TMI Blog2018 (11) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... mandate are carved out in sub-section (2) of Sec. 42 viz. (a) where the subsidiary is concerned as the legal representative of a deceased member of the holding company; or (b) where the subsidiary is concerned as trustee, unless the holding company or subsidiary thereof is beneficially interested under the trust and is not so interested only by way of security for the purposes of transaction entered into by it in the ordinary course of its business which includes the lending of money. We are of the considered view that as the purchase of the shares by the assessee company of its parent/holding company viz. M/s Kotak Mahindra Bank Ltd. as sought by the A.O, does not fall within the sweep of either of the exceptions carved out in Sec. 42(2) of the Companies Act, 1956, thus, it can safely be concluded that the same was barred as per the mandate of law. We thus, have no hesitation in observing that though the A.O had conveyed the reason for reopening the case of the assessee, but had withheld the very basis for so concluding. Rather, in our considered view, on the basis of our aforesaid deliberations, it can safely be concluded that as the ‘reasons to believe’ are not only vague, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1961 ( the Act ). 2. He failed to appreciate and ought to have held that : a. the reasons mentioned in the reopening notice were merely a change of opinion and the facts and details were already submitted during the course of filing return of income and regular assessment proceedings. b. the regular assessment was completed on 30.09.2010, wherein all the information was available with the AO who passed the order after going through all the details and satisfying himself fully. c. the AO has reopened the assessment for disallowance of ESOP expenditure merely after having a re-look at the Notes to the Balance sheet P L A/c and Notes to Return of Income filed by the appellant during the assessment proceedings and no fresh material was available with the AO while reopening the assessment. d. the AO had allowed the deduction on account of ESOP in the original assessment proceedings, without any dispute. e. In order to reopen an assessment, the AO should have fresh and new material to form his belief where as in the Appellant s case there was no fresh material on record and once an opinion is given in the original assessment, it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by an order of the jurisdictional Tribunal in the case of M/s Accenture Services Pvt. Ltd. Vs. DCIT, Circle-3(1),Mumbai [2010-TIOL-409](ITAT Mumbai); dated 23.03.2010, which was not assailed by the revenue before the Hon ble High Court of Bombay, hence the case of the assessee could not have been reopened by the A.O on the basis of a view which clearly militated against the aforesaid order of the Tribunal, which was available as on the date when the case was reopened. However, the CIT(A) not finding favour with the aforesaid contentions advanced by the assessee, therein upheld the validity of the reopening of the concluded assessment by the A.O. 4. The CIT(A) after deliberating on the contentions advanced by the assessee on merits that no disallowance of the ESOP expenses was liable to be made, did find favour with the same. It was observed by the CIT(A), that the issue as regards the allowability of ESOP expenses was squarely covered by the order of the Tribunal in the assesses own case for A.Y. 2004-05 viz. Kotak Mahindra Asset Management Co. Ltd. Vs. DCIT-3(2), Mumbai [ITA No. 1416/Mum /2008; dated 07.04.2016]. It was noticed by the CIT(A) that the Tribunal in its afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the A.O for reopening the concluded assessment of the assessee company under Sec. 147 of the Act. It was fairly submitted by the Ld. A.R, that the case of the assessee was reopened within a period of 4 years from the end of the relevant assessment year viz. A.Y. 2009-10, and a notice under Sec. 148, dated 13.03.2014 was issued by the A.O. The Ld. A.R drew our attention to the copy of the Reasons to believe ,on the basis of which the case of the assessee was reopened (Page 109) of the assesses Paper Book (for short APB ). The Ld. A.R taking us through the reasons on the basis of which the A.O had embarked upon the reassessment proceedings in the case of the assessee, submitted that a bare perusal of the same revealed that there was no fresh material or information received by him subsequent to the culmination of the original assessment which was framed by him under Sec. 143(3), vide his order dated 30.09.2010, which would support the reopening of the concluded assessment of the assessee. In support of his aforesaid contention the Ld. A.R relied on the judgment of the Hon ble High Court of Bombay in the case of Hindustan Lever Limited Vs. R.B. Wadkar, Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustained. Rather, the Ld. A.R averred that as a matter of fact the A.O had no reason to believe that any income of the assessee chargeable to tax had escaped assessment. It was the contention of the Ld. A.R, that now when the original assessment framed by the A.O vide his order passed under Sec. 143(3), dated 30.09.2010 was in conformity with the view taken by the Tribunal in the case of M/s Accenture Services Pvt. Ltd. Vs. DCIT, Circle-3(1),Mumbai [2010-TIOL- 409](ITAT Mumbai); dated 23.03.2010, thus there was no reason for the A.O to have dislodged the same. It was submitted by the Ld. A.R, that as the aforesaid order of the Tribunal in the case of M/s Accenture Services Pvt. Ltd. (supra) was not further carried in appeal by the revenue before the Hon ble High Court, thus the same had attained finality. The Ld. A.R drawing support from the aforesaid facts submitted that as the original assessment framed by the A.O under Sec. 143(3) was in conformity with the aforementioned order of the Tribunal, thus there was no reason for the A.O to believe that any income of the assessee chargeable to tax had escaped assessment. It was further averred by the Ld. A.R, that as the power to reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had some reservations on the correctness of the order of the appellate Tribunal, even then they remained under a statutory obligation to follow the same. 7. Per contra, the Learned Departmental Representative (for short D.R ) refuting the contention of the Ld. A.R that the A.O had wrongly assumed jurisdiction for reopening the case of the assessee, submitted that the same was well in order. The Ld. D.R relied on the order of the CIT(A), who as per him, after necessary deliberations had upheld the validity of jurisdiction assumed by the A.O for reopening the case of the assessee. Further, it was submitted by the Ld. D.R that the A.O had not violated any order of a higher authority, and had validly reopened the case after recording the Reasons to believe . The Ld. D.R in context of his aforesaid contention drew our attention to the copy of the reasons to believe recorded by the A.O at Page 109 of the APB . Further, it was averred by the Ld. D.R that there was no requirement for fresh material for reopening the case of an assessee. On merits of the case, the Ld. D.R relied on the order of the A.O. 8. We have heard the authorized representatives of both the parties, peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to eligible employees by the Bank and were not purchased by the assessee company. However, in order to get deduction of ESOP, the shares should have been first purchased and subsequently transferred to its employees. This has not done. Hence the same has resulted in irregular allowance of deduction of ESOP by ₹ 2,63,50,515/-. In view of the above, I have reasons to believe that the income chargeable to tax has escaped assessment in the hands of the assessee for AY 2009-10 within the meaning of Sec. 147 of the I.T. Act, on account of failure on the part of the assessee to purchase the shares and subsequently to transfer to its employees. 9. We have perused the reasons to believe and after giving a thoughtful consideration find substantial force in the contention of the ld. A.R, that the entire exercise for reopening the concluded assessment of the assessee, had been embarked upon by the A.O not on the basis of any fresh tangible material or any new information which had came to his notice subsequent to the culmination of the original assessment proceedings, but on the basis of the same set of facts as were there before his predecessor while framing of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, 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 s. 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 s. 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 AO. We quote hereinbelow the relevant portion of Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1], which reads as follows : 7.2 Amendment made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of a series of judgments of various High Courts and the Supreme Court, which have been referred to in the judgment of the Full Bench of the Delhi High Court in the case of Kelvinator of India Ltd. (supra) referred to above, that under s. 147 assessment cannot be reopened on a mere change of opinion. We further find, that the Hon ble High Court of Bombay in the case of Asian Paints Ltd. Vs. DCIT (2008) 308 ITR 195 (Bom), observing that as no new information/material was received by the A.O, therefore, the fresh application of mind by the A.O to the same set of facts and material which were available on record at the time of framing of the assessment, but had inadvertently remained omitted to be considered would tantamount to review of order, which is not permissible as per law, had held as under: . 10. It is further to be seen that the legislature has not conferred power on the AO to review its own order. Therefore, the power under s. 147 cannot be used to review the order. In the present case, though the AO has used the phrase reason to believe , admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of power by the AO. Hence, after 1st April, 1989, AO has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief. 24. In the present case, for all the assessment years in question, and a fortiorari for asst. yr. 2004-05, what the AO has purported to do is to reopen the assessment on the basis of a mere change of opinion. That the AO had no tangible material is evident from the circumstance that the reasons which have been disclosed contain a reference to the same basis, namely the existence of a nil surplus/deficit in Form 1 which was drawn to the attention of and was present to the mind of the AO during the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there before his predecessor who had allowed the said claim of expenditure of the assessee in the original assessment framed under Sec. 143(3), dated 30.09.2010, thus the same in light of the aforesaid settled position of law cannot be sustained, and on the said count itself is liable to be vacated. 11. We shall now advert to the contention of the Ld. A.R, that as the reasons to believe on the basis of which the case of the assessee had been reopened were totally vague, thus, no valid jurisdiction could have been assumed by the A.O for proceeding with and therein framing the reassessment in the hands of the assessee. We have deliberated at length on the aforesaid contention of the Ld. A.R and are persuaded to subscribe to his claim, that though the A.O had observed in the reasons recorded by him that the ESOP expense would be allowable only if the assessee company had first purchased the shares and subsequently transferred the same to its employees, but what is the basis for so concluding is absolutely not at all discernible from a perusal of the same. Rather, we find substantial force in the contention of the Ld. A.R that now when as per the mandate of law i.e. Sec. 42 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason that had weighed in the mind of the A.O while reopening the case of the assessee, was that in order to get deduction of ESOP expense, the shares should have been first purchased by the assessee, and subsequently transferred to its employees. As per the A.O, as the assessee had failed to do so, the same had thus resulted in irregular allowance of deduction of ESOP expense of ₹ 2,63,50,515/- . We find substantial force in the contention of the Ld. A.R, that as on 13.03.2014 when the case of the assessee was reopened for the aforesaid reasons, there was an order of the jurisdictional Tribunal available before him in the case of M/s Accenture Services Pvt. Ltd. Vs. DCIT, Circle-3(1), Mumbai [2010-TIOL-409](ITAT Mumbai); dated 23.03.2010, wherein in the backdrop of identical facts as are there before us in the case of the present assessee, the Tribunal had observed that ESOP expense incurred by the assessee company on account of payments made by it for the shares of parent/holding company allotted to its employees was allowable as a revenue expenditure. We find that the aforesaid order of the Tribunal was accepted by the revenue, and no further appeal was filed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was observed by him, that in the case of Accenture Services Pvt. Ltd. (supra) also the shares of the parent/holding were issued to the employees of the subsidiary companies, and the subsidiary company had paid to the parent/holding company the difference in the market price and the exercise price of such shares by their employees, and had claimed the same as ESOP expenses. We find that the CIT(A) despite observing as hereinabove, and therein being well conversant with the fact that the A.O had reopened the case on the basis of a view which clearly militated against the view that was arrived at by the jurisdictional Tribunal in its aforementioned case viz. M/s Accenture Services Pvt. Ltd. Vs. DCIT, Circle-3(1), Mumbai [2010-TIOL-409](ITAT Mumbai); dated 23.03.2010, however did not think it fit to dislodge the validity of the jurisdiction assumed by the A.O. We find that the aforesaid approach adopted by the lower authorities in disregarding and bypassing the order of the jurisdictional Tribunal clearly militates against the basic tenement of rule of judicial discipline. We are at this stage reminded of the judgment of the Hon ble Supreme Court in the case of Union of India Vs. Kaml ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of appeal. 3. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. 16. Briefly stated, the revenue has assailed the order of the CIT(A) on the ground that he had erred in failing to appreciate that as the ESOP expense of ₹ 2,63,50,515/- was incurred in relation to issue of shares to employees, and was not relatable to profit and gains arising or accruing from business/trade, thus the same was not allowable as a revenue expenditure in the hands of the assessee company. 17. We have heard the authorized representatives of both the parties in context of the issue under consideration, and are not persuaded to subscribe to the aforesaid claim of the revenue. We find that the issue involved in the present appeal is squarely covered by the order passed by a coordinate bench of the Tribunal in the assesses own case for A.Y. 2004-05 viz. Kotak Mahindra Asset Management Co. Ltd. Vs. DCIT-3(2), Mumbai (ITA No. 1416/Mum/2008; dated 07.04.2016). In the aforementioned case, the Tribunal relying on its earlier decisions i.e. (i) DCIT Vs. Accentures Services Pvt. Ltd. [(2010) TIOL-409-ITATMum] and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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