TMI Blog2020 (11) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... ened after a period of four years from the end of the assessment year. Under the circumstances, the conditions stipulated under first proviso to section 147 are not satisfied and therefore, on the aforesaid ground alone, the impugned notice deserves to be quashed and set aside. There was no full and true disclosure at the end of the Assessee of the material fact necessary for the purpose of assessment. In such circumstances, it can be said that there was no tangible material for the purpose of reopening the assessment except change of opinion. Hence in our opinion, there was no fault on the part of assessee to disclose full and truly all the material facts necessary for the assessment. Reopening of assessment which is already concluded under Section 143(3) of the Act of the assessment cannot be reopened without any allegation by the Assessing Officer that there was non-disclosure of true and correct facts by the assessee while framing the original assessment. Hence we are inclined to annul the assessment. Disallowance of expenditure relating to design and development expenses - Revenue or capital expenditure - HELD THAT:- The assessee incurred this expenditure towards d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence is furnished to show that the basis towards non-existing liability. Interest disallowance - additional ground admission - HELD THAT:- This interest expenditure was with regard to on account of loans availed which was invested in capital work in progress and as an addition to fixed assets. Being so, this is in capital field and no interest could be allowed as revenue expenditure. The lower authorities are justified in treating the claim of the assessee as capital work in progress. Considering the additional ground on the reason that there is good and sufficient reason for not raising this additional ground inadvertently. Accordingly, we admit the additional ground and accede to the belief of the ld. AR and the assessee is entitled for consequential depreciation on capitalization in the year capital work in progress by the assessee at applicable rate. We direct the Assessing Officer to allow consequential depreciation. This ground of assessee is partly allowed. Disallowance of reimbursement of expenses - tax has not been withheld on the reimbursement of expenses - HELD THAT:- Before us, the assessee has not substantiated that the assessee has deducted tax on the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wlett Packard Digital Global Soft Ltd. 380 ITR 386 (Kar). (iv) CIT Vs. ;Kelvinator of India Ltd. 320 ITR 561 (SC( (v) CIT Vs. Kelvinator of India Ltd. 256 ITR 1 (Del) (vi) CIT Vs. Modipon Ltd. in ITA No.533 of 2011 Dt.21.03.2011 (Delhi H C) (vii) Madhukar Khosla Vs. ACIT 367 ITR 165 (Del) (viii) CIT Vs. Foramer France 264 ITR 566 (SC) (ix) CIT Vs. Tarajan Tea Co. Pvt. Ltd. 236 ITR 477 (SC) (x) Fibres Fabrics International (P) Ltd. Vs. DCIT 48 ITR (T)46 (Bangalore Trib.) 4. According to the ld.AR that as per the 1st proviso to Section 147 of the Act there is an assessment under Section 143(3) or 147 of the Act has already been completed for the relevant assessment year, no action shall be taken under Section 147 of the Act after expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by the following reasons : (a) The assessee has failed to file a Return under Section 139 of the Act or (b) The assessee has failed to file a return in response to Notices issued under Section 142(1) and 148 of the Act or (c) the assessee has failed to disclose fully and tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) Asian Paints Ltd. Vs. DCIT 308 ITR 195 (Bom) v) ICICI Prudential Life Insurance Co. Ltd. Vs. ACIT 231 CTR 233 (Bom) vi) Aventis Pharma Ltd. Vs. ACIT 323 ITR 570 (Bom) According to him there is no belief that the income escaped assessment, as such reassessment is bad in law. For this purpose he relied on judgment of Ganga Saran Sons Pvt Ltd Vs. ITO Others 130 ITR 1 (SC) and also decision of Bangalore Tribunal in the case of Fibres and Fabrics International (P.) Ltd. Vs. DCIT 83 Taxman.com 35; NYK Line India Ltd. Vs. DCIT 28 taxmann.com 229 (Bom); CIT Vs. Srusti Diam 57 taxmann.com 392 (Bom); Debashu Services (P) Ltd. Vs. DCIT 49 taxmann.com 41 (Bom) and Rabo India Finance Ltd. Vs. DCIT 26 taxmann.com 122 (Bom). He also relied on the following judgments : 1. Calcutta Discount Co. Ltd. Vs. ITO 41 ITR 191 (SC) 2. B J Services Company Middle East Ltd. Vs. DDIT 12 taxmann.com 493 (Uttarakhand HC) 3. Jindal Photo Films Ltd. Vs. DCIT 234 ITR 170 (Del) 4. Garden Silk Mills Ltd. Vs. DCIT 222 ITR 68 (Guj) 5. CWT Vs.Shivaram Singh 163 ITR 773 (Patna HC) 6. DCIT Vs. Smt. Ranjit Kaur 81 TTJ 269 (Chandigarh ITAT) 5. On the other hand, the ld. DR relied on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been submitted to the ITO who erroneously fails to tax a part of assessable income, it is a case of said part of the income as having escaped the assessment, the Assessing Officer has jurisdiction under Section 147 of the Act to reopen assessment and to bring to tax the income that has escaped assessment. A taxpayer cannot be allowed to take advantage any of those lapse, as ultimately if such an advantage is allowed, it would be prejudicial to the interest of revenue. He relied on the order of CIT(Appeals) on this issue. 6. We have heard both the parties and perused the material on record. At this stage, it is appropriate to mention the principles of law governing reassessment as below : (i) The Court should be guided by the reasons recorded for the reassessment and not by the reasons or explanation given by the Assessing Officer at a later stage in respect of the notice of reassessment. To put it in other words, having regard to the entire scheme and the purpose of the Act, the validity of the assumption of jurisdiction under Section 147 can be tested only by reference to the reasons recorded under Section 148(2) of the Act and the Assessing Officer is not authorized to refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fully or truly all the material facts necessary for the assessment. (ix) In order to assume jurisdiction under Section 147 where assessment has been made under sub-section (3) of section 143, two conditions are required to be satisfied; (i) The Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; (ii) Such escapement occurred by reason of failure on the part of the assessee either (a) to make a return of income under section 139 or in response to the notice issued under sub-section (1) of Section 142 or Section 148 or (b) to disclose fully and truly all the material facts necessary for his assessment for that purpose. (x) The Assessing Officer, being a quasi judicial authority, is expected to arrive at a subjective satisfaction independently on an objective criteria. (xi) While the report of the Investigation Wing might constitute the material, on the basis of which, the Assessing Officer forms the reasons to believe, the process of arriving at such satisfaction should not be a mere repetition of the report of the investigation. The reasons to believe must demonstrate some link between the tangible material a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiry under Section 133(6) of the Act before proceeding for reassessment under Section 147 of the Act. (xviii) The full and true disclosure of the material facts would not include that material, which is to be used for testing the veracity of the particulars mentioned in the return. All such facts would be expected to be elicited by the Assessing Officer during the course of the assessment. The disclosure required only reference to those material facts, which if not disclosed, would not allow the Assessing Officer to make the necessary inquiries. (xix) The word information in Section 147 means instruction or knowledge derived from the external source concerning the facts or particulars or as to the law relating to a matter bearing on the assessment. An information anonymous is information from unknown authorship but nonetheless in a given case, it may constitute information and not less an information though anonymous. This is now a recognized and accepted source for detection of large scale tax evasion. The non-disclosure of the source of the information, by itself, may not reduce the credibility of the information. There may be good and substantial reasons for such anon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act [with effect from 1st April, they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment 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 re-opening 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 Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material. The issuance of the impugned notice u/s.148 is nothing but mere change of opinion. In absence of any new tangible material available with the A.O., it is not open to the A.O. to change his opinion by issuing the notice of re-assessment. 6.6 From the reasons recorded it can be said that the original assessment is sought to be reopened in exercise of powers under section 147/148 of the Act on change of opinion by the AO, which is not permissible more particularly when the original assessment is sought to be reopened after a period of four years from the end of the assessment year. Under the circumstances, the conditions stipulated under first proviso to section 147 are not satisfied and therefore, on the aforesaid ground alone, the impugned notice deserves to be quashed and set aside. 7. Having regard to the position of law and material available on record, it cannot be said that there was no full and true disclosure at the end of the Assessee of the material fact necessary for the purpose of assessment. In such circumstances, it can be said that there was no tangible material for the purpose of reopening the assessment except change of opinion. Hence in our opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The order passed by the Assessing Authority did not state anywhere that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. All that has been stated in the order is that the assessee has appended the note and at no point of time, the assessee has disclosed as to the nexus between the amount of ₹ 10,06,617/-and the 10A unit. The disclosure has to be full and true. Both the criteria have to be met. In the assessee's case, by failing to bring out the nexus between the 10A unit and the interest income, the assessee has not discharged its responsibility of furnishing full disclosure of facts. As set out above, the note clearly sets out the interest income earned by the STP unit and the claim of the assessee for exemption under Section 10A. It is not the requirement of law that further the assessee should show the nexus between the amount claimed and 10A unit. When he has categorically stated that the interest, which is earned from STP unit, is eligible for exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions laid down in Section 37 of the Act and it has to be allowed as revenue expenditure only. He submitted that if it is not revenue expenditure and considered as capital expenditure, the assessee is entitled for depreciation on it. 10. The ld. DR submitted that these expenditure is in the nature of continuous process to develop and improvise new project which create value addition, hence enduring benefit brought to the assessee. It is further submitted that the assessee itself has amortised the said expenditure over the period of useful life of the asset of five years whichever is lower. Government expenditure was stabilized as an internally generated intangible asset only if it is imposed strict criteria to technical feasibility and generation of future economic benefit for its useful economy upto maximum five years of product. Accordingly the assessee itself treated as capital expenditure in his books of accounts and submitted that the argument of ld. AR is contrary to the treatment given to this extent in the Books of Accounts. 11. We have heard the rival contentions, perused and carefully considered the material on record. The assessee incurred this expenditure tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incur R D expenditure on day to day basis and no capital asset by the assessee by incurring this expenditure and benefit extend to more than one order cannot be considered as capital expenditure. He relied on the following decisions : i. JCIT Vs. Modi Olivetti Ltd. 3 SOT 22 (Del Trib) ii. Indian Telephone Industries Ltd. Vs. CIT 117 ITR 682 (Kar) iii. DCIT Vs. Max India Ltd. 105 TTJ 1002 (Amritsar Trib) iv. Alembic ChemicalWorks Co. Ltd. Vs. CIT 77 ITR 377 (SC) v. Assam Bengal Cement Co. Ltd. Vs. CIT 27 ITR 34 (SC) vi. CIT Vs. BPL Systems and Projects Ltd. 227 ITR 779 (Ker) vii. CIT Vs. PragaTools Ltd. 157 ITR 282 (AP) viii. CIT Vs. Wolkem (P) Ltd Co. 258 ITR 350 (Raj) ix. Tejas Networks India Ltd. Vs. ACIT (ITA No.470/Bang/2006) (Bang Trib.) x. CIT Vs. Tejas Networks India P. Ltd. 229 Taxman 40 (Kar) xi. Empire Jute Co. Ltd. Vs. CIT 124 ITR 1 (SC) xii. CIT Vs. Talisma Corporation (P) Ltd 40 taxmann.com 400 (Kar) xiii. CIT Vs. Associated Cements Co. Ltd. 172 ITR 257 (SC) Thus he submitted that R D expenditure does not pertains to any tangible or intangible assets into the assessee's business and no enduring benefit to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y evidence in support of the claim. The same is rejected. However we consider the alternative ground of the assessee and set aside the matter to the file of Assessing Officer to grant depreciation on it. Accordingly, this ground of appeal is partly allowed for all the Assessment Years under consideration. 16. The next ground in ITA Nos. 2182 2183/Bang/2018 is with regard to disallowance of provision of warranty on the reason that it is not created on a scientific basis and there is no actual expenditure incurred in this regard. 17. At the time of hearing, this ground is not pressed in both the appeals, accordingly these grounds are dismissed. 18. The next ground in ITA No.2183/Bang/2018 is with regard to disallowance of sales commission. The assessee made provision towards sales commission and same is disallowed by the Assessing Officer on the reason that no evidences and documents were submitted to substantiate the claim of the assessee or how the prices are created towards unknown liability which does not exist at the time of creation. 19. Before us, no evidence is furnished to show that the basis towards non-existing liability. Accordingly this ground is dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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