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2010 (3) TMI 1242

S.Khemwal ORDER PER SUSHMA CHOWLA, JM The appeal by the assessee is against the order of CIT(A)-I, Ludhiana dated 26.11.2010 relating to assessment year 2007-08 against the order passed under section 143(3) of the I.T. Act, 1961. 2. The assessee has raised the following grounds of appeal:- 1. That the Ld. CIT(A) has erred in law and on facts while confirming the re-assessment proceedings initiated by the Ld. Assessing Officer u/s 147 of the Income Tax Act being patently illegal, invalid and the impugned order passed in reassessment proceedings is without jurisdiction 2. Without prejudice to ground No.1 above, the Ld. CIT(A) has erred in law and on facts while confirming the action of the Ld. Assessing Officer for treating the amount paid by the company to Madhya Pradesh Electricity Board (MPEB) amounting to ₹ 6,01,69,818/- for line / bay charges as against capital expenditure instead of Revenue expenditure. 3. That the Ld. CIT(A) has erred in law by confirming the action of the Ld. Assessing Officer for charging u/s 234B of the Income Tax Act on the amount of difference between tax liability determined on reassessment and amount of taxes pre-paid by the assessee instead of di .....

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the Assessing Officer in holding the expenditure to be a capital expenditure as the assessee s contention that ownership of the assets created vested with MPEB was not supported by any evidence and even otherwise the assessee was having sole and exclusive rights over the aforesaid bay lines. A reference was made to Explanation I to section 32 of the Act in connection with allowance of depreciation of capital expenditure incurred on leased building and following the said explanation, it was held by CIT(A) that even where there was no ownership of an asset, the assessee could be deemed to be owner of such assets for the purpose of allowing depreciation under certain circumstances. The assessee is in appeal against the order of CIT(A). 6. The Ld. AR for the assessee pointed out that during the course of original proceedings, a reply was filed by the assessee regarding bay line charges, which is placed at pages 1 to 4 of the paper book. It was further pointed out that similar expenses was claimed by the assessee in assessment year 1992-93 which was allowed by CIT(A) and no ground of appeal against the same was raised by the Revenue in the appeal filed against the order of CIT(A) relat .....

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failed to file the evidence that the said bay line belong to MPEB. The Ld. AR in rejoinder made a reference to the notification issued by MPEB for supply of bay lines which clearly provided that the same shall be the property of the licensee, though the cost of extension is to be met by the consumer. 8. We have heard the rival contentions and perused the records. The assessee had during the year under consideration claimed expenditure of ₹ 6,01,69,818/- paid to MPEB on account of bay lines. The assessee had claimed the said expenditure in the computation of income furnished for the year under consideration, copy of which is available at pages 63 and 64 of the paper book. The assessee had further annexed the notes to the computation of income and vide note No. 6, the assessee explained the nature of expenditure being Revenue expenditure, which is not charged to the profit and loss account in the books of account of the assessee company. It was further stated that the said amount was neither a security deposit nor refundable at any stage. Further, the ownership of the asset created was claimed to be vesting with MPEB. The amount was further claimed to have been expanded solely .....

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nt material before the Assessing Officer to lay foundation for following the belief and in the absence of the reasons, it was argued that the jurisdiction to reopen did not vest with the Assessing Officer. It was further explained by the Ld. AR that the said expenditure was claimed as Revenue in the return of income and by way of note in the notes to computation of income, the nature of expenses was also further explained. The Assessing Officer completed the assessment disallowing the claim of the assessee, which has been upheld by the CIT(A). The CIT(A) observed that there is no legal necessity that the material referred to in section 147 should be fresh material collected subsequent to the original assessment order. Reliance was placed on the ratio laid down in Sri Shakti Textiles Ltd Vs. ACIT [235 CTR (Madras) 494]. The CIT(A) further observed that the notices u/s 148 was issued within a period of four years and hence the reopening of the assessment was upheld. 10. Their Lordships of Hon'ble Supreme Court in ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC) have held that in order to invoke the provisions of Section 147 of the Act, if the Assessing Offi .....

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147 (a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under Section 148 read with Section 147 (a). But under the substituted Section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment if confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to Section 147. ………… (underline provided by us). 11. The Hon'ble Supreme Court in Raymond Woolen Mills Vs. ITO [(1999) 236 ITR 34 (SC)] held that what is required to be seen in a cas .....

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eted 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 reintroduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as follows : "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression reason to believe' in section 147.-A number of representations were received against the omission of the words reason to believe' from section 147 and their substitution by the opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. Toallay these fears, the Amending Act, 1989, has again .....

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he deduction. The court further held that The power to reopen an assessment is conditional on the formation of a reason to believe that income chargeable to tax has escaped assessment. The power is not akin to a review. The existence of tangible material is necessary to ensure against an arbitrary exercise of power. There is no tangible material in the present case. Hence the reassessment proceedings initiated u/s 147 / 148 of the Act were quashed. 16. Now coming to the facts of the present case before us, the question of allowability of the claim of expenditure on account of bay line charges paid to MPEP was being claimed by the assessee in the preceding years also. Similar claim in assessment year 1992-93 was allowed by CIT(A) and the copy of the order is placed at pages 5 to 7 of the paper book against which no appeal was filed by the Revenue as is evident from the documents furnished at pages 8 to 9 of the paper book being the appeal form submitted by the Revenue. In assessment year 2004-05, the assessee claimed similar expenditure and queries were raised during the course of assessment proceedings which are placed at pages 12 to 14 of the paper book along with reply of the ass .....

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ch the cost of extension of distribution made is to be paid by the consumer as per clause 4.3, but as per clause 4.9 the said connection/ extension of distribution means, notwithstanding that it had been paid by the consumer shall be the property of the licensee. In the abovesaid circumstances, we find no merit in the order of CIT(A) in holding the expenditure to be capital expenditure as the assessee contention that the ownership of the asset created vested with MPEB was not supported by any evidence. 17. In the totality of facts and circumstances as enumerated above and following the ratio laid down by Hon'ble Supreme Court in CIT Vs. Kelvinator of India Ltd (supra), Hon'ble Delhi High Court in Legato Systems (India) (P) Ltd vs DCIT (supra), Hon'ble Bombay High Court in Aventis Pharma Ltd Vs. JCIT (supra, and in the absence of any tangible material coming to the possession of the Assessing Officer, in formation of a reason to belief that income had escaped assessment, the aforesaid exercise of power by the Assessing Officer in reopening the assessment proceedings under section 147 / 148 of the Act in the present case is unjustified. Hence, the order of the Assessing O .....

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