Acit New Delhi v. M S Shivani Locks Ltd New Delhi

Ita No 2773 2774 Del 2009 Co No 224 225 Del 09 A Yrs 2003 04 2004 05 1 In The Incometax Appelate Tribunal Delhi Bench G New Delhi Before Shri Rajpal Yadav Judicial Member Shri Shamim Yahya Accountant Member Ita Nos 2773 2774 Del 2009 A Yrs 2003 04 2004 05 Asstt Commissioner Of Income Tax Vs M S Shivan I Locks Ltd Circle 8 1 Room No 163 Flat No 4 2 Nd Floor Ram House Cr Building Ip Estate New Delhi Lsc Kalkaji Ne W Delhi C O Nos 224 225 Del 2009 A Yrs 2003 04 2004 05 M S Shivani Locks Ltd Vs Asstt Commissioner O F Income Tax Flat No 4 2 Nd Floor Ram House Circle 8 1 Room No 163 Lsc Kalkaji New Delhi Cr Building Ip Estate Ne W Delhi Appellant Respondent Assessee By None Department By Shri Kishore B Sr Dr O R D E R Per Bench Ita Nos 2773 2774 Del 2009 These Appeals By The Revenue And Cross Objections B Y The Assessee Emanate Out Of Respective Orders Of Ld Ci T A For The Assessment Year 2003 04 And 2004 05 Since The Iss Ue Involved Is Common And Connected And The Appeals Were Heard Tog Ether Ita No 2773 2774 Del 2009 Co No 224 225 Del 09 A Yrs 2003 04 2004 05 2 Therefore These Are Being Disposed Off Together B Y This Common Order 2 The Common Issue Raised In Revenue Appeals Is Th At The Ld Cit A Erred In Annulling The Assessment Made By T He Ao By Holding That Notice Under Section 148 Was Invalid 3 In Both The Years Original Assessment Was Comple Ted Under Section 143 3 Subsequently Ao Observed That Th E Assessee Company Had Debited A Sum Of Rs 6 28 168 For Ass Essment Year 2003 04 And Rs 953005 For Assessment Year 2004 0 5 To Its P L Account On Account Of Royalty Fee For Obtaining Tec Hnical Know How The Expenses Incurred Were Of Enduring In Nature Hence Of Capital In Nature Which Needed To Be Disallowed Thus The Income Had Escaped Assessment For The Reason Of Failure On The Part Of The Assessee Company To Disclose Fully And Truly All Ma Terial Facts Necessary For Assessment Accordingly Notice For R Eopening Of Assessment Under Section 148 Was Issued Within 4 Ye Ars Of The Assessment U S 143 3 The Assessment Was Complete D By Addition By Addition Of Sum Paid On Account Of Roya Lty Paid Holding The Same To Be Capital Expenditure 4 Against This Order The Assessee Went Before The Ld Cit A Before The Ld Cit A It Was Submitted That Origin Al Assessment Was Made Under Section 143 3 It Was Further Submitte D That During The Course Of Original Assessment Proceedings A Spe Cific Query Was Raised By The Ao About Payment Of Royalty Which Was Explained Vide Ita No 2773 2774 Del 2009 Co No 224 225 Del 09 A Yrs 2003 04 2004 05 3 Letter Dated 16 8 2005 Further Explanation On Tha T Issue Was Given Vide Letter Dated 28 2 2005 Considering The Sa Me Ld Cit A Observed That Ao Has Tried To Project That The Clai M Of Royalty Was Not In His Knowledge However From The Copy Of Th E Letters Filed Before The Ao Ld Cit A Found That The Matter Has Been Duly Explained And It Was Mentioned That The Company Ha D To Pay The Royalty On The Products Covered As Per The Agree Ment With Kiekert Ag Of Germany From Whom Technical Know How Was Obta Ined Hence The Ld Cit A Observed That Claim Of Royalt Y Expenses As Revenue Expenditure Was Apparently Allowed In The O Riginal Assessment After Due Consideration Ld Cit A Fur Ther Referred The Reasons Recorded By The Ao In This Regard He Obse Rved That Ao Has Not Referred To Any Specific Information Or Mat Erial Which Came To Her Possession Subsequent To Show That The Opin Ion Formed Earlier Was Erroneous Or Based On Incomplete Facts Hence The Ld Cit A Concluded That Observation Of The Ao For The Reasons Recorded Is Nothing To Change Of Opinion Which Is N Ot Permissible Hence He Held That Notice Issued Under Section 148 In This Regard Is Invalid 5 We Have Heard Ld Dr None Appeared On Behalf Of The Assessee Upon Careful Consideration We Are Of Th E Opinion That The Matter May Be Disposed Off Exparte Accordi Ngly We Have Perused The Records And Gone Through The Submission S Of The Ld Dr Ld Dr Submitted That In The Original Assessme Nt Proceedings Ao Had Actually Enquired About The Quantum Of Expe Nditure On Ita No 2773 2774 Del 2009 Co No 224 225 Del 09 A Yrs 2003 04 2004 05 4 Royalty And Ao Had Not Formed An Opinion Regarding The Nature Of The Expenses Hence He Submitted That There Canno T Be Any Question Of Change Of Opinion In This Regard L D Dr Referred The Decision Of The Honble Gujrat High Court In The Ca Se Of Praful Chunilal Patel Anr Vs Acit 236 Itr 832 5 1 We Have Carefully Considered The Submission 5 2 We Can Gainfully Refer Here The Relevant Provis Ions Of Section 147 Of The It Act If The Assessing Officer Has Reason To Believe Tha T Any Income Chargeable To Tax Has Escaped Assessment For Any As Sessment Year He May Subject To The Provisions Of Sections 148 To 153 Assess Or Reassess Such Income And Also Any Other I Ncome Chargeable To Tax Which Has Escaped Assessment And Which Comes To His Notice Subsequently In The Course Of The Pro Ceedings Under This Section Or Recomputed The Loss Or The Depreciation A Llowance Or Any Other Allowance As The Case May Be For The Assess Ment Year Concerned Hereafter In This Section And In Sections 148 To 153 Referred To A The Relevant Assessment Year Provided That Where An Assessment Under Sub Section 3 Of Section 143 Or This Section Has Been Made For The Relevant Assessment Year No Action Shall Be Taken Under This Section After Th E Expiry Of Four Year From The End Of The Relevant Assessment Year U Nless Any Income Chargeable To Tax Has Escaped Assessment F Or Such Assessment Year By Reason Of The Failure On The Par T Of The Assessee To Make A Return Under Section 139 Or In Response To A Notice Issued Under Sub Section 1 Of Section 142 Or Section 148 O R To Disclose Fully And Truly All Material Facts Necessary For His Asse Ssment For That Assessment Year 5 3 From The Reading Of The Above It Is Clear That For Valid Reopening The Assessing Officer Should Have Reason To Believe That Any Income Chargeable To Tax Has Escaped Assessment It Is Also A Ita No 2773 2774 Del 2009 Co No 224 225 Del 09 A Yrs 2003 04 2004 05 5 Settled Law That Any Reopening Based Upon Change Of Opinion Is Not A Valid One 5 4 It Is Apparent That The Issue Of Royalty Was En Quired Upon By The Ao During The Course Of Assessment And The Asse Ssee Had Duly Explained The Same Assessee Has Also Duly Show N The Same As Revenue Expenditure Under The Circumstances We Find That That There Is No Cogency In The Ld Drs Submissions Tha T While Making Enquiry In The Said Subject Ao Has Considered Onl Y The Quantum Of Expenditure And Not The Nature Thereof Whil E Answering The Aos Query Regarding Royalty Payments As Per The P Aper Book Filed In This Regard By The Assessee Following Was Inte R Alia Submitted For Assessment Year 2003 04 Royalty Payments This Year Rs 953005 Against Rs 628166 In The Last Year The Company Has Taken Technical Know How From M S Ki Ekert Ag Of Germany And On The Products Covered Under The A Greement The Company Has To Pay Royalty As Per Agreement The Increase Is Mainly Due To Increased Sale On A Ll These Payments Of Royalty The Tax Has Been Deducted As P Rovided In The Law Copy Of Royalty Account Is Enclosed 5 5 Similarly For Assessment Year 2004 05 Following Was Submitted Explanatory Note On The Royalty Payments Ita No 2773 2774 Del 2009 Co No 224 225 Del 09 A Yrs 2003 04 2004 05 6 The Company Has Taken Technical Know How From M S Kiekert Ag Of Germany And On The Products Covered U Nder The Agreement The Company Has To Pay Royalty As Per Agr Eement The Increase Is Mainly Due To Increased Sale On All These Payments Of Royalty The Tax Has Been Deducted As P Rovided In The Law Copy Of Royalty Account Is Enclosed 5 6 From The Above It Is Quite Apparent That The N Ature Of The Expenditure Was Explained Hence Ao Has Observed T He Expenditure On Technical Know Under Revenue Expendi Ture And Made Enquiry In This Regard And After Allowing The Same Now He Is Changing His Opinion And Holding That The Impugned Amount Was Capital In Nature This Is Being Done Without Any Further Material Coming To The Knowledge Of Ao This Is Clearly A Ma Tter Of Change Of Opinion Hence The Same Is Not Permissible In The Law 5 7 In This Regard Full Bench Of The Honble Jurisd Ictional High Court In The Case Of Cit Vs Kelvinator Of India Ltd 256 Itr 1 Has Held After Considering The Decision Of Honble Hig H Court Of Gujrat In 236 Itr 832 That Mere Change Of Opinion Of Ao I S Not A Ground For Reopening Of Assessment And Amendment Of Sectio N 147 W E F 1 4 1989 Has Not Altered This Position 5 8 Similar View Was Expressed By The Honble Apex Court In The Case Of Foramer France 264 Itr 566 Sc Wherein I T Was Held That Reassessment Is Not Permissible On The Basis Of Mer E Change Of Opinion Ita No 2773 2774 Del 2009 Co No 224 225 Del 09 A Yrs 2003 04 2004 05 7 5 9 In The Background Of The Aforesaid Discussion And Precedent We Do Not Find Any Infirmity Or Illegality In The O Rders Of The Ld Cit A And Accordingly We Affirm The Same Cross Obejction Nos 224 225 Del 2009 6 The Issues Raised In Both The Cross Objections A Re Common And Connected The Assessee Has Agitated That The Ld Cit A Has Erred In Not Considering The Merits Of The Case We Find That We Have Already Dismissed The Revenue Appeals As Above Hen Ce Both The Cross Objections Filed By The Assessee Have Become Infructuous And Stand Dismissed As Such 7 In The Result The Appeals Filed By The Revenue Are Dismissed And Both The Cross Objections Filed By The Assesse E Are Dismissed Being Infructuous Order Pronounced In The Open Court On 06 01 2010 Sd Sd Rajpal Yadav Shamim Yahya Judicial Member Accountant Member Date 06 01 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