DCIT, CHENNAI v. M/s. I P Rings Ltd., CHENNAI

ITA 1546/CHNY/2010 | 2001-2002
Pronouncement Date: 09-09-2011 | Result: Allowed

Appeal Details

RSA Number 154621714 RSA 2010
Assessee PAN AAACI0908C
Bench Chennai
Appeal Number ITA 1546/CHNY/2010
Duration Of Justice 11 month(s) 22 day(s)
Appellant DCIT, CHENNAI
Respondent M/s. I P Rings Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted C
Tribunal Order Date 09-09-2011
Date Of Final Hearing 11-07-2011
Next Hearing Date 11-07-2011
Assessment Year 2001-2002
Appeal Filed On 17-09-2010
Judgment Text
IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI C BENCH CHENNAI. BEFORE SHRI.U.B.S. BEDI J.M. & SHRI. ABRAHAM P. GE ORGE A.M. I.T.A. NOS.1545 AND 1546/MDS/2010 ASSESSMENT YEARS: 2000-01 AND 01-02 THE DEPUTY COMMISSIONER OF INCOME TAX COMPANY CIRCLE II (3) 121 M.G. ROAD CHENNAI 34. VS. M/S. I P RINGS LTD. ARJAY APEX CENTRE NO.24 COLLEGE ROAD CHENNAI 600 006. [PAN:AAACI0908C] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI CLEMENT RAMESH KUMAR ASSESSEE BY : SHRI R. VIJAYARAGHAVAN & SHRI SAROJ KUMAR PARIDA ORDER PER U.B.S. BEDI J.M. THESE TWO APPEALS OF THE DEPARTMENT ARE DIRECTED A GAINST SEPARATE ORDERS PASSED BY THE LD. CIT(A) III CHENNAI BOTH D ATED 28.06.2010 RELEVANT TO THE ASSESSMENT YEARS 2000-01 AND 2001-02 RESPECTIVE LY. 2. THESE APPEALS PERTAIN TO SAME ASSESSEE INVOLVE IDENTICAL FACTS AND SIMILAR ISSUES THEREFORE BEING DISPOSED OFF BY THI S SINGLE ORDER FOR THE SAKE OF CONVENIENCE. 3. WE SHALL DISCUSS FACTS FOR THE ASSESSMENT YEAR 2000-01 IN APPEAL NO.1545/MDS/2010 WHICH IN BRIEF ARE THAT THE ASSES SEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF PISTON RINGS. IT FILED ITS RETURN OF INCOME ON 28.11.2000 DECLARING A TOTAL INCOME OF RS.2 07 2 2 840/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 11.03.2003 DE TERMINING TOTAL INCOME AT RS.214 43 710/-. THE ASSESSEE HAS PAID A SUM OF ` .58 93 677/- AS ROYALTY TO I.T.A. NOS.1545 & 1546/MDS/10 2 M/S. NIPPON PISTON RING CO. LTD. JAPAN UNDER AN A GREEMENT ENTERED INTO WITH THE JAPANESE COMPANY. THE ASSESSEE CLAIMED DEDUCTIO N OF ROYALTY PAYMENTS AS REVENUE EXPENDITURE. THE ASSESSING OFFICER ISSUE D NOTICE UNDER SECTION 148 ON 29.03.2007 AND THEREAFTER PASSED AN ORDER UNDER SECTION 143(3) R.W.S. 147 DATED 17.09.2007 DETERMINING THE TAXABLE INCOME AT RS.2 58 36 878/-. WHILE COMPLETING THE REASSESSMENT THE ASSESSING OFFICER TREATED THE ROYALTY EXPENSES AS CAPITAL IN NATURE AND DISALLOWED EXPEND ITURE AMOUNTING TO RS.44 20 258/- WHICH IS AFTER ALLOWING A DEPRECIAT ION OF 25% I.E. RS.58 93 677/- RS.14 73 419/-. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE TOOK UP THE MATTER IN APPEAL AND BESIDES CHALLENGING THE IM PUGNED DISALLOWANCE THE ASSESSEE HAS ALSO CHALLENGED THE REOPENING OF THE A SSESSMENT. 5. WITH REGARD TO REOPENING OF THE ASSESSMENT BEYO ND 4 YEARS THE LD. AR OF THE ASSESSEE SUBMITTED BEFORE THE FIRST APPELLAT E AUTHORITY AS UNDER: IT IS SUBMITTED THAT DURING THE COURSE OF REGULAR ASSESSMENT U/S. 143(3) ASSESSING OFFICE VIDE HIS LETTER DATED 17.0 2.2003 CALLED FOR THE FOLLOWING PARTICULARS: IN CONTINUATION OF YOUR ASSESSMENT PROCEEDINGS FOR THE ABOVE ASSESSMENT YEAR YOU ARE REQUESTED TO FURNISH FURTH ER DETAILS MENTIONED BELOW: IN YOUR BOOKS OF ACCOUNTS YOU HAVE SHOWN MARKETING SERVICE FEES OF RS.96 18 283/- AND RS.23 55 215/- AS TECHNICAL KNOW HOW FEE WRITTEN OFF U/S 32.B. YOU HAVE ALSO CLAIMED ROYALTY TO THE TUNE OF RS.55 61 159/-. PLEASE FURNISH THE DETAILS IN RELATION TO THE ABOVE : A. AGREEMENT FOR THE SAME. B. TO WHOM IT WAS PAID C. MODE OF PAYMENT D. WHAT CONNECTION IT WAS PAID. I.T.A. NOS.1545 & 1546/MDS/10 3 IN RESPONSE TO THE ABOVE LETTER THE APPELLANT FIL ED ITS REPLY VIDE ITS LETTER DT. FEBRUARY 18 2003. THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY ACCEPTED THE CLAIM OF THE APPELLANT. NOW THE ASSESSING OFFICER CANNOT REOPEN THE ASSESSMENT TO DISALLOW THE SAME E XPENSES. NOTICE U/S. 148 ISSUED ON 29.03.2007 IS BEYOND FOUR YEARS AND BARRED BY LIMITATION AND IS ALSO ON THE MERE CHANGE OF OPINIO N. THE APPELLANT SUBMITS THAT REOPENING BEYOND FOUR Y EARS CANNOT BE SUSTAINED IN VIEW OF THE FACT THAT THERE WAS NO CONCEALMENT OR FURNISHING OF FALSE OR INACCURATE PARTICULARS BY TH E APPELLANT. AS SUCH THE ASSESSING OFFICER HAS CONSIDERED ALL THESE ISSUES A ND HAS FORMED AN OPINION NOT TO MAKE ANY ADDITION / DISALLOWANCE AS MADE IN THE REASSESSMENT. HOWEVER HE HAS REOPENED MERELY ON TH E BASIS OF CHANGE OF OPINION WHICH IS UNSUSTAINABLE. THE APPELLANT RELIES ON THE FOLLOWING DECISIONS: CIT VS. TDFC 306 ITR 136 (MAD) CIT VS. ABDUL RAHMAN SAIT 306 ITR 142 (MAD) CIT VS. ANNAMALAI FINANCE 275 ITR 451 (MAD) CIT VS. ELGI FINANCE 286 ITR 674 (MAD) CIT VS. MOOKAMBIKAI SPG. MILLS TC(A)NO. 2611/06 DT. 27.11.2006 (MAD) CIT VS. KELVINATOR OF INDIA LTD. 256 ITR 1 (DEL) MERCURY TRAVELS LTD. VS. CIT 258 ITR 533 (CAL) CIT VS. INDIAN OVERSEAS BANK LTD. 252 ITR 640 (MAD) CIT VS. SIVA TRADERS 255 ITR 77 (KER) CIT VS. FENNER INDIA LTD. 241 ITR 672 (MAD) CIT VS. FROAMER FRANCE 264 ITR 566 (SC). 6. THE LD. CIT(A) WHILE CONSIDERING AND ALLOWING THE APPEAL OF THE ASSESSEE ON THE VERY FIRST ISSUE OF REOPENING HAS N OTED THAT SINCE THE REOPENING OF THE ASSESSMENT HAS ALREADY BEEN HELD T O BE INVALID THE ISSUE BECOME ACADEMIC AND DID NOT DECIDE THE ISSUE ON MER ITS AS PER PARA 4.1 WHICH READS AS UNDER: 4.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND SUBMISSIONS OF THE ID. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE AO AND AR. THE LD. AR HAS EXPLAINED THAT DURING THE SCRUTINY PROCEEDINGS THE AO HAD CALLED FOR THE DETAILS IN R ESPECT OF THE ROYALTY EXPENSES CLAIMED AS REVENUE EXPENDITURE. THE DETAIL S WERE DULY FURNISHED AND AFTER CONSIDERING THE SAME THE CONTENTION OF T HE APPELLANT WAS ACCEPTED BY THE AO. IT IS SEEN FROM THE DETAILS THA T THE RETURN OF THE I.T.A. NOS.1545 & 1546/MDS/10 4 APPELLANT FOR THE YEAR UNDER CONSIDERATION WAS SUBJ ECTED TO SCRUTINY ASSESSMENT U/S 143(3). VARIOUS DETAILS WERE CALLED FOR BY THE AO BEFORE COMPLETING THE REGULAR ASSESSMENT. IT IS FOUND THAT THE AO HAD ISSUED A QUESTIONNAIRE ON 17.02.2003 AND HAD CALLED FOR THE PARTICULARS OF VARIOUS EXPENDITURE INCLUDING ROYALTY EXPENSES OF RS.55 61 159/ WHICH HAD BEEN CLAIMED AS REVENUE EXPENDITURE. THE APPELLANT VIDE ITS REPLY DATED 18.02.2003 HAD GIVEN ITS REPLY AND ENCLOSED COPY OF AGREEMENT AND APPROVAL OF RBI. THE ASSESSMENT WAS COMPLETED WITHO UT MAKING ANY ADDITION AFTER CONSIDERING THE DETAILS FILED BY THE ASSESSEE DURING THE SCRUTINY PROCEEDINGS. CONSIDERED AGAINST THE ABOVE FACTUAL BACKGROUND I AM OF THE OPINION THAT THE RATIO OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT V. CHOLAMANDALAM INVESTMENT AND FINANCE COMPANY. LTD. [309 ITR 110 (MAD)] IS APPLICABLE TO THE CASE OF TH E APPELLANT. IN THAT CASE THE AO WHILE MAKING THE ORIGINAL ASSESSMENT H AD CALLED FOR THE BASIC DETAILS REGARDING TWO PURCHASES. THE INVOICES AND LEASE AGREEMENTS FURNISHED BY THE ASSESSEE WERE COMPARED WITH INVOIC ES DELIVERY NOTES/CHALLANS LEASE AGREEMENT AND OTHER DETAILS S UBMITTED BY THE LESSEES / SUPPLIERS. DEPRECIATION WAS GRANTED. REASSESSMENT PROCEEDINGS WERE TAKEN AFTER FOUR YEARS TO WITHDRAW THE DEPRECIATION . THE TRIBUNAL HELD THAT THE REASSESSMENT PROCEEDINGS WERE NOT VALID. O N APPEAL TO THE HIGH COURT IT WAS HELD DISMISSING THE APPEAL THAT AS THE ASSESSEE HAD FURNISHED THE INVOICES FOR PURCHASE OF ASSETS ON WH ICH 100% DEPRECIATION WAS CLAIMED THERE WAS NO FAILURE ON THE PART OF TH E ASSESSEE TO DISCLOSE MATERIAL FACTS NECESSARY FOR ASSESSMENT. THE REASSE SSMENT PROCEEDINGS WERE NOT VALID. HERE ALSO THE AO HAS OBTAINED THE DETAILS REGARDING CLAIM OF ROYALTY EXPENDITURE EXAMINED THE SAME AND ALLOWED IT. SUBSEQUENTLY HE HAS DISALLOWED THE SAME IN REASSES SMENT PROCEEDINGS. THIS IS NOT VALID AS PER THE ABOVE DECISION. FURTHE R AS THE DETAILS PERTAINING TO ROYALTY EXPENDITURE WERE ALREADY SUBM ITTED BY THE APPELLANT IN THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) THE RE-ASSESSMENT PROCEEDINGS HAVE BEEN INITIATED ON MERE CHANGE OF O PINION AND WOULD AMOUNT TO REVIEW OF THE EARLIER ASSESSMENT WHICH IS NOT PERMISSIBLE. THIS VIEW IS SUPPORTED BY THE DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF CIT DELHI V. M/S KELVINATOR OF INDIA LIMITED (2010 -TIOL-06-SC-IT-LB) WHERE IT WAS HELD THAT THE AO CAN REOPEN THE ASSESS MENT ONLY IF THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME AND NOT ON CHANGE OF OPINION. ALSO THE AO H AS NO POWER TO REVIEW AND HAS THE POWER TO ONLY RE-ASSESS. IN VIEW OF THE ABOVE FACTUAL POSITION AND AUTHORITATIVE PRECEDENTS I AM OF THE CONSIDERED OPINION THAT THE RE-ASSESSMENT PROCEEDINGS WERE NOT VALID. ACCOR DINGLY THE GROUND OF APPEAL IS ALLOWED. I.T.A. NOS.1545 & 1546/MDS/10 5 7. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) THE D EPARTMENT HAS COME UP IN APPEAL AND IT WAS SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE ON THE GROUND THAT THE REOPENING OF THE CASE BY THE ASSESSING OFFICER BEYOND FOUR YEARS IS WITHOUT JURISDICTION A ND NOT DECIDING THE CASE ON MERIT. THE LD. CIT(A) OUGHT TO HAVE SEEN THAT THE A SSESSEE HAS NOT RAISED THE VALIDITY OF JURISDICTION BEFORE THE ASSESSING OFFIC ER DURING THE COURSE OF ASSESSMENT AND THEREFORE THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO ADJUDICATE ON THE ISSUE AND NOTED THAT THE GRANT TO THE ASSESSEE OF AN EXCLUSIVE LICENSE TO MANUFACTURE THE PRODUCTS OF M/S. NIPPO P ISTON RING CO. LTD. JAPAN TANTAMOUNT TO A ROYALTY TRANSACTION BETWEEN THE ASS ESSEE AND THE JAPANESE COMPANY. FURTHER THE LD. CIT(A) OUGHT TO HAVE SEEN THAT THE OMISSION TO TREAT ROYALTY PAYMENT AS CAPITAL IN NATURE IN THE ORIGINA L ASSESSMENT PROCEEDINGS RESULTED IN THE INCOME CHARGEABLE TO TAX BEING UNDE R-ASSESSED. MOREOVER THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE EXPLAN ATION 2 TO SECTION 147 MAKES IT CLEAR THAT WHERE ASSESSMENT HAS BEEN MADE BUT INCOM E CHARGEABLE TO TAX HAS BEEN UNDER-ASSESSED OR SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF OR EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE HAS BEEN COMPUTED IT IS DEEMED TO BE A CASE WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT SINCE TH E ASSESSEE HAS CLAIMED THE ABOVE PAYMENT AS REVENUE EXPENDITUR E WHICH IS TO BE DISALLOWED THE CASE WAS RE-OPENED U/S.148. IN THIS REGARD IT IS STATED THAT AS PER EXPLANATION 1 TO SECTION 147 PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENC E COULD WITH DUE DILIGENCE I.T.A. NOS.1545 & 1546/MDS/10 6 HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE. THE LD. DR WHILE RELYING UPON THE ORDE R OF THE ASSESSING OFFICER AND ELABORATING THE GROUNDS OF APPEAL IN HIS ARGUME NT HAS PLEADED THAT IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) ON 11. 03.2003 THE ISSUE IN RELATION TO ROYALTY PAYMENT HAVING BEEN TREATED AS REVENUE EXPENDITURE HAS NOT BEEN CONSIDERED OR TOUCHED UPON BY THE ASSESSING OF FICER. SO IT CANNOT BE SAID THAT THE ASSESSING OFFICER FORMED OPINION WHIL E MAKING THE ASSESSMENT UNDER SECTION 143(3). THEREFORE THE ASSESSING OFFI CER IS VERY MUCH JUSTIFIED IN INITIATING THE REASSESSMENT PROCEEDINGS WITHIN THE PERIOD OF 6 YEARS FROM THE END OF THE ASSESSMENT YEAR AND TO PASS REASSESSMENT ORDER AND THE ACTION OF THE LD. CIT(A) IN HOLDING THAT THE INITIATION OF RE ASSESSMENT PROCEEDINGS IS WITHOUT JURISDICTION AND BAD IN LAW IS NOT SUSTAINA BLE. THEREFORE THE ORDER OF THE LD. CIT(A) SHOULD BE REVERSED BY HOLDING THAT THE I NITIATION OF REASSESSMENT PROCEEDINGS IS VALID IN LAW. SO FAR AS ADDITION/DIS ALLOWANCE ON MERITS IS CONCERNED THE MATTER CAN GO BACK TO THE LD. CIT(A) FOR ADJUDICATION AS HE HAS DECLINED TO ADJUDICATE THE SAME. 8. THE LD. COUNSEL FOR THE ASSESSEE WHILE RELYING UPON THE BASIS AND REASONING AS GIVEN BY THE LD. CIT(A) HAS PLEADED FO R CONFIRMATION OF THE IMPUGNED ORDER. IT WAS FURTHER SUBMITTED THAT SINCE BEFORE PASSING THE ORIGINAL ORDER OF ASSESSMENT THE ASSESSING OFFICER STATED T HAT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE THE ASSESSEE IS STATED TO HAVE SHO WN MARKETING SERVICES FEES OF RS.96 18 283/- AND RS.23 55 215/- AS TECHNICAL K NOWHOW FEES WRITTEN OFF UNDER SECTION 35AB. HE HAS ALSO STATED TO HAVE CLAI MED ROYALTY TO THE TUNE OF I.T.A. NOS.1545 & 1546/MDS/10 7 RS.55 62 159/- AND ASKED THE ASSESSEE TO FURNISH DE TAILS IN RELATION TO AGREEMENT FOR THE SAME TO WHOM IT WAS PAID MODE O F PAYMENT AND IN WHAT CONNECTION IT WAS PAID BESIDES ASKING FOR SALES TA X COLLECTED AND PAID TO WHICH THE ASSESSEE DISCUSSED DETAILS ABOUT ROYALTY AND TE CHNICAL CONSULTANCY FEE VIDE ITS LETTER DATED 18.02.2003. SO IT CANNOT BE SAID THAT THIS ISSUE WAS NOT RAKED UP OR DISCUSSED BEFORE ADMITTING THE CLAIM OF THE A SSESSEE. SO THERE WAS NO OCCASION FOR THE ASSESSING OFFICER TO INITIATE REAS SESSMENT PROCEEDINGS WITH RESPECT TO THE ITEM WHICH WERE ENQUIRED INTO BY THE ASSESSING OFFICER AND REPLIED BY THE ASSESSEE BECAUSE THIS WOULD AMOUNT TO CHANGE OF OPINION WHICH BEYOND 4 YEARS FROM THE END OF THE ASSESSMENT YEAR IS NOT PERMISSIBLE AND IN THIS CASE REASSESSMENT PROCEEDINGS WAS INIT IATED BEYOND 4 YEARS. AS SUCH THE LD. CIT(A) IS VERY MUCH JUSTIFIED IN HOLD ING THAT SUCH INITIATION OF REASSESSMENT PROCEEDINGS IS BAD IN LAW WHOSE ACTIO N IS BEING LEGALLY VALID AND TO BE UPHELD. RELIANCE IN THIS REGARD WAS PLACED IN THE CASE OF CIT V. KELVINATOR OF INDIA LTD. [2010] 320 ITR 561 (SC) AND HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF ACIT V. M/S. SRI MOOKAMBIGAI SPINNING M ILLS LTD. IN T.C.(A) NO. 2611 OF 2006 DATED 27.11.2006 AND FURTHER RELIANCE WAS PLACED ON BARMATICS V. DCIT IN ITA NOS. 1472 & 1473/BANG/200 2 CIT V. PREMIER MILLS 296 ITR 157 (MAD) CIT VS. ELGI FINANCE 286 ITR 674 (MAD) MERCURY TRAVELS LTD. VS. CIT 258 ITR 533 (CAL) CIT VS. INDIAN OVERSEAS BANK LTD. 252 ITR 640 (MAD) CIT VS. SIVA TRADERS 255 ITR 77 (KER) CIT VS. FENNER INDIA LTD. 241 ITR 672 (MAD) CIT VS. FROAMER FRANCE 264 ITR 566 (SC) CIT V. T.N. TRANSPORT DEVELOP FINANCE CORPN. LTD. 3 06 ITR 136 (MAD) I.T.A. NOS.1545 & 1546/MDS/10 8 9. WITH REGARD TO APPEAL IN ITA NO. 1546/MDS/2010 FOR THE ASSESSMENT YEAR 2001-02 IT IS COMMON GROUND OF BOTH THE SIDES THAT THE ISSUE INVOLVED AND FACTS ARE IDENTICAL WITH DIFFERENCE OF DATES AND AM OUNT THEREFORE DECISION TO BE TAKEN FOR THE ASSESSMENT YEAR 2000-01 MAY BE ADOPTE D AND APPLIED HERE. 10. WE HAVE HEARD BOTH THE SIDES CONSIDERED THE M ATERIAL ON RECORD AS WELL AS PRECEDENT RELIED UPON AND FIND THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING AND SALE OF PISTON RINGS DECLARING T OTAL INCOME OF RS.2 07 22 840/- FOR THE ASSESSMENT YEAR 2000-01 AN D ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 11.03.2003 AT RS. 2 14 43 710/-. THE ASSESSEE IS FOUND TO HAVE PAID A SUM OF RS.58 93 67 7/- AS ROYALTY PAYMENT TO M/S. NIPPON PISTON RING CO. LTD. JAPAN UNDER AN AG REEMENT ENTERED INTO WITH JAPANESE COMPANY. THE ASSESSEE STATED TO HAVE CLAIM ED DEDUCTION OF ROYALTY PAYMENT AS REVENUE EXPENDITURE WHICH CAME TO BE AL LOWED. THEREAFTER THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 148 O N 29.03.2007 AFTER RECORDING REASONS AND PASSED REASSESSMENT ORDER UND ER SECTION 143(3) R.W.S. 147 DATED 17.09.2007 DETERMINING TAXABLE INCOME OF RS.2 58 37 878/- AFTER TREATING THE ROYALTY EXPENSES AS CAPITAL IN NATURE AND DISALLOWED THE EXPENDITURE IN THIS REGARD TO THE EXTENT OF RS.44 2 0 258/- AFTER ALLOWING 25% AS DEPRECIATION OF SUCH EXPENDITURE AGAINST WHICH THE ASSESSEE PREFERRED APPEAL AND THE LD. CIT(A) CONCLUDED TO TREAT THE REASSESSM ENT PROCEEDINGS TO BE NOT VALID AND DECLINED TO DECIDE THE ISSUE ON MERITS AG AINST WHICH THE REVENUE IS IN APPEAL. SIMILAR ACTION WAS ADMITTEDLY TAKEN FOR 2001-02. I.T.A. NOS.1545 & 1546/MDS/10 9 11. WE HAVE GONE THROUGH THE MATERIAL ON RECORD AS WELL AS PRECEDENTS RELIED UPON IN THE LIGHT OF ARGUMENTS OF RIVAL SIDE AND FIND THAT THE ASSESSING OFFICER IN THE ORIGINAL ORDERS PASSED UNDER 143(3) ON 11.03.2003 AND 19.03.2004 FOR THE ASSESSMENT YEARS 2000-01 AND 01- 02 RESPECTIVELY HAS NEITHER DISCUSSED NOR CONSIDERED THE POINT ON THE B ASIS OF WHICH PROCEEDINGS UNDER SECTION 147 HAVE BEEN INITIATED. SO FAR AS EA RLIER ORDERS HAVING BEEN PASSED UNDER SECTION 143(3) THE HONBLE SUPREME CO URT VIDE ORDER DATED 29.07.2011 IN THE SLP TO APPEAL (CIVIL) NO.19085/2 011 AGAINST THE JUDGMENT AND ORDER DATED 14.02.2011 IN WP NO. 9036/2007 OF T HE HONBLE HIGH COURT OF DELHI IN THE CASE OF HONDA SIEL POWER PRODUCTS LTD. V. DCIT & ANR HAS PASSED THE FOLLOWING ORDER: IN OUR VIEW THE REOPENING OF ASSESSMENT IS FULLY JUSTIFIED ON THE FACTS AND CIRCUMSTANCES OF THE CASE. HOWEVER ON TH E MERITS OF THE CASE IT WOULD BE OPEN TO THE ASSESSEE TO RAISE ALL CONTENTIONS WITH REGARD TO THE AMOUNT OF ` .98.46 LAKHS BEING OFFERED FOR TAX AS WELL AS ITS CONTENTION ON SECTION 14A OF THE INCOME TAX AC T 1961. SUBJECT TO ABOVE THE SPECIAL LEAVE PETITION IS DIS MISSED. 12. SINCE IN THE ABOVE NOTED DECISION REOPENING O F THE ASSESSMENT HAS BEEN HELD TO BE FULLY JUSTIFIED ON THE FACTS AND CI RCUMSTANCES OF THE CASE SO IT WOULD BE APT TO EXTRACT AND REPRODUCE RELEVANT PORT ION ON THIS ISSUE FROM THE ORDER OF HONBLE DELHI HIGH COURT WHICH CONSIDERED THE EARLIER DECISION OF THE SAME HIGH COURT ON THIS POINT IN THE CASE OF CONSOL IDATED PHOTO AND FINVEST LTD. V. ASST. CIT (2006) 281 ITR 394 TO ELABORATEL Y INTERPRET THE RELEVANT WORDING ABOUT ESCAPEMENT AS ENVISAGED UNDER SECTION 147 FROM PARA 9 TO 16 WHICH IS REPRODUCED AS UNDER: I.T.A. NOS.1545 & 1546/MDS/10 10 9. WHETHER OR NOT THERE WAS OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO MAKE FULL AND TRUE DISCLOSURE OF MA TERIAL FACTS THE STAND OF THE ASSESSEE-PETITIONER IS ILLUSIONARY AND AMBIGUOUS. IN THE WRITTEN SUBMISSIONS IT IS STATED AS UNDER:- IT IS PERTINENT TO POINT OUT THAT SECTION 14A WAS INTRODUCED IN THE STATUTE BY THE FINANCE ACT 2001 W.R.E.F. 1.4.1962. WHEN THE RETURN OF INCOME WAS FI LED FOR THE RELEVANT ASSESSMENT YEAR THE PROVISIONS OF SECTION 14A WERE NOT ON THE STATUTE. THERE WAS ACCORDINGLY NO OBLIGATION ON THE ASSESSEE TO DISCLO SE ANY FACTS IN RESPECT OF THE SAID ISSUE. THE COURTS HAVE IN THE FOLLOWING CASES HELD THAT WHERE A CLAIM IS RENDERED INADMISSIBLE ON ACCOUNT O F AMENDMENT OF LAW INTRODUCED SUBSEQUENTLY THOUGH WIT H RETROSPECTIVE EFFECT (COVERING THE RELEVANT YEAR) IT CANNOT BE SAID THAT THERE WAS ANY FAILURE ON THE PA RT OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERI AL FACTS IN RESPECT THEREOF TO WARRANT EXERCISE OF JURISDIC TION UNDER SECTION 148 OF THE ACT BEYOND FOUR YEARS FRO M THE END OF THE RELEVANT ASSESSMENT YEAR. CIT VS. SIL INVESTMENTS LTD.: ITA 700/2010 AND 701/2010 (DEL HC) RALLIS INDIA LIMITED VS. ACIT: 323 ITR 54 (BOM HC) SADBHAV ENGINEERING LTD. V DCIT: SCA NO. 5847/2010 (GUJARAT) HC (COPY ENCLOSED AND MARKED AS ANNEXURE A) 10. THUS THE PETITIONER HAS ACCEPTED AND ADMITTED THAT HE HAD NOT GIVEN DETAILS WITH REGARD TO PROPORTIONATE EXPE NSES RELATABLE TO TAX FREE OR EXEMPT INCOME WHICH WERE CLAIMED AS A DEDUCTION UNDER THE CUMULATIVE HEAD EXPENDITURE. IT IS PLEA DED AND STATED THAT THE PETITIONER WAS NOT REQUIRED TO DISCLOSE TH E SAID FACT AS WHEN THEY HAD FILED THE RETURN SECTION 14A WAS NOT IN T HE STATUTE BOOK. SEQUITOR THERE WAS NO OMISSION AND FAILURE ON THE PART OF THE ASSESSEE-PETITIONER TO MAKE FULL AND TRUE DISCLOSUR E. THE TERM FAILURE ON THE PART OF THE ASSESSEE IS NOT RESTRI CTED ONLY TO THE INCOME-TAX RETURN AND THE COLUMNS OF THE INCOME-TAX RETURN OR THE TAX AUDIT REPORT. THIS IS THE FIRST STAGE. THE SAID EXPRESSION FAILURE TO FULLY AND TRULY DISCLOSE MATERIAL FACTS ALSO RE LATE TO THE STAGE OF I.T.A. NOS.1545 & 1546/MDS/10 11 THE ASSESSMENT PROCEEDINGS THE SECOND STAGE. THERE CAN BE OMISSION AND FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY MATERIAL FACTS DURING THE COURSE OF THE ASSES SMENT PROCEEDINGS. THIS CAN HAPPEN WHEN THE ASSESSEE DOES NOT DISCLOSE OR FURNISH TO THE ASSESSING OFFICER COMPLETE AND CO RRECT INFORMATION AND DETAILS IT IS REQUIRED AND UNDER AN OBLIGATION TO DISCLOSE. BURDEN IS ON THE ASSESSEE TO MAKE FULL AND TRUE DIS CLOSURE. 11. IN THE CASE OF CONSOLIDATED PHOTO AND FINVEST LTD. V. ASST. CIT (2006) 281 ITR 394 THE DELHI HIGH COURT HAS REFERRED TO SEVERAL DECISIONS OF THE SUPREME COURT AND OBSERVED :- IN KANTAMANI VENKATA NARAYANA AND SONS V. FIRST ADDL. ITO [1967] 63 ITR 638 THE APEX COURT HELD TH AT IN PROCEEDINGS UNDER ARTICLE 226 OF THE CONSTITUTIO N OF INDIA CHALLENGING THE JURISDICTION OF THE INCOME-TA X OFFICER TO ISSUE A NOTICE FOR REOPENING THE ASSESSM ENT THE HIGH COURT WAS ONLY CONCERNED WITH EXAMINING WHETHER THE CONDITIONS WHICH INVESTED THE INCOME-TA X OFFICER WITH THE POWERS TO REOPEN THE ASSESSMENT EXISTED. IT IS NOT OBSERVED THE COURT WITHIN THE PROVINCE OF THE HIGH COURT TO RECORD A FINAL DECISION ABOUT THE FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FA CTS BEARING ON THE ASSESSMENT AND CONSEQUENT ESCAPEMENT OF INCOME FROM ASSESSMENT AND TAX. THE COURT ALSO H ELD THAT FROM A MERE PRODUCTION OF THE BOOKS OF ACCOUNT IT COULD NOT BE INFERRED THAT THERE HAD BEEN FULL DISC LOSURE OF THE MATERIAL FACTS NECESSARY FOR THE PURPOSES OF ASSESSMENT. THE TERMS OF THE EXPLANATION DECLARED THE COURT WERE TOO PLAIN TO PERMIT AN ARGUMENT THAT TH E DUTY OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS WOULD STAND DISCHARGED WHEN HE PRODUCES THE BOOKS OF ACCOUNT OR EVIDENCE WHICH HAS A MATERIAL BEARING ON THE ASSESSMENT. THE COURT OBSERVED : IT IS THE DUTY OF THE ASSESSEE TO BRING TO THE NO TICE OF THE INCOMETAX OFFICER PARTICULAR ITEMS IN THE BOOKS OF ACCOUNT OR PORTIONS OF DOCUMENTS WHICH ARE RELEVANT . EVEN IF IT BE ASSUMED THAT FROM THE BOOKS PRODUCED THE INCOME-TAX OFFICER IF HE HAD BEEN CIRCUMSPECT COU LD HAVE FOUND OUT THE TRUTH THE INCOME-TAX OFFICER MA Y NOT ON THAT ACCOUNT BE PRECLUDED FROM EXERCISING TH E I.T.A. NOS.1545 & 1546/MDS/10 12 POWER TO ASSESS INCOME WHICH HAD ESCAPED ASSESSMENT. TO THE SAME EFFECT IS THE DECISION OF THE SUPREME COURT IN MALEGAON ELECTRICITY CO. P. LTD. V. CIT [1 970] 78 ITR 466 WHERE THE COURT OBSERVED : IT IS TRUE THAT IF THE INCOME-TAX OFFICER HAD MADE SOME INVESTIGATION PARTICULARLY IF HE HAD LOO KED INTO THE PREVIOUS ASSESSMENT RECORDS HE WOULD HAVE BEEN ABLE TO FIND OUT WHAT THE WRITTEN DOWN VALUE O F THE ASSETS SOLD WAS AND CONSEQUENTLY HE WOULD HAVE BEEN ABLE TO FIND OUT THE PRICE IN EXCESS OF THEIR WRITT EN DOWN VALUE REALISED BY THE ASSESSEE. IT CAN BE SAID THAT THE INCOME-TAX OFFICER IF HE HAD BEEN DILIGENT COULD HA VE GOT ALL THE NECESSARY INFORMATION FROM HIS RECORDS. BUT THAT IS NOT THE SAME THING AS SAYING THAT THE ASSES SEE HAD PLACED BEFORE THE INCOME-TAX OFFICER TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT. THE LAW CASTS A DUTY ON THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESS ARY FOR HIS ASSESSMENT FOR THAT YEAR . (EMPHASIS SUPPLIED) 12. THE LAW POSTULATES A DUTY ON EVERY ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS FOR ITS ASSESSMENT. TH E DISCLOSURE MUST BE FULL AND TRUE. MATERIAL FACTS ARE THOSE FACTS WH ICH IF TAKEN INTO ACCOUNTS THEY WOULD HAVE AN ADVERSE AFFECT ON ASSES SEE BY THE HIGHER ASSESSMENT OF INCOME THAN THE ONE ACTUALLY M ADE. THEY SHOULD BE PROXIMATE AND NOT HAVE ANY REMOTE BEARING ON THE ASSESSMENT. OMISSION TO DISCLOSE MAY BE DELIBERATE OR INADVERTENT. THIS IS NOT RELEVANT PROVIDED THERE IS OMISSION OR FAILURE ON THE PART OF ASSESSEE. THE LATTER CONFERS JURISDICTION TO REO PEN ASSESSMENT. 13. WHETHER OR NOT THERE WAS A FAILURE OR OMISSION TO DISCLOSE FULLY AND TRULY MATERIAL FACTS IS ESSENTIALLY A QU ESTION OF FACT. SECTION 14A WAS INTRODUCED WITH RETROSPECTIVE EFFEC T BY FINANCE ACT 2001 WHICH WAS TABLED IN THE PARLIAMENT ON 28 TH FEBRUARY 2001 AND WAS PASSED BY THE PARLIAMENT ON 1ST APRIL 2001. THE PETITIONER IS A MULTINATIONAL COMPANY AND IT IS DIF FICULT TO PERCEIVE AND ACCEPT THAT THEIR TAX OR THE LEGAL DEPARTMENT W AS NOT AWARE AND DID NOT HAVE KNOWLEDGE ABOUT SECTION 14A OF THE ACT . I.T.A. NOS.1545 & 1546/MDS/10 13 14. IN THE OBJECTION DATED 14TH NOVEMBER 2007 FIL ED BY THE PETITIONER BEFORE THE ASSESSING OFFICER ON FACTS TH E PETITIONER HAD PLEADED AS UNDER : IN THE CASE OF THE ASSESSEE THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. FURTHER IT WOULD BE EVIDENT FROM THE REASONS PROVIDED FOR REOPENING THE ASSESSMENT THAT THE REASSESSMENT HAS BEEN INITIATED ON APPRECIATION OF THE PAPERS/DOCUME NTS FURNISHED ALONGWITH THE RETURN OF INCOME. THE NOTIC E UNDER THE SECTION 148 OF THE ACT INITIATING THE REASSESSMENT PROCEEDINGS THEREFORE COULD VALIDLY BE ISSUED TILL 31-03-2005 IN TERMS OF THE PROVISO TO S ECTION 147 OF THE ACT. IN THE CASE OF THE ASSESSEE NONE O F THE REQUIREMENT OF THE PROVISO TO SECTION 147 OF THE AC T APPLY IN AS MUCH AS THERE WAS NO FAILURE TO FILE RE TURN OF INCOME NOR IS THERE ANY ALLEGATION AS TO FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR THE ASSESSMENT. 15. IT IS CLEAR FROM THE AFORESAID PARAGRAPH THE P ETITIONER HAS ACCEPTED THAT MATERIAL PARTICULAR REFERRED TO IN THE FIRST PROVISO NOT ONLY REFERS TO DETAILS IN THE RETURN BUT ALSO E XPLANATIONS AND DETAILS FURNISHED DURING THE COURSE OF ASSESSMENT. THE PETITIONER HAD NOT STATED ANYTHING OR GIVEN FACTUAL MATRIX TO JUSTIFY AND STATE THAT THE MATERIAL FACTS HAD BEEN FULLY AND TRULY DI SCLOSED IN THE ASSESSMENT PROCEEDINGS AND THERE WAS NO OMISSION OR FAILURE ON THE PART OF THE PETITIONER. EXPLANATION TO SECTION 147 STIPULATES THAT MERE PRODUCTION OF BOOKS OF ACCOUNTS OR OTHER EVIDE NCE IS NOT SUFFICIENT. (REFER PARAGRAPH 11 ABOVE WHEREIN JUDGM ENT IN THE CONSOLIDATED PHOTO AND FINVEST LTD. (SUPRA) HAS BEEN QUOTED). THEREFORE MERELY BECAUSE MATERIAL LIES IMBEDDED IN MATERIAL OR EVIDENCE WHICH THE ASSESSING OFFICER COULD HAVE UN COVERED BUT DID NOT UNCOVER IS NOT A GOOD GROUND TO DENY OR STRIKE DOWN A NOTICE FOR REASSESSMENT. WHETHER THE ASSESSING OFFICER COULD H AVE FOUND THE TRUTH BUT HE DID NOT DOES NOT PRECLUDE THE ASSESSI NG OFFICER FROM EXERCISING THE POWER OF RE-ASSESSMENT TO BRING TO T AX THE ESCAPED INCOME. 16. THERE WAS AN OMISSION AND FAILURE ON THE PART OF THE PETITIONER TO POINT OUT THE EXPENSES INCURRED RELAT ABLE TO TAX FREE/EXEMPT INCOME WHICH PRIMA FACIE HAVE BEEN CLAI MED AS A DEDUCTION IN THE INCOME AND EXPENDITURE ACCOUNT. TH ERE WAS I.T.A. NOS.1545 & 1546/MDS/10 14 THEREFORE OMISSION AND FAILURE ON THE PART OF THE PETITIONER TO DISCLOSE FULLY AND TRULY MATERIAL FACTS. 13. APPLYING THE RATIO OF THE DECISIONS AS EXTRACT ED AND REPRODUCED ABOVE WE ARE OF THE CONSIDERED OPINION THAT IN VIEW OF TH E FACTS AND CIRCUMSTANCES OF THE CASE IMPUGNED REOPENING OF THE ASSESSMENTS BY THE ASSESSING OFFICER FOR BOTH THE YEARS IS JUSTIFIED AND PROPER. SO THE ORD ER OF THE LD. CIT(A) IS SET ASIDE FOR BOTH THE YEARS IN THIS REGARD AND THAT OF THE A SSESSING OFFICER IS RESTORED. SINCE THE LD. CIT(A) HAS NOT CONSIDERED THE CASE ON MERITS THEREFORE THE MATTER ON MERITS FOR BOTH THE YEARS IS RESTORED BAC K ON HIS FILE TO RE-DECIDE THE APPEAL ON MERITS AFRESH FOR BOTH THE YEARS AFTER GI VING DUE OPPORTUNITY TO THE ASSESSEE AS WELL AS TO THE ASSESSING OFFICER. 14. IN THE RESULT APPEALS OF REVENUE ARE ACCEPTED/ FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 09.09.2011. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER CHENNAI DATED THE 09.09.2011 VM/- TO:THE ASSESSEE//A.O./CIT(A)/CIT/D.R.