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Asstt. Commissioner of Income Tax, Circle 2 (2) , Hyderabad Versus M/s. TNS India Private Ltd.

2017 (9) TMI 815 - ITAT HYDERABAD

Re-opening of assessment u/s.147 - proceedings initiated only on the basis of the audit objection without any application of mind by the AO - reasons to believe - Held that:- For issuance of notice u/s 148 beyond a period of 4 years from the end of the relevant A.Y, it was necessary for AO to record that the income has escaped assessment on account of the failure of the assessee to disclose fully and truly all material facts necessary for assessment. We have also gone through the order sheet ent .....

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he AO has to speak his mind through his order and it cannot be presumed in the absence of any such recording. - In the case before us the assessee has filed the return of income for the relevant financial year and it is only from these documents that the audit party has raised its objections. Thus, there is no new material which has come to the notice of the audit party or the AO for raising such objection or forming a belief that there is escapement of income. When all the material facts we .....

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ed. - ITA No.515/Hyd/2015 - Dated:- 13-9-2017 - Smt. P. Madhavi Devi, Judicial Member And Shri S.Rifaur Rahman, Accountant Member For The Revenue : Shri P. Chandra Sekhar, DR For The Assessee : Shri Ravi Bharadwaj ORDER Per Smt. P. Madhavi Devi, J.M. This is Revenue s appeal for the A.Y 2005-06. The Revenue is aggrieved by the order of the CIT (A)-2 Hyderabad, dated 23rd February, 2015. The Revenue has raised the following grounds of appeal: 1. The CIT(A) erred on facts and in law in quashing th .....

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lid in law. 4. Any other ground that may be taken up at the time of hearing . 2. Brief facts of the case are that the assessee company, which is engaged in the business of market research and data processing, filed its return of income on 23.3.2006 admitting taxable income at ₹ 6,25,76,413. The return was initially processed u/s 143(1) of the I.T. Act and subsequently selected for scrutiny and the assessment order u/s 143(3) of the Act was passed on 15.12.2008 assessing the income at ͅ .....

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A.Y and therefore, the initiation of proceedings u/s 147 is not warranted. Without prejudice to the said contention, the assessee also contended that the return already filed on 23.3.2006 be treated as a return in response to the notice u/s 148 and requested the AO to provide the reasons recorded for reopening of the assessment to it. In response to the same, the reasons for reopening of the assessment were furnished to the assessee and the assessee filed its objections against such reopening. V .....

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as erred in initiating the re-assessment proceedings based on audit objection. In support of the grounds raised, the assessee filed detailed submissions before the CIT (A). The CIT (A) observed that the grounds 1, 2 and 10 are against the validity of the re-assessment proceedings and after considering the assessee s submissions at length, he held that the notice u/s 148 on the basis of audit objection and the consequent re-assessment proceedings are void ab initio. He relied upon various judicia .....

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to have filed it before 30.09.2005. He submitted that the assessee not only has to file the return but has to disclose truly and fully all the material facts relevant for the assessment of its income. He drew our attention to Form No.3CED at page 11 of the paper book filed by the Revenue and internal page No.7 thereof, wherein the assessee was required to declare as to whether the assessee has deducted the tax at source and paid the amount to the Central Govt. in accordance with the provisions o .....

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ly during the re-assessment proceedings. He has also drawn our attention to the relevant copies of Form-16 which are placed at pages 62 to 64 of the paper book filed by the Revenue to demonstrate that the due dates of payment during the relevant financial year are 23.09.2004, 30.11.2004 and 22.11.2004 but the payment into the govt. a/c was made on 19.07.2005 in all the three cases. Thus, according to him, there is no true and full disclosure of all the material facts by the assessee while filing .....

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only thereafter, that the AO has issued notice u/s 148 of the Act. In support of his contention the audit objection can be considered as information for reopening of an assessment, the learned DR placed reliance upon the following decisions: i) CIT vs. PVS Beedies Pvt. Ltd reported in (1999) 237 ITR 0013. ii) Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (S.C) iii) CIT Cochin vs. National Tyres & Rubber Co. of India Ltd reported in (2011) 15 Taxmann.com 3 (Ker.) Thus, acco .....

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ome. He submitted that the notice u/s 148 has been issued after expiry of four years from the end of the relevant A.Y and therefore, the proviso to section 147 of the Act would apply. He submitted that the audit party has raised the objections after verifying the assessment records of the assessee and therefore, it is clear that all the relevant facts were part of the record and no new material has come to the knowledge of the AO to form a belief that the income has escaped assessment. He submit .....

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se fully and truly all material facts. He submitted that it is only while disposing the assessee s objections against the re-assessment, that the AO has mentioned that the assessee has failed to disposing fully and truly all material facts necessary for assessment of its income. He submitted that the requirement of the law is that the AO has to be satisfied at the time of recording the reasons itself that the assessee has failed to disclose fully and truly all material facts. He also submitted t .....

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cision of the Hon'ble Supreme Court in the case of CIT vs. PVS Beedies Pvt. Ltd and also Indian & Eastern Newspaper Society v. CIT (cited Supra), the learned Counsel for the assessee submitted that those decisions were on the provisions of section 147(b) of the Act which existed at that point of time, whereas the section 147 has undergone amendment by introduction of the proviso to section 147 and therefore, according to him, those decisions cannot be applied to the case before us for po .....

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case of CIT v. Bhanji Lavji (1971) (79 ITR 582) d) Hon'ble Supreme Court in the case of CIT vs. Lucas T.V.S. Ltd (2001) (249 ITR 306) e) Hon'ble Bombay High Court in the case of CIT vs. DRM Enterprises (2014) (230 Taxman 61) 6. Having regard to the rival contentions and the material on record, we find that the question before us is whether the reassessment proceedings have been initiated only on the basis of the audit objection without any application of mind by the AO and whether the r .....

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sed objections and the AO replied to the said objections stating that the issue relating to the issuance of license fee and royalty payment have been considered by the TPO during the Transfer Pricing proceedings and for the objections relating i.e. 1 to 4, the AO while scrutinizing the file would have verified the same but the objections raised by the RAP needs verification and therefore, requested the CIT-II Hyderabad for directions to take necessary remedial action. The objections of the audit .....

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of the assessee to disclose fully and truly all material facts necessary for assessment of its income. The reasons for reopening the assessment have been filed before us in the Paper Book filed by the assessee at page 3 of the Paper Book containing judicial precedents (Vol.-I) and it is noticed therefrom that the audit objections are reproduced therein as reasons for reopening of the assessment and there is no whisper of the failure of the assessee to disclose fully and truly all material facts .....

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owever, as seen from the P & L account, the said accrued income was not accounted for though the assessee was following mercantile method of accounting. Therefore, the accrued income of ₹ 1,93,35,049/- escaped assessment. 2) It is noticed vide Schedule-I "Administrative Cost' forming part of the P & L account, the assessee company debited an amount of ₹ 2,50,63,559/- towards 'Licence Fees' (Rs.1,60,41,152/- towards Licence Fee payment for using 'Central A .....

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iness and nature of payment made for acquiring 'Licence fee' from Group companies, the said expenditure needs to be capitalized under 'Intangible assets' and depreciation @ 25% on ₹ 2,50,63,559/- amounting to ₹ 62,65,890/- is only allowable and the balance of Rs.l,87,97,669/- needs to be brought to tax. 3) It is observed from Schedule-I - Administrative cost that an amount ofRs.1,14,58,641/- was debited towards 'Royalty payment' (including the Central Group Se .....

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90,752/-. The details for remaining TDS credit are not forthcoming from the assessment record. Also as seen from Schedule-F (d) - Current assets, loans and Advances, the assessee company had received TDS credit worth ₹ 10,13,44,415/-. Out of this ₹ 1,91,36,242/- was allowed in the scrutiny order. The details of entire turnover could not be correctly ascertained . 7. We have also perused the audit objections placed at pages 1 & 2 of the paper book filed by the assessee and find th .....

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licability or otherwise of the ratios of the decisions relied upon by both the parties to the facts of the case before us. The learned DR has read out extensively from the following decisions in support of his contentions. (i) CIT vs. PVS Beedis Pvt. Ltd (237 ITR 13 (S.C) The Hon'ble Supreme Court in this case, while considering the meaning of section 147(b) of the Act held that the information given by the internal audit party could be treated as information and the reopening of the case on .....

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recompute the loss or the depreciation allowance, as the case may be, for the A.Y concerned (hereafter in sections 148 to 153 referred to as the relevant A.Y . 8. Thus, it is clear that at the relevant point of time i.e. prior to 1.4.1989, the AO had the power to reopen the assessment without any time limit even where the assessee has disclosed all material facts truly and fully. Subsequent to the introduction of the proviso to section 147, the AO has the power to reopen the assessment only on .....

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f an audit objection. (ii) Indian & Eastern News Papers and Society v. CIT (119 ITR 996)(S.C) The Hon'ble Supreme Court in this case, has held that though the audit party does not possess the power to pronounce on the law, it nevertheless may draw the attention of the ITO to it and when such information is brought to his notice, the Income Tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law .....

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the AO who has to be satisfied that the income has escaped assessment and cannot solely rely upon the audit objection to reopen an assessment. We find that this decision is in fact in favour of the assessee. (iii) CIT vs. National Tyres and Rubber Co. of India Ltd (202 Taxmann 625) (Kerala) In this case, the Hon'ble Kerala High Court was considering the case of an assessee whose assessment for the A.Y 1995-96 was reopened on the basis of an audit objection that the capital gain on conversio .....

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major portion of the land and building thereon held by it and that it was originally the capital asset which was transferred or converted into stock-intrade in the year 1992-93 leading to a good amount of profit to the assessee. It was in these circumstances, that the Hon'ble High Court held that so long as income chargeable to tax has escaped the assessment and the AO has reason to believe so, whether suo moto found by him from record or brought to its notice by audit party, the AO will be .....

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yana High Court was considering the case of reopening of the assessment on the basis of audit objection within a period of 4 years and therefore, the said decision is also not applicable to the facts of the case before us. (v) Franchise India Holdings Ltd vs. ACIT reported in (2016) (388 ITR 563) (P&H) (vi) Dalmiya Brothers (P) Ltd vs. CIT reported in (2011) (204 Taxman 83) (Del.) In this case the Hon'ble Delhi High Court was dealing with a case where during the assessment proceedings th .....

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389 ITR 630 (Guj.) In this case, the Hon'ble Gujarat High Court was considering the case of an assessee where the re-assessment was initiated after a period of 4 years. In this case, there was a search and seizure operation during which, the material was found and seized on the basis of which the assessment has been reopened. This is the case where fresh information has been brought on record by the Investigation Wing and that is the basis for reopening of the case after a period of 4 years .....

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aymond Wollen Mills Ltd vs. ITO & Others (207 ITR 929) (Bombay) The assessment year in this case are 1967-68, 1968-69, 1970-71 to 1973-74 and the reopening of the assessment was u/s 147(a) i.e. the pre-amended provisions and therefore, the same is not applicable to the facts of the case before us. (x) Girilal & Co. vs. ITO & Others (387 ITR 122) (S.C) In this case, the Hon'ble Supreme Court was considering the case of an assessee where the re-opening of the assessment was after a .....

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of the case before us. 9) The learned Counsel for the assessee, on the other hand, had relied upon the following decisions: i) Unreported decision of Hon'ble A.P & Telangana High Court in the case of CIT-II vs. LGE & C-NCC (Jt.Venture) (ITTA No.390 of 2014). The Hon'ble Andhra Pradesh High Court in this case has held that where the pre conditions for issuance of notice u/s 148 after four years and within six years, namely, the allegation of escapement of income on account of fai .....

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Cited Supra) has at Para 12 of its order held as under: 12. In the light of the above, we hold that when the Assessing Officer had failed to record anywhere his satisfaction or belief that the income chargeable to tax had escaped assessment on account of the failure of the assessee to disclose truly and fully all material facts necessary for assessment. On the contrary, it was the Assessing Officer, who failed to consider the materials placed before him at the time of regular assessment for whic .....

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he Hon'ble jurisdictional High Court has held that where all the facts were available before the assessing authority while making the original assessment and the assessing authority allowed the claim, the Department cannot reopen the assessment even if there is loss of revenue or even if legal inferences drawn by the assessee is erroneous in the first place when full and true disclosure of the facts was made by the assessee. iv) Hon'ble Supreme Court in the case of ITO vs. Lakhmani Mewal .....

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here ITO has passed an order holding that the assessee has no income chargeable to tax in British India, with full knowledge, he could not seek to reassess the assessee on the ground of failure to disclose fully and truly the facts necessary for the assessment of his income. vi) Hon'ble Supreme Court in the case of Calcutta Discount Co. v. ITO [1961] 41 ITR 191 (SC) 11) In this case, the Hon'ble Supreme Court has held that it is the duty of the assessee to disclose the primary facts rele .....

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ion to the sub-section to section 34 of 1922 Act has nothing to do with the inferences to be drawn and deals only with the question whether primary material facts not disclosed, could still be said to be constructively disclosed on the ground that with due diligence, the Income Tax Officer has discovered them from the facts actually disclosed. From the above decision, it is clear that though the Audit Party can bring information to the knowledge of the AO that the income of the assessee has esca .....

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