TMI Blog2018 (9) TMI 425X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order, would show that the issue was examined by the AO, but do not find out any ground or reason to make addition or reject the stand of the Assessee. In the circumstances, it must be presumed that the AO had formed an opinion while framing the assessment under Section 143(3) of the Act. The arguments of the learned Counsel for the Revenue that the issue was not addressed by the AO, is a case of ‘no opinion’ cannot be countenanced. The assessments concluded in preceding/subsequent years and the implication in the assessment order under Section 143(3) establishes the opinion formulated by the AO on the subject matter. No re-assessment proceedings can be opened based on the Audit objections sans application of mind. It is manifest that the AO had no ‘reason to believe’, any escapement of income to assessment. Hence, assumption of jurisdiction by the AO to invoke section 147 is unjustifiable. Notice dated 11.02.2014 and the order dated 01.07.2015 are unsustainable. - Decided in favour of assessee. - W.P. No.30388/2015 (T-IT) - - - Dated:- 10-8-2018 - MRS. S. SUJATHA J. Petitioner: (By Dr. Krishna R.B., Adv.) Respondent: (BY Sri K.V. Aravind, Adv.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with section 148 of the Act, for reopening the assessment, completed under section 143[3] of the Act, relating to the Assessment Year 2009-10. 4. It is the contention of the petitioner that the very same issue came up for adjudication for the Assessment Year 2007-08. Submissions were made by the petitioner pertaining to this issue in terms of the letter dated 11.08.2009. The respondent, after considering the same, completed the assessment under section 143[3] of the Act for the Assessment Year 2007- 08, accepting the claim of the petitioner for allowances of the logo fees as revenue expenditure . However, notice dated 11.02.2014 issued under section 148 of the Act was served on the petitioner to reassess the petitioner under section 147 of the Act. The petitioner complying with the said notice, filed return on 13.03.2014. The copy of the reasons recorded prior to the issue of notice under section 148 of the Act was made over to the petitioner by the respondent vide letter dated 6.6.2014, to which the petitioner filed objections to the effect that the logo fees paid was not capital expenditure and licence fee was computed based on turnover. It was, thus, contended that the acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is only in the circumstances where there is reason to believe that there is an escapement of income to assessment, Section 147 can be invoked, otherwise it is a review made by the AO with change of opinion . Learned Counsel submitted that the return as well as the other documents made available to the AO clearly indicated the logo commission expenditure expended by the petitioner and the disallowance claimed as revenue expenditure . It was pointed out that for the Assessment Year 2007-08, a query was made by the AO and in terms of the reply filed by the Assessee dated 11.08.2009, it was brought to the notice of the AO that the logo commission refers to the amount paid in consideration of a Licence by TTK Co., to TTK Prestige Ltd., to use the logo ttk on the products sold; this amount is computed at 0.5% of the total sales; the details of credit notes issued have already been provided along with the auditors report in annexures. Similarly, for the assessment year in question, on the query made by the AO, document relating to Schedule of Miscellaneous Expenses reflecting the licence fee/logo amounting to ₹ 1,98,97,036/- was submitted for examination. That being t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Assessee, taking a different stand for a single Assessment Year 2009-10 by the Assessing Officer would indicate the arbitrary exercise of power by the AO with change of opinion and the same is unsustainable. Learned counsel further argued that no opportunity of hearing was provided as directed by this Court in W.P.No.1248/2015. The request made by the Assessee for grant of time was denied. In support of his contentions, learned Counsel placed reliance on the following Judgments: [a] COMMISSIONER OF INCOME-TAX vs. KELVINATOR OF INDIA LTD., vs. [(2010) 320 ITR 561 (SC)] [b] COMMISSIONER OF INCOME TAX vs. USHA INTERNATIONAL LTD. [2012] 348 ITR 485 (DELHI). [c] M/s. RADHASOAMI SATSANG, SAOMI BAGH, AGRA vs. COMMISSIONER OF INCOME TAX [(1992) 1 SCC 659]. [d] MESSEE DUSSELDORF INDIA P. LTD., vs. DEPUTY COMMISSIONER OF INCOME-TAX, TRANSFER PRICING OFFICER AND ANOTHER [(2010) 320 ITR 565 [DELHI]. [e] ASSISTANT COMMISSIONER OF INCOME TAX AND OTHERS vs. ICICI SECURITIES PRIMARY DEALERSHIP LTD. [2012] 348 ITR 299 (SC) [f] COMMISSIONER OF INCOME TAX vs. I.A.E.C. (PUMPS) LTD., [(1998) 150 CTR SC 126 6. Submissions of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to do so has resulted in under assessment of income and the same has been reflected in the reasons recorded by the AO for reopening the case for Assessment Year 2009-10. Goodwill has to be considered to be an asset and reference is made to the Judgment of the Hon ble Apex Court in the case of COMMISSIONER OF INCOME TAX vs. SMIFS SECURITIES LTD., [(2012) 348 ITR 302 (SC)], in this regard. It was further argued that the words reason to believe interpreted in catena of Judgments of the Apex Court, throws light in as much as the power conferred on the AO to reassess the income. Reference is made to the recent Judgment of the Hon ble Apex Court in the case of INCOME TAX OFFICER WARD NO.16(2) vs. M/s. TECHSPAN INDIA PRIVATE LTD. ANOTHER in Civil Appeal No.2732/2007 [DD 24.04.2018]. In the absence of formulation of opinion on the very subject matter by the AO while passing the assessment order under Section 143[3] of the Act, would not render the belief of escapement of income to assessment as change of opinion . According to the learned Counsel, there was no formulation of any opinion by the AO on this particular aspect of the expenditure claimed towards the logo c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that year, income chargeable to tax has escaped assessment for that year, or [b] notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income- tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). After enactment of Direct Tax Laws (Amendment) Act, 1987, i.e., prior to 1st April, 1989, Section 147 of the Act, reads as under: 147. Income escaping assessment. If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words reason to believe , Parliament re-introduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. 9. Though the decision in the case of ICICI SECURITIES supra, relates to first proviso to Section 147, it would be appropriate to quote the findings of the Hon ble Apex Court which runs thus: The assessee had disclosed full details in the return of income in the matter of its dealing in stocks and shares. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. In the second and third situation, the Revenue is not without remedy. In case the assessment order is erroneous and prejudicial to the interest of the Revenue, they are entitled to and can invoke power under Section 263 of the Act. This aspect and position has been highlighted in CIT vs. DLF Powers Limited, ITA 973/2011 decided on 29th November, 2011 and BLB Limited vs. ACIT Writ Petition (Civil) No. 6884/2010 decided on 1st December, 2011. since reported in [2012] 343 ITR 129 (Delhi) . In the last decision it has been observed (page 135): The Revenue had the option, but did not take recourse to Section 263 of the Act, inspite of audit objection. Supervisory and revisionary power under Section 263 of the Act is available, if an order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. An erroneous order contrary to law that has caused prejudiced can be correct, when jurisdiction under Section 263 is invoke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied his mind to the question whether the surplus is taxable or not. It is true that the return was filed and the assessment was completed on the same date. Nevertheless, it is opposed to normal human conduct that an officer would complete the assessment without looking at the material placed before him. It is not as if the assessment record contained a large number of documents or the case raised complicated issues rendering it probable that the I.T.O. had missed these facts. It is a case where there is only one contention raised before the I.T.O. and it is, we think, impossible to hold that the Income-tax Officer did not at all look at the return filed by the assessee or the statements accompanying it. The more reasonable view to take would, in our opinion, be that the Income-tax Officer looked at the facts and accepted the assessee's contention that the surplus was not taxable. But, in doing so, the obviously missed to take note of the law laid down in Ramachari which there is nothing to show, had been brought to his notice. When he subsequently became aware of the decision, he initiated proceedings under Section 147(b). The material which constituted information and on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer has some reason to believe that the income has escaped assessment. The use of the words reason to believe in Section 147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such re-assessment proceedings merely on his change of opinion on the basis of same facts and circumstances which has already been considered by him during the original assessment proceedings. Such could not be the intention of the legislature. The said provision was incorporated in the scheme of the IT Act so as to empower the Assessing Authorities to re-assess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge; and the said fact would have material bearing on the outcome of the relevant assessment order. 9) Section 147 of the IT Act does not allow the re-assessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eged escapement of income that was taxable. If the assessment order is non- speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed re-assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the re-assessment proceedings. 12. As regards the applicability of the principles of res judicata to the income tax matters, it is appropriate to extract the relevant findings of the Hon ble Apex Court in the case of RADHASOAMI SATSANG supra, 16. We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) Aturia has also undertaken to enable the assessee to defend any counterfeit by others and also had undertaken to (NC) expenses with reference thereto; (5) The assessee shall not disclose to third parties any of the documents made available by Aturia to the assessee without having received a written authorisation from Aturia. We are of the opinion that the above features clearly establish that what was obtained by the assessee is only a license and what was paid by the assessee to Aturia is only a license fee and not the price for acquisition of any capital asset. 3. We heard counsel. We are of the view that the High Court posed the correct question that arose for consideration and also applied the proper principles of law to the instant case. By applying the proper principles of law to the agreement in question, the High Court concluded that the amounts paid to the collaborator is only a license fee and not the price for acquisition of a capital asset . It was concluded that the entire payment constitutes revenue expenditure and the questions were answered in favour of the assessee. 14. As regards interpretation of Section 147 of the Act, the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening is valid or invalid on the ground of change of opinion? This goes to the root of the matter in as much as the jurisdiction of the AO in invoking Section 147 of the Act. In the present case, the assessment proceedings under section 143[3] relating to the assessment year 2007-08 were concluded by Order dated 31.08.2009. The assessment order under section 143[3] of the Act relating to the Assessment Year 2009-10 was passed on 18.04.2011. The letter dated 11.08.2009 [Annexure-B to the writ petition] indicates that for the assessment year 2007-08, Assessee has furnished the following details as desired by the AO. 1. Statement of additions to Computers 2. Statement on additions to Software 3. Statement showing details of Sundry Debtors including due from subsidiary. 4. Statement Showing O/Bal., transaction and C/Bal. of Loan to Manttra Inc. 5. Statement showing details of Tax matter under appeal. 6. Statement showing details of welfare expenses. 7. Statement giving details of legal Professional Fees. 8. Statement giving details of Advertisement and Selling expenses 9. Statement giving details of Miscellaneous expenses. xxxxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for many years. As such, it is difficult to comprehend the mind of the AO to invoke section 147 proceedings, only with respect to Assessment Year 2009-10. Further, it is also significant to note that the dispute relating to the use of the logo ttk whether is benefit of enduring nature constitutes, acquisition of an asset and so whether amounts to capital expenditure or revenue expenditure for the licence fees paid has been considered and decided by the Income Tax Appellate Tribunal, Chennai in favour of the assessee which has reached finality, as contended by the petitioner. 16. To appreciate the present controversy, it would be appropriate to refer to Section 147 of the Act which reads thus: 147. Income escaping assessment:-- If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,98,97,036/- was towards license fee/logo. As this expenditure claimed is in the nature of goodwill and having enduring benefit needs to be capitalized and added back to income. Omission to do so has resulted in under assessment of income by ₹ 1,49,22,777/- (i.e. ₹ 1,98,97,036/- less 25% depreciation applicable). 18. The reasons recorded by the AO discloses that on the material available on record, it was noticed that the Assessee-Petitioner has claimed an amount of ₹ 1,98,97,036/- towards the licence fees/logo which is in the nature of goodwill, having enduring benefit needs to be capitalized. It is true that the material facts can be ascertained from the assessment records also and not necessarily from any other extraneous source. But, the Revenue has to establish that the Assessee had stated incorrect and wrong material facts during the assessment proceedings, culminating into an assessment order escaping the income to assessment. Presumption can be raised with respect to an assessment order passed in terms of Section 143[3] that such an order has been passed on application of mind which is well known presumption in terms of Section 114[e] of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submission of the assessee at the time assessment dated 25.01.2011 and another submission along with the Agreement dated 19.12.2012 show that by virtue of the agreement, the assessee company has been permitted to apply/use the name and logo ttk to promote its business by using the said name and logo on all its products, advertisements, letter heads and all communications for that the assessee is required to pay a logo license fees computed at 0.5% of its net sales value every year. It can be seen from the above, this is not a onetime payment with an enduring benefit, but is recurring business expenditure and the license of right to use the logo is restricted to the period of the agreement only and ownership and the corresponding Goodwill always remains with the Licensor. As per the agreement in the event of this agreement expires or being terminated, the License shall immediately thereafter desist from using the said monogram. The ownership of the monogram is being held by an independent firm other than the assessee company. In view of the above, the audit objection is factually incorrect and there is no revenue loss involved. Therefore the audit objection is found to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness expenditure whereas ownership and the corresponding goodwill always remains with the Licensor. Contrary to this stand, the AO has recorded the reasons for invoking Section 147 that the expenditure claimed towards licence fee/logo is in the nature of goodwill and having enduring benefit needs to be capitalized. This material found in the original records demonstrate that there was no live link between the reasons recorded and the material available on record except the audit query. 23. It may be apt to refer to the Judgment of the Hon ble Gujarat High Court in the case of P.C. PATEL AND CO., v. DEPUTY COMMISSIONER OF INCOME TAX [(2015) 379 ITR 151 (Guj)], wherein the Division Bench of Gujarat High Court, after considering the Judgment of CIT v. SHILP GRAVURES LTD., [(2013) 40 taxmann.com 309 (Guj)], held that any reassessment proceeding initiated at the instance of the audit party objection without the Assessing Officer himself having reason to believe that the income chargeable to tax has escaped the assessment must fail. Further, it is observed thus: 5.7. Now, so far as the reliance placed upon the decision of the Hon ble Supreme Court in the case P.V.S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in ITA No.58/2012 [DD 31.07.2018], the Division Bench has held thus: 5. Having heard the learned counsel for Revenue, we are satisfied that no substantial question of law arises in the present case requiring our further consideration in the matter. Learned Tribunal has arrived at reasonable and sustainable findings based on relevant materials and after citing several judgments of other High Courts as well as Hon ble Supreme Court discussing the grounds on which such re- assessment/reopening can be undertaken and when cannot be undertaken, on the basis of mere audit objection raised by the internal auditors of the Department. 25. In the said case, Learned Tribunal had set aside the assessment framed by the AO on the basis of notice issued under Section 148 of the Act for reopening the assessment under Section 147 of the Act for the reason that reopening of assessment was due to the objections of the audit party and no independent application of mind was there by the AO further, the assessment order under Section 143[3] of the Act was in consonance with the view taken in the preceding as well as succeeding year. No perversity has been found by this Court in the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. Though a word of caution has been expressed by the Hon ble Apex Court in the recent Judgment of M /s. TECHSPAN INDIA PRIVATE LIMITED [supra], that every attempt to bring to tax income that has escaped assessment cannot be absolved on an assumed change of opinion even in case where the order of assessment does not address itself to a given aspect sought to be examined in the reassessment proceedings, on which much emphasis was placed by the learned Counsel for the Revenue on application of the Judgment to the facts of the case, it is clear that the assessments concluded in preceding/subsequent years and the implication in the assessment order under Section 143(3) establishes the opinion formulated by the AO on the subject matter. No re-assessment proceedings can be opened based on the Audit objections sans application of mind. It is manifest that the AO had no reason to believe , any escapement of income to assessment. Hence, assumption of jurisdiction by the AO to invoke section 147 is unjustifiable. Notice dated 11.02.2014 and the order dated 01.07.2015 are unsustainable. 29. Though learned Counsel for the Petitioner placed reliance on the Judgment of I.A.E.C. (PU ..... X X X X Extracts X X X X X X X X Extracts X X X X
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