Vardhman Textiles Ltd, Ludhiana v. Assistant Commissioner of Income Tax, Ludhiana

ITA 1430/CHANDI/2010 | 2007-2008
Pronouncement Date: 31-03-2011 | Result: Allowed

Appeal Details

RSA Number 143021514 RSA 2010
Assessee PAN AABCM4692E
Bench Chandigarh
Appeal Number ITA 1430/CHANDI/2010
Duration Of Justice 3 month(s) 11 day(s)
Appellant Vardhman Textiles Ltd, Ludhiana
Respondent Assistant Commissioner of Income Tax, Ludhiana
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 31-03-2011
Date Of Final Hearing 17-02-2011
Next Hearing Date 17-02-2011
Assessment Year 2007-2008
Appeal Filed On 20-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI N. BARATHVAJA SANKAR VICE PRESIDENT AND MS SUSHMA CHOWLA JUDICIAL MEMBER ITA NO.1430/CHD/2010 ASSESSMENT YEAR: 2007-08 M/S VARDHMAN TEXTILES LTD VS THE ACIT CIRCLE-1 LUDHIANA LUDHIANA PAN NO. AABCM4692E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH AGGARWAL RESPONDENT BY: SHRI S.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 YE AR 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 W HILE 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 PA SSED 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 AMOUN T PAID BY THE COMPANY TO MADHYA PRADESH ELECTRICITY BOARD (MPEB) AMOUNTING TO RS. 6 01 69 818/- FOR LINE / BA Y CHARGES AS AGAINST CAPITAL EXPENDITURE INSTEAD OF R EVENUE EXPENDITURE. 2 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 AN D AMOUNT OF TAXES PRE-PAID BY THE ASSESSEE INSTEAD OF DIFFERENCE BETWEEN TAX LIABILITY DETERMINED ON REASSESSMENT AND ASSESSMENT U/S 143(3). 3. THE ISSUE IN GROUND NO.1 RAISED BY THE ASSESSEE IS AGAINST THE INVOKING OF JURISDICTION BY THE ASSESSING OFFICER U /S 147 OF THE ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FILED ITS ORIGINAL RETURN OF INCOME ON 31.10.2007 DECLARING TOTAL INCO ME OF RS. 1 36 28 61 170/-. THE REVISED RETURN WAS FURNISHED BY THE ASSESSEE ON 25.3.2009 DECLARING INCOME OF RS. 1 37 10 52 040/-. THE ASSESSMENT IN THE CASE WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT VIDE ORDER DATED 30.12.2009. THE COPY OF THE ASSESSMENT ORDER IS PL ACED ON RECORD. THE ASSESSING OFFICER RECORDED REASONS FOR REOPENING TH E ASSESSMENT U/S 147 OF THE ACT AND ISSUED NOTICE U/S 148 OF THE ACT. D URING THE COURSE OF RE- ASSESSMENT PROCEEDINGS THE REASONS RECORDED FOR RE OPENING WERE SERVED UPON THE ASSESSEE AGAINST WHICH AN OBJECTION WAS RA ISED BY THE ASSESSEE VIDE LETTER DATED 22.1.2010 ALLEGING IT TO BE A REV IEW OF THE EARLIER DECISION OF THE ASSESSING OFFICER. THE SECOND OBJ ECTION OF THE ASSESSEE WAS THAT THERE WAS NO FOUNDATION FOR FORMING THE BE LIEF AND IN THE ABSENCE OF SUCH REASONS THE ASSESSING OFFICER WAS DEVOID O F ANY JURISDICTION FOR REOPENING THE ASSESSMENT U/S 147/148 OF THE INCOME TAX ACT. THE ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS. 6.01 CRO RES AS AMOUNT PAID TO MADHYA PRADESH ELECTRICITY BOARD (MEPB) FOR THE LIN E / BAY CHARGES IN ANANT SPINNING AND VASRDHMAN YARN SATLAPUR BOTH U NITS LOCATED IN MADHYA PRADESH. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXPENDITURE INCURRED WAS FOR THE CREATION OF CAPITA L ASSETS WHICH WERE TO 3 BE USED SOLELY FOR BUSINESS OF THE ASSESSEE AND AS THE ASSESSEE COULD TRANSFER SUCH A RIGHT IN CASE OF TRANSFER OF ASSETS THE SAID EXPENDITURE WAS HELD TO BE A CAPITAL EXPENDITURE AND WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 5. IN APPEAL THE CIT(A) UPHELD THE REOPENING OF TH E ASSESSMENT AND IN HIS OPINION THE CLAIM OF CAPITAL EXPENDITURE AS REV ENUE EXPENDITURE WHICH HAD BEEN ALLOWED BY THE ASSESSING OFFICER CO ULD BE AS VALID REASON TO REOPEN THE ASSESSMENT TO BRING TO TAX THE CAPITA L EXPENDITURE ALLOWED AS REVENUE EXPENDITURE. THE CIT(A) FURTHER NOTED THAT THE ASSESSING OFFICER HAD REOPENED THE ASSESSMENT WITHIN A PERIOD OF 4 YE ARS OF THE ORIGINAL ASSESSMENT AND HENCE THE SAME WAS UPHELD. THE CIT(A ) ALSO UPHELD THE ORDER OF THE ASSESSING OFFICER IN HOLDING THE EXPEN DITURE TO BE A CAPITAL EXPENDITURE AS THE ASSESSEES CONTENTION THAT OWNER SHIP OF THE ASSETS CREATED VESTED WITH MPEB WAS NOT SUPPORTED BY ANY E VIDENCE AND EVEN OTHERWISE THE ASSESSEE WAS HAVING SOLE AND EXCLUSIV E RIGHTS OVER THE AFORESAID BAY LINES. A REFERENCE WAS MADE TO EXPLA NATION I TO SECTION 32 OF THE ACT IN CONNECTION WITH ALLOWANCE OF DEPRECIA TION OF CAPITAL EXPENDITURE INCURRED ON LEASED BUILDING AND FOLLOWI NG 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 UND ER CERTAIN CIRCUMSTANCES. THE ASSESSEE IS IN APPEAL AGAINST T HE ORDER OF CIT(A). 6. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT DUR ING THE COURSE OF ORIGINAL PROCEEDINGS A REPLY WAS FILED BY THE ASSE SSEE REGARDING BAY LINE CHARGES WHICH IS PLACED AT PAGES 1 TO 4 OF THE PAP ER BOOK. IT WAS FURTHER POINTED OUT THAT SIMILAR EXPENSES WAS CLAIMED BY TH E ASSESSEE IN 4 ASSESSMENT YEAR 1992-93 WHICH WAS ALLOWED BY CIT(A) AND NO GROUND OF APPEAL AGAINST THE SAME WAS RAISED BY THE REVENUE I N THE APPEAL FILED AGAINST THE ORDER OF CIT(A) RELATING TO ASSESSMENT YEAR 1992-93. THE COPY OF THE ORDER OF CIT(A) IS PLACED AT PAGES 5 TO 7 O F THE PAPER BOOK ALONGWITH COPY OF FORM NO. 36 AND GROUND OF APPEAL RAISED BY THE REVENUE AT PAGES 8 & 9 OF THE PAPER BOOK. THE LD. AR FURTHER POINTED OUT THAT SIMILAR EXPENSES WERE ALLOWED IN ASSESSMEN T YEAR 2004-05 AND AS IS EVIDENT FROM THE COMPUTATION OF INCOME PLACED AT PAGES 10 & 11 OF THE PAPER BOOK QUERY IN RESPECT OF WHICH WAS RAISED DU RING THE COURSE OF ASSESSMENT PROCEEDINGS RELATING TO ASSESSMENT YEAR 2004-05. OUR ATTENTION WAS DRAWN TO THE QUERIES RAISED DURING THE ASSESSME NT YEAR 2004-05 PLACED AT PAGES 12 TO 14 OF THE PAPER BOOK REPLY O F THE ASSESSEE AT PAGES 15 TO 17 OF THE PAPER BOOK AND ASSESSMENT ORDER REL ATING TO ASSESSMENT YEAR PLACED AT PAGES 18 TO 20 OF THE PAPER BOOK. THE LD. AR FURTHER POINTED OUT THAT THE NOTICE U/S 148 OF THE INCOME T AX ACT WAS ISSUED BY THE ASSESSING OFFICER ON 6.1.2010 FOR THE REASON TH AT HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V M/S SHREYANS INDUSTRIES LTD [303 ITR 393 (P&H)] HAD HELD SUCH EXPENDITURE TO BE CAPITAL IN N ATURE. IT WAS POINTED OUT BY THE LD. AR FOR THE ASSESSEE THAT THE SAID DE CISION WAS DELIVERED BY HON'BLE PUNJAB & HARYANA HIGH COURT ON 8.11.2006 W HICH WAS SET ASIDE BY THE HON'BLE SUPREME COURT ON 23.9.2008. THE SUB MISSION OF THE LD. AR WAS THAT IN VIEW THEREOF A NOTICE ISSUED U/S 148 OF THE ACT ON 6.1.2010 WAS ILLEGAL. RELIANCE WAS PLACED ON THE RATIO LA ID DOWN IN CIT V KELVINATOR OF INDIA LTD [(2010) 320 ITR 561 (SC)] A ND LEGATO SYSTEMS (INDIA) (P) LTD V DCIT [231 ITR 526 (DEL)]. IN RE SPECT OF THE MERITS OF ALLOWANCE OF THE EXPENDITURE THE LD. AR PLACED RE LIANCE ON CIT AMRITSAR V PANDARI TEA COMPANY LTD [(1985) 151 ITR 726 (P&H)] AGAINST WHICH SLP WAS REJECTED VIDE ORDER REPORTED IN 133 I TR (ST) 54 (SC). OUR 5 ATTENTION WAS DRAWN TO THE RATIO LAID DOWN BY THE H ON'BLE GUJRAT HIGH COURT IN GUJARAT POWER CORPORATION LTD V JCIT [238 CTR (GUJ) 91] . 7. THE LD. DR FOR THE REVENUE PLACING RELIANCE ON T HE ORDER OF CIT(A) POINTED OUT THAT IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN RAJESH JHEVERI [291 ITR 500 (SC)] THE ASS ESSING OFFICER HAD REASON TO BELIEF AND CONSEQUENTLY A NOTICE ISSUED U/S 148 MERITS TO BE UPHELD. IN RESPECT OF THE MERITS OF THE ADDITION THE LD. DR POINTED OUT THAT THE CIT(A) VIDE PARA 4.2 HAD OBSERVED THAT THE ASSESSEE HAD FAILED TO FILE THE EVIDENCE THAT THE SAID BAY LINE BELONG TO MPEB. THE LD. AR IN REJOINDER MADE A REFERENCE TO THE NOTIFICATION ISSU ED BY MPEB FOR SUPPLY OF BAY LINES WHICH CLEARLY PROVIDED THAT THE SAME S HALL 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 CL AIMED EXPENDITURE OF RS.6 01 69 818/- PAID TO MPEB ON ACCOUNT OF BAY LIN ES. 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 FURTHE R ANNEXED THE NOTES TO THE COMPUTATION OF INCOME AND VIDE NOTE NO. 6 THE ASSESSEE EXPLAINED THE NATURE OF EXPENDITURE BEING REVENUE EXPENDITURE WH ICH 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 OUT OF COMMERC IAL EXPEDIENCY WITH A MOTIVE OF AUGMENTING THE BUSINESS ACTIVITY OF THE ASSESSEE COMPANY AND 6 RELIANCE WAS PLACED ON A SERIES OF JUDGMENTS IN THI S REGARD INCLUDING CIT VS. PANBARI P. COMPANY LTD [151 ITR 726 (P&H)]. TH E SAID NOTES ARE PLACED AT PAGES 66 TO 67 OF THE PAPER BOOK. THE ASSESSEE FURTHER CLAIMS THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN REPLY TO THE QUERY RAISED BY THE ASSESSING OFFICER VIDE LETTER DATED 2 7.11.2009 THE NATURE OF EXPENDITURE REGARDING LINE BAY CHARGES WAS EXPLAINE D AND THE COPY OF THE SAID REPLY IS PLACED AT PAGES 1 TO 4 OF THE PAPER B OOK. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT VIDE ORDER DATED 30.12.2009 HAS ALLOWED THE CLAIM OF THE ASSESSEE. THE COPY OF THE ASSESSMENT ORDER IS PLA CED AT PAGES 25 TO 62 OF THE PAPER BOOK. SUBSEQUENTLY THE ASSESSING OFF ICER RECORDED REASONS FOR REOPENING THE ASSESSMENT AND THE SAID REASONS A RE INCORPORATED AT PAGE 1 OF THE ORDER DATED 9.8.2010. THE REASONS FOR REO PENING THE ASSESSMENT READ AS UNDER:- IT IS SEEN FROM THE ASSESSMENT RECORD THAT THE ASS ESSEE HAS PAID RS. 6 01 89 818/- TO MADHYA PRADESH ELECTRICIT Y BOARD FOR BAY LINES AND CLAMED IT AS A REVENUE EXPENDITUR E BUT THIS EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE AND IS NOT ALLOWABLE AS A REVENUE EXPENDITURE. THE HON'BLE SU PREME COURT IN THE CASE OF TRAVONCORE COCHIN CHEMICALS LT D VS. CIT 106 ITR 900 (SC) AND THE HON'BLE PUNJAB & HARYANA H IGH COURT IN THE CASE OF CIT VS M/S SHREYANS INDUSTRIE S LTD 303 ITR 393 HAVE HELD SUCH EXPENDITURES TO BE CAPITAL I N NATURE. THEREFORE I HAVE REASONS TO BELIEVE THAT INCOME OF THE ASSESSEE AMOUNTING TO RS. 6 01 69 818/- HAS ESCAPED ASSESSMENT. THEREFORE IT IS CONSIDERED TO BE A F IT CASE FOR RE- ASSESSMENT OF THE TAXABLE INCOME OF THE ASSESSEE AN D NOTICE U/S 148 IS BEING ISSUED ACCORDINGLY. 9. THEREAFTER NOTICES U/S 148 WAS ISSUED AND COPY O F REASONS RECORDED WERE SERVED UPON THE ASSESSEE. IN REPLY THE ASSESS EE VIDE LETTER DATED 22.1.2010 SUBMITTED THAT THE INITIATION OF PROCEEDI NGS WITH THE ISSUANCE OF THE NOTICE U/S 148 OF THE INCOME TAX ACT WAS PATENT LY ILLEGAL AND WITHOUT JURISDICTION. AS PER THE LD. COUNSEL FOR THE ASSES SEE THE REOPENING WAS 7 MERELY A REVIEW OF THE EARLIER DECISION TAKEN BY TH E ASSESSING OFFICER IN RESPECT OF THE COMPUTATION OF INCOME. AS PER THE LD. COUNSEL THERE WAS NO RELEVANT MATERIAL BEFORE THE ASSESSING OFFICER T O LAY FOUNDATION FOR FOLLOWING THE BELIEF AND IN THE ABSENCE OF THE REAS ONS IT WAS ARGUED THAT THE JURISDICTION TO REOPEN DID NOT VEST WITH THE AS SESSING OFFICER. IT WAS FURTHER EXPLAINED BY THE LD. AR THAT THE SAID EXPEN DITURE 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 A LSO FURTHER EXPLAINED. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT DISA LLOWING 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 TH E 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) FU RTHER OBSERVED THAT THE NOTICES U/S 148 WAS ISSUED WITHIN A PERIOD OF F OUR YEARS AND HENCE THE REOPENING OF THE ASSESSMENT WAS UPHELD. 10. THEIR LORDSHIPS OF HON'BLE SUPREME COURT IN ACI T 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 TH E ACT IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT THEN JURISDICTION IS CONFERRED ON THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT. IT HAS BEEN FUR THER HELD AS UNDER :- SECTION 147 AUTHORISES AND PERMITS THE ASSESSI NG OFFICER TO ASSESS OR REASSESS INCOME CHARGEABLE TO TAX IF H E HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESC APED ASSESSMENT. THE WORD REASON IN THE PHRASE REASO N TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IF THE ASSESSIN G OFFICER HAS CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THAT INCO ME HAD ESCAPED ASSESSMENT IT CAN BE SAID TO HAVE REASON TO BELIEV E THAT AN INCOME HAD ESCAPED ASSESSMENT. THE EXPRESSION CANNOT BE R EAD TO MEAN 8 THAT THE ASSESSING OFFICER SHOULD HAVE FINALLY ASCE RTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION. THE FUNCTION OF T HE ASSESSING OFFICER IS TO ADMINISTER THE STATUTE WITH SOLICITUD E FOR THE PUBLIC EXCHEQUER WITH AN INBUILT IDEA OF FAIRNESS TO TAXPA YERS. AS OBSERVED BY THE SUPREME COURT IN CENTRAL PROVINCES MANGANESE ORE CO. LTD. VS. ITO [1991] 191 ITR 662 FOR INITIATION OF ACTION UNDER SECTION 147 (A) (AS THE PROVISION STOOD AT TH E RELEVANT TIME) FULFILLMENT OF THE TWO REQUISITE CONDITIONS IN THAT REGARD IS ESSENTIAL. AT THAT STATE THE FINAL OUTCOME OF THE PROCEEDING IS NOT RELEVANT. IN OTHER WORDS AT THE INITIATION STAGE WHAT IS REQUIRED IS REASON TO BELIEVE BUT NOT THE ESTABLISHED FAC T OF ESCAPEMENT OF INCOME. AT THE STATE OF ISSUE OF NOTICE THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE P ERSON COULD HAVE FORMED A REQUISITE BELIEF. WHETHER THE MATERI ALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCER N AT THAT STAGE. THIS IS SO BECAUSE THE FORMATION OF BELIEF BY THE A SSESSING OFFICER IS WITHIN THE REALM OF SUBJECTIVE SATISFACTION (SEE ITO V. SELECTED DALURBAND COAL CO. P. LTD. [1996] 217 ITR 597 (SC) ; RAYMOND WOOLEN MILLS LTD. VS. ITO [1999] 236 ITR 34 (SC). THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM APRIL 1 1989 AS ALSO SECTIONS 148 T0 152 ARE SUBS TANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR T O SUCH SUBSTITUTION. UNDER THE OLD PROVISIONS OF SECTION 147 SEPARATE CLAUSES (A) AND (B) LAID DOWN THE CIRCUMSTANCES UND ER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS COULD BE ASSESSED OR REASSESSED. TO CONFER JURISDICTION UND ER SECTION 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 ASSE SSMENT AND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE THAT S UCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER OMISSION OR FAILUR E ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIA L FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THESE CONDIT IONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE ASS ESSING OFFICER COULD HAVE JURISDICTION TO ISSUE NOTICE UNDER SECTI ON 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 T HAT INCOME HAS ESCAPED ASSESSMENT IF CONFERS JURISDICTION TO REOPE N THE ASSESSMENT. IT IS HOWEVER TO BE NOTED THAT BOTH THE CONDITI ONS MUST BE FULFILLED IF THE CASE FALLS WITHIN THE AMBI T OF THE PROVISO TO SECTION 147. (UNDERLINE PROVIDED BY US) . 11. THE HON'BLE SUPREME COURT IN RAYMOND WOOLEN MIL LS VS. ITO [(1999) 236 ITR 34 (SC)] HELD THAT WHAT IS REQUIRED TO BE SEEN IN A CASE SUCH AS THIS IS WHETHER PRIMA FACIE THERE WAS SOME MATERIAL BEFORE THE ASSESSING OFFICER ON THE BASIS OF WHICH HE COULD RE OPEN THE CASE OF THE ASSESSEE. THE SUFFICIENCY OR CORRECTNESS OF THE MA TERIAL IS NOT TO BE 9 CONSIDERED BECAUSE IT IS OPEN TO THE ASSESSEE TO PR OVE THAT THE FACTS ASSUMED BY THE ASSESSING OFFICER IN THE NOTICE WERE ERRONEOUS. 12. THE HON'BLE SUPREME COURT IN CIT VS. M/S KELVIN ATOR OF INDIA LTD. {320 ITR 561 (SC)} HELD AS UNDER:- ON GOING THROUGH THE CHANGES QUOTED ABOVE MADE T O SECTION 147 OF THE ACT WE FIND THAT PRIOR TO THE DIRECT TAX LAWS (AMENDMENT) ACT 1987 REOPENING COULD BE DON E UNDER THE ABOVE TWO CONDITIONS AND FULFILMENT OF T HE SAID CONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSE SSING OFFICER TO MAKE A BACK ASSESSMENT BUT IN SECTION 147 OF THE ACT (WITH EFFECT FROM 1ST APRIL 1989) THEY ARE G IVEN A GO-BY AND ONLY ONE CONDITION HAS REMAINED VIZ. THAT WH ERE THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THEREFORE POST-1ST APRIL 1989 POWER TO REOPEN IS MUCH WIDER. HOWEVER ONE NEEDS TO GIVE A SCHEMA TIC INTERPRETATION TO THE WORDS 'REASON TO BELIEVE' FA ILING WHICH WE ARE AFRAID SECTION 147 WOULD GIVE ARBITR ARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSME NTS ON THE BASIS OF 'MERE CHANGE OF OPINION' WHICH CANNO T BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND P OWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REV IEW ; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRECONDITIONS AND IF THE C ONCEPT OF 'CHANGE OF OPINION' IS REMOVED AS CONTENDED ON BEH ALF 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 ASSESSING OFFICER. HENCE AF TER 1ST APRIL 1989 THE ASSESSING OFFICER HAS POWER TO RE OPEN PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO TH E 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 CHAN GES MADE TO SECTION 147 OF THE ACT AS QUOTED HEREINABOVE. UNDER THE DIRECT TAX LAWS (AMENDMENT) ACT 1987 PARLIAMENT N OT ONLY DELETED THE WORDS 'REASON TO BELIEVE' BUT ALSO INSE RTED THE WORD 'OPINION' IN SECTION 147 OF THE ACT. HOWEVER ON RECEIPT OF REPRESENTATIONS FROM THE COMPANIES AGAI NST OMISSION OF THE WORDS 'REASON TO BELIEVE' PARLIAME NT REINTRODUCED THE SAID EXPRESSION AND DELETED THE WO RD 'OPINION' ON THE GROUND THAT IT WOULD VEST ARBITRA RY 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 : 10 '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 BELI EVE' HAD BEEN EXPLAINED IN A NUMBER OF COURT RULINGS IN THE PAST AND WAS WELL SETTLED AND ITS OMISSION FROM SEC TION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN PAST ASSESSMENTS ON MERE CHANGE O F OPINION. TO ALLAY THESE FEARS THE AMENDING ACT 1 989 HAS AGAIN AMENDED SECTION 147 TO REINTRODUCE THE EXPRESSION `HAS REASON TO BELIEVE' IN PLACE OF THE WORDS `FOR REASONS TO BE RECORDED BY HIM IN WRITING IS OF THE OPINION'. OTHER PROVISIONS OF THE NEW SECTI ON 147 HOWEVER REMAIN THE SAME .' 13. THE APEX COURT HAD LAID DOWN THE PROPOSITION IN CIT VS. M/S KELVINATOR OF INDIA LTD (SUPRA) THAT THOUGH POST TH E AMENDMENT BY DIRECT TAX LAWS AMENDMENT ACT 1987 W.E.F. IST APRIL 1989 POWER TO REOPEN WAS MUCH WIDER BUT THE SECTION 147 DOES NOT GIVE AR BITRARY POWER TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT ON MERE CHANGE OF OPINION. THE HON'BLE SUPREME COURT FURTHER HELD THAT THERE W AS CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. IT WAS THUS HELD THE ASSESSING OFFICER HAS NO POWER TO REVIEW; HE H AS THE POWER TO REASSESS BUT REASSESSMENT HAS TO BE BASED ON FULFIL LMENT OF CERTAIN PRE CONDITIONS . THE HON'BLE SUPREME COURT CONCLUDED BY HOLDING THAT THE ASSESSING OFFICER HAS POWER TO REOPEN PRO VIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS E SCAPEMENT OF INCOME FROM ASSESSMENT. 14. WE FIND THAT THE HON'BLE DELHI HIGH COURT IN LE GATO SYSTEMS (INDIA) (P) LTD VS DCIT [231 CTR (DEL) HAD HELD THA T WHERE THERE IS NO NEW MATERIAL FOR REOPENING OF THE ASSESSMENT AND TH E OFFICER ISSUING THE NOTICE INFACT RELIES UPON THE RECORD AND THE CORRES PONDENCE ON THE VERY 11 SUBJECT IN THE REGULAR ASSESSMENT PROCEEDINGS ; CLEARLY THEREFORE THE NOTICES ARE AN ABUSE OF THE PROCESS OF LAW BECAUSE IN FACTS SUCH AS THOSE FOUND IN THE PRESENT CASES IF HARASSMENT TO A CITI ZEN IS ALLOWED THEN THE CONCLUSIVENESS OF THE REGULAR ASSESSMENT PROCEEDING S WILL HAVE NO MEANING BECAUSE THE VERY ISSUE WHICH WAS CONSIDERED AND MIND APPLIED WOULD LOSE ITS FINALITY. IN THE CIRCUMSTANCES THE NOTICES ISSUED U/S 148 OF THE ACT WERE QUASHED BY THE HON'BLE COURT. 15. THE HON'BLE BOMBAY HIGH COURT IN AVENTIS PHARMA LTD VS. JCIT [323 ITR 570 (BOM)] APPLYING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN CIT VS. KELVINATOR OF INDIA LTD (SUPRA) OB SERVED THAT WHERE THE ASSESSING OFFICER HAD NO TANGIBLE MATERIAL ON THE B ASIS OF WHICH THE ASSESSMENT WAS SOUGHT TO BE REOPENED AND WHERE THE ASSESSING OFFICER HAD REOPENED THE ASSESSMENT IN THE ABSENCE OF TANGI BLE MATERIAL IT WOULD ONLY BE A CHANGE IN OPINION WHICH WAS FORMED EARLIE R ON THE ALLOWABLILITY OF THE DEDUCTION. THE COURT FURTHER HELD THAT THE POWER TO REOPEN AN ASSESSMENT IS CONDITIONAL ON THE FORMATION OF A REA SON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. T HE POWER IS NOT AKIN TO A REVIEW. THE EXISTENCE OF TANGIBLE MATERIAL IS NECESSARY TO ENSURE AGAINST AN ARBITRARY EXERCISE OF POWER. THERE IS N O TANGIBLE MATERIAL IN THE PRESENT CASE. HENC E THE REASSESSMENT PROCEEDI NGS INITIATED U/S 147 / 148 OF THE ACT WERE QUASHED. 16. NOW COMING TO THE FACTS OF THE PRESENT CASE BEF ORE US THE QUESTION OF ALLOWABILITY OF THE CLAIM OF EXPENDITURE ON ACCO UNT OF BAY LINE CHARGES PAID TO MPEP WAS BEING CLAIMED BY THE ASSESSEE IN T HE 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 12 AGAINST WHICH NO APPEAL WAS FILED BY THE REVENUE AS IS EVIDENT FROM THE DOCUMENTS FURNISHED AT PAGES 8 TO 9 OF THE PAPER BO OK 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 ASSESSEE AT PAGES 15 T O 17 OF THE PAPER BOOK AND THE CLAIM WAS ALLOWED VIDE ORDER PASSED U/S 143 (3) PLACED AT PAGES 18 TO 20 OF THE PAPER BOOK. IN THE YEAR UNDER APPE AL ALSO THE CLAIM OF THE ASSESSEE WAS BEFORE THE ASSESSING OFFICER DURING TH E ORIGINAL ASSESSMENT PROCEEDINGS AND A QUERY IN THIS REGARD WAS RAISED B Y THE ASSESSING OFFICER TO WHICH THE REPLY WAS FILED WHICH HAS BEEN REFERR ED TO BY US IN THE PARAS HEREINABOVE. THE SAID CLAIM WAS ALLOWED BY THE A SSESSING OFFICER VIDE ORDER PASSED U/S 143(3) OF THE ACT. WHILE REOPENI NG THE ASSESSMENT ADMITTEDLY WITHIN PERIOD OF FOURS YEARS OF THE COMP LETION OF THE ORIGINAL ASSESSMENT PROCEEDINGS THE ISSUE RAISED BY THE ASS ESSING OFFICER WAS IN CONNECTION WITH THE ALLOWABILITY OF EXPENDITURE IN CONNECTION WITH BAY LINE CHARGES WHICH HAD BEEN ADJUDICATED UPON IN TH E ORIGINAL ASSESSMENT PROCEEDINGS. NO FRESH MATERIAL HAS BEEN POINTED OU T BY THE ASSESSING OFFICER IN THE REASONS RECORDED FOR REOPENING THE R E-ASSESSMENT EXCEPT FOR MAKING A REFERENCE TO THE RATIO LAID DOWN BY THE HO N'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. M/S SHREYANS INDUSTRI ES LTD. THE SAID DECISION WAS DELIVERED BY THE HON'BLE HIGH COURT ON 18.11.2006 WHICH WAS SET ASIDE BY THE HON'BLE SUPREME COURT ON 23.9. 2008. THE ASSESSING OFFICER HAD RECORDED THE REASONS FOR REOPENING THE ASSESSMENT ON 6.1.2010 ON A DATE WHEN THE JUDGMENT OF THE HON'BLE PUNJA B & HARYANA HIGH COURT HAD BEEN SET ASIDE BY THE HON'BLE SUPREME COU RT. WE FIND NO MERIT IN THE REASONS RECORDED FOR REOPENING THE ASS ESSMENT BY THE ASSESSING OFFICER BY PLACING RELIANCE ON THE RATIO LAID DOWN BY THE 13 HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. M/S SHREYANS INDUSTRIES LTD. FURTHER AS POINTED OUT EARLIER THE ISSUE OF ALLOWABILITY OF CLAIM OF EXPENDITURE ON ACCOUNT OF BAY LINE CHARGES HAD BEEN ADJUDICATED UPON FROM YEAR TO YEAR AND ALLOWED IN THE HANDS OF THE A SSESSEE. THE ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT PR OCEEDINGS HAD PLACED RELIANCE ON THE RATIO LAID DOWN BY THE JURISDICTION AL HIGH COURT ON THE ISSUE OF ALLOWABILITY OF EXPENDITURE IN CIT VS. PAN BARI TEA COMPANY LTD (SUPRA) AGAINST WHICH THE SLP HAD BEEN REJECTED BY THE HON'BLE SUPREME COURT AND THE ISSUE HAD BECOME FINAL. THE ASSESSEE HAS ALSO REFERRED TO THE RELEVANT EXTRACT FROM THE MADHYA PRADESH ELECTR ICITY BOARD (2004) PLACED AT PAGES 21 TO 24 OF THE PAPER BOOK UNDER WH ICH 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/ EXT ENSION OF DISTRIBUTION MEANS NOTWITHSTANDING THAT IT HAD BEEN PAID BY THE CONSUMER SHALL BE THE PROPERTY OF THE LICENSEE. IN THE ABOVESAID CIRCUMST ANCES WE FIND NO MERIT IN THE ORDER OF CIT(A) IN HOLDING THE EXPENDITURE T O BE CAPITAL EXPENDITURE AS THE ASSESSEE CONTENTION THAT THE OWN ERSHIP OF THE ASSET CREATED VESTED WITH MPEB WAS NOT SUPPORTED BY ANY E VIDENCE. 17. IN THE TOTALITY OF FACTS AND CIRCUMSTANCES AS E NUMERATED ABOVE AND FOLLOWING THE RATIO LAID DOWN BY HON'BLE SUPREME CO URT IN CIT VS. KELVINATOR OF INDIA LTD (SUPRA) HON'BLE DELHI HIGH COURT IN LEGATO SYSTEMS (INDIA) (P) LTD VS DCIT (SUPRA) HON'BLE BO MBAY HIGH COURT IN AVENTIS PHARMA LTD VS. JCIT (SUPRA AND IN THE ABSE NCE OF ANY TANGIBLE MATERIAL COMING TO THE POSSESSION OF THE ASSESSING OFFICER IN FORMATION OF A REASON TO BELIEF THAT INCOME HAD ESCAPED ASSES SMENT THE AFORESAID EXERCISE OF POWER BY THE ASSESSING OFFICER IN REOPE NING THE ASSESSMENT PROCEEDINGS UNDER SECTION 147 / 148 OF THE ACT IN T HE PRESENT CASE IS 14 UNJUSTIFIED. HENCE THE ORDER OF THE ASSESSING OFF ICER IN INVOKING THE JURISDICTION U/S 147 OF THE ACT IS HEREBY QUASHED. 18. THE GROUND NO.1 RAISED BY THE ASSESSEE IS THUS ALLOWED. IN VIEW THEREOF WE DO NOT ADDRESS THE ISSUE ON THE MERITS O F THE DISALLOWANCE OF THE EXPENDITURE. 19. IN THE RESULT APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 31 ST DAY OF MARCH 2010. SD/- SD/- (N.BARATHVAJA SANKAR) (SUSHMA CHOWLA) VICE PRESIDENT JUDICIAL MEMBER DATED : 31 ST MARCH 2010 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR