Income Tax Appellate Tribunal - Mumbai
Asian Paints Ltd., Mumbai vs Department Of Income Tax on 15 March, 2012
ITA Nos.6553 and others (9 appeals)
Asian Paints Ltd Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL
"F" Bench, Mumbai
Before Shri R.S. Padvekar, Judicial Member and
Shri B. Ramakotaiah, Accountant Member
ITA Nos. 6226 & 6222 to 6225/Mum/2006
(Assessment Years: 1997-98 to 2001-02)
Asian Paints Ltd DCIT Central Circle-32
6A Shantinagar, Vs Room No.4, Ground Floor
Santacruz (E) Aayakar Bhavan
Mumbai 400 055 Mumbai 400020
PAN - AAACA 3622 K
Appellant Respondent
ITA Nos. 6553 to 6556/Mum/2006
(Assessment Years: 1996-97 to 1999- 2000)
DCIT Central Circle-32 Asian Paints Ltd
Room No.4, Ground Floor Vs 6A Shantinagar,
Aayakar Bhavan Santacruz (E)
Mumbai 400020 Mumbai 400 055
ACIT Central Circle-32
Appellant Respondent
Assessee by: Mr. H.N. Shah
Revenue by: Mr. Subachan Ram, CIT DR
Date of Hearing: 15/03/2012
Date of Pronouncement: 22/03/2012
ORDER
Per Bench:
These are group of appeals filed by assessee company and Revenue for the assessment years 1996-97 to 2001-02. In AY 1996- 97, there is no assessee appeal, but only Revenue appeal on the issue of time limit for reopening the assessment under section 147. In AY 1997-98 to 1999-2000, the cross appeals are filed by assessee company and Revenue with reference to the reopening of assessment and some of the issues on merits. In AY 2000-01 and 2001-02, the assessee is only contesting the issue of reopening of the assessment and additions confirmed by CIT(A). Since common Page 1 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai issues are involved in all these appeals, they were heard together and decided by this common order.
2. We have heard the learned Counsel for the assessee and learned CIT (DR) who made elaborate submissions.
3. The assessee is a Public Limited Company and a leading manufacture of Paints. In March, 2002 there were search operations on the assessee and an order under the Block assessment had been passed on certain issues. In appeal on the Block assessment, the CIT (A) deleted all the additions holding that these were the issues which were considered in regular assessment and hence, they cannot be considered in Block assessment. On the issue of assessee's claim of software expenditure as revenue expenditure, the CIT (A) in AY 2000-01 in regular assessment proceedings, passed an order confirming the AO stand. Therefore, on the basis of that order, the Revenue reopened all the assessments involved in the Block. Main issue was related to expenditure on software, considered as capital instead of revenue in all the assessment years and consequent to that rate of depreciation thereof, whether it was 25% or 60%. The other issue which was also considered in re-opened assessments in some years was with reference to the expenditure on revamping pthalic plant, again whether expenditure is capital or revenue. In Revenue appeals in AY 1997-98, AY 1998-99 and AY 1999-2000, there is an issue of disallowance of expenditure for earning tax free income u/s 14A.
4. As explained by the learned Counsel and as seen from the record, most of the issues which are agitated in this appeal are originally considered in the regular assessments on which there are orders of the ITAT. However, the Assessing Officer consequent to the deletion of certain additions in the Block assessment by the CIT (A), issued notices under section 148 and reopened the assessments under section 147.
5. It was the contention of the assessee that these were issues which were already subject matter of scrutiny assessments Page 2 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai originally and issues are pending in appeal at various forums, hence they cannot be considered afresh in the guise of reassessment. It was also contended that time limits for reopening the assessment have already been expired and the assessments cannot be reopened even on change of opinion and there being no fresh or additional evidence. The Revenue sought to justify the reopening on the reason that the learned CIT (A) in AY 2000-01 has affirmed the Revenue stand and has, therefore, given a finding that the expenditure is to be treated as capital. Therefore, it can take shelter under section 150 and 153. These issues are considered year wise.
ITA No.6553/Mum/2006 - Assessment Year 1996-97:6. In this assessment year, the assessee company filed return of income on 27.11.1996 declaring total income of `.15,14,30,190/-. It also filed a revised return on 17.03.1997 declaring a total income of `.56,26,83,140/-. The assessment under section 143(3) was made on 29.01.1999 determining the total income at `.59,74,23,110/-. The matters were agitated upto the ITAT and the ITAT vide ITA No.907/Mum/2000 dated 12.08.2005 has considered the appeal.
7. Assessing Officer on the reason that the CIT (A) has given findings in AY 2000-01, reopened the assessment by issuing a notice on 21.04.2005 invoking the provisions of section 153(3)(ii) explanation 2. The assessee objected that the notice under section 148 was issued beyond the period of 6 years and was not permissible under section 149(1)(b) and therefore, the same was invalid and without jurisdiction. The Assessing Officer, however, did not accept the above submissions and proceeded to treat the software expenses of `.17,04,000/- as capital expenditure and also disallowed an amount of 10% out of the expenses towards earning tax free income at `.6,04,890/- and an amount of `.1,36,517/- towards royalty from foreign companies. The assessee challenged the same before the CIT (A) and after considering the submissions of the assessee, the CIT (A) held that the Assessing Officer has no Page 3 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai jurisdiction to issue notice under section 147 as the provisions of section 150(2) are applicable which limits the jurisdiction on the extended time available under section 150(1). The order of the CIT (A) is as under:
"2.7 Applying the above principles, it is seen that in the present case, the CIT (A) while disposing the appeal of the appellant against the order of the Block assessment passed under section 158BC of the Income Tax Act, vide order dated 26.12.2003 held that the issue whether the expenses of the appellant on the software are capital expenses or revenue expenses cannot be considered in the Block assessment proceeding and the same can be considered only in the regular assessment proceedings. Thus, there is finding of the CIT (A) in the Block order that the addition made in the Block assessment cannot be made in the Block order and the addition on the issue can be made in the regular assessment proceedings only. It was, therefore, absolutely necessary for the CIT (A) to decide the matter one way or other. It cannot decide the appeal without deciding as to whether the expenses of the appellant on the software can be considered for disallowance in the proceeding for the Block assessment or in the regular assessment proceeding. The CIT (A) could not have disposed of the appeal by merely deciding the issue against the assessee. The finding is irretrievably linked up with the issue in appeal. It is, therefore, evident that what the CIT (A) has decided is a necessary finding for the purpose of effective disposal of the appeal before it. The case of the appellant, therefore, comes within the purview of section 150(1) of the income tax act.
2.8. However the extended time available under section 150(1) of the income tax act is subject to the limitation imposed by the provision of sub-section 2 of section 150. Section 150(1) sub-section 92) of section 150 reads as follows:
"150(2): The provision of sub-s (1) shall not apply in case where any such assessment, reassessment of re-computation as is referred to in that sub-section relates to an assessment year in respect of which as assessment, re- assessment or re-computation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, re- assessment or re-computation may be taken".Page 4 of 19
ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai In the present case the order of assessment for the Block period was passed on 28/11/2003. On that date, the notice under section 148 of the income tax act cannot be issued to the appellant as the period of six years from the end of the relevant assessment year has already expired. The notice under section 148 for the assessment year 1996-97 can be issued latest by 31/3/2003. The order for the Block assessment was passed on 28/11/2003. Therefore, the Assessing Officer is not competent to issue notice under section 148 for this assessment year on the date of passing the order of assessment for the Block period. I, therefore, hold that though section 150(1) applies to this case, the enlarged period of limitation is restricted by the provision of sub- section (2) of section 150 and on this score; the assessment now made cannot stand. Accordingly it is held that the re-assessment made in this case cannot stand and the same is, therefore, quashed. In the view this view taken it is not necessary to pronounce upon other contention and on the other grounds of appeal. They are left open".
8. The learned CIT (DR) submitted that the CIT (A) erred in stating that the time limit was not available, whereas explanation-2 to section 153 is applicable. The learned Counsel, however, submitted that there is no finding in any year with reference to the treatment to be given for software expenditure in this year and further as per explanation-2, there should be a finding that income which excluded in an assessment year has to be considered as income of other year and there is no such finding so as to invoke explanation-2 to section 153. Since notice under section 148 was issued beyond the time limit and since the Assessing Officer does not have any jurisdiction to reopen, the order of the CIT(A) is to be upheld.
9. We have considered the issue. Even though the learned CIT (A) held that there is a finding by the CIT (A) in 2000-01, the issue of which will be dealt with at a later part of the order, suffice to say that the Explanation-2 to Section 153 cannot be invoked on the given facts. The Explanation-2 of Section 153 is as under:
"Section153:
Explanation 2.--Where, by an order [referred to in clause (ii) of sub-section (3)], any income is excluded from the total Page 5 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order.
As per the above there should be a finding or direction that income has to be excluded which can be taxed in another year. Even the assessment order passed by the Assessing Officer which extracted the order of the CIT (A) given in the Block assessment dated 26.12.2003 does not indicate that there is any finding. It mentions as under:
"It is seen from the records that certain issues involved and considered as undisclosed income in a Block assessment made under section 158BC were also considered for addition in the regular assessment for AY 2000-01 on protective basis and the said additions were confirmed in appeal vide order No. CIT (A)/Central/ VIII/DCC32/IT/29/2004-05, dated 26.12.2003 for assessment year 2000-01. However, for the previous year 1995-96 relevant to assessment year 1996-97, certain issues involved in the Block assessment were not considered in the regular assessment under section 143 passed on 29.1.1999".
10. Thus, as seen from the above noting of the Assessing Officer there are no findings by the CIT(A) with reference to these issues at all and also there is no finding that income which is to be excluded in 2000-01 are to be included in AY 1996-97 so as to invoke the Explanation-2 to section 153. Consequently, the argument that the provisions of Sec 153 are applicable can not be accepted on these facts. The order of the CIT (A) on this issue is to be upheld. The Revenue ground contesting the said order of the CIT (A) on this issue of reopening under section 147, thus falls. Even on merits, since the issues were already considered in regular assessments and has been adjudicated by the ITAT, there is no need for reopening the assessment at all. Revenue appeal is thus dismissed.
Page 6 of 19ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai ITA Nos. 6226 & 6554/M/06 Assessment Years 1997-98 ITA Nos. 6222 & 6555/ M/06 Assessment Years 1998-99 & ITA Nos. 6223 & 6556 /M/06 Assessment Years 1999-00 :
11. In these three assessment years the assessee filed returns of income originally which was subject matter of scrutiny and also further appeals before the CIT (A) and the ITAT. As stated earlier, consequent to the search action conducted on assessee in March, 2002, the Block assessment under section 158BC of the Act was completed for the Block period 1.4.1995 to 21.3.2002. This Block assessment was completed on 28.11.2003 and the issues which are considered in the Block assessment were not upheld on the reason that the issues raised by the Assessing Officer in the Block assessment were based on transactions which, by no stretch of imagination could be said to be undisclosed transactions falling under section 158BC. One of the issues for consideration in the Block assessment was whether the software expenditure incurred by the assessee was capital in nature or not. The Assessing Officer, consequent to the findings by the CIT (A) in regular assessment for AY 2000-01, reopened the assessment under section 147 invoking Explanation 2 of section 153. It is an admitted fact that the notice under section 147 for the AY 1997-98 was issued beyond six years and for 1998-99 and 1999-2000, were issued beyond four years, but within 6 years. However, in all three assessment years, the reasoning recorded was same and the support was drawn from the so called findings by the CIT (A) in AY 2000-01 with reference to the additions made in that year on protective basis. It was stated by Assessing Officer while recording the satisfaction in all the three years as can be seen from the assessment order. For example, the extract from order in AY 1997-98 is as under:
Ld.CIT(A) in his appeal order had relied upon certain case laws and gave clear findings that "a) In view of the foregoings it is held that the issues raised by the Assessing Officer are based on transaction which by no stretch of imagination could be said to be Page 7 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai undisclosed transactions falling under section 158BC of the Act".
b) "In grounds of appeal No.2,3,5 and 6, the appellant company has challenged on merits, the addition made to its total income of expenses incurred on software, upgradation of Pthalic Plant, allocation of expenses for tax free dividend and interest and expenses for making existing computer system Y2K complaint".
c) "As stated above these issues have been considered in the regular assessment and do not fall in the purview of Block Assessment. The issues have been considered on merits by me in my appellate order of even date passed in the case of appellant company for assessment year 2000-01 which may be referred in this regard".
It is seen from the records that certain issues involved and considered as undisclosed income in Block assessment made under section 158BC were also considered for addition in the regular assessment for assessment year 2000-01 on "protective basis" and the said additions were confirmed in appeal vide order No. CIT (A)Central/VIII/DCCC/32/T/29/2003-04 dated 26/12/2003 for assessment year 2000-01. However, for the previous year 1996-97 relevant to assessment year 1997-98, certain issues involved in Block Assessment were not considered in the regular assessment under section 143(3) passed on 15/03/2000. These are as follows:-
i) Expenses on software of `.69,63,000/- claimed by the assessee in the return as revenue expenditure are to be considered as capital expenditure and depreciation thereon allowable @ 25% treating the same as an intangible asset (259 ITR 30) in the case of Aravali Construction Co. (P) Ltd.
ii) Dividend income of `.32,65,330/- and interest on tax free bonds of `.47,24,589/- were claimed as deduction in the computation of income. However, the expenses related to such exempted income @ 10% were not considered for disallowance.
iii) Further deduction under section 80-O was allowed without considering the reasonable expenses @ 10% of the gross remittance as in the subsequent years and confirmed in appeal for assessment year 2000-01.
Accordingly my predecessor Assessing Officer invoked the provisions of section 153(3)(ii), explanation 2 for re- opening the assessment of assessee for assessment year 1996-97 under section 148 of the Income Tax Act, 1961, as there was reason to believe that the income Page 8 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai chargeable to tax had escaped assessment for AY 1997-
98. After obtaining the approval of CIT as per provisions of section 151(1) of the I.T. Act, the case was reopened and notice under section 148 dated 21/04/2005 was issued and served upon the assessee on 25.04.2005".
12. Similar noting was made in the other assessment years also. The assessee objected to the reopening on the reason that these issues were already considered and agitated before various authorities in the regular assessment and thus there is no need to reopen the assessment on these issues and further the assessment have been completed under section 143(3), there is no reason to reopen the assessment at all as there is no failure on the part of the assessee to furnish evidence or disclose material as required under section 147 and further there is no finding / direction by the CIT (A) in AY 2000-01 so as to invoke Explanation 2 of section 153. The Assessing Officer however did not accept and treated the software capitalization expenses as capital in nature and allowed depreciation at 25%. One more issue which was considered by the Assessing Officer is regarding disallowance of expenditure for earning tax free income and Pthalic plant revamping expenditure. The CIT (A) while upholding the treatment given to software expenses, the other two additions have been deleted. The Revenue is contesting the disallowance of expenditure for earning tax free income and Pthalic plant revamping expenses in their appeals.
13. As seen from the orders of the CIT (A) and the ITAT, the so called tax free income by the Assessing Officer in the AY 1997-98 was taxable in that year and therefore, there is no reason to disallow any expenditure, the reason on which the CIT (A) deleted. In other years AY 1998-99 and 1999-2000, the disallowance was originally considered in the regular assessment and therefore, the Assessing Officer cannot re-adjudicate the issue as the same were subject matter of appeal in original assessment and the ITAT decided in favour of the assessee by deleting the said expenditure in appeals on regular assessments. With reference to the expenditure on Pthalic plant also in AY 1997-98 the ITAT allowed the assessee's Page 9 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai claim by dismissing the Revenue appeal, so the issue no longer survives. Similar was the case with the Pthalic revamping expenses in 1999-2000 which was restored to the file of the Assessing Officer by the ITAT and in the consequential proceedings, the assessee got relief from the CIT (A) vide his order dated 30.11.2010. It seems the Revenue accepted the same. Thus in all three Revenue appeals, since originally these issues were adjudicated and decided, there is no need to take up matter afresh. The CIT(A) gave relief on the same reason that the matters were adjudicated in the original proceedings. Therefore, the Revenue appeals have no merit. These are accordingly dismissed.
14. Coming to the issue agitated by the assessee regarding the treatment given to software expenses as capital in nature, there is no dispute with reference to the fact that this issue was originally adjudicated in the regular assessment and the matters have reached upto the ITAT. Consequent to the orders of the ITAT, the matter was re-examined by the Assessing Officer in the original assessment proceedings and the matters have gone to the CIT (A) again who accepted assessee's contention vide his orders for AY 1999-2000 (Supra). Since the Revenue has not come in appeal, issue of software expenses being revenue expenditure has become final. In earlier years also, the assessee claimed expenditure and Assessing Officer allowed the same as it was covered u/s35AB. Considering these facts, we do not see any reason for the Assessing Officer to adjudicate that the software expenses claim as of capital in nature and to adjudicate further about the rate of depreciation. Admittedly on merits, the issue is in favour of assessee in all assessment years.
15. Coming to the issue of jurisdiction for reopening , there is no doubt that original assessments have been completed in the normal course and many of these issues were considered and adjudicated in those proceedings. Even the search proceedings conducted did not get any material to consider undisclosed income. The CIT (A) in the appeal for the Block assessment has given a finding that the Page 10 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai issues were considered in regular assessment and does not survive in Block assessment. His findings on the issue were given in the appellate order dated 26.12.2003, wherein he has considered the statement recorded from the Director vide Question No.9 and the answer given therein and subsequent affidavit filed by the assessee Chairman and other submissions to come to the conclusion that the issues raised by the Assessing Officer are based on transactions which by no stretch of imaginations could be said to be undisclosed transactions falling under section 158BC. Even the statement given by the Chairman in the course of search under section 132 relied on by Revenue to assess in Block Assessment is as under:
"Question No.9:
Ans. At the outset before giving my opinion about the issues raised by you, I would like to state that the Company had accounted for each and every entry in its regular books and returns of income. There has been no concealment, malafide intentions, deliberate design or conscious attempts, whatsoever on the part of the Company. You will agree that the points covered under 4 stated issues are nothing but a mere difference of opinion on the interpretation of the statutory/accounting terms".
Thus, as can be seen from the above, the issue of revamping expenses of Pthalic plant, expenditure of revamping computer systems etc., raised in question No.9 are nothing but difference of opinion between Revenue and assessee as to the nature of expenditure. Originally these expenditures were allowed as Revenue expenditure in the assessments and therefore, reopening of the assessments on the basis of the so called search/findings by the CIT (A) beyond the statutory period permitted under the Act cannot be upheld. The learned CIT (A) while upholding the reopening has held that there are findings in AY 2000-01 and accordingly the extended time limit under section 153 are applicable and therefore, the assessments though reopened beyond the period provided Page 11 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai under provisions of section 149, these were valid because the Assessing Officer had time limit to issue notice under section 150(2) r.w.s. 153 Explanation-2. As held earlier, there is no finding by the CIT (A) in AY 2000-01. Consequently Explanation-2 to section 153 does not apply to the facts of the case. Since no new material has come on record, nor there is any failure on the part of the assessee in disclosing the material or information at the time of the original assessment and having been completed assessment under section 143(3) originally raising the issues, we hold that the present proceedings initiated under section 147 are beyond the time limit prescribed and also beyond the jurisdiction to reopen the assessments. The assessee's grounds are allowed. As stated earlier, the issues on merit does not survive. Therefore, grounds raised by the assessee are considered allowed. In the result, three appeals of the assessee in these Assessment years are allowed.
ITA Nos.6224 & 6225/Mum/2006: A Ys 2000-01 and 2001-02
16. In these years, there are only assessee's appeals on the issue that the reassessment has been done on the reason of escapement of income whereas assessee contends that there is only on a change of opinion. As seen from the record in these two assessment years, the assessments have been originally completed, treating the software expenditure claimed by the assessee as capital in nature. Even though similar disallowances were also made in the Block assessment, it was considered protectively in the regular assessment. The issue for which reopening the assessment was made was on the reason that while completing the regular assessment, the Assessing Officer instead of allowing depreciation at 25%, wrongly allowed depreciation at 60%. The learned CIT (A) upheld the reopening on the following reason commonly given for both the years:
"1.10. On going through the submissions of the appellant and appendix-I of Income tax Rules containing rates of depreciation that is allowable on different assets, it is Page 12 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai noticed that the correct rate of depreciation on software is 25% and not 60% as allowed by the assessing officer in the appeal effect order. The right to use software is only a license to use the software and, therefore, it is an intangible asset. Such type of asset is covered under Part-B of old Appendix-l which is applicable upto A.Y.2002-03 including the present A.Y. Upto A.Y.'002- 03, only computers were eligible for depreciation @ 60%. This is in view of hem-I I1(2B) of Part-A of the above referred Appendix. The claim of the appellant that software should be treated as integral part of the computer is not acceptable in view of the fact that software is an intangible right and for this right, separate rate of depreciation has been prescribed in the Income-tax Rules. It is only w.e.f. A.Y.2003-04 that software has been made part of computers. Now, as per Item No.III (5) of Part-A of new Appendix, software is to be treated as part of the computers. Therefore, software will be entitled to depreciation @ 60% only w.e.f A.Y.2003-04. There were reasons with the assessing officer to issue notice U/s.148 of the Income- tax Act, 1-
961. The sufficiency and accuracy of the reasons is not to be examined at the time of issue of notice as long as the assessing officer has issued notice under section 148 on the honest belief that income chargeable to tax has escaped assessment. The notice of assessing officer is not based on change of opinion because though the assessing officer has allowed depreciation to appe1lant in the appeal effect order, but scrutiny of the order reveals that assessing officer has not applied his mind as to at what rate depreciation should be allowed to the appellant. While in the appeal effect order, the assessing officer has allowed depreciation @ 60% on software, whereas in the assessment order fir the Block period, depreciation @ 25% was allowed. Thus, there is total lack of application of mind on behalf of the assessing officer to the issue of allowance of' depreciation. Thus, it cannot be said that by issuing notice U/s.148 on this issue. The assessing officer has changed his opinion. The issue is covered by the decision of the Delhi High Court in the case of Consolidated Photo & Finvest Limited 281 ITR, 394. In this case, the Hon'ble High Court has held that there is no presumption that all possible angles were considered in the original assessment proceedings and reassessment based on the material on record is not a case of change of opinion. Therefore, notice U/s. 148 is valid and there were reasons with the assessing officer to form the opinion that the income chargeable to tax has escaped assessment since the appellant has been allowed Page 13 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai excessive depreciation. These grounds of appeal of the appellant are not allowed".
17. The learned Counsel contested the above issue and submitted that these issues were already adjudicated in the original assessment and the issue of software expenditure being revenue or capital expenditure was restored to the file of the Assessing Officer by the ITAT in ITA No.5603/M/2005 and ITA No.313/M/2004 vide the orders dated 9.1.2009 and consequent to that the Assessing Officer held the software expenditure as capital in nature, whereas the CIT (A) in his order dated 30.11.2010 in AY 2000-01 held the expenditure as revenue in nature and the Revenue had not come in appeal. Therefore, the question of rate of depreciation does not arise as the entire expenditure was allowed as revenue. Therefore, there is no issue on merits. Even though he objected to the reopening of assessment on various provisions of law/ propositions on case law, since the expenditure was allowed as revenue expenditure in AY 2000-01, on which the revenue has not further contested the issue, rate of depreciation does not arise. Therefore, the assessee appeal in AY 2000-01 is allowed. Similarly since the issue was already restored to the file of the Assessing Officer in 2000-01, to examine whether the expenditure is capital or revenue in nature, we are of the opinion that the issue raised in re-assessment cannot be accepted as valid reason for the reopening of the assessment. Therefore, we uphold the assessee's contentions and allow the appeal.
18. Before considering the above issues, the principles laid down by the Hon'ble Bombay High Court in Lotus Investments Ltd v. ACIT, 288 ITR 459 (Bom.) on the issue of limitation was kept in mind. The Hon'ble Bombay High Court has held as under:
"The power conferred upon the Assessing Officer to issue notice under section 148 of the Income-tax Act, 1961, for reopening the assessments in cases where income has escaped assessment, is subject to the time-limit prescribed under section 149 of the Act. Section 149 of the Act (as substituted by the Finance Act, 2001) Page 14 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai provides that no notice under section 148 shall be issued after the expiry of six years from the end of the relevant assessment years in cases where the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs. 1 lakh or more. Under section 150 of the Act, irrespective of the limitation prescribed under section 149, reassessment proceedings can be initiated at any time if the initiation of reassessment is in consequence of, or to give effect to, any finding or direction contained in any order passed by any authority under the Act by way of appeal, reference or revision or by a court in any proceedings under any other law. While construing similar provisions contained in the 1922 Act, the Supreme Court in the case of ITO v. Murlidhar Bhagwan Das [1964152 ITR 335 held that the word "finding" can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Supreme Court further held that the appellate authority may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the assessment year in question. Similarly, the expression "direction" has been construed by the Supreme Court to mean a direction which the appellate or revisional authority as the case may be, is empowered to give under the sections mentioned therein. Apart from this, section 150(1) provides that the power to issue notice under section 148 in consequence of, or giving effect to any finding or direction of the appellate/ revisional authority or the court is subject to the provision contained in section 150(2) of the Act. Section 150(2) provides that directions under section 150(1) of the Act cannot be given by the appellate/revisional authority or court if on the date on which the order impugned in the appeal was passed, the reassessment proceedings had become time-barred.
The assessee was an investment company. It filed its return for the assessment year 1989-90 wherein it claimed depreciation. This was allowed. During the year relevant to the assessment year 1995-96, the assessee had obtained a short term loan of Rs. 5 crores from the Vysya Bank Ltd. It was the case of the assessee that the loan sanction letter and other terms and conditions relating to the grant of Rs.5 crores loan as well as the full particulars relating to the interest paid to the bank during the years under consideration were furnished during the assessment proceedings. This was allowed. Similar assessment orders under section 143(3) of the Act were passed for the assessment years 1996-97 to 1999-2000 by allowing interest paid by the assessee to Page 15 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai the banks as allowable business expenditure. In September, 1998, the assessee's premises were searched and in March, 1999, a notice under section 158BC was served for the Block period from April 1, 1988, to September 30, 1998. The assessee filed a nil return. In the Block assessment order it was held that the Joan of Rs. 5 crores obtained by the assessee in September, 1994, from the Vysya Bank Ltd. had been used for non-business purposes to the extent of Rs4.55 crores and, therefore, interest of ` 2,39,65,498 paid to the bank during the Block period on the said loan of Rs. 5 crores was not allowable as deduction.' It was further held that during the course of search and post search enquiries, certain assets which were reflected in the books were not found at the premises of the assessee and, therefore, the depreciation allowed thereon amounting to `10,66,429 was not allowable. Accordingly, by disallowing the bank interest and depreciation, the undisclosed income of the assessee for the Block period was computed at `2,50,31,927. On appeal the Commissioner (Appeals) held that the undisclosed income computed in the Block assessment order by making disallowances of bank interest and depreciation could not be sustained. The Commissioner (Appeals) however observed that the Assessing Officer was free to look into and consider the said disallowances under section 148 in the relevant assessment years in terms of section 150(1) read with Explanation 2 to section 153. The Assessing Officer thereupon issued notices all dated March 30, 2006, under section 148 to reopen the assessments for the assessment years 1989-90 to 1999-2000. On a writ petition against the notices:
Held, that the assessments for the-assessment years 1989-90 to 1999-2000 were sought to be reopened by issuing notices on March 30, 2006, which was beyond six years (except for the assessment year 1999-2000) from the end of the relevant assessment year. Thus, the notices issued for all the assessment years (except for the assessment year 1999-2000) were beyond the period of limitation prescribed under section 149 of the Act and hence they were time barred. The Commissioner (Appeals) had given a clear finding that there was no evidence or material on record to sustain the additions and, hence, the Commissioner (Appeals) could not have given directions to the Income-tax Officer to initiate reassessment proceedings. Hence the extended period of limitation contained in section 150 of the Act was not available to the Revenue. Moreover on the date of passing of the Block assessment order on September 29, Page 16 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai 2000, the assessments for most of the assessment years had become time-barred and, therefore, even if the Commissioner (Appeals) were to give any directions, they would be hit by' section 150(2). Once it was held that no directions had been given by the Commissioner (Appeals) for reopening the assessments, the benefit of section 150 was not available to the Revenue and the impugned notices which were time-barred under section 149 of the Act were liable to be quashed. Though the notice issued under section 148 of the Act for assessment year 1999-2000 fell within six years from the end of the assessment, in view of the fact that the Assessing Officer had not obtained approval of the Chief Commissioner/ Commissioner before issuing the notices as contemplated under section 151 of the Act, notice for the assessment year 1999-2000 was also time-barred.
The reopening of assessments for the assessment years 1989-90 to 1999-2000 were liable to be quashed".
19. In assessee's own case for AY 2003-04 when the assessment was sought to be reopened, the matter was contested by way of writ petition before the Hon'ble High Court in W.P. No.1351 of 2008, which was decided by the judgment dated 10.7.2008. The Hon'ble High Court held as under:
"We have heard the learned counsel appearing for both sides. We have also gone through the judgments on which reliance was placed by the learned counsel appearing for both sides.
In the order rejecting the objection riled by the petitioner to the notice under section 148, respondent No. 1 has observed "verification of assessment record reveals that the said details were called for but inadvertently the same were not taken into account while framing the assessment and, therefore, it cannot be said that there is a change of opinion." According to respondent No. 1, thus, the relevant material was available on record, but he failed to apply his mind to that material in making the assessment order. The question Is, can respondent No. 1 take recourse to the provision of section 147 for his own failure to apply his mind to the material which, according to him, is relevant and which was available on record. We find that this situation has been considered by the Full Bench of the Delhi High Court in its judgment in the case of CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 and the Full Bench has observed thus:Page 17 of 19
ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai "The said submission is fallacious. An order of assessment can be passed either in terms of sub- section (1) of section 143 or sub-section (3) of section
143. When a regular order of assessment is passed in terms of the said sub-section (3) of secti9n 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong."
It is clear from the observations made above that the Full Bench of the Delhi High Court has taken a view that in a situation where according to the Assessing Officer he failed to apply his mind to the relevant material in making the assessment order, he cannot take advantage of his own wrong and reopen the assessment by taking recourse to the provisions of section 147. We find, ourself, in respectful agreement with the view taken by the Full Bench of the Delhi High Court.
It is further to be seen that the Legislature has not conferred power on the Assessing Officer to review its own order. Therefore, the power under section 147 cannot be used to review the order. In the present case, though the Assessing Officer has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the Assessing Officer, nothing new has happened, therefore, no new material has come on record, no new information has been received, it is merely a fresh application of mind by the same Assessing Officer to the same set of facts and the reason that has been given Is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Kelvinator [2002] 256 ITR 1 referred to above, has taken a clear view that reopening of assessment under section 147 merely because there is a change of opinion cannot be allowed. In our opinion, therefore, in the present case Page 18 of 19 ITA Nos.6553 and others (9 appeals) Asian Paints Ltd Mumbai also, it was not permissible for respondent No. 1 to issue notice under section 148".
20. Keeping in view the principles established by the Hon'ble Bombay High Court in above cases, we hold that assessing officer has no jurisdiction to reopen the assessments on the reasons stated while issuing notices u/s 148 in these impugned assessment years. The appeals are accordingly decided.
21. In the result, the assessee appeals are allowed and the Revenue appeals are dismissed.
Order pronounced in the open court on 22nd March, 2012.
Sd/- Sd/-
( R.S.Padvekar) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, dated 22nd March, 2012.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, " F" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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