the prices admitted by the assessee and price as fixed by the Transfer Pricing Officer and added the difference in price to the extent of Rs. 12,66,160/-. The learned AR has placed reliance on the provisions of sec. 92 C (2) which reads as follows: "11 Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices. Provided further that if the variation between the arm's length price so determined and price at which the international transaction has actually been undertaken does not exceed five percent of the latter, the price at which the international transaction has act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Against this, the Revenue is in appeal before us. 17. We have heard both the parties and perused the material on record. Similar issue came for consideration before the Tribunal in ITA No.63/Mds/2008 in the case of M/s. Coastal Energy Pvt. Ltd. and the Tribunal vide its order dated 28.10.2015 for the asst. year 2004-05 held as under: "5. We have heard both the parties and perused the material on record. In this case, the main contention of the ld. AR is that arithmetical mean in respect of seven shipments should be arrived at determining the ALP and if it is variation is below 5%, there could not be any TP adjustment in view of sec.92(C) of the Act. On the other hand, the ld. DR submitted that transactions can be considered as one unit only if they are closely linked. We have gone through Rule 10A(d) and 10B of the I.T. Rules. On a combined reading of these two Rules, a number of transactions can be aggregated and construed as a single transaction for the purposes of determining the ALP provided that such transactions are 'closely linked'. Ostensibly the rationale of aggregating 'closely linked' transactions to facilitate determination of ALP envisaged a situation where it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, price variation is more than 5%, Assessing Officer is justified in making adjustment of ALP determined by the tax payer and the proviso to sec.92C provides that where more than one price may be determined by the most appropriate method, the ALP shall be taken to be the arithmetical mean of such prices. In the instant case only one price has been determined under most appropriate method, the question of application of the proviso does not arise. This view is supported by the decision relied on by the ld. DR in the case of ACIT v. M/s. Essar Steel Ltd. in ITA No.228 of 2008 dated 25.1.2011[Visakhapatnam). Accordingly, the assessee is not entitled for concession as prescribed in the proviso to sec.92C(2) of the Act." In view of the above, the ALP should be determined on a transaction by transaction basis and not on an aggregate basis as argued by the ld. AR. Hence, we reverse the order of the CIT(Appeals) and restore that of the AO. This ground of appeal by the Revenue is allowed. In the result, the appeal of the Revenue in ITA No.459/Mds/2010 is partly allowed. 18. Now, we take up the appeal of the Revenue in ITA No.904/Mds/2011. The grievance of the Revenue is that the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of jurisdiction u/s 147 on the basis of opinion of another AO (at Mumbai) is bad in law. It is further stated that the AO was not correct in holding that no assessment was existing at the time of reopening the assessment. In this case no assessment order was passed u/s 143(3). The re-assessment order u/s 143(3) r.w.s. 147 was passed on 13*02*2006. This order was annulled by the CIT in ITA NO.669/2005*06 dated 01*12*2006. Thereafter, the AO has again reopened the assessment by issuing notice u/s 148 on 03*08*2007 which is under present appeal. The assessee had requested the AO to treat the original return filed by it on 31*10*2001 as the return filed in response to notice u/s 148. After communicating the reasons for reopening and after rejecting the objection of the assessee to reopen the assessment, the AO held the initiation of the re-assessment proceedings as valid for the following reasons: "1. Original assessment passed on 13-02-2006 was annulled by the CIT(A) vide his order dated 01-12-2006. Since there was no assessment exists at the time of reopening of the assessment the proviso to section 147 of the Act will not applicable in this case. 2. Notwithstanding to the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions: (i) Consolidated Photo and Finvest Ltd v. CIT, 281 ITR 394 (Del); (ii) ACIT v.Rajesh Jhaveri Stock Brokers P Ltd, 291 ITR 500 (SC); (iii)Diwakar Engineers Ltd v. ITO, 187 Taxman 327 (Del); and (iv) Coastal Corpn Ltd v. JCIT, 118 TT J 563 (Vizag). 21. The CIT(Appeals) observed that there was no failure on the part of the assessee to disclose fully and truly the material facts necessary for the reassessment on the first occasion and, therefore reopening of the assessment, which is after four years is based on change of opinion is bad in law. According to the CIT(Appeals), the primary condition to attract proviso to sec.147 is that an assessment u/s.143(3) or 147 should have been made. Just because, the original reassessment order was annulled by the CIT(Appeals) in the appellate proceedings, it does not mean no assessment has been made at all. He further observed that the Department is at liberty to file second appeal before the higher forum and he annulled the reassessment order without going to the other issues raised by the assessee with regard to taxability of compensation as revenue receipt, disallowance of provision for bad and doubtful debts, exclusion of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttracted. Further, the ld. Departmental Representative relied on the judgment of Kerala High Court in the case of CIT vs. Smt. R. Sunanda Bai 344 ITR 271 wherein it was held that suppression of facts, the Assessing Officer is at liberty to reopen the assessment though assessment was completed u/s143(3) of the Act. The ld. Departmental Representative also relied on the judgment of High Court of Rajasthan in the case of Pushtikar Laghu Vyaparik Pratishthan Bachat Evam Sakh Sahkari Samiti Ltd vs. Union of India, 249 CTR 73 (Raj). Further, he relied on the order of the Tribunal in the case of M/s. MRF Ltd vs. DCIT in ITA Nos. 1374 to 1377/Mds/2010 for the assessment years 2002-03, 2004-05, 2006-07 & 2007-09, dated 11.03.2011. 23. On the other hand, the ld. AR submitted that the assessment was reopened to consider the compensation received by the assessee as a revenue receipt and disallow excess claim of deduction u/s.80HHC of the Act. According to him, this assessment is beyond four years from the end of the relevant assessment year and there is no failure on the part of the assessee to disclose fully and truly all material facts for the purpose of the assessment. He submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... howed that they have paid compensation of Rs. 63.02 crores to the assessee only for the termination of supply agreement. The notes to the accounts states "this amount has been paid as compensation to TPL for terminating the supply agreement entered by TPL with M/s. Petro Araldite Pvt. Ltd. (PAPL) dated 22.1.1998 for supply of Epichlorolydicin and And entering into supply agreement dated 22.3.2001. There is no mention of any amount having been paid for surrender of right of first refusal to the sale of shares to PAPL. Thus,, the assessee's claim that part of the consideration as not right of first refusal is not correct. The assessee company has claimed that the receipt of Rs. 6302.48 lakhs during the previous year relevant to the assessment year 2001-02 as compensation for premature termination of the contract relating to M/s. Petro Araldite Pvt. Ltd. by releasing M/s. Ciba India Pvt. Ltd. (CIPL) and for surrender of rights for the shares to be sold. Though the assessee company has claimed that the entire amount of Rs. 63.02 crores is capital receipt the facts gathered show that at least a part of it should be on revenue account. M/s. Petro Araldite is joint venture of M/s. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the subjective satisfaction of the Assessing Officer based on objective material evidence. In the given case, assessment was completed on 13.2.2006 u/s.143(3) r.w.sec.147 of the Act. The reason was recorded as discussed above. The argument of the ld.AR is that u/s 147 in case the assessment order is completed u/s 143(3), as has been done in this case, no action could be taken after the expiry of four years from the end of the relevant assessment year unless the assessee has disclosed fully and truly all material facts necessary for the assessment for that assessment year, inter alia. 25. As seen from the reasons recorded, give a clear picture that the Assessing Officer has got material evidence to form his opinion for taking recourse to section 147 r.w.s 148 of the Act. There cannot be two opinions. The point of time when the reasons are recorded after forming opinion of 'escapement of income' is only relevant. Hence, this plea of the ld.AR is not tenable in the eyes of law. It is true that u/s 147, the Assessing Officer can either assess or re-assess but for taking action thereunder, he has to record reasons that income chargeable to tax has escaped assessment . It is also man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is an escapement of income from assessment and the reasons recorded have a link with the formation of his belief, he has the power u/s 147 of the Act. 26. Now the most material part which was argued by the ld.AR is regarding the time lag which is provided in first proviso to section 147 which states that where an assessment u/s sub-section(3) of section 143 has been made for the relevant assessment year, which is 2001- 02, in this case, no action shall be taken u/s 147 after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by the reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. There are two other conditions which are not relevant for deciding the legal issue under appeal. We have to see as to what 'failure of the assessee' to disclose fully and truly all material facts signify. The expression 'failure to disclose material facts' has been explained in the Taxman's Direct Taxes Manual Volume 3. It is true that 'every disclosure' is not and cannot be treated to be a true a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso''. It is possible that with due diligence the Assessing Officer would have ascertained this fat at the time of original assessment also, but in view of the explanation (1) it does not mean that there was no default on the part of the assessee. Hence, reopening u/s.147 is held to be valid. The assessee has tried to take shelter under the exception provided by the above stated proviso where an assessment under sub-section (3) of section 143 has been completed, no action after the expiry of four years from the end of the assessment year can be taken. But as stated above, when the assessee has not disclosed fully and truly the facts necessary for the assessment , this proviso will not come to its rescue. Same is applicable to other reasons records for reopening of assessment. Consequently, we hold that the entire reassessment proceeding in this case is valid and therefore, the action of the Assessing Officer is upheld. The assessee fails on this legal issue. 28. The assessee company claimed that the receipt of Rs. 6302.48 lakhs during the previous year re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In the result, the appeal of the Revenue is allowed. 29. Since, we have reversed the findings of the CIT(Appeals) on reopening of assessment and upheld the reassessment, the cross objection of the assessee is dismissed. 30. Now, we take up the assessee's appeal in ITA No.1999/Mds/2010. The assessee has raised the following grounds in this appeal : "2. The Deputy Commissioner of Income tax erred in adding a sum of Rs. 68,20,124/- to the total income as representing the difference in transfer price and arms length price. 3. The Deputy Commissioner of Income tax erred in making adjustment only in respect of the invoice dated 08-05-2005 wherein appellant had adopted the transfer price of US$919.23/-. 4. The Deputy Commissioner of Income tax failed to appreciate that if the average of all the transactions concluded by the assessee during the year is taken as a whole then there is no significant difference inviting adjustment. 5. The Deputy Commissioner of Income tax ought to have taken the rate mentioned in the invoice dated 19-05-2005 being US$ 955.83/MT as comparison as it is nearer to the export invoice dated 08-05-2005 instead of averaging all the transactions entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference between the assessee and the TPO due to different approach on comparables. 33. The ld. DR submitted that the TPO has applied the provisions of sec.92CA only in respect of transaction mentioned against Sl.No.2 of para 4 of DRP order. The TPO has also relied upon the correctness of figures mentioned by the assessee in this account which has been audited and duly certified by the auditor. It is on the basis of assumption that these figures are correct that the difference in TP and ALP has been worked out by the TPO. The provision of section 92CA has not been applied with regard to other transaction. The AR in his letter dated 30.08.2010 claimed before the AO that rate of USD 1050 per MT prevailed in March 2005 and hence the same should not be accepted as ALV on 08.05.2010. But such claim is in contradiction to information furnished in assessee's own audited accounts. So far as asseessee's claim that result of accounts should be accepted in entirety is concerned, it may be mentioned that the certificate by Chartered Accountant in form No.3CD does not constitute a bar for application of provisions of IT by the revenue. 33.1 The ld. DR also submitted that as discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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