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Income Tax Appellate Tribunal - Ahmedabad

Acit.,Circle-4,, Surat vs Sahajanand Medical Technologies ... on 17 January, 2017

             IN THE INCOME TAX APPELLATE TRIBUNAL
               AHMEDABAD "B" BENCH AHMEDABAD

        BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER
       AND SHRI MANISH BORAD, ACCOUNTANT MEMBER

                               ITA Nos.153Ahd/2013
                             (Assessment Year:2006-07)

ACIT, Circle-4,
Room No.223, Aayakar Bhavan,
Majuragate, Surat                                                    Appellant

                                      Vs.

M/s. Sahajanand Medical Technologies
Pvt. Ltd., 304, Sahajanand House, Parsi
Street, Saiyedpura, Surat - 395 003                                Respondent


PAN: AAACZ1196M

      राज व क  ओर से/By Revenue             : Shri James Kurian, Sr. D.R.
      आवेदक क  ओर से/By Assessee            : None
      सन
       ु वाई क  तार ख/Date of Hearing : 23.12.2016
      घोषणा क  तार ख/Date of
      Pronouncement                         : 17.01.2017


                                  ORDER


PER S. S. GODARA, JUDICIAL MEMBER

This Revenue's appeal for assessment year 2006-07 arises against CIT(A)-II, Surat order dated 31.10.2012, in appeal no. CAS- II/173/TRFD/11-12; in proceedings under section 115WE(3) r.w.s. 115 WG of the Income Tax Act, 1961; in short "the Act".

A.Y. 2006-07 -2-

2. For the reasons stated in condonation petition dated 19.03.2013, we condone delay of 8 days in filing of the instant appeal. The main case is accordingly taken up for adjudication on merits.

3. This Revenue's appeal raises two substantive grounds in challenging the CIT(A)'s order quashing validity of reopening by terming it as mere change of opinion as well as in deleting fringe benefit addition of Rs.85,44,040/- made by the Assessing Officer in the impugned re-assessment framed on 31.10.2011.

We come to the basic facts first.

4. The assessee company manufactures bare, mounted and infinnium Stent used in medical surgeries. It filed return on 29.12.2006 declaring fringe benefits of Rs.21,17,190/-. The Assessing Officer framed a regular assessment on 21.05.2008 accepting the same. He thereafter found reasons to believe that assessee's following fringe benefits had escaped assessment:-

Sr. Nature of Amount of Rate FBV to be FBV adopted Short (+) / No. expenditure exps. As adopted for for levy of excess (-) per P&L levy of FBT FBT valuation of account FBV 1 Sales Promotion 27453560 20% 5490712 NIL 5490712 including Publicity (excluding Advt. exp.

Rs.30,44,684/-) 2 Conference Expenses 21549788 20% 4309958 NIL 4309958 3 Conveyance, Tour 1022683 5% 51134 1249321 1198187 and Travel 4 Use of hotel, NIL 5% NIL 58443 58443 boarding and lodging facilities in the business of manufacture of production Net under valuation of Fringe Benefit Value 8544040 ITA No. 153/Ahd/2013 (ACIT vs. M/s.Sahajanand Medical Technologies Pvt. Ltd.) A.Y. 2006-07 -3-

The Assessing Officer then reopened the above assessment and framed the impugned re-assessment making the addition in question of Rs.85,44,040/-.

5. We come to the lower appellate proceedings now. The CIT(A) first of all accepts assessee's legal plea challenging validity of reopening as under:-

"3.3 I have considered the facts of the-case, basis of reopening and submissions of appellant. As it may be seen from the reasons recorded by AO, the basis of reopening the assessment was that he was not able to assess the conference expenses, sales promotion expenses and conveyance expenses etc, while completing the regular assessment proceedings and in his opinion, on aforesaid expenses, FBT has to be levied which remained to be taxed. Therefore, he undertook the remedial action by issuing notice u/s.115WH of the Act. However, the action of AO of reopening of assessment on the basis of above ground is not justifiable. Not being able to levy the FBT on conference expenses, sales promotion expenses and conveyance expenses during regular assessment proceedings, AO could not have taken the recourse of reassessment proceedings by issuing notice u/s.115WH of the Act unless he was having material in his possession to believe that there is escaped assessment. Reopening of assessment proceedings cannot be alternative to the regular assessment proceedings in absence of fresh material. To start reassessment proceedings, AO must have 'reason to believe' and this belief should be based on reasons which are relevant and material. The change of opinion or forming an opinion on any issue cannot be termed as reason to form belief for reopening the assessment. In this case, AO has no new material to form the opinion that there is escapement of FBT by appellant. The details related to conference expenses and sales promotion expenses etc. were on record in the return of FBT itself. For the long three years, regular assessment of FBT completed by AO himself was accepted and suddenly he changed his opinion that the aforesaid expenses are chargeable to FBT and he issued notice u/s. 115WH of the Act reopening the assessment. In such situation, taking action u/s.115WH of the Act on the basis of change of opinion cannot be allowed. As it was held in the case CIT Vs. Bhanji Lavji (79 ITR 582) by Hon'ble Supreme Court that when the primary facts necessary for assessment are fully and truly disclosed, the ITO will not be entitled on change of opinion to commence proceedings for the assessment. Similarly, if he has raised wrong legal inference from the facts disclosed, he will not, on that account, be competent to commence reassessment proceedings. Further, in the case of ITO Vs. Nawab Mir Barkat Ali Khan Bahadur. (97 ITR 239), Hon'ble Supreme Court held that having second thoughts on the same material, and omission to draw the correct legal presumption during original assessment do not warrant the initiation of proceedings u/s.147 of I.T. Act. However, from the facts of this case, it can be seen that the AO was not having any new factual information in his possession to form the opinion that there is any escapement of FBT. He has merely formed his opinion on the basis of facts available on record in the return of income of appellant. Such change of opinion cannot be held valid in the light of aforesaid decisions of Hon'ble Supreme Court.

A.Y. 2006-07 -4- In such situation, reopening of assessment cannot be held legal; therefore, the whole reassessment proceedings stand annulled."

6. The CIT(A)'s order thereafter deletes the impugned addition on merits as well as follows:-

"4.3 I have gone through the facts of the case and submissions of the appellant and found that the A.O. has made addition by blatantly ignoring the details of expenses and submissions given by appellant. From the details of expenses, it is clear that the conference expenses and sale promotion expenses etc, are apparently business expenses and no covered by FBT. The other expenses such as travelling, hotel expenses and conveyance are also related to the convention attended by company personnel for business purposes. The A.O. has not been able to bring on record any evidence that the aforesaid expenses are not related to business expenses, therefore covered by FBT provisions. He has simply relied on the headings of expenses without going into details of the same. In such situation, it is held that the addition made by A.O. is without any basis, only on presumption, hence liable to be deleted. In the result, addition made by AO is deleted and ground of appeal is allowed."

7. We have heard Revenue's vehement contention supporting Assessing Officer's action on legality as well as merits. None appears at assessee's behest despite RPAD notice. It is accordingly proceeded ex parte. There is hardly any dispute as per the above expected findings that the assessee had duly disclosed all relevant particulars of its sales promotion, conference, conveyance and other expenses with the original return as accepted in the former round of assessment. There is admittedly no tangible material apart from the one already on record even slightly indicating that there has been any understatement of fringe benefit at assessee's instance. We thus quote hon'ble jurisdictional high court's decision in General Motors India Pvt. Ltd. vs. CIT (2013) 354 ITR 244 (Gujarat) to observe that the impugned reopening in absence of any tangible material is mere change of opinion not sustainable in the eyes of law. Revenue further fails to rebut the crucial lower appellate findings that assessee's expenses in question are in fact in the nature of routine business expenses not covered under the fringe benefit ITA No. 153/Ahd/2013 (ACIT vs. M/s.Sahajanand Medical Technologies Pvt. Ltd.) A.Y. 2006-07 -5- regime. We thus find no reason to interfere in well reasoned CIT(A)'s order on legality as well as merits. The same stands confirmed.

8. This Revenue's appeal is dismissed.

[Pronounced in the open Court on this the 17th day of January, 2017.] Sd/- Sd/-

  (MANISH BORAD)                                                     (S. S. GODARA)
 ACCOUNTANT MEMBER                                                 JUDICIAL MEMBER
Ahmedabad: Dated 17/01/2017
                                              True Copy

S.K.SINHA
आदे श क   	त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आय!
                  ु त / Concerned CIT
4. आयकर आय!
          ु त- अपील / CIT (A)

5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड3 फाइल / Guard file.

By order/आदे श से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद ।