Income Tax Appellate Tribunal - Mumbai
Bennet Coleman & Co. Ltd, Mumbai vs Assessee on 18 June, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH 'B' BENCH
BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND
SHRI RAJENDRA (ACCOUNTANT MEMBER)
ITA No.5380/Mum/2010
Assessment Year: 2003-04
Bennett Coleman & Co.Ltd., DCIT 1(1),
The Times of India Building, Aayak ar Bhav an, M. K. Road,
Dr. D.N.Road, Fort, Mumbai. Mumbai.
Vs.
PA No.AAACB 4373 Q
(Appellant) (Resp ond ent )
Appellant by : Shri S.Venkatraman
Respondent by: Shri Pravin Varma
Date of hearing: 18.6.2012
Date of pronouncement: 31.7.2012
ORDER
Per B.R.Mittal, JM:
The assessee has filed this appeal for assessment year 2003-04 against order of ld CIT(A) dt.12.3.2010 on following grounds:
"1. On the facts and circumstances of the case and in law, the assessee submits that the Commissioner (Appeals) failed to appreciate that the reassessment notice and the reassessment proceedings are without any jurisdiction, and bad in law and the learned CIT (A) erred in holding that the reassessment proceedings are valid under section 147 of the Income Tax Act, 1961 (the Act).
2. On the facts and circumstances of the case and in law, the assessee submits that the Commissioner (Appeals) failed to appreciate that in the absence of any tangible material, other than what was already on record, the learned Assessing Officer had no reason to believe that income had escaped assessment and consequently the learned CIT (A) erred in holding that the reassessment notice and the reassessment proceedings are valid under section 147 of the Act.2 ITA No.5380/Mum/2010
Assessment Year: 2003-04
3.On the facts and circumstances of the case and in law, the assessee submits that no income chargeable to tax has escaped assessment and the learned CIT(A) erred in holding that the reopening of the assessment under section 147 of the Act is valid.
4 On the facts and circumstances of the case and in law, the assessee submits that the reassessment proceedings are based on a mere change of opinion by the Assessing Officer, and hence are invalid in law and the learned CIT(A) erred in holding that the reopening of the assessment under section 147 of the Act is valid.
5. On the facts and circumstances of the case and in law, the, assessee submits that the learned CIT(A) erred in confirming the disallowance of Rs.4,40,85,941/- made by the assessing officer out of Software Charges on the ground that it is capital expenditure. The assessee submits that the same should be allowed as revenue expenditure.
6. On the facts and circumstances of the case and in law, the assessee submits that the learned CIT(A) erred in confirming the addition of Rs 6,97,50,863 being refund of interest u/s 234B of the Act disallowed in earlier years. The learned CIT(A) ought to have allowed the same as deduction from the income."
2. In Ground Nos.1 to 4 of appeal, the only issue involved is as to whether initiation of reassessment proceedings u/s.147 of the Act is valid or not.
3. The relevant facts are that assessee is engaged in the business of printing & publishing of newspapers and periodicals, recording, manufacturing and trading of leisure and other retail products; guaranteeing; money-lending; exports, etc.
4. For assessment year under consideration, assessee filed its return of income on 24.11.2003 declaring total income of Rs.311,82,91,010. The AO completed the assessment u/s.143(3) of the Act by order dt.28.2.2006 at an income of Rs.337,52,12,080.
5. The AO issued notice u/s.148 of the Act dt.19.3.2008 which was served upon the assessee on 25.3.2008 to reopen the assessment after recording reasons as under:
" In this case, the assessee has filed the return of income for A. Y. 2003-04 on 24.11.2003 declaring total income at Rs. 3,11,82,91,010/-. The assessment order u/s. 143(3) of the Act has been passed on 28.02.2006 assessing the total income at Rs. 3,37,52,12,080/-.3 ITA No.5380/Mum/2010
Assessment Year: 2003-04 On perusal of the profit and loss account of the assessee it is noticed that the assessee had debited an amount of Rs. 7,03,36,291/- as software charges. In the assessment order the Assessing Officer after discussing the issue in detail disallowed an amount of Rs.2,62,50,350/- being capital expenditure and thereafter allowed depreciation at 60% on the said amount. As per Appendix 1 of [Rule (5)] of the Income Tax Rules, 1962, as amended with effect from 01.04.2003, from A. Y. 2003-04 onwards, on "computer including computer software" depreciation has to be allowed to the tune of 60%. With the inclusion of computer soil-ware in the depreciation chart as stated above, the entire expenditure of Rs. 7,03,36,291/- should have been capitalized and depreciation at 60% or 30% as applicable should have been allowed depending on the date of installation. Thus the assessee 's claim of software charges of Rs. 4,40,85,941/- is not allowable and the assessee 's income to the extent of Rs. 2,71,42, 796/- has escaped the assessment as worked out as under: -
Total software expenditure debited : 7,03,36,291
Less: Expenditure capitalized : 2,62,50,350
Balance allowed as revenue expenditure : 4,40,85,941
Purchased / installed upto 30.9.2002 : 1,23,91,210
Purchased/ installed from 1.10.02 3,16,94, 731
Depreciation at 60% on 1,23,91,210 : 74,34,726
Depreciation at 30% on 3,16,94,731 95,08,419
1,69,43,145
Income escaped the assessment 2,71,42,796
44085941--16943145)
On perusal of the profit and loss account of the assessee ills also noticed that in computing the income, the Assessing Officer has worked out the entitled Long Term Capital Loss allowed to be carried forward as indicated below:
L.T.C.L. of A. Y. 2002-03 = 5,11,55,521 L. T.C.L. of A. Y. 2003-04 = 66,87,789 Total LTCL allowed to carry forward = 5,78,43310
Perusal of the record reveals that the loss of the A. Y. 2003-04 eligible to be carried forward was is Rs. 42,14,297/- only as indicated below:-
Long term capital gain of A. Y. 2003-04 as per assessee: 3,47,46,686 Less: Premium on debentures treated as capital by assessee = 3,89,60,983 But treated as revenue by the Assessing Officer Long term capital loss of the year = 42,14,297 4 ITA No.5380/Mum/2010 Assessment Year: 2003-04 Thus, by allowing a loss of Rs.66,87, 789/- as Long Term Capital Loss of (lie year, there was an excess allowance of Long Term Capital Loss of Rs.24, 73,492/-. Thus the assessee 's income to the extent of Rs.24, 73,492/- has escaped the assessment.
On perusal of the records it is also noticed that the assessee in computing the income of the year claimed a deduction amounting to Rs.6,97,50,863/- on account of interest u/s. 234B of the Act of A. Y 1993-94 and in the assessment order the same claim has been allowed. The explanation given by the assessee for claiming the interest as deduction was that the interest was received as refund of 234B of the Act and the same was paid in the past as under:
A.Y. 1993-94 = 42,16,122 A.Y. 2000-01 = 6,62,41,729 A.Y. 2001-02 = 93,33,004 Total = 7,97,90,855 In the above assessment years, the payment of the above interest was not allowed and was added back to the income of the respective years. Therefore, when part of it was refunded as over charge of interest u/s. 234B of the Act refunded to us, they cannot be taxed. In view of the matter, this amount of Rs.6,97,50,863/- is excluded from chargeable income of this year.
The assessee's above contention is not correct as the interest u/s. 234B of the Act is a penal interest and the same is not allowable as deduction in computing the income. Interest u/s.234B of the Act is leviable if the advance tax including TDS is less than 90% of the tax levied on the assessed income. This interest being a penal interest, no deduction is allowable to the assessee in computing the income. The Assessing Officer, therefore, rightly disallowed assessee 's claim in the earlier assessment years. This action of the Assessing Officer did not amount to taxation of the interest hut only a disallowance of the claim. In such a situation, assessee's claim of deduction amounting to Rs.6,97,50,863/- on account of interest u/s. 234B of the Act is not allowable for A. 1'. 2003-04. Thus (he assessee 's income to the extent of Rs.6,9 7,50,863/- has escaped the assessment.
Therefore, I have reason to believe that in the case of the assessee, the income of the assessee chargeable to tax has escaped the assessment for A. Y. 2003-04. Issue notice u/s. 148 of the Act."
6. Pursuant to notice issued u/s.148, assessee filed a letter dt.8.4.2008 and requested to treat the return of income field on 24.11.2003 as return filed in response to notice u/s.148 of the Act.
5 ITA No.5380/Mum/2010Assessment Year: 2003-04
7. The AO issued a show cause notice u/s.142(1) of the Act on 3.11.2008 requiring the assessee to show cause as under:
i) As to why the sum of Rs.2,71,42,796 be not added to its income on account of disallowance of software charges.
ii) As to why the excess allowance of long term capital loss be not disallowed.
iii) As to why the assessee's claim of deduction amounting to Rs.6,97,50,863 be not disallowed."
8. The assessee filed its reply vide letter dt.17.11.2008 and objected to reassessment notice on the ground that reassessment proceedings are initiated on a mere change of opinion.
9. The AO stated that reassessment proceedings are initiated within a period of four years from the end of the assessment year and there is no need on the part of the AO to establish that escapement of income is because of failure on the part of assessee to make true and full disclosure. That the requirement to initiate reassessment proceedings is that the AO must have reason to believe that income chargeable to tax has escaped assessment. The AO also stated that after the introduction of changes w.e.f. 1.4.1989, the scope of reassessment has been widened. The AO stated that as per the decision of Hon'ble Gujarat High Court in the case of Prafulla Chunilal Patel vs ACIT, 236 ITR 832 (Guj), initiation of reassessment proceedings u/s.147 is valid even in such cases, where AO may have taken an erroneous view of law with regard to mistake committed by him in first assessment that he has found on his own or come to his notice from other sources. He has further stated that where the AO has overlooked something at the first assessment, there can be no question of any change of opinion when the income which was chargeable to tax is actually taxed as it ought to have been under the law but was not, due to error committed at the first assessment. Being aggrieved, assessee filed appeal before the first appellate authority.
10. On behalf of assessee, it was contended that no reopening lie on a mere change of opinion when an issue had been decided in the original assessment. That the assessee made a true and complete disclosure of all material facts in the return of 6 ITA No.5380/Mum/2010 Assessment Year: 2003-04 income as well as submitted all relevant information during the course of original assessment proceedings and merely because, a different inference can be drawn from the said facts, reopen does not lie. It was contended that the original assessment order was passed after a detailed discussion and as such, the assessment cannot be reopened unless the AO has reason to believe that due to some inherent defect in the assessment, the income chargeable to tax had been under assessed or assessed at too low rate or excessive relief was granted. It is observed that assessee stated before ld CIT(A) that during the course of original assessment proceedings, AO issued a letter dt.3.2.2005 to the assessee calling for various information in regard to assessment, and as per question No.24 of the said letter, the assessee was asked to submit details of software expenditure claimed as revenue expenditure and also to explain as to why same should not be disallowed following the department's stand for A.Y. 2001-02 in assessee's own case. It is observed that assessee vide letter dt.5.9.2005 and furnished details of software charges of Rs.7,03,36,291 debited to its profit and loss account and claimed as revenue expenditure. It was contended that the AO vide para 12.1 to 12..4 at pages 27 to 30 of the assessment order dated 28.2.2006 allowed the sum of Rs..4,40,85,941 as revenue expenditure. We reproduce paras 12.1 to 12.4 of the assessment order, which read as under:
"In schedule 'K' of the P&L account, the assessee has debited an amount of Rs.7,03,36,291 as software charges under the head "Administration, Selling & General expenses" as compared to Rs.10,89,08,148 in the immediate preceding year. During the course of proceedings, the assessee was caused to furnish details of these software charges and show cause as to why the same may not be treated as capital expenditure. The details of these expenses have been submitted vide Annexure 6 & 7 to the reply dated 5.9.2005 and explanation regarding the same is as follows:
"During the year license fee of Rs. 1,18,42,850/- was paid to SAP for a non- exclusive license to use the software. Under this license agreement the licensee (i.e BCCL) acquires only the right to use the software under the terms and conditions of the agreement and does not acquire any ownership rights or titles. Octroi payment amounting to Rs.16,87,500 was paid to Mumbai Municipal Corporation for purchase of SAP Software from SAP India Ltd. The balance of Rs.1,27,20,000/- was paid as consultancy charges to Siemens Information Ltd.
Software licensed for use does not result in any enduring benefit since, on account of technological advancement we are required to change / upgrade the software within a short span of time. In today 's fast changing environment this is enduring benefit obtained. Day by day the systems are developed in a new 7 ITA No.5380/Mum/2010 Assessment Year: 2003-04 way and software are needed like a raw material for manufacturing. Therefore, the software expenses were purely of revenue in nature and they should be allowed in full. In any event a right to use the software is similar to renting a space for occupation and hence is revenue expenditure. We are enclosing details of software charges vide Annx. -- 6.
We rely upon the ITAT case reported in 73 lTD 304 -- Business Information Processing Services V/s Assistant Commissioner of Income --tax. (copy enclosed vide Annexure 7"..
12.2 A verification of the above details show that out of the total amount of Rs.7,03,36,291/-, an amount of Rs. 1,18,42,850/- has been paid to SAP (India) Pvt.Ltd as consultancy services for project and software for SAP Response Department, Rs.1,27,20,000/- has been paid to Siemens Information Ltd and Rs.16,87,500 has been paid to Mumbai Muncipal Corporation as octroi payment for purchase of SAP Software. The remaining amount of Rs.4,40,85,941/- is on a number of application (operative) softwares. The assessee's submissions, reproduced above, regarding treatment of the entire expenditure as revenue expenditure is duly considered. I have also perused the ITAT, Jaipur Bench decision in the case of Business Information Processing Services Vs. ACIT. In the said case, the issue before the Tribunal was relating to expenses of Rs.85,000/- and Rs. 1,35,000/- in the assessment year 1989-90 and 1990-91 on development of software which were treated as capital expenditure. The capitalization of the above amount was confirmed by the CIT(A). However, Tribunal held that the expenses were revenue in nature only on the ground that the expenditure did not give any enduring benefit as assessee has to change this software within a short span of time i.e. 4 months or 6 months. The facts in the case of the assessee cannot be compared with the facts of the case before the Tribunal. As can be seen, in the case before the Tribunal not only the amount involved was very meager but the software itself was valid for a period not exceeding 6 months, thus, it could not partake the character of capital expenditure. In order to understand the application of capital vs. revenue expenditure vis-à-vis software expenses, it must be taken into account that development of software is a product of modern day technological revolution and cannot be treated as a conventional technology. It is primarily because of this differentiation that software technology cannot straight away be put into the jacket of conventional technology that often the nature of expenditure as capital expenditure vis-a-vis revenue expenditure is difficult to distinguish. It may also be considered here that research and development in software as gone by leaps and bounds and categorized within the software development. Thus, software even in a layman terms has come to be seen and identified primarily into two parts (1) 'System Software' which is the basic software; and 92) 'Application software' or 'Response Software' or operative. The 'Application Software' may become outdated, obsolete or get replaced at a faster rate but the system software is for a much longer period. To simplify it more, for the purposes of our understanding, a system software is like installing plant and machinery in conventional form and can be done only by experts and the period of installation itself is of a longer period, whereas the application or response or operative 8 ITA No.5380/Mum/2010 Assessment Year: 2003-04 software is available 'off the shelf' and does not require much of an expertise to load it on the hardware. It is basically this nature of differentiation between these categories of software that decides whether the expenditure is 'revenue' or 'capital' in nature. The details of the software provided by the assessee show Ltd. & SAP (India) Pvt. Ltd. for installing SAP R3 and PPI software which is highly advanced and integrated software and can be installed only by the agents of the manufacturing company who have been authorized to install these systems. This software has a multi facilitated functions and activities and as stated an integrated software. The life of this software is well beyond a period of 12 months and generally varies from 5 to 10 years on an average with upgradation. The software purchased off the shelf viz., M.S. Office/Windows and designer, defence, security software come in different versions i.e. their life span is of a shorter duration as an improved version keeps coming in the market. The application software are used for data basing viz' collecting, collating, retrieving of datas in various formation, and the day-to-day activities are monitored through these software whereas the system software, is like a super structure which ensures the smooth running of the business activities.
12.3 In the light of the above discussion, the facts of software charges of Rs2,62,50,350/- included in the total software charges of Rs. 7,03,36,291/-show that the same have been incurred on SAP software installed for accounting and generating bills of its advertising revenue. Prior to the installation of the above software, assessee was using 'Ingress' based System 'Restnet' for its response department. The response department of the assessee takes all the bookings for advertising and is responsible for all the earnings / revenue from advertising. The SAP software is a sophisticated software which is an imported software sold through their agents in India. The total cost of this software is Rs. 1.18 crore which has been paid to SAP India Pvt. Ltd. and was installed in the response department of all the branches of the assessee throughout India over a period of 6 months through Siemens Informations Ltd., to whom the assessee made payment of Rs. 1.27 crore as consultancy services for project implementation on account of SAP and Rs.0.17 crore as octroi payment to Mumbai Muncipal Corporation. Thus, this expenditure is capital expenditure not only from the point that it is directly related to the source of income from booking of advertisements but also from the fact that this software has integrated the 'response' department of the assessee company all over India. This software is in operation for the last 2 1/2 years and will be functional for a long time with timely upgradation. Thus, acquisition and installation of this software , can very well be compared to obtaining technical know how to enhance and secure the source of revenue from booking of advertisements and it is because of this fact that the expenditure cannot be treated as charge to the profits, but capital expenditure. In this regard, reliance is also placed on the Rajasthan High Court's decision in the case of Arawali Construction Co. (P) Ltd. 259 ITR 30. In the said case their lordship gave their findings as follows:
'The facts on record are that the payment of Rs. 1,38,360/- was not paid for consultancy fee to Hindustan Computers Ltd., in fact, the payment was made for out-right sale of 'computer software' which is used as 9 ITA No.5380/Mum/2010 Assessment Year: 2003-04 technique in mining operations. The finding of the Commissioner of Income-tax (Appeals) is that the acquisition of software cannot be treated to be an asset of endurable nature. If the programme is used in one mining to another mining operation why it should not be treated as a capital asset and expenditure on that is capital expenditure. Considering these facts and the decision of their Lordships and a later decision of the Bombay High Court, in our view, the acquisition of technical know-how is capital expenditure, therefore the Assessing Officer has rightly treated the expenditure on acquiring the computer software as expenditure of capital nature and rightly allowed depreciation as per rules.' 12.4 In view of the above discussion, I hold that expenditure of an amount of Rs.2,62,50,350/- is of enduring nature and, therefore, capital in nature as the same has been towards cost of application software, consultancy and charges for installing SAP R3 and PPI. The said amount is accordingly capitalized. The assessee is allowed depreciation @ 60% on the said amount."
10.1 It was contended that AO in the said assessment proceedings applied his mind to the relevant material furnished by assessee and he allowed software charges of Rs.4,40,85,941 as revenue expenditure. It was contended that between the date of original assessment order and the date of forming of an opinion for reopening the assessment i.e. 19.3.2008, nothing new has happened, no new material or information has been received or brought on record, neither is there any change in the law. Therefore, it is merely a change of opinion to reopen the assessment.
10.2 Further, in respect of second reasons recorded by the AO to reopen the assessment that AO erroneously allowed Rs.5,78,43,310 to be carried forward as long term capital loss and thereby allowed an excess amount of Rs.24,73,492 to be carried forward, assessee stated that in the original assessment order at page 45, AO discussed the capital gain/loss carried forward to assessment year 2004-05. It was contended that carried forward of long term capital loss in the original assessment order dt.28.2.2006 did not in any way affect computation of income for A.Y. 2003-04 . On account of allowance of that loss to be carried forward, the income assessed for A.Y. 2003-04 remained unaffected. Thus, no income to the extent of Rs.24,73,492 has escaped assessment as observed by AO while recording the reasons for reopening of assessment.
10 ITA No.5380/Mum/2010Assessment Year: 2003-04 10.3 In respect of third ground taken by the AO in the reasons recorded to reopen assessment, to allow deduction of refund of interest u/s.234B of the Act, assessee stated that in the computation of income filed, assessee made full and complete disclosure in Note No.16 as under:
"Rs.6,97,50,863 was received as refund of 234B interest. These were paid as follows in the past."
Assessment year Rs.
1994-95 42,16,122
2000-2001 6,62,41,729
2001-02 93,33,004
In the above years the payment of the above interest was not allowed and was added back to the income of the respective years. Therefore, when part of it was refunded as over charge of interest u/s.234B refunded to us, they cannot be taxed. In this view of the matter, this amount of Rs.6,97,50,863 is excluded from chargeable income of this year."
That during the course of assessment proceedings, AO called for details of calculation of amount that was mentioned n the Note to the computation of income and after examining the same, he accepted claim of the assessee. Thus, AO in the original assessment proceedings, had formed an opinion that interest u/s.234B aggregating to Rs.7,97,90,855 had been disallowed. In the earlier assessment year, the said amount having been subjected to tax by virtue of disallowance, cannot again be taxed in the year when the interest u/s.234B is withdrawn. It was contended that the opinion of the said AO has not been accepted by the subsequent AO, who has sought to reopen the assessment on account of a mere change of opinion which is manifest from the reasons recorded by him.
11. Ld CIT(A) after considering the submissions of assessee held that AO was completely justified in reopening the assessment. Hence, assessee is in further appeal before the Tribunal.
12. During the course of hearing, ld A.R. made his submissions on the lines of submissions made before ld CIT(A), as mentioned hereinabove. Besides, he submitted that there was no tangible material before the AO nor any fresh material before the AO 11 ITA No.5380/Mum/2010 Assessment Year: 2003-04 to come to the conclusion that income chargeable to tax has escaped assessment at the time of making of original assessment. He submitted that AO when made original assessment u/s.143(3) of the Act, made a detailed enquiry as mentioned by him in the reasons recorded and decided the issues after considering relevant information called for from the assessee. Ld A.R. submitted that assessee made true and complete disclosure of material facts in the return of income as well as at the time of assessment proceedings. Ld A.R. referred the decision of Hon'ble Jurisdictional High Court in the case of Cartini India ltd vs. ACIT, 314 ITR 275 (Bom) and the decision in the case of Asteroids Trading and Investments Pvt Ltd vs. DCIT, 308 ITR 190 (Bom) and submitted that the reassessment on the basis of the very material which was considered during the original assessment cannot be made as it amounts to mere a change of opinion. Ld A.R. submitted that even after the amendment in section 147 of the Act. w.e.f. 1.4.1989, AO can reopen an assessment, provided there is 'tangible material' to come to the conclusion that there was escapement of income from assessment. To substantiate his submission, he relied on the decision of Hon'ble apex Court in the case of CIT vs. Kelvinator of India Ltd, 320 ITR 561(SC). Ld AR submitted that similar issue was also considered by the Tribunal in the case of ACIT vs Rolta India Ltd., 132 ITD 98™. He contended that the initiation of reassessment proceedings is not in accordance with law and same should be quashed.
13. On the other hand, ld D.R. supported the orders of authorities below to initiate reassessment proceedings u/s.147 of the Act. Ld D.R. submitted that if the income chargeable to tax has escaped assessment and AO has reasons to believe that whether suo moto found by him from records or whether brought to his notice by audit party or any other agency, he is justified to reopen assessment u/s.147 of the Act and referred to the decision of Hon'ble Kerala High Court in the case of CIT vs. National Tyres & Rubber Co. of India ltd., (2011) 15 Taxmann.com 3 (Ker). Ld D.R. submitted that the order of ld CIT(A) to uphold the action of AO to initiate reassessment proceedings should be confirmed.
12 ITA No.5380/Mum/2010Assessment Year: 2003-04
14. We have considered submissions of ld representatives of parties and orders of authorities below. We have also gone through the reasons recorded by the AO and also the cases cited by ld representatives of parties (supra).
15. We observe that the AO passed the assessment order u/s.143(3) of the Act on 28.2.2006 assessing the total income of the assessee at Rs.337,52,12,080 as against declared income of Rs.311,82,91,.010. We observe that AO has in the reasons recorded initiated reassessment proceedings on three grounds namely;
i) Software expenditure allowed to the tune of Rs. 44085941 should have been capitalized and depreciation should have been allowed at 60% or 30% only depending on the date of installation. Thus income to the extent of Rs. 27142796 has escaped assessment and should be added back to the total income.
ii) Long Term Capital Loss allowed to be carried forward has been allowed in excess to the tune of Rs.2473492 lakhs and the same should be disallowed.
iii) Refund of interest u/s 234B of Rs. 69750863 lakhs, pertaining to AY 1993-94, during the assessment year 2003-04, which was not allowed in the earlier years and claimed as deduction from income in the assessment year 2003-04, should be disallowed.
16. On perusal of assessment order, we observe that AO at the time of making original assessment dt.28.2.2006 considered the issues of allowing software charges of Rs.4,40,85,941 as revenue expenditure and a sum of Rs.2,62,52,350 as capital in nature after discussing the issue in detail, as is evident not only from para 12 (at pages 27 to
30) of assessment order, but also the said fact is mentioned by the AO himself in the reasons recorded, as reproduced hereinabove in para 5. Similarly in respect of second ground taken by the AO to reopen assessment i.e. to allow carry forward of excess long term capital gains to the tune of Rs.24,73,492, we observe that the said issue was also considered by the AO in the assessment order in para 17 at page 38. Similarly, in respect of refund of interest of Rs.6,97,50,863, pertains to assessment year 1993-94, 13 ITA No.5380/Mum/2010 Assessment Year: 2003-04 we observe that AO asked for details during the course of assessment proceedings and only after examining the same, he accepted the claim of the assessee while passing assessment order u/s.143(3)of the Act dt.28.2.2006.
17. Considering the above facts and on going through the reasons recorded by the AO, we observe that AO has initiated reassessment proceedings based on the materials already considered and adjudicated by him and, therefore, we find merit in the contention of ld A.R. that reopening of assessment on the same material which was already available with the AO while making original assessment order u/s.143(3) of the Act, would amount to reviewing assessment order by re-appreciating the facts on record. Hon'ble Bombay High Court has held in the case of Cartini India Ltd(supra) that section 147 of the I.T.Act contemplates the existence of material on record other than the material considered by the AO at the time of assessment u/s. 143(3) of the Act, on the basis of which a prima facie opinion could be formed by the AO that any income chargeable to tax had escaped assessment. The reopening of assessment based on the materials already considered and adjudicated would amount to reviewing the assessment order by re-appreciating the material already on record, which is not contemplated u/s.147 of the Act. Their Lordships further stated that the reopening of assessment is covered under Explanation 2 (c) of Section 147 of the Act based on any material other than the material considered by the AO at the time of assessment u/s.143(3) of the Act. Their Lordships held that once the AO, considering the material on record and the explanation offered, arrives at a final conclusion that assessee was entitled to deduction, the AO could not form a prima facie opinion that the deduction was not allowable based on the same material and, accordingly, reopen the assessment on the ground of income chargeable to tax had escaped assessment. It was held that when the materials on record had already been considered and conclusively decided in the regular assessment, the contrary opinion formed by the AO on the basis of same material would be a mere change of opinion which was not permissible u/s.147 of the Act. Held that notice u/s.148 of the Act was to be quashed.
18. Further, similar issue was considered by the Hon'ble Bombay High Court in the case of Asteroids Trading and Investments Pvt Ltd (supra) and held that the power 14 ITA No.5380/Mum/2010 Assessment Year: 2003-04 conferred u/s.147 of the Act cannot be used like the power of review to reopen the assessment. Under section 147 of the Act, assessments cannot be reopened on a mere change of opinion. In the said case, the assessee company claimed deduction u/s. 80M of the Act in respect of the dividends declared by it against dividends received by it. The claim of the assessee was accepted by the AO in the regular assessment order. Subsequently, a notice u/s.148 of the Act was issued to the assessee company stating that there was reason to believe that income chargeable to tax in the assessment year 2003-04 had escaped assessment. The assessee objected the issue of notice and finally filed writ petition before the Hon'ble High Court. Their Lordships held that there is only change of mind or change of opinion which is not justified and allowed the writ petition as under:
"That the assessee-company had fully disclosed material facts necessary for claiming deduction under section 80M of the Act and there was application of mind by the Assessing Officer in allowing the deduction claimed by the assessee in the assessment order. Though the notice under section 148 was issued on the ground that there was reason to believe that income had escaped assessment there was neither any change of law nor had any new material been brought on record between the date of the assessment order and the date of formation of opinion by the Deputy Commissioner of Income-tax. It was merely a fresh application of mind by the officer to the same set of facts and the reassessment proceedings were initiated based on the change of opinion of the officer."
19. The Hon'ble apex Court in the case of Asian Paints Ltd vs DCIT, 308 ITR 195 (SC) held that the legislators while giving jurisdiction u/s.147 of the Act to the AO to reopen the assessment have not conferred power on the AO to review his own order. It was held that when a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind. It was further held that if non-application of mind by the Assessing Officer in passing an order would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, it would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. Further, the Hon'ble apex Court in the case of Kelvinator of India Ltd (supra) held that even after the amendment by the Direct Tax Laws (Amendment) Acts, 1987 and 1989, in section 147 of the Act, the AO cannot reopen the assessment on mere change of 15 ITA No.5380/Mum/2010 Assessment Year: 2003-04 opinion. The concept of change of opinion must be treated as an in-built test to check the abuse of power. In this regard, we state the following observations of Hon'ble apex court from para 6, which reads as under:
"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 reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief."
20. In the light of above decision, we consider the facts of the case before us and the reasons recorded by the AO to reopen the assessment of the assessee. We observe that AO has initiated reassessment proceedings by stating three issues, as mentioned hereinabove. On perusal of assessment order, we observe that AO while allowing software expenses of Rs.4,40,85,941 as revenue expenditure and to treat the balance amount of Rs.2,62,56,350 as capital in nature, considered in detail the nature of expenditure incurred by the assessee as well as claim of the assessee. Therefore, AO has duly applied his mind while deciding the said issue and making the original assessment order under section 143(3) of the Act. It is not the case of the department that assessee had not placed full facts before the AO nor it is the case of department that any new facts came to his knowledge later on. On the other hand, the AO considered the claim of the assessee in detail and no tangible material is available before the AO after the completion of assessment to enable him to form a belief that income chargeable to tax had escaped assessment by reason of expenditure. Similarly, in respect of other two issues of allowing excess carry forward of long term capital loss as well as refund of interest u/s.234B of the Act, AO has itself mentioned in the reasons recorded that the explanation given by the assessee at the time of making original assessment considered and, thereafter the claim of the assessee was allowed. No new 16 ITA No.5380/Mum/2010 Assessment Year: 2003-04 tangible material is stated to be available with the AO to form the belief that income chargeable to tax escaped assessment by reason of allowing excess carry forward long term capital loss to the next year or to allow refund of interest u/s.234B of the Act. The Hon'ble apex Court has held in the case of ITO vs. Nawab Mir Barkat Ali Khan Bahadur(1974) 97 ITR 239(SC) that the AO cannot reinitiate proceedings u/s.147 of the Act after having a second thoughts on the same material. The apex Court has also held in the case of CIT vs. Bhanji Lavji (1971) 79 ITR 582(SC) that when the primary facts necessary for assessment are fully and truly disclosed, the AO is not entitled on change of opinion to commence proceedings for reassessment. The Hon'ble Delhi High Court in the case of Sita World Travel (India) Ltd vs. CIT, (2004) 140 Taxman 381 (Delhi) also held as under:
"...From the original assessment orders as well as order made by the appellate authority, it is very clear that the AO was well aware about the primary facts, namely, the claim made by the assessee, the circumstances under which the claim was made and the provisions of law which could be applied while granting the benefits. A decision may be wrong or right is none of the concern of the subsequent officer. If the primary facts were not available or there was concealment or there was no application of the mind at all then, a case for reopening the assessment could be made out. But, when all the facts were placed before the AO and the AO consciously considered the facts and arrived at a decision then can it be reopened merely because subsequently he changes his opinion or some other officer takes a different view...."
21. That it is not the case of the department that any new facts came to the knowledge of the AO, which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. On the other hand, assessee placed all the facts before the AO and if the assessee placed all the facts before the AO, it is to be presumed that AO when allowed the claim of the assessee while making original assessment u/s.143(3) of the Act, did form an opinion regarding acceptability of assessee's claim. Similar view has been taken by ITAT in the case of vs Rolta India Ltd(supra), wherein it was held that in the absence of any tangible material which could persuade the AO to form the belief that income chargeable to tax had escaped assessment by reason of allowance of expenses, he could not issue notice u/s 148 of the Act even though notice had been issued within a period of four years from the end of the relevant assessment year. It was held that so long as assessment has been 17 ITA No.5380/Mum/2010 Assessment Year: 2003-04 completed u/s.143(3) of the Act, merely because the issue on which notice was issued u/s.148 was not specifically adverted to in the assessment order, does not ipso facto give jurisdiction to the Assessing Officer to reopen the assessment, unless there is tangible material before the Assessing Officer to come to the conclusion that there is escapement of income. It is relevant to state that the Tribunal decided the validity of notice issued under section 148 of the Act in the above case after considering the decision of Hon'ble Jurisdictional High Court in the case of IPCA Laboratories Ltd vd DCIT, 251 ITR 420(Bom) as also the decision of Hon'ble Gujarat High Court in the case of Prafulla Chunilal Patel (supra), the cases on which AO has placed reliance in the assessment order to justify the validity of reopening of assessment. We observe that the facts in the case before us are akin to the facts of the case of Rolta India Ltd (supra). Therefore, we hold that reassessment proceedings has been initiated in the case before us by the AO on a mere change of opinion not on the basis of any new material which has come into existence to have a belief that on the basis of which, AO has reason to belief that there is an escapement of income to vest power in him to validly takerecourse to the provisions of reassessment. The Tribunal in the case of ACIT vs. M/s. Maersk Global Service Centre (India )Pvt.Ltd, (I.T.A. No.3774/M/2011 and cross objection No.111/M/2011 by its order dated 9.11.2011 also held that when the assessment was originally made and the AO wants to make reassessment u/s.147, he cannot do so, in the absence of 'new material' coming in his possession after the making of the original assessment. If he ventures to do so, it will amount to change of opinion constraining him to proceed.
22. On consideration of the facts of the case before us, in the light of judgments of Hon'ble apex Court (supra) as well as various High Courts (supra) and the Tribunal (supra), we hold that initiation of reassessment proceedings by the AO is not valid as he has initiated reassessment proceedings only on re-appreciation of material already considered and thus it is a mere change of opinion. Therefore, we hold that action of AO to issue notice u/s.148 is not valid and, accordingly, we quash the reassessment order dt.28.11.2008 by allowing ground Nos.1 to 4 of appeal taken by the assessee.
18 ITA No.5380/Mum/2010Assessment Year: 2003-04
23. In Ground Nos.5 to 6, assessee has disputed confirmation of disallowances sustained by ld CIT(A). Since, we have held that initiation of reassessment proceedings is not valid, it is not necessary to deal with ground Nos.5 & 6 of appeal taken by assessee.
24. In the result, appeal filed by assessee is allowed.
Pronounced in the open court on 31st July, 2012
Sd/- Sd/-
(RAJENDRA) (B.R. MITTAL)
Accountant Member Judicial Member
Mumbai, Dated 31st July, 2012
Parida
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),1, Mumbai
4. Commissioner of Income Tax, 1 , Mumbai
5. Departmental Representative, Bench 'B' Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI