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2016 (6) TMI 292 - DELHI HIGH COURT

2016 (6) TMI 292 - DELHI HIGH COURT - TMI - Validity of reopening of assessment - trade discount given by the Appellant to Mahindra & Mahindra Limited (“MML”) for obtaining exclusive vendor status was in the nature of a capital expenditure and not a revenue expenditure - Held that:- The ITAT appears to have overlooked the fact that specific queries were raised by the AO during the course of the original assessment proceedings as regards the agreement entered into between the Assessee and M&M whi .....

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he appears to have been satisfied with the above detailed reply of the Assessee explaining the nature of the agreement.

Merely because the AO did not ask for the copy of the agreement to be produced cannot lead to the inference that he had no occasion to form an opinion thereon. Such a conclusion drawn by the ITAT is belied by the above specific query raised by the AO on the agreement and the detailed explanation offered by the Assessee in response thereto

This Court is sat .....

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er the passing of the original assessment order. It may be recalled that the assessment proceeding under Section 143 (3) of the Act was completed after scrutinizing the documents produced by the Assessee and after specific queries were put to the Assessee which were replied to by the Assessee to the satisfaction of the AO.- Decided in favour of assessee - ITA 114/2016 - Dated:- 18-5-2016 - S. Muralidhar And Vibhu Bakhru, JJ. For the Appellant : Mr Rajat Navet, Advocate For the Respondent : Ms. V .....

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IT (A) ] and has confirmed the addition of ₹ 14,08,99,500 made by the Assessing Officer ( AO ) holding that the trade discount given by the Appellant to Mahindra & Mahindra Limited ( MML ) for obtaining exclusive vendor status was in the nature of a capital expenditure and not a revenue expenditure. 3. Admit. 4. The following question of law is framed for consideration: Whether the ITAT was correct in law in holding that the reassessment proceedings initiated by the AO under Section 14 .....

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ers of the Appellant in India includes Mahindra & Mahindra ( M&M ). It is stated that M&M was in the process of developing and planning for the manufacture and marketing of a new utility vehicle, namely, Scorpio in 1998. An agreement dated 11th January 1998 was entered into between the Appellant herein and M&M in terms of which the Appellant was to design, develop and provide seating systems, interior trims etc. for the Scorpio vehicle and M&M would purchase 100% of the requi .....

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the Supplementary Agreement were further modified. It was agreed that the amount of US$ 6 million would be adjusted by way of a discount/price reduction in the products/seats to be supplied by the Appellant to M&M. 8. For the AY 2005-06 the Appellant had filed its return of income on 28th October 2005 declaring an income of ₹ 23,03,25,050. Its return was picked up for scrutiny and notice was issued under Section 143 (2) of the Act on 19th October 2006. 9. During the course of the asses .....

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consideration of USD 6,000 was agreed with a customer, to obtain exclusive vendor status. This consideration is being set off against sales based on pre-agreed rates/quantities and are appropriately recorded as volume discount USD 4,124 (equivalent of ₹ 187,866) has been adjusted towards above till end of this financial year. The total consideration will be paid off by the end of next financial year. 11. The Appellant by a reply dated 28th July 2008 explained inter alia that no amount was .....

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ction 148 of the Act seeking to reopen the assessment for AY 2005-06 stating that he has reason to believe that Appellant s income chargeable to tax for the AY 2005-06 had escaped assessment. 14. Pursuant to the above notice, the Appellant by its letter dated 15th February 2010 stated that the original return of income filed under Section 139 (1) for the said AY should be treated as the return filed in response to the said notice. On 1st April 2010 the AO furnished the reasons recorded under Sec .....

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ssets, therefore, it needed to be capitalized. Only depreciation @ 25% was allowable on such capitalized amounts. Thus, depreciation of ₹ 4,69,66,500 was only allowable in the current financial year out of total claim of the Assessee amounting to ₹ 18,78,66,000. The mistake resulted is under assessment of income of ₹ 14,08,99,500 involving tax effect of ₹ 7,47,60,042. 15. The Appellant filed objections on 20th September 2003 which were rejected AO by an order dated 4th No .....

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,78,66,000 was capitalized under the block of intangible assets and 25% depreciation was provided thereon. This resulted in a total disallowance of ₹ 14,08,99,500. 17. Aggrieved by the above assessment order, the Appellant filed an appeal before the CIT (A) which came to be dismissed on 2nd August 2012. An application filed by the Appellant under Rule 46A of the Income Tax Rules, 1962 ( Rules ) seeking permission to file additional evidence (in the form of the Auditor s certificate) was al .....

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right acquired pursuant thereto. It was, accordingly, held that AO at the time of framing the original assessment had not formed any opinion on the said issue. Consequently, the plea of the Assessee that the initiation of the reassessment was prompted by change of opinion was rejected. 19. The Court has perused the documents on record and considered the submissions of learned counsel for the parties. The ITAT appears to have overlooked the fact that specific queries were raised by the AO during .....

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ding for a committed overriding volume discount by the Appellant. While the AO could have insisted on seeing the agreement, he appears to have been satisfied with the above detailed reply of the Assessee explaining the nature of the agreement. 20. Merely because the AO did not ask for the copy of the agreement to be produced cannot lead to the inference that he had no occasion to form an opinion thereon. Such a conclusion drawn by the ITAT is belied by the above specific query raised by the AO o .....

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