Munjal Showa Ltd, v. DCIT Circle 5 (1),

ITA 1704/DEL/2007 | 2001-2002
Pronouncement Date: 16-02-2010 | Result: Allowed

Appeal Details

RSA Number 170420114 RSA 2007
Assessee PAN AAACM0070D
Bench Delhi
Appeal Number ITA 1704/DEL/2007
Duration Of Justice 2 year(s) 10 month(s) 7 day(s)
Appellant Munjal Showa Ltd,
Respondent DCIT Circle 5 (1),
Appeal Type Income Tax Appeal
Pronouncement Date 16-02-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 16-02-2010
Date Of Final Hearing 16-02-2010
Next Hearing Date 16-02-2010
Assessment Year 2001-2002
Appeal Filed On 09-04-2007
Judgment Text
ITA NOS.4461/DEL/09 & 1704/DEL/07 A.Y. 2000-01&2001-02 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH D: NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NOS. 4461/DEL/2009 & 1704/DEL/2007 A.YRS. : 2000-01 & 2001-02 MUNJAL SHOWA LTD. VS. DCIT CIRCLE5(1) 9-11 MARUTI INDUSTRIAL AREA NEW DELHI GURGAON (HARYANA) [PAN : AAACM0070D] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ROHIT JAIN CA AND MS. NIDHI SARIN CA DEPARTMENT BY : SMT. KAVITA BHATNAGAR CIT(DR) O R D E R PER SHAMIM YAHYA AM : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS OF THE LD. CIT(A) FOR ASSESSMENT YEAR 2000-01 AND 2 001-02 RESPECTIVELY. SINCE THE ISSUES ARE COMMON AND CONN ECTED AND THE APPEALS WERE HEARD TOGETHER THESE ARE BEING CONSOL IDATED AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE. 2. THE FIRST COMMON ISSUE RAISED IS THAT THE ORDER OF THE LD. CIT(A) ERRED IN HOLDING THAT THE ORDER PASSED BY TH E AO UNDER SECTION 143(3) READ WITH SECTION 148 OF THE IT ACT IS BEYOND JURISDICTION BAD IN LAW AND VOID-AB-INITIO. ITA NOS.4461/DEL/09 & 1704/DEL/07 A.Y. 2000-01&2001-02 2 3. IN THIS CASE THE ASSESSEE IS A COMPANY MANUFAC TURING OF SHOCK ABSORBERS STRUTS AND WINDOW BALANCERS. FOR ASSESSMENT YEAR 2000-01 THE ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) ON 31.1.2003 AND FOR ASSESSMENT YEAR 2001-02 THE ORIGI NAL ASSESSMENT UNDER SECTION 143(3) WAS DONE ON 20.2.20 04. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED UNDER SEC TION 147 OF THE IT ACT AND NOTICE WAS ISSUED UNDER SECTION 148 OF THE IT ACT. ON 29.3.2007 FOR ASSESSMENT YEAR 2000-01 AND ON 18.7.2 005 FOR ASSESSMENT YEAR 2001-02. ASSESSEE AGITATED BEFORE T HE LD. CIT(A) CHALLENGING THE LEGALITY OF THE ORDER ITSELF AT TH E THRESHOLD. 4. LD. CIT(A) FOR A.Y. 2001-02 NOTED THAT IN PARA 2 OF THE AOS ORDER THE MATTER OF REOPENING HAS BEEN MENTIONED AS UNDER:- THE CASE WAS REOPENED ON THE GROUNDS THAT THE ASSE SSEE HAD DEBITED AN AMOUNT OF RS. 3 32 45 117/- IN ITS P&L A/C AS ROYALTY. THIS ROYALTY WAS PAID TO A FOREIGN COMPANY M/S SHOWA CORPORATION OF JAPAN IN LIEU OF TECHNICAL KNOW HOW/ASSISTANCE FROM THEM. THE ASSES SEE HAS DEBITED ITS AS REVENUE EXPENDITURE THOUGH ITS G IVES TO BENEFIT / ADVANTAGE WHICH IS ENDURING IN NATURE. T HE ASSESSEE COMPANY HAD ENTERED INTO AN AGREEMENT WITH THE FOREIGN COMPANY OF JAPAN M/S SHOWA CORPORATION TO RECEIVE TECHNICAL ASSISTANCE FOR THE MANUFACTURE OF SHOCK ABSORBERS AND RIGHT TO SELL PRODUCTS. AS PER THE DIFFERENT SECTION OF THE TECHNICAL COLLABORATION CONTRACT FROM 11.3.97 TO 10.3.2002 BETWEEN THE LICENSOR M/S SHOWA CORPORATION OF JAPAN AND THE LICENSEE M/S MUNJAL SH OWA LTD. DRAWINGS STANDARDS SPECIFICATIONS AND ALL O THER TECHNICAL DATA INFORMATION AND KNOWLEDGE RELATING TO PRODUCTS DESIGN AND / OR THE MANUFACTURING TECHNOLO GY OF THE PRODUCTS OR THE PARTS AND ALL DOCUMENTS WHETHE R ORIGINALS OR COPIES CONTAINING ANY SUCH DRAWINGS ITA NOS.4461/DEL/09 & 1704/DEL/07 A.Y. 2000-01&2001-02 3 STANDARDS SPECIFICATIONS AND TECHNICAL DATA INFOR MATION OR KNOWLEDGE RELATING TO THE MANUFACTURING TECHNOLO GY. UNDER THE TERMS OF THE TECHNICAL COLLABORATION THE ROYALTY IS PAYABLE AT 2% OF THE EX-FACTORY SALES PRICE OF T HE PRODUCTS CARRIED OUT OF THE MANUFACTURING FACILITY INVOICED BY THE LICENSEE LESS CERTAIN OTHER COST FOR A PERI OD OF FIVE YEARS. THE ASSESSEE HAS PAID A ROYALTY FOR THE ACQ UISITION OF AN EXCLUSIVE PRIVILEGE OF MANUFACTURING AND SELL ING THE PRODUCTS. THE ACQUISITION OF SUCH A RIGHT MAY BE TREATED PARTLY TOWARDS CAPITAL AND PARTLY TOWARDS THE RE VENUE IT GIVES RISE TO ENDURING BENEFIT TO THE ASSESSEE. T HE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN SWITC H GEAR LTD. VS. CIT REPORTED IN 232 ;ITR 359 AND HON BLE MADRAS HIGH COURT IN THE SAME CASE REPORTED IN 148 ITR 272 HELD THAT 25% OF SUCH ROYALTY EXPENSES CONSTITU TES CAPITAL EXPENDITURE AS IT GIVES RISE TO THE ASSESSE E A BENEFIT IS OF ENDURING NATURE AND THEREBY CONSTITUT ING A CAPITAL ASSET. THUS FOLLOWING THE ABOVE JUDGEMENT 25% OF TOTAL ROYALTY EXPENSES OF RS. 3 32 45 117/- WHICH C OMES TO RS. 83 11 279/- SHOULD HAVE BEEN SHOWN AS CAPIT AL EXPENDITURE BEING SPENT TOWARDS ACQUISITION OF CAPI TAL ASSET. THE ASSESSEE HAS SHOWN THIS EXPENDITURE AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE AND THEREBY CLAIMING EXCESS DEDUCTION OF RS. 83 11 279/ - AND CONSEQUENTLY UNDER SHOWING THE INCOME TO THE EXTENT OF RS. 83 11 279/-. 5. UPON CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND COMMENTS OF THE AO CIT(A) CAME TO THE CONCLUSION THAT THIS WAS NOT A CHANGE OF OPINION. HE HELD THAT IN THIS CASE THE ISSUE WAS OF NATURE OF ROYALTY EXPENDITURE AND THIS WAS NOT RAIS ED IN ASSESSMENT PROCEEDINGS AND THERE WAS NON-APPLICATION OF THE M IND BY THE AO. HE ALSO FOUND THAT ASSESSEES ARGUMENTS OF NO NEW INFORMATION AND FACTS COMING TO THE POSSESSION OF THE AO WAS AL SO NOT TENABLE AS AO WAS NOT IN THE KNOWLEDGE OF HONBLE SUPREME C OURT OF INDIA ITA NOS.4461/DEL/09 & 1704/DEL/07 A.Y. 2000-01&2001-02 4 DECISION IN THE CASE OF SOURTHERN SWITCH GEAR LTD. VS. CIT IN 232 ITR 359. ACCORDINGLY HE DECIDED THE ISSUE AGAINST THE ASSESSEE. 6. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEF ORE US. 7. FOR IDENTICAL REASON THE ASSESSMENT WAS REOPENED FOR ASSESSMENT YEAR 2000-01 AND THE ASSESSEE GROUND AGA INST THE JURISDICTION WAS REJECTED BY THE CIT(A). FOR ASS ESSMENT YEAR 2000- 01 THE ASSESSEE HAS FURTHER ARGUED THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT HOLDING THAT IMPUGNED REASSESSMEN T ORDER UNDER SECTION 147 OF THE ACT HAVING BEEN INITIATED AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR WAS BEYOND JURISDICTION AND BARRED BY LIMITATION IN TERMS OF P ROVISO TO THAT SECTION CONSIDERING THAT (A) THE ORIGINAL ASSESSME NTS FOR IMPUGNED YEAR WAS COMPLETED UNDER SECTION 143(3) OF THE ACT AND (B) THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCL OSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. 8. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND THAT AS PER THE ADMITTED FACTS OF THE CASE ASSESSEE HAD DEBITED THE AMOUNT OF ROYALTY IN THE PROFIT AND LOS S ACCOUNT AND THE SAME WAS CLEARLY BEFORE THE AO WHILE HE WAS COMPLET ING THE ASSESSMENT UNDER SECTION 143(3) OF THE IT ACT. S UBSEQUENTLY AO WAS OF THE OPINION THAT ON THE SAME SET OF FACTS T HAT HONBLE APEX COURT DECISION IN THE CASE OF CIT VS. SWITCH GEAR L TD. (SUPRA) REPORTED IN 232 IT 359 IS APPLICABLE AND 25% OF SUC H ROYALTY EXPENSE WAS TO BE TREATED AS CAPITAL EXPENDITURE. 8.1 FROM THE ABOVE IT IS QUITE APPARENT THAT NO NEW MATERIAL HAS COME TO THE KNOWLEDGE OF THE AO. FROM THE SAME MA TERIAL ITA NOS.4461/DEL/09 & 1704/DEL/07 A.Y. 2000-01&2001-02 5 AVAILABLE ON RECORD HE HAS CHANGED HIS MIND. HONB LE APEX COURT IN THE CASE OF CIT VS. KELIVNATOR OF INDIA LTD. & ANR. REPORTED IN 320 ITR 561 HAS HELD THAT SUCH CHANGE OF OPINION I S NOT TENABLE. HONBLE APEX COURT IN THE AFORESAID CASE HAS ANALYS ED IN DETAIL THE PROVISIONS OF SECTION 147 OF THE IT ACT AND HELD AS UNDER:- AFTER THE AMENDING ACT 1989 SECTION 147 READS AS UNDER: INCOME ESCAPING ASSESSMENT - 147. IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 ASSESS OR REASSE SS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS E SCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENT LY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION OR RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE AS T HE CASE MAY BE FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THI S SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASS ESSMENT YEAR). ON GOING THROUGH THE CHANGES QUOTED ABOVE MADE T O SECTION 147 OF THE ACT WE FIND THAT PRIOR TO DIRECT TAX LAWS (AMENDMENT) ACT 1987 RE- OPENING COULD BE DONE UNDER ABOVE TWO CONDITIONS AN D FULFILLMENT OF THE SAID CONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFICER TO MAKE A BACK ASSESSMENT BUT IN SECTION 147 OF THE ACT [W ITH EFFECT FROM 1ST APRIL 1989] THEY ARE GIVEN A GO-BY AND ONLY ONE CONDITIO N HAS REMAINED VIZ. THAT WHERE THE ASSESSING OFFICER HAS REASON TO BEL IEVE THAT INCOME HAS ESCAPED ASSESSMENT CONFERS JURISDICTION TO REOPEN T HE ASSESSMENT. THEREFORE POST-1ST APRIL 1989 POWER TO RE-OPEN I S 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 ASSESSME NTS ON THE BASIS OF MERE CHANGE OF OPINION WHICH CANNOT BE PER SE RE ASON TO RE-OPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BE TWEEN POWER TO REVIEW AND POWER TO RE-ASSESS. THE ASSESSING OFFICER HAS N O POWER TO REVIEW; HE HAS THE POWER TO RE-ASSESS. BUT RE-ASSESSMENT HAS T O BE BASED ON FULFILLMENT ITA NOS.4461/DEL/09 & 1704/DEL/07 A.Y. 2000-01&2001-02 6 OF CERTAIN PRE-CONDITION AND IF THE CONCEPT OF CHA NGE OF OPINION IS REMOVED AS CONTENDED ON BEHALF OF THE DEPARTMENT THEN IN THE GARB OF RE- OPENING THE ASSESSMENT REVIEW WOULD TAKE PLACE. ON E 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 1 989 ASSESSING OFFICER HAS POWER TO RE-OPEN PROVIDED THERE IS TANGIBLE MATER IAL TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BEL IEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SECTION 147 OF THE ACT AS QUOTED HEREINABOVE. UNDER THE DIRECT TAX LAWS (AMENDMENT) ACT 1987 PA RLIAMENT NOT ONLY DELETED THE WORDS REASON TO BELIEVE BUT ALSO INSE RTED THE WORD OPINION IN SECTION 147 OF THE ACT. HOWEVER ON RECEIPT OF R EPRESENTATIONS FROM THE COMPANIES AGAINST OMISSION OF THE WORDS REASON TO BELIEVE PARLIAMENT RE-INTRODUCED THE SAID EXPRESSION AND DELETED THE W ORD OPINION ON THE GROUND THAT IT WOULD VEST ARBITRARY POWERS IN THE A SSESSING OFFICER. WE QUOTE HEREINBELOW THE RELEVANT PORTION OF CIRCULAR NO.549 DATED 31ST OCTOBER 1989 WHICH READS AS FOLLOWS: 7.2 AMENDMENT MADE BY THE AMENDING ACT 1989 TO REINTRODUCE THE EXPRESSION `REASON TO BELIEVE' IN S ECTION 147. A NUMBER OF REPRESENTATIONS WERE RECEIVED AGAINST T HE OMISSION OF THE WORDS `REASON TO BELIEVE' FROM SECT ION 147 AND THEIR SUBSTITUTION BY THE `OPINION' OF THE ASSESSIN G OFFICER. IT WAS POINTED OUT THAT THE MEANING OF THE EXPRESSION `REASON TO BELIEVE' HAD BEEN EXPLAINED IN A NUMBER OF COURT RU LINGS IN THE PAST AND WAS WELL SETTLED AND ITS OMISSION FROM SEC TION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICE R TO REOPEN PAST ASSESSMENTS ON MERE CHANGE OF OPINION. TO ALLA Y THESE FEARS THE AMENDING ACT 1989 HAS AGAIN AMENDED SE CTION 147 TO REINTRODUCE THE EXPRESSION `HAS REASON TO BELIEV E' IN PLACE OF THE WORDS `FOR REASONS TO BE RECORDED BY HIM IN WRI TING IS OF THE OPINION'. OTHER PROVISIONS OF THE NEW SECTION 1 47 HOWEVER REMAIN THE SAME. FOR THE AFORE-STATED REASONS WE SEE NO MERIT IN TH ESE CIVIL APPEALS FILED BY THE DEPARTMENT HENCE DISMISSED W ITH NO ORDER AS TO COSTS. ITA NOS.4461/DEL/09 & 1704/DEL/07 A.Y. 2000-01&2001-02 7 9. A READING OF THE ABOVE MAKES IT CLEAR THAT THE R EASSESSMENT FOR BOTH THE YEARS WAS DONE ON THE BASIS OF CHANGE OPIN ION WHICH IS NOT PERMISSIBLE. AO IS NOT PERMITTED TO REVIEW HI S ORDER IN THE GARB OF REASSESSMENT. IN THIS CASE WE FIND THAT THE I SSUE OF ROYALTY WAS CLEARLY THERE BEFORE THE AO WHEN HE ORIGINALLY FRAM ED THE ORDER OF THE ASSESSMENT UNDER SECTION 143(3) AND HE ALLOWED THE SAME AS REVENUE EXPENDITURE AND DID NOT FIND ANYTHING WRONG IN THE ASSESSEES TREATMENT OF THE SAME AS REVENUE EXPENDI TURE. NO NEW MATERIAL CAME IN THE POSSESSION OF THE AO. ONLY ON THE REAPPLICATION OF MIND AND CHANGE OF OPINION AO WAS OF THE OPINION THAT HONBLE APEX COURT DECISION IN THE CASE OF CIT VS. SWITCH GEAR LTD. REPORTED IN 232 ITR 359 WAS APPLICABLE. ADMI TTEDLY IT IS NOT THE CASE THAT APEX COURT PRONOUNCED ITS DECISION IN SWITCH GEAR LTD. (SUPRA) AFTER THE DATE OF THE ORIGINAL ASSESSM ENT BY THE AO. UNDER THE CIRCUMSTANCES IN OUR CONSIDERED OPINION THIS IS A CLEAR CASE OF CHANGE OF OPINION AND REVIEWING HIS ORDER I N THE GARB OF REASSESSMENT. 10. IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND RESPECTFULLY FOLLOWING THE PRECEDENT FROM THE APEX COURT WE QUA SH THE ASSESSMENT VOID-AB-INITIO. 11. FOR A.Y. 2000-01 IT IS ALSO CLEAR THAT ASSESSM ENT WAS DONE AFTER 4 YEARS FROM THE END OF THE RELEVANT ASSESSME NT YEAR AND IN THIS VIEW OF THE MATER THE PROVISO TO SECTION 147 I S VERY MUCH APPLICABLE WHICH MANDATES THAT WHEN ASSESSMENT HAS BEEN DONE U/S 143(3) NO REASSESSMENT WILL BE DONE AFTER THE LAPSE OF 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLES S IT IS DUE TO ITA NOS.4461/DEL/09 & 1704/DEL/07 A.Y. 2000-01&2001-02 8 FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIALS FACTS AND NECESSARY FOR ASSESSMENT. IN TH IS CASE THE AMOUNT OF ROYALTY CLAIM WAS CLEARLY MENTIONED IN TH E PROFIT AND LOSS ACCOUNT. HENCE THERE WAS NO FAILURE ON THE PART O F THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR ASSESSMENT. HENCE FOR A.Y. 2000-01 THE REASSESSMENT IS BAD ALSO ON ACCOUNT OF APPLICATION OF PROVISO AND SECTION 147 OF IT ACT. 12. IN THE RESULT BOTH THE APPEALS BY THE ASSESSEE ARE ALLOWED. 13. SINCE WE HAVE ALREADY ALLOWED THE APPEALS ON TH E ISSUE OF REASSESSMENT ADJUDICATION OF THE ISSUE ON MERITS IS ONLY ACADEMIC AND HENCE WE ARE NOT GOING TO THE ISSUE ON MERITS . ORDER PRONOUNCED IN THE OPEN COURT ON 16/02/2010 UPON CONCLUSION OF THE HEARING. SD/- SD/- [C.L. SETHI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16/02/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES