Income Tax Appellate Tribunal - Pune
Dimler Chrysler India Pvt. ... vs Department Of Income Tax
1
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench "A" , Pune
Before Shri I.C. Sudhir Judicial Member
and Shri R.K. Panda Accountant Member
ITA No.918/PN/2004
(Asstt. Year : 1995-96 )
Dy. Commissioner of Income- Circle 8, Akurdi, ... Appellant
Pune
v.
Daimler Chrysler India Pvt. Ltd. ... Respondent
Prop. Metrans Transpowers,
K-37, MIDC Area, Jalgaon
PAN : AFHPA8632C
C.O. No.25/PN/2005
(Arising out of ITA No. 918/PN/2004
(Asstt. Year : 1995-96)
Daimler Chrysler India Pvt. Ltd. ... Cross Objector
(formerly known as Mercedes
Benz India Ltd.) Sector 15-A
Chikhali Village
Pune 411 018.
PAN : AFHPA8632C
v.
Dy. Commissioner of Income Tax ... Respondent
Special Range - 6,
Pune
Assessee by : Shri. Dinesh Vyas
Department by :Specil Counsel - Shri. Sunil Ganoo
Date of Hearing : 27/3/12
Date of Pronouncement : -5-12
ORDER
Per I.C. Sudhir, JM
The revenue has questioned first appellate order on the following grounds :
"01) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in cancelling the assessment order under sec. 143(3) r.w.s. 147 dated 27-03-2003, when infact the assessment was rightly re-opened under sec. 147 as per the provisions of Income-tax Act, 1961.
02. The order of CIT(A) may be vacated and that of the A.O. be restored."
2. The relevant facts are that Daimler Chrysler India Pvt. Ltd. (DC India) (formerly known as Mercedes-Benz India Ltd.) i.e. the assessee, formerly a Joint Venture between M/s. Daimler Benz AG, Germany, ( now DCAG) and M/s. Telco. DC India is engaged in manufacturing and marketing of Mercedes Benz cars. In accordance with the M.O.U and contribution agreement entered into by both the parties, DC India issued equity shares worth Rs.37,24,28000/- to DBAG (now DCAG) in F.Y. 1994-95 towards part consideration for supply of Technical know-how by Mercedes Benz AG (MBAG), a subsidiary of DC AG. DC India also paid TDS and R & D Cess amounting to Rs. 10,86,28,278/- on technical know-how. From the F.Y. 1994-95 (A.Y. 1995-96), DC India claimed deduction equal to 1/6th of technical know-how paid to DBAG + TDS and Cess paid on it, u/s. 35AB of the Income Tax Act 1961. The original return of income for A.Y. 1995-96 was filed by the assessee on 30-11-1995 declaring total loss of Rs. 8,18,34,488/-. The assessment was framed u/s. 143(3) on 9.2.1998 determining loss at Rs.8,08, 75,454/-. The A.O. allowed the claimed deduction u/s. 35AB.
3. Subsequently, notice u/s. 148 was issued to the assessee on 26.3.2002 since as per the A.O. excess deduction U/S. 35 AB of Rs. 6,20,71,333/- was allowed to the assessee. A.O was thus of the view that income chargeable to tax has escaped assessment within the meaning of Sec. 147 of the Act for the reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The notice u/s. 148 was duly served upon the assessee and assessment u/s. 143(3) read with Sec. 147 of the Act has been framed on 27.3.2003. In this assessment the A.O has allowed deduction of Rs.1,81,04,713/- u/s. 35AB of the Act being 1/6th of technical know-how fee paid in cash but he has disallowed the balance amount of Rs.6,20,71,333/- paid in kind.
4. Before Ld. CIT(A), the assessee questioned assessment order framed u/s. 147 r.w.s. Section 143(3) of the Act on 2 grounds. Firstly, against holding that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment within the meaning of Sec. 147 of the Act. Secondly, against holding that expenditure of Rs.6,20,71,333/- paid by way of allotment of shares to M/s. DBAG as technical know-how fees was not an expenditure and the same could not be allowed as an expenditure u/s. 35 AB.
5. The Ld CIT(A) decided the issue raised in ground No. 1 in favour of the assessee with this finding that the A.O had not valid jurisdiction to initiate re-assessment proceedings u/s. 147 particularly when the proviso to Sec. 147 was applicable to the case and therefore, the issue of notice u/s. 148 was not valid in law. The Ld CIT(A) has accordingly annulled the assessment order framed u/s. 147 read with Section 143(3) of the Act.
2ITA NO. 918/PN/2004 &CO.No.25/PN/2005 Daimler Chrysler India Pvt. Ltd.
(Asstt. Year 1995-96)
6. The Ld CIT(A) did not adjudicate the issue raised in Ground No.2 before it, on the basis of his finding on the issue raised in Ground No. 1 wherein he had already annulled the assessment order in question.
7. Before the Tribunal, the revenue has questioned action of the first appellate authority in annulling the assessment order framed under Section 147 read with Section 143(3) on 27.3.2003.
8. In support of the ground, the Ld. Special Counsel Shri Sunil Ganoo appearing on behalf of the Revenue has basically placed reliance on the assessment order. He alleged that the assessee had not disclosed the material facts necessary for assessment fully and truly and hence the A.O was justified in initiating re-opening proceedings within the meaning of Sec. 147 of the Act. Without appreciating this material aspect, the Ld CIT(A) has erred in holding that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Hence, the assessment in question was not valid in view of the proviso to Sec. 147 of the Act. Mr. Ganoo submitted that assessee had entered into agreement with German Company formed on 22nd November 94, 51% share capital was held by Daimler Benz and 49% share by Telco. The assessee was in the business of manufacturing and selling of Mercedes cars in India. He referred page Nos. 14, 16, 25, 54, 56 and 57 of the paper book filed on behalf of the Department. At page No. 14, has been made available copy of the statement showing computation of assessable loss, at page No. 16 is the note No. 2 furnished by the assessee on deduction u/s. 80IA pointing out in clause (d) that the industrial undertaking has commenced the manufacture of the cars before 31st March 1995. At page No. 25 has been placed the Schedule2 (Report No.4) forming part of the Balance Sheet. In this schedule under the Column Fixed Assets, technical know-how has also been included with the net book value shown as at 31st March 1995. Page No. 54 is the letter dated 12.7.1996 issued from the office of the Ld DCIT to the assessee asking them to furnish details with evidence in support, regarding the claimed depreciation and deduction u/s. 35AB. Regarding the claimed deduction the assessee was asked to furnish full details along with copy of account of party to whom payment has been made. At page Nos. 56 to 59 of the paper book (Deptt.) is the copy of letter dated 31st August 1996 of the assessee to the Ld. DCIT regarding information called for u/s. 142(1) of the Act for the A.Y. under consideration. Under point No. 4 of the said letter dated 31st August 1996 the assessee has furnished information regarding technical knowhow. It has been informed by the assessee that Mercedes Benz India Ltd. (MBIL) has entered into an agreement with Mercedes Benz AG (MBAG) for transfer of technical know-how. Under the agreement, MBIL made a payment of DM 18.8 Million net of taxes by way of first installment of the total lumpsum consideration of D.M. 56.6 million payable to MBAG. Accordingly, the tax liability along with the Research and Development Cess payable on the know-how payments have been capitalized. It has been further informed that based on the above, the total expenditure incurred on acquiring the know-how amounts to Rs. 48.10 Crores. A deduction to the extent of 1/6th of this amount has been claimed u/s. 35 AB for the year ended March 31st, 1995. Mr. Ganoo contended that copy of agreement related to the supply of technical know-how was not filed before the A.O and despite request details of payment for know-how were not furnished. Only on 1.10.1996, a copy of agreement for know-how (page No. 60 of the paper book (Deptt.) was furnished. He referred page Nos. 63 to 122 of the paper book filed on behalf of the Department to support his argument that agreement on the transfer of the technical know-how was not signed by the parties. He referred page Nos. 123 to 125 of the paper book ( filed by the Department i.e. copy of letter dated 2.12.1997 issued by the office of the Ld DCIT, addressed to the assessee. In this letter vide para Nos. 11, 15 and 18, the assessee was again asked to furnish detail of actual payment upto 31st March 1995 towards the technical know-how fee and claim and address of the persons from whom advance received against share application including their PAN and as to whether they have filed their return of income for A.Y. 1995-96. In response thereto, the assessee has given only brief detail as evident from page No. 127 of the paper book (Deptt). Mr. Ganoo then referred page No. 135 of the paper book (Department) i.e. part of the letter dated 22nd January 1998 of the assessee wherein under point No. 15 on technical know-how, the assessee has furnished that during the year ended March 31, 1995 MBIL has incurred technical know-how expenses of Rs. 48.10 Crore and accounted for the same in the books of account. It has been further informed therein that basically payment was not made on this account during the year ended March 31, 1995. He also referred page No. 138 of the paper book (Deptt.) wherein details of advance received against the equity shares have been given. Mr. Ganoo thereafter, referred page No.22 of the paper book (D) i.e. Balance Sheet as at 31st March 1995 giving the detail of the shareholders' fund, he also referred assessment order for the A.Y. 1995-96 framed u/s. 143(3) on 9.2.1998 made available at page Nos. 158 to 163 of the paper book (D). It is the original assessment order. He submitted that in the original assessment order out of the total claim made u/s. 35D, disallowance of Rs. 9,59,034/- was made. In the A.Y. 1998-99, the A.O. called for more details and after considering the same on the issue of the claimed deduction u/s. 35D, the A.O gave finding that share capital was paid by adjustment. This material fact was concealed by the assessee during the course of original assessment for the A.Y. 1995-96. The A.O. thus following the decision of Hon'ble Madras High Court in the case of CIT Vs. Eimco Ltd., 147 ITR 303 (Madras) affirmed by the Hon'ble Supreme Court in 242 ITR 659 has held that where the technical know-how has been contributed by collaborator as its contribution to the share capital and against which shares are issued, acquisition of technical know-how does not involve any expenditure. The A.O. thus held that the assessee is not entitled to deduction u/s. 35AB in respect of technical know-how fees paid on account of acquisition of technical know-how. He also referred contents of page No. 167 of the paper book (D) i.e. the reasons for initiation of proceedings u/s. 148 and for obtaining approval of the Commissioner narrating that perusal of assessment records for A.Y. 1995-96 shows that neither in the return nor during the course of assessment proceedings, the assessee had filed contribution agreement. The assessee also did not disclose the fact that the technical know-how fee payable was computed by M/s. Daimler Benz as its contribution to the share capital. He pointed out that the said contribution agreement was executed on 17.6.1994. It was further submitted that based on the assessment for the A.Y. 1998-99 the A.O. has re-opened the assessment for A.Y. 1995-96 under consideration. Mr. Ganoo also referred page Nos. 164 to 167 of the paper book (D) i.e. copy of proposals submitted to Ld CIT by the A.O for approval for issuance of notice u/s. 148 to the assessee for A.Y. 1995-96. It was thus submitted that there was failure on the part of the assessee in non-supplying signed copy of the know-how agreement and in non-supplying of contribution agreement dated 17.6.94 during the course of assessment proceedings for A.Y. 1995-96. Mr. Ganoo thereafter referred contents of para Nos. 2 to 11 of the first appellate order, wherein the ld. CIT(A) has noted submission of the assessee that vide para nos. 2 & 3 of the letter dated 20th March 1995, the assessee had especially disclosed to the A.O about the issuance of equity shares to the foreign company against the technical know-how receivable from it. He also referred the submission of the assessee noted by the Ld CIT(A) in the said paragraph that the A.O by his N.O.C dated 21st March 1995 had granted the approval in response to the above application letter dated 20th March 1995. He referred page No. 2 & 3 of the paper book filed on behalf of the assessee wherein copies of said letters dated 20th March 1995 and 21st March 1995 have been made available. He submitted that the contents of para No. 3 of the letter dated 20th March 1995 makes it clear that the Reserve Bank of India (RBI) had only in principle agreed to the issuing Equity Shares of Daimler Benz AG. Thus, it is apparent that final sanction was not given by the RBI to the proposal. He submitted further that the assessee has still not received final sanction. He also referred page No. 126 of the paper book (D) i.e. copy of letter dated 15th February 1995 issued by RBI to the assessee in response to the letter dated 20th January 1995 of the assessee regarding issuance of shares to collaborators. In this letter, it has been conveyed by the RBI that they are agreeable in principle for issuing 4,53,89,996 equity shares of Rs. 10/- each at par to the foreign collaborators subject to certain conditions including that the approval valid for a period of 3 months from the date of first letter and that permission granted is only on approval in principle and as such no shares shall be issued until final approval of the RBI is obtained by submitting some documents mentioned therein i.e. original exchange copy of bill of entry, original custom attested invoices, T.T. buying rates as on Bill of Leading from the Bankers in India, no Objection Certificate in income-tax deduction for remission of technical knowhow, Chartered Accountant's Certificate in the TC Form in regard to the technical know-how form and T.T. buying rate from the Bankers as on due date of payment of technical know-how fee. In this regard, he also referred page Nos. 12 & 13 of paper book (D) and point No. 18 of page No. 13 of the paper book (D). With this submission, even before the Ld CIT(A), correct detail regarding payment of technical know-how fee was not furnished . In support, referred page No. 4 of the first appellate order. Mr. Ganoo 3 ITA NO. 918/PN/2004 &CO.No.25/PN/2005 Daimler Chrysler India Pvt. Ltd.
(Asstt. Year 1995-96) submitted that in the original assessment order for the A.Y. 95-96 under consideration, there is no whisper of Section 35AB. Under these circumstances, when the assessee had not disclosed fully and truly all material facts necessary for its assessment for that A.Y, the A.O was justified in initiating reopening proceedings In support, he placed reliance on the following decisions :
"1. Indian Hume Pipe Co. Ltd. Vs. A.C.I.T., 2011-TMI-207564 (Bom).
2. Piaggio Vehicles Pvt. Ltd. Vs. D.C.I.T, 290 I.T.R. 377 (Bom).
3. Dr. Amin Pathology Laboratory Vs. P.N. Prasad, J.C.I.T, 252 ITR 673 (Bom)
4. Kantamani Venkata Narayana & Sons Vs. Addl. I.T.O, 63 ITR 638 )(SC)
5. Malegaon Electricity Co. [P] Ltd Vs. C.I.T, 78 I.T.R 466 (SC)
6. Dalmia Pvt. Ltd Vs. C.I.T., reported in Tax Management India. Com 2011- TMI-206751 [Del]
7. Consolidated Photo & Finvest Ltd. Vs. A.C.I.T, reported in 281 I.T.R. 394 (Del)
8. Anusandhan Investments Ltd Vs. M.R. Singh, Dy C.I.T., 287 I.T.R. 482 (Bom)
9. I.T.O Vs. Saradbhai M. Lakhani, 243 I.T.R. 1 (SC)
10. C.I.T. Vs. Telco, 245 I.T.R. 823 (Bom)
11. C.I.T. Vs Elbee Services (P) Ltd., 247 I.T.R. 109 (Bom)
12. Honda Siel Power Products Ltd. Vs. DCIT (2011, 52 DTR (Del) 353
9. Mr. Dinesh Vyas, Ld. Counsel and authorized representative appearing on behalf of the assessee submitted that the issue raised in the ground is purely legal in nature. He pointed out that as per the provisions laid down u/s. 35AB, Sub-section (1), the phrase "any lumpsum consideration ......... " has been used for acquiring know-how for use for the purpose of an assessee. He drew our attention to the said provisions in the I.T. Act 1961 with this submission that these provisions were inserted by the Finance Act, 1985. He submitted that the word "consideration" has been defined in the Contract Act and has also been discussed by the Hon'ble Supreme Court in the case of Sonia Bhatia Vs. State of U.P. AIR 1981(SC) 1274(1280) as per which "Consideration means reasonable equivalent of or other valuable benefit passed on by the promisor to the promise or transferor to transferee". He submitted that the 'consideration' may be in any form including share allocation and not necessarily in cash only. Shri Vyas submitted that notice u/s. 148 in the present case has been issued on 26 .3.2002 i.e. in the 6th year from the end of the relevant A.Y. He referred provision to Sec. 147 of the Act, Sub-section (1) to Section 149 and Clause (b) to Sub-Section (1) to Section 149 of the Act. He submitted that in the body of the assessment order in question the A.O does not speak or allege that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Ld. A.R. referred page No. 167 of the paper book (D) and submitted that it is evident from this document that reasons were recorded by Anjala Sahu, a different A.O. than the person who has made original assessment u/s. 147 r.w.s. 143(3) of the Act. He submitted that A.O who makes re-assessment is to be satisfied that there was failure on the part of the assessee under the proviso to Section 147 of the Act to acquire jurisdiction to frame assessment u/s. 147 r.w.s. 143(3) of the Act. Mr. Vyas pointed out that during A.Ys. 1996-97 and 1997-98 in the case of assessee, on similar facts on identical issue the Ld CIT had invoked provisions u/s. 263 of the Act and had disallowed that portion of the technical know-how expenses paid in kind and claimed by the assessee u/s. 35AB of the Income Tax Act 1961 on the ground that it does not amount to an expenditure. The aggrieved assessee had approached the Tribunal and the Tribunal vide its order dated 24th March 2006 in ITA Nos. 1337/PN/2000 and 203/PN/2001 has allowed both the appeals while quashing the impugned orders passed u/s. 263 of the Act. He fairly informed that the revenue has preferred appeal before the Hon'ble High Court against the said order of the Tribunal and the same has been admitted.
10. Mr. Vyas submitted that failure on the part of the assessee to disclose fully and truly all necessary material facts is to be seen in view of the Statute. He submitted that in the decision of Hon'ble Madras High Court in the case of CIT Vs. Eimco Ltd. (Supra) and approved by the Hon'ble Supreme Court (Supra) relied upon by the A.O actually the issue of 'expenditure' and not 'consideration' has been dealt with. He referred page No. 3 of the paper book (assessee) i.e. letter dated 20th March 1995 of the assessee addressed to the Ld ACIT . He read the contents of the said letter and submitted that in this letter all the necessary information on the issue for the assessment was furnished. It was made clear therein in para No. 1 that in April 1994, M/s. Tata Engineering and Locomotive Company Ltd. and M/s. Daimler Benz AG the 100% holding company of Mercedez Benz AG had entered into a Joint Venture agreement for producing Mercedez "E" class cars in India. Accordingly, a company in the name and style of Mercedez Benz (India) Pvt. Ltd. has been incorporated on 22nd November 1994. In para No. 2 of the said letter for seeking No Objection Certificate/authorization for payment to foreign company, it has been made clear that according to contribution agreement between Daimler Benz AG and Mercedez Benz AG and Teleco Ltd., M/s. Daimler Benz shall be entitled to contribute in and to the share capital of the assessee company the whole or part of the lumpsum technical fee to the extent of 56.6 million D.M. It was further informed that the assessee proposed to adjust the first installment of 18.8 million D.M. against share capital of the company and assessee have since paid the income tax on the above amount at the rate of 20% as specified in Double Taxation Agreement entered into between Germany and India. In para No. 3 of the said letter, the assessee has further informed that the RBI has in principle agreed to their issuing of Equity Shares to Daimler Benz AG subject to their submitting 'No Objection Certificate' from the Income Tax Department for remittance of technical know-how fee. The assessee further talks about the documents submitted along with the said application. The Ld. A.R. submitted that on 21st March 1995, the A.O. issued the 'No Objection Certificate' to the assessee, a copy of the said letter has been made available at page No. 3 of the paper book (assessee). The Ld. A.R. also referred contents of para No. 2 of letter dated 25th August 95 written by the assessee to the A.O informing therein that according to contribution agreement between Daimler Benz AG and Telco Ltd, M/s. Daimler Benz AG shall be entitled to contribute in and to the share capital of the Company the whole or part of the lumpsum technical fees to the extent of 56.6 million D.M. The lumpsum fee was payable in 4 installments. It was informed that the assessee have already adjusted first installment of DM 18.8 million and paid the income tax on the above amount at the rate of 20% as specified in Double Taxation Agreement entered into between Germany and India. The assessee has further informed to the A.O. in para No. 3 of the said letter that they have now paid the TDS of Rs.8,43,36,800/- on the second installment of technical know-how fees. The Ld. A.R. thereafter referred page No. of the paper book (assessee) i.e. copy of letter dated 25.9.1995 issued from the office of the DCIT to the assessee. It is 'No Objection Certificate' to the M/s. Mercedez Benz (India) Pvt. Ltd. for remitting D.M. 1.88 Crore to M/s. Daimler Benz AG, Germany, being lumpsum technical fee for the period ending on F.Y. 31 March 1996. He thereafter referred page No. 7 of the paper book (assessee), i.e. copy of the schedule forming part of the Balance Sheet and Profit and Loss Account appending a note that shareholders funds represent the contribution made by shareholders in kind and cash, and in kind equity shares will be allotted upon receipt of the approval from the RBI. He submitted that the said Balance Sheet is the part of the return of income filed by the assessee for the A.Y. under consideration. Mr. Vyas also referred contents of written submission furnished before the Ld CIT(A), a copy thereof has been made available at page Nos. 8 to 11 of the paper book (assessee). It was again made clear therein that deduction u/s. 35AB is available on payment of lumpsum consideration for acquiring any know-how. The consideration may be in any form and the law does not mandate or direct that the consideration should only be payment of "sum of money".
11. Mr. Vyas submitted that 'failure to disclose' is a different term than the "concealment" . " Failure to disclose" is required in relation to material facts necessary for the assessment and while testing the failure mens rea or intent is not required to be gone through. As also discussed above, there was full and true disclosure of all material facts necessary for the assessment on the part of the assessee. As discussed above, the assessee disclosed to A.O about the contribution agreement, about the mode and manner of payment of lumpsum technical fees and about the issuance of Equity Shares to Daimler Benz AG by the assessee as agreed 4 ITA NO. 918/PN/2004 &CO.No.25/PN/2005 Daimler Chrysler India Pvt. Ltd.
(Asstt. Year 1995-96) upon and approved by the RBI subject to 'No Objection Certificate' from the Income Tax Department for remittance of technical know how fees. The A.O, as it is evident from page No. 3 of the paper book (assessee), had issued 'No Objection Certificate' only on the basis of disclosures of material fact by the assessee. He submitted that payment of 18.8 million D.M. is the subject matter of the issue. It was the payment of first installment of total consideration of 56.6 million D.M. He submitted that at page No. 4 of the paper book (assessee) has been made available the copy of letter dated 25th August 1995 written by the assessee for seeking 'No Objection Certificate' for payment of second instalment of the consideration and the A.O has issued 'No Objection Certificate' dated 25th September 1995 in response to that application letter, a copy whereof has been made available with bundle No. 5 of the paper book (assessee). He also referred page Nos. 1 to 53 of the paper book (Department) and especially page No. 22 to 30 thereof. Page nos. 1 to 53 of the paper book (D) is the copy of the return of income for A.Y. 1995-96 filed on 30th November 1995 by the assessee and at page Nos. 22 to 30 have been placed Balance Sheet, Profit & Loss A/c. Schedule 1 forming part of the Balance Sheet regarding share capital, Schedule 2 forming part of the balance sheet regarding Fixed Asset, Schedule 3 forming part of the balance sheet regarding inventories, Schedule 4 regarding cash & bank balances, Schedule 5 regarding loans and advances, Schedule 6 regarding current liabilities and provisions and Schedule 7 regarding miscellaneous expenditure. Mr. Vyas thereafter referred page No. 33 of the paper book (D) where in para A notes on balance sheet furnished to this effect that shareholders fund represents the contribution made by shareholders in kind and cash and in kind equity shares will be allotted upon receipt of the approval from RBI. He also submitted that in balance sheet (page No. 22 of the paper book (D), details of shareholders' funds consisting capital and advance receipt against shares pending allotment have been furnished. He also referred page No. 14 of the paper book (D) with this submission that details of claimed deduction u/s. 35AB were furnished in the statement. He submitted that in response to the query raised by the A.O in its letter dated 22nd December 1997 regarding the actual payment upto 31st March 1995 towards technical now-how fee and regarding name & addresses of the persons from whom advance received against share application, the assessee had complied with the same vide its reply dated 22nd January 1998 under point No. 15 thereof under the heading technical know-how as it is evident from page No. 135 of the paper book(D). In this note, it was made clear that during the year ended March 31, 1995, MBIL incurred technical know-how expense of Rs.48,10,56,280/- and accounted for the same in its books of account. Although no physical payment was made on this account during the year ended March 31, 1995, the assessee submitted that "paid" has been defined in Sec. 43(2) to mean "actually paid or incurred according to the method of accounting". Accordingly, it was submitted that deduction of technical fees was available to Mercedez Benz (I) Ltd. (MBIL). Mr. Vyas thus made it clear that it was disclosed to the A.O that no physical payment was made. He submitted that return of income for the A.Y. 1995- 96 was filed on 30th November 1996. The return was processed by the same A.O of the assessee to whom all the above necessary information on the issue was made available by the assessee. He pointed that in the A.Ys. 1996-97, 1997-98 and 1998-99, the claimed deduction u/s. 35AB has been accepted. During the year, Ld. CIT(A) has not gone on merits. He submitted that since all the material facts necessary for the assessment for the year under consideration were fully and truly disclosed by the assessee to the A.O, there was no reason for the A.O to initiate the re-opening proceedings on the basis that some contribution was not paid in cash but in kind which was made clear to the Department since beginning and it was not a fresh material for information to justify the initiation of re-opening in view of the proviso to Sec. 147 of the Act. Mr. Vyas also pointed out that the Tribunal in its order for the A.Y. 1996-97 & 1997-98 while quashing Sec. 263 proceedings has also given its finding on merits on the issue in para No. 7 at page No. 10 of the said order. The Ld. A.R. tried to justify the first appellate order and referred contents of page Nos. 11 to 15 of the first appellate order. Mr. Vyas submitted that the requirement under proviso to Sec. 147 of the Act is disclosure of primary facts. As discussed above vide above stated 2 letters i.e. dated 20.3.1995 and 25.8.1995 and others, the assessee had disclosed this primary fact to the A.O that payment in consideration towards acquisition of know-how was to be made in kind and cash. The main issue involved in the present appeal is as to whether consideration/expenditure is to be paid in cash only and not in kind to take benefit u/s. 35 AB of the Act. He submitted that legality of re-assessment proceedings can be defended only on reasons recorded. Mr. Vyas submitted further that proviso to Sec. 147 of the Act does not deal with non-furnishing of document for disclosure of material facts. He submitted that signed copies of contribution agreement dated 17th June 1994, arbitration agreement dated 1st February 1995 and agreement on the transfer of technical know-how dated 12.12.1994 were very much available with the assessee and were acted upon by the parties therein, copies thereof have also been made available before the Tribunal and the assessee had disclosed all the necessary material facts regarding these documents to the A.O. He also submitted that vide its letter dated 13th June 1995 addressed to the assessee, the Reserve Bank of India had informed that subject to certain conditions to be fulfilled, the assessee was allowed final approval u/s. 19(1)(d) of the Foreign Exchange Regulation Act 1973 to issue 4,50,40,162 fully paid Equity Shares of Rs. 10/- each to the company. He submitted that the conditions laid down therein were fulfilled. A copy of the said letter has also been filed by him before the Tribunal. The Ld. D.R. opposed the admissibility of the document by the Tribunal as additional evidence. The Ld. A.R. submitted that the assessee has not requested for admission of these documents as additional evidence since these were always available with the assessee since beginning and were fully and truly disclosed to the A.O. during the course of original assessment proceedings and thereafter for the A.Y. under consideration. He also placed reliance on the following decisions in support of his following plea.
1. Re-assessment after 4 years is invalid if there is no failure to disclose material facts :
1. Prashant Projects Limited vs ACIT (2010) 333 ITR 368 (Bom)
2. Bombay Presidency Gold Club Limited vs ITO (2011) 332 ITR 226 (Bom)
3. Yash Raj Films Private Limited vs. ACIT (2011) 332 ITR 428 (Bom)
4. Bhavesh Developers vs AO (2010) 329 ITR 249 (Bom)
5. 3i Infotech Limited vs ACIT (2010) 329 ITR 257 (Bom)
6. Hindustan Petroleum Corporation Limited vs DCIT (2010) 328 ITR 534 (Bom)
7. Indian Oil Corporation Limited vs DCIT (2010) 328 ITR 534(Bom)
8. Multiscreen Media Private Limtied vs UOI (2010) 324 ITR 48 (Bom)
9. Bang Securities Private Limited vs ACIT (2009) 314 ITR 256 (Bom)
10. Idea Cellular Limited vs DCIT (2008) 301 ITR 407 (Bom)
11. Hindustan Lever Limited vs CIT (2004) 268 ITR 332 (Bom)
14. Sesa Goa Limited vs JCIT (2007) 294 ITR 101 (Bom)
15. IPCA Laboratories Limited vs DCIT (No.2) (2001) 251 ITR 416(Bom)
2. There cannot be a failure to disclose material facts when the Assessing Officer knows the material facts :
1. Jagdish Prasad vs. CIT (1976) 104 ITR 214 (All)
2. Dunlop Rubber Company Limited vs. ITO (1971), 79 ITR 349 (Cal.) 5 ITA NO. 918/PN/2004 &CO.No.25/PN/2005 Daimler Chrysler India Pvt. Ltd.
(Asstt. Year 1995-96)
3. The validity of notice must be determined only with the reference to the reasons recorded :
1. Rallies India Limited vs ACIT (2010) 323 ITR 54 (Bom)
2. IOT Infrastructure & Energy Services Limited vs. ACIT (2011) 332 ITR 587 (Bom)
3. 3i Infotech Limited vs ACIT (2010) 329 ITR 257 (Bom)
4. Hindustan Lever Limited vs CIT (2004) 268 ITR 332(Bom)
5. Bhavesh Developers vs AO (2010) 329 ITR 249 (Bom)
6. ICICI Prudential Vs. ACIT (2010)
7. Lok Housing and Construction Limited vs DCIT(2011) 246 CTR 213(Bom)
8. Prashant S. Joshi vs. ITO (2010) 324 ITR 154(Bom)
4. There cannot be a reassessment in the absence of any tangible, fresh or new material or information :
1. IOT Infrastructure & Energy Services Limited vs ACIT (2011) 332 ITR 587 (Bom)
2. CIT Vs Kelvinator of India Limited (2010) 320 ITR 561 (SC)
3. Aventis Pharma Limited vs ACIT (2010) 323 ITR 570 (Bom)
4. Vijaykumar M. Hirakhanwala HUF Vs ITO (2006) 287 ITR 0443 (Bom)
5. CIT Vs Kelvinator of India Limited (2010) 320 ITR 561 (SC)
5. Change of opinion does not justify a reassessment :
1. CIT vs Kelvinator of India Limited (2010) 320 ITR 561 (SC)
2. CIT Vs Kelvinator of India Limited (2002) 256 ITR 1 (Del)(FB)
3. IOT Infrastructure & Energy Services Limited vs ACIT (2011) 332 ITR 587(Bom)
4. Rallies India Limited vs ACIT (2010) 323 ITR 570 (Bom)
5. Aventies Pharama Limited vs ACIT (2010) 323 ITR 570 (Bom)
6. Cartini India Limited vs ACIT (2009) 314 ITR 0275 (Bom)
7. Asian Paints Limited vs DCIT (2009) 308 ITR 195 (Bom)
8. Sanghvi Swiss Refills Private Limited vs. ACIT (2008) 300 ITR 276 (Bom)
9. M.J. Pharmaceuticals Limited vs DCIT (2008) 297 ITR 0119 (Bom)
10. Siemens Information System Limited vs ACIT (2007) 295 ITR 333 (Bom)
11. CIT vs Eicher Limited (2007) 294 ITR 0310 (Del)
12. Vijaykumar M. Hirakhanwala HUF vs ITO (2006) 287 ITR 0443 (Bom)
11. In rejoinder, the Ld D.R. Shri Sunil Ganoo submitted that during the A.Y. under consideration, the assessment has been re-
opened due to failure of assessee in disclosing material facts fully and truly which were necessary for the assessment whereas the Tribunal had allowed the appeal for the A.Ys. 1996-97 & 1997-98 in favour of the assessee on the issue of validity of revisional order passed u/s. 263 of the Act. The Ld CIT in those years had held the assessment orders as erroneous and prejudicial to the interest of revenue. Thus, merely because the Tribunal has made some casual observation in those appeals on an identical issue, the same is not binding in the present appeal. He pointed out further that as per the contents of para no. 1.2 at page no. 2 of the order of the Tribunal in the appeals for A.Ys. 1996-97 and 1997-98, the contribution agreement was entered into before inception of assessee's company. He submitted further that the assessee did not disclose the date as to when contribution agreement was entered into. Shri Ganoo pointed out that in reply to the citations filed by the assessee, he has also filed copies of case laws. He submitted that the decisions relied upon by the Ld. A.R. are having distinguishable facts and the issue, hence these are not helpful to the assessee.
While concluding his argument, the Ld. D.R. submitted that there is no question of change of opinion by the A.O in the present case since no opinion was formed on the issue by the A.O in the original assessment frame u/s. 143(3) of the Act due to absence of knowhow agreement and contribution agreement.
FINDINGS
12. From the above submissions, we find that the main grievance of the Revenue in the present appeal is that the assessee had paid part of the consideration for acquisition of the know-how in kind, hence it was not entitled to the benefit of deduction u/s. 35 AB of the Act allowed by the A.O in the original assessment. The second grievance of the revenue is that the assessee had not disclosed all the necessary facts fully and truly regarding payment of consideration towards technical know-how fee. Thus, the Ld CIT(A) was not justified in extending benefit of proviso to Sec. 147 of the Act to the assessee.
13. Under the above circumstances, in present appeal 2 issues emerge for adjudication of the Bench namely -
1) As to whether the assessee had disclosed all the necessary facts fully and truly regarding payment of consideration for acquisition of technical know-how, which were material for the assessment ; and
2) As to whether it is mandatory to pay the consideration for acquisition of the know-how in cash only and not partly in cash and partly in kind to take the benefit of deduction u/s. 35AB of the Act.
14. Since the Ld CIT(A) has allowed the first appeal while deciding the issue No.1 in favour of the assessee, which has been questioned by the revenue, we will confine ourselves on the issue No. 1 only. It is worthwhile to mention over here that the issue No. 2 was also raised in different form by the assessee in the first appeal vide ground No. 2 but the same has not been adjudicated upon by the Ld CIT(A) in view of his finding on issue no. 1.
Issue No. 115. The allegation of the Ld. D.R. Mr. Sunil Ganoo is that there was failure on the part of the assessee in non-supplying of signed copy of know-how agreement and in non-supplying of contribution agreement dated 17.6.1994 during the course of original 6 ITA NO. 918/PN/2004 &CO.No.25/PN/2005 Daimler Chrysler India Pvt. Ltd.
(Asstt. Year 1995-96) assessment proceedings Under Section 143(3) of the Act for A.Y. 1995-96. The further allegation of Ld. D.R. is that the assessee had also not disclosed this material fact that the technical know- how fee payable was partly in the form of issuance of equity shares to the German Company i.e. supplier of the know-how. Thus, as per him, there was non-disclosure of material facts fully and truly regarding payment of consideration towards technical know-how fee which were necessary for the assessment, hence benefit of proviso to Sec. 147 of the Act was not available to the assessee. He also alleged that the Reserve Bank of India had only in principle agreed for issuing of equity shares and final sanction was not given by the RBI to the proposal.
16. The submission of the Ld. A.R. of the assessee Shri Dineh Vyas remained that the material facts regarding share contribution in lieu of the fees for technical know-how was declared by the assessee in its letter dated 20.3.1995 addressed to the A.O. in application for seeking N.O.C / authorization for payment to foreign company. In the said letter, reference was made to the contribution agreement amongst M/s. Daimler Benz AG and M/s.Mercedes Benz AG and Telco Limited and that M/s.Daimler Benz was to contribute in to the share capital of the assessee company all or part of the lumpsum technical fees to the extent of 56.6 million D.M. and that the assessee proposed to adjust the first installment of 18.8 million D.M. against share capital of the company and that had paid the income tax on the said amount at 20% as per the DTA. The assessee had requested for N.O.C and the said N.O.C was given by the A.O. on 21st March 1995. In continuation of the said letter, the assessee had filed another application for N.O.C vide letter dated 25.8.1995 on similar points and another N.O.C was issued by the A.O. vide letter dated 25.9.1995. It was submitted that these letters form part of the records of the A.O. The tax deducted at source are directly co-related to the technical know-how fees paid which was in the form of share capital issued by the assessee. Mr. Vyas submitted accordingly that this material fact that the contribution to the technical know-how fees was to be made by issue of share capital by the assessee was forming part of the record at the time when the original assessment was framed. He submitted that it was the necessary material fact for framing the assessment on the issue. The disclosure of material fact means disclosure of the primary facts. The proviso to Sec. 147 does not deal with non-furnishing of documents but material facts, he submitted. In support, the Ld. A.R. has placed reliance on some decisions. Having gone through those decisions, we find that in the case of ITO Vs. Navab Mir Bankat Alikhan Bahadur (Supra), the Hon'ble Supreme Court affirming the decision of the Hon'ble High Court that since the 3 Trust Deeds of 1950 also contain the same description of the 3 ladies and their children, the production of 2 Deeds of 1957 could not have made any difference, held that non- production of the Deeds executed in 1957 at the time of the original assessment could not, therefore, be regarded as non-disclosure of any material facts necessary for the assessment of the assessee. Having second thoughts on the same material did not warrant initiation of proceedings u/s. 147. The law had not changed since the original assessment and it was open to the Income Tax Officer at the time of original assessments to make the presumptions that the 3 ladies were legally wedded wife of the assessee. If he should have but did not do so, then he could not avail of Sec. 147 to correct that mistake. The conditions precedent to the exercises of the jurisdiction u/s. 147, therefore, did not exist, held the Hon'ble Supreme Court. Likewise, in the present case before us, all the primary facts regarding payment of consideration partly in cash and partly in kind to the German Company towards know-how fees which was material for the assessment was disclosed to the A.O and being satisfied therewith, the A.O had framed assessment u/s. 143(3) of the Act. There was no any tangible fresh or new material or information on the issue to justify the initiation of re-opening proceedings.
17. In the case of Parshuram Kotary Works Ltd. Vs. ITO (Supra), the I.T.O relies upon his own records for determining the amount of depreciation allowable to the assessee and makes a mistake in doing so, responsibility for that mistake cannot be described to an omission or failure on the part of the assessee, held the Hon'ble Supreme Court. In that case, notice was issued after expiry of 4 years from the end of A.Y.. Higher amount of depreciation was allowed by failure of ITO taking into account initial depreciation. The Hon'ble Supreme Court was pleased to hold that there was no failure of assessee to disclose material facts, hence no action can be taken for re-opening assessment u/s. 147(a) of the Income Tax Act 1961 on the basis of detection of that mistake alone after the expiry of 4 years from the end of A.Y.
18. In the case of CIT Vs. Kelvinator of India Ltd., (Supra) the Hon'ble Supreme Court has been pleased to hold that the concept of 'Change of opinion' on the part of the A.O to re-open an assessment does not stand obliterated after the substitution of Sec. 147 of the Income Tax Act 1961 by the Direct Tax Laws (Amendment) Acts 1987 and 1989. After the amendment, the A.O has to have reasons to believe that income had escaped assessment, but this does not only imply that the A.O can re-open an assessment, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reason must have a link with the formation of the belief, held the Hon'ble Supreme Court.
19. In the case of Gemini Leather Stores Vs. ITO (Supra), the Hon'ble Supreme Court reversing the decision of the Hon'ble High Court, held that after discovery of primary facts relating to the transactions evidenced by the A.O, it was for the officer to make necessary enquiries and draw proper reference as to whether the amounts represented by the drafts could be treated as part of the total income of the assessee. This the Officer did not do. It was plainly a case of oversight and it could not be said that income chargeable to tax had escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts. He could not thereafter, take recourse to Sec. 147(a) to remedy the error resulting from its own oversight.
20. In the case of Asean Paints Ltd. Vs. DCIT (Supra), the Hon'ble Bombay High Court allowing the petition, held that initiation of the re-assessment proceedings would amount to change of opinion of the A.O as it was merely fresh application of mind by the A.O to the same set of facts. Since A.O had failed to apply his mind to the relevant material while framing assessment order, he could not take advantage of his own wrong and re-open the assessment u/s. 147 of the Act.
21. The Hon'ble Bombay High Court in the case of Ipca Laboratories Ltd., Vs. DCIT (Supra) has been pleased to hold that the proviso to Sec. 147 of the Income Tax Act 1961, clearly states that no action be taken for re-opening the assessment after 4 years unless the A.O has reason to believe income had escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
22. In the case of Rallis (India) Ltd. Vs. ACIT (Supra), the Hon'ble Bombay High Court has been pleased to hold that a mere change of opinion would not be justified the A.O. in seeking a re-course of the powers u/s. 147 and 148 of the Income Tax Act 1961 and there must be tangible material before the A.O to prove that income chargeable to tax has escaped assessment. The validity of the notice issued by the A.O to reopen the assessment must be done with reference to the reasons which are found in support of the assessment. These reasons would be allowed to be supplemented on the basis which was not present to remind of the Officer and could not have been so present on the date on which the power to re-open assessment was exercised.
23. In the case Prashant S. Joshi Vs. ITO (Supra), the Hon'ble Bombay High Court has been pleased to hold that the basic postulate which underlines Sec. 147 of the Income Tax Act 1961, is the formation of the belief by the A.O that any income chargeable to tax has escaped assessment in any A.Y. The A.O. must be having reason to believe that such is the case before he proceeds to issue a notice u/s. 147. The reasons which are recorded by the A.O for re-opening an assessment are the only reasons which can be considered that the formation of the belief is impugned.
24. Again in the case of I.O.T Infrastructure and Energy Services Ltd. Vs. ACIT (Supra), the Hon'ble Bombay High Court has been pleased to hold that it is now a settled position of law though, after April 1, 1989, the power to re-open an assessment is much wider than previously, the words "reasons to believe" which do not confer any arbitrary power upon the A.O to re-open an assessment merely on the basis of a change of opinion. The A.O. must possess tangible material to come to the conclusion that 7 ITA NO. 918/PN/2004 &CO.No.25/PN/2005 Daimler Chrysler India Pvt. Ltd.
(Asstt. Year 1995-96) there is a escapement of income from the assessment. The validity of a notice of the A.O seeking to re-open an assessment would have to be determined on the law as it prevailed on the date of the notice of re-opening of the assessment and has to be assessed with reference to the reasons recorded by the A.O.
25. The Hon'ble Bombay High Court in the case of 3i Infotech Ltd. Vs. ACIT (Supra) has been pleased to hold that where re- opening of assessment takes place beyond a period of 4 years from the end of the relevant A.Y, the test which the Statute requires to be applied is based on the nature of the disclosure that is made by the assessee. If the assessee has made a full and true disclosure of all the material facts for his assessment, the action of re-opening the assessment would stand barred. Parliament has used the word "necessarily" in Explanation-1 to Sec. 147 of the Income Tax Act, 1961. The expression "necessarily" means inevitably or as a matter of a compelling inference. The Hon'ble High Court held further that a ground which has no basis either in the notice for re-opening the assessment or in the order dealing with the objection of the assessee cannot be heard to be urged by the Department for the first time in proceedings instituted by the assessee under Artcile 226 of the Constitution to challenge the re- opening of the assessment. Similar view has been expressed by the Hon'ble Bombay High Court in the cases of Hindustan Lever Limited Vs. ACIT (Supra), Bhavesh Developers Vs. A.O (Supra, ) and ICICI Prudential Life Insurance Company Ltd. Vs. ACIT (Supra).
26. Thus, we find that all the above cited case laws establish a ratio that the proviso to Sec. 147 of the Income Tax Act 1961, stipulates that where an assessment has been framed under Sub-section (3) of Sec. 143 for the relevant A.Y, no action shall be taken after the expiry of 4 years from the end of the relevant A.Y. unless certain pre-conditions are fulfilled. These conditions are that the income chargeable to tax must have escaped assessment for such A.Y. (i) by reason of the failure on the part of the assessee to make a return in response to a notice issued u/s. 148; or (ii) by the failure of the assessee to make a return in response to a notice issued u/s. 142(1) or Sec 148; or (iii) to disclose fully and truly all material facts necessary for his assessment for that A.Y. In the present case before us, we have to examine as to whether the assessee had fulfilled the requirement of ingredient (iii) to take benefit of proviso to Sec. 147 of the Income Tax Act 1961. We have to examine further that what were those material facts necessary for the assessment on the issue which the assessee ought to have disclosed fully and truly. In the reasons recorded, the A.O has mentioned that the assessee had not filed the contribution agreement and had not disclosed the fact that the technical know-how for which the fees was payable by M/s. Daimler Benz was partly contributed in the form of contribution to the share capital. Thus as per the A.O, it was the material fact which the assessee failed to disclose fully and truly relevant for assessment resulting into escapement of income for the assessment. We, however, find from the record that relevant fact regarding share contribution in lieu of fees for technical know-how was disclosed by the assessee in its letter dated 20th March 1995 addressed to the A.O in the application for seeking N.O.C/ authorization for payment to foreign company. In the said letter, reference was made to the contribution agreement amongst Daimler Benz AG, Mercedes Benz AG and Telco Ltd. and further that M/s. Daimler Benz was to contribute in and to the share capital of the assessee company all or part of the lumpsum technical fees to the extent of 56.6 million DM and that the assessee proposed to adjust the first installment of 18.8 million D M against share capital of the company and that it paid the income tax on the said amount at 20% as per the DTA. The assessee had requested for N.O.C and the said N.O.C was given by the A.O vide letter dated 21st March 1995. For a ready reference relevant para nos. 1, 2 and 3 of the said letter dated 20.3.1995 are being reproduced hereunder :
"1. In April, 1994, M/s. Tata Engineering & Locomotive Company Limited and M/s. Daimler Benz AG the 100% holding company of Mercedes-Benz AG have entered in to a Joint Venture. Agreement for producing Mercedes 'E' class cars in India. Accordingly a company in the name and style of 'Mercedes Benz India Private Limited' has been incorporated on 22nd November, 1994. We have been allotted Permanent Account Number & Tax Deduction Account No. CT 4374/AC Circle (5) 2 Pune & M-1437-(C )/Pune respectively.
2. According to Contribution Agreement between Daimler Benz AG and Mercedes Benz AG and Telco Ltd., M/s. Daimler Benz shall be entitled to contribute in and to the share capital of our company all or part of the lumpsum technical fees to the extent of 56.6 million Deutsche Marks. We propose to adjust the first instalment of 18.8 million DM against share capital of the company. We have since paid the Income-tax on the above amount @ 20% (as specified in Double Taxation Agreement entered into between Germnay and india)
3. The Reserve Bank of India has 'in principle' agreed to our issuing equity shares to Daimler Benz AG subject to our submitting No Objection Certificate from the Income Tax Department for remittance of Technical know how fees. We are accordingly submitting here with the following documents :
a. Application seeking authorization for payment under section 195(1) of the Income tax Act, in the prescribed form annexed to CBDT Circular No. 695 dated 28th November, 1994. b. A format of No Objection Certificate to be issued by Assessing Officer annexed to letter no. EC.BY. FTTT.643/M-
60/94-95 dated 28th December, 1994 issued by Reserve Bank of india. c. Authorisation for payment of sums to Non-Residents after deducting of Tax at source to be issued by the Assessing Officer."
In continuation of the above said letter, the assessee filed another application for NOC vide letter dated 25th August 1995 on similar point and another N.O.C. was given by the A.O vide letter dated 25.9.1995. Undisputedly, these letters form part of the records of the A.O. The tax deduction at source are directly co-related to the technical know-how fees paid which was in the form of share capital issued by the assessee. Admittedly, the assessment u/s. 143(3) for the A.Y. in question was framed on9-2-1998, a copy whereof has been made available by the Department in its paper book at page Nos. 158 to 163. Vide letter dated 12.7.1996 (Page Nos. 54 to 55 of the paper book filed on behalf of the Department ( in short P.B. (D)). The A.O. had asked the assessee to furnish full details along with copy of account of party to whom payment has been made in support of the claim of the assessee regarding deduction u/s. 35AB for Rs. 8,01,76,046/-. At page Nos. 56 to 59 of P. B. (D) has been placed the copy of letter dated 31st August 1996 written by the assessee to the A.O supplying the required information called for u/s. 142(1) of the Act.
Vide letter dated 1.10.1996, Copy made available at Page Nos. 60 to 122 of P.B. (D) to the A.O, the assessee has furnished a copy of agreement on technical know-how between Mercedez Benz AG and MBIL, copy of project assistance agreement between MBIL and Daimler Benz Project Consult GmbH along with other documents. In Articles 17 to18 of the agreement on technical know- how between Mercedes Benz AG and MBIL, the parties have been agreed upon technical know-how fee and terms of payment. At page No. 123 of the paper P.B.(D) has been placed a copy of letter dated 2nd December 1997 addressed to the assessee by the A.O. asking the assessee about the extent of actual payment upto 31st March 1995 towards the technical know-how fee and the proposal for deduction u/s. 35AB to be allowed only at 1/6th of the same. The assessee was also asked to submit name and address of the person from whom advance received against share application including their PAN and to state whether they have filed their returns of income for A.Y. 1995-96. In response, the assessee furnished the required information vide its letter dated 22nd January 1998 enclosing statement showing information asked by A.O from point No. 1 to point No. 27 of the letter dated 2nd December 1997 of the A.O. Copy of the said letter dated 22nd January 1998 along with enclosures have been placed at page Nos. 126 to 143 of the P.B. (D). At page Nos. 144 to 155 of the P.B.(D) have been placed the letter dated 29th January 1998 written by the assessee to the A.O. along with enclosures of statement showing information required by the A.O. The original assessment u/s. 143(3) for the A.Y. 1995-96 under consideration has been framed on 9.2.1998. A copy thereof has been furnished at page Nos. 158 to 163 of the 8 ITA NO. 918/PN/2004 &CO.No.25/PN/2005 Daimler Chrysler India Pvt. Ltd.
(Asstt. Year 1995-96) P.B.(D). At page Nos. 164 to 167 of the P.B.(D) has been furnished copy of proposal submitted to the Ld CIT by the A.O. on 4-3- 2002 for approval for issue of notice u/s. 148 in the case of the assessee for A.Y. 1995-96. At page No. 167 of the P.B.(D) has been placed the copy of the reasons recorded for re-opening the assessment for A.Y. 1995-96. In first paragraph of the reasons has been recorded the decision of Hon'ble Madras High Court in the case of Emico KCP 147, ITR 603 affirmed by Hon'ble Supreme Court in 242 ITR 659 holding that where the technical know-how has been computed by collaborators as it's contribution to the share capital and against which, shares are issued, acquisition of such know-how does not involve any expenditure. It has been further recorded that the facts of the assessee's case are similar to the Emico KCP and therefore, assessee is not entitled to deduction u/s. 35AB in respect of technical know-how fees payable on account of technical know-how. It has been recorded that the A.O has therefore, reasons to believe that the income of the assessee for A.Y. 1995-96 to the extent of Rs. 8,01,76,046/- being deduction u/s. 35AB has escaped assessment in as much as excessive deduction u/s. 35AB has been allowed in the A.Y. In the second paragraphs of the reasons, it has been recorded as under :
"Perusal of assessment records for A.Y. 1995-96 show that neither in the return nor during the course of assessment proceedings, the assessee had filed contribution agreement. The assessee also did not disclose the fact that the technical know-how fees payable was computed by M/s. Dalmier Benz as its contribution to the share capital. Under these circumstances, it is clear that income of the assessee for A.Y. 1995-96 has escaped assessment for the reason of failure on the part of the assessee to disclose fully and truly all material facts relevant for assessment."
27. We are concerned with the reasons recorded in para No. 2 as in the present case revenue has questioned action of the Ld CIT(A) allowing the first appeal cancelling the assessment order u/s. 143(3) r.w.s. 147 dated 27.3.2003 on the basis that the re- opening was not proper in view of the proviso to Sec. 147 of the Act.
28. As we have discussed above that before the assessment order framed on 9.2.1998 and during the course of said assessment proceedings, u/s. 143(3), the assessee had disclosed all the material facts relating to the assessment on the issue of allowability of benefit u/s. 35AB of the Act. We have already discussed above that assessee had already filed copy of contribution agreement and had disclosed the fact that the technical know-how fee for the technical know-how is payable was computed by M/s. Daimler Benz as its contribution to share capital. Thus the reasons recorded in para No. 2 (page No. 167 of P.B.(D) ) is not correct. Ld CIT(A), in our view, has rightly came to the conclusion after a detailed discussion on the issue that the material fact that the contribution to the technical know-how fees was partly to be made by issue of share capital by the assessee was forming part of the record at the time when the original assessment was framed. Therefore, it was wrong on the part of the A.O. to allege that the assessee had not disclosed fully and truly all material facts necessary for the A.Y. under consideration. In the present case as we have discussed above, the primary fact which the assessee was required to disclose as per the A.O. in the reasons recorded was the technical know- how fee for which technical know-how fees was payable was computed by M/s. Daimler Benz as its contribution to the share capital. The same was disclosed by the assessee vide its various letters to the A.O as discussed above. Thereafter, the assessment u/s. 143(3) was framed by the A.O on 9/2/1998. Before the Tribunal, the Ld D.R. has alleged that know-how agreement and contribution agreement supplied to the A.O. were not signed by the parties, hence disclosure was not complete. We do not find substance in this contention of the Ld. D.R. and are of the view that even if the supplied copies of the said agreements were not signed by the parties, the undisputed information furnished therein which were material for the assessment on the issue can be termed as disclosure by the assessee. It is not the case of the revenue that those agreements were not acted upon by the parties. In our view, the requirement under proviso to Sec. 147 is that there must not be escapement of assessment of income chargeable to tax for such A.Y. by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that A.Y. Thus, non furnishing of a signed copy of an agreement relevant for the assessment to the A.O cannot be termed as non-disclosure of material facts of that agreement especially when there is no allegation that contents of that agreement were disputed or doubtful or wrong or not acted upon by the parties thereto. An agreement is reduced in writing and signatures of the parties thereto are obtained thereon as evidence of their consent thereto to make it enforceable and to secure performance of its part by the parties to the agreement. Here, in the present case we are concerned with the disclosure of all material facts necessary for the assessment of the assessee on the issue. Even at the cost of some repetition, we summarize our observations that vide letter dated 20th March 1995, the assessee had applied for seeking "No Objection Certificate/ Authorization" for payment to foreign company from the A.O. In that letter also, it was informed to the Ld Asstt. Commissioner of Income Tax that in April 1994, M/s. Tata Engineering, Locomotive Company Ltd. and M/s.Daimler Benz AG, the 100% holding company of Mercedes Benz AG have entered into a joint agreement for manufacturing Mercedes "E" Class cars in India. Accordingly, a company in the name and style of "Mercedes Benz India Pvt. Ltd." (i.e. assessee) has been incorporated on 22nd November 1994. It has been further informed therein that the assessee has been allotted Permanent Account No. and Tax Deduction Account No. In the said letter, it has been further informed vide para No. 2 that according to contribution agreement between Daimler Benz AG and Mercedes Benz AG & Telco Ltd., M/s. Daimler Benz shall be entitled to accommodate in and to the share capital of assessee company all or part of the lumpsum technical fees to the extent of 56.6 million D.M. The assessee proposed to adjust the first installment of 18.8 million DM against share capital of the company. The assessee has since paid the income-tax on the above amount at the rate of 20% (as specified in Double Taxation Agreement entered into between Germany and India). In para No. 3 of the said letter, it has been further informed that the Reserve Bank of India has "in principle, agreed to them to issue clear shares to Daimler Benz AG subject to their submitting No Objection Certificate from the Income Tax Department for remittance of technical know-how fees. For this purpose, the assessee has also furnished the required documents. In response to the said application dated 20th March 1995, the Ld ACIT vide its letter dated 21st March 1995 has issued "No Objection" to M/s. Mercedes Benz India (P.) Ltd., remitting DM 1.88 Crore to M/s. Daimler Benz AG, Germany being the lumpsum technical fees for the period F.Y. ending 31st March 1995. Again vide letter dated 25th August 1995, the assessee had sought "No Objection Certificate" from Ld. ACIT for payment of foreign company. In this letter, it has been informed that the assessee has already adjusted first installment of Ducth Mark 18.8 million and has paid the income tax on the above amount at the rate of 20%. The assessee has also paid the TDS on the second installment of technical know-how fees. They have also furnished required documents. In response thereto, the Ld DCIT vide its letter dated 25th September 1995 has issued "No Objection" to the assessee remitting DM 1.88 Crore to M/s. Daimler Benz AG, Germany being the lumpsum technical fees for F.Y. ending on 31st March 1996. In the Schedule forming part of the Balance Sheet and Profit & Loss A/c. (Schedule 8) in para No. A, a note on Balance Sheet has been appended with shareholders' funds representing the contribution made by shareholders in fund and cash against which equity shares will be allotted upon receipt of the approval from the Reserve Bank of India. On the basis of this discussion, an inference can be easily drawn that there cannot be a failure to disclose material facts on the part of the assessee when the A.O knows the material facts. It is an admitted proposition of law that the re- assessment after 4 years is invalid if there is no failure to disclose material facts on the part of the assessee. The validity of notice must be determined only with reference to the reasons recorded. We have already discussed hereinabove that in para No. 2 of the reasons, the A.O has recorded that neither in the return nor during the course of assessment proceedings, the assessee had filed contribution agreement and that the assessee also did not disclose the fact that the technical know-how for which the technical know-how fees is payable was computed by M/s. Daimler Benz as contribution to the share capital. We have already dealt with hereinabove as to how this para nop. 2 of the reason recorded by the A.O is not correct. It is also an established proposition of law that there cannot be re-assessment in absence of any tangible, fresh or new material or information. In the present case, admittedly there was no any tangible, fresh or new material or information to justify the initiation of re-opening of the assessment and framing assessment u/s. 147 r.w.s. Sec. 143(3) in furtherance thereto. In such a situation, the re-assessment in question is nothing but change of opinion which is not permitted as a basis for initiation of reopening. This proposition of law is now fully 9 ITA NO. 918/PN/2004 &CO.No.25/PN/2005 Daimler Chrysler India Pvt. Ltd.
(Asstt. Year 1995-96) established by the recent decision of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. (Supra). Under these circumstances, we are not inclined to interfere with the finding of the Ld CIT(A) that proviso to Sec. 147 is applicable to the present case, hence the issuance of notice u/s.l 148 was not valid in law. The Ld CIT(A) was, therefore, justified in holding that the assessment order framed u/s. 147 r.w.s. 143(3) of the Act was null and void. The same is thus upheld. Consequently the issue no. 1 is decided in favour of the assessee and the ground involving the issue is rejected.
29. The decisions relied upon by the Ld. D.R. having distinguishable facts and issues are not helpful to the revenue. In the case of Indian Hume Pipe Company Ltd. Vs. ACIT (Supra), the Hon'ble Bombay High Court observed that in relation to taxable capital gains, there was a complete silence in regard to the dates on which the amounts were invested in the context of the exemption claimed u/s. 54EC and this was held to be failure to disclose material facts. In the case of Piaggio Vehicles Pvt. Ltd. Vs. DCIT (Supra), the Hon'ble Bombay High Court noted that with regard to the claim for depreciation on actual, in the original assessment order, the claim was accepted on the footing that the actual acquired after 1st April 1998. The Hon'ble High Court noted that the assessee had not disclosed that the goodwill was actually acquired prior to 1st April 1998 which disentitled to it the claim of depreciation. In the case of Dr. Amin's Pathology Laboratory Vs. JCIT (Supra), the assessee had claimed and was allowed deduction for all purchases. However, the Hon'ble High Court noted that actually certain purchases remained unpaid which disentitled the assessee to the deduction and this fact was not disclosed in the original assessment proceedings. In the case of Kantamani Venkata Narayana & Sons Vs. Addl. ITO (Supra), it was noted that the assessee had failed to disclose in his return large investments made by him in his money lending business and accretion of wealth below disproportionate to his known sources. The Hon'ble Supreme Court noted that the assessee did not discharge his duty. In the case of Malegaon Electricity Co. Pvt. Ltd. Vs. CIT (Supra), it was noted that there was no full and true disclosure since the relevant fact viz., the price realized in excess of Written Down Value (WDV) of the assets and the WDV of the assets was not disclosed by the assessee. In the case of Dalmia Pvt. Ltd. Vs. CIT (Supra), the assessee did not disclose the firms' names and addresses of creditors to the tune of Rs. 32,97,505/-. It was held by the Hon'ble Delhi High Court to be failure to disclose fully and truly all material facts. The decision in the case of Consolidated Photo and Finwest Ltd. Vs. ACIT (Supra) has been commented upon by a later Bench of the Hon'ble Delhi High Court in the case of KLM Royal Dutch Airlines Vs. ACIT (2007), 292 ITR 49 (Del.) as not to lay down the correct law. In the case of Anusandhan Investments Ltd. Vs. DCIT (Supra), the Hon'ble Bombay High Court noted that information which surfaced in the subsequent A.Y. viz. A.Y. 1993-94 was not available in the year under consideration viz., A.Y. 1992-93. It was further noted therein that the notice u/s. 148 was issued on December 5, 1996 which was within a period of 4 years. The decision of Hon'ble Supreme Court in the case of ITO Vs. Saradbhai M. Lakhani (Supra) is relating to the A.Y. 1988-89 and therefore, governed by the old law containing Sec. 147(b) which does not survive on the statute book. The decisions in the cases of CIT Vs. Tata Engineering and Locomotive Co Ltd. (Supra) and CIT Vs. Elbee Services Pvt. Ltd. (Supra) of the Hon'ble Bombay High Court are also not applicable in the present case as in the present case, assessee company has relied upon the application for obtaining the N.O.C and the actual N.O.C issued by the A.O for the limited purpose of establishing the relevant facts that the consideration for technical know-how was paid for in kind, i.e. by issuance of shares, was fully and truly disclosed to the A.O..
30. Likewise, the decisions in the cases of CIT Vs. Sun Engineering Work Pvt. Ltd. (Supra) and Blue Star Ltd. Vs. CIT (Supra) relied upon by the Ld. D.R. deal with "doctrine of precedent" and the manner in which an earlier precedent needs to be applied. The decision in the case of Jagdish Prasad Vs. CIT (Supra) relied upon by the Ld. A.R. for the proposition that a disclosure of fact can be by other means and that when a particular fact is in the knowledge of the A.O, it is not necessary for the assessee to inform the A.O about it. On this issue, there is no contradiction between the Hon'ble Allahabad High Court decision in Jagapuri Vs. CIT (Supra) and Addl. CIT Vs Hasmat Rai Rajpal (Supra) relied upon by the ld. D.R. In the case of Hasmat Rai Rajpal, the assessee did not disclose huge deposits and consequently the court upheld the re-assessment proceedings. In the decision in the case of ITO Vs. Lakmani Mewaldas (Supra) the Hon'ble Supreme Court has been pleased to observe that the duty of the assessee in any case does not extend beyond making a true and fair disclosure of primary facts. Once he has done that his duty ends. It is for the Income Tax Officer to draw the correct inference from the primary facts. It is not the responsibility of the assessee to advise the Income Tax Officer with regard to the inference which he should draw from the primary facts. If an Income Tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for re-opening assessment. This decision of Hon'ble Supreme Court rather supports the case of the assessee. The decision of Hon'ble Patna High Court in the case of Maha Sukhram Madanlal Vs. CIT (Supra) is concerned that A.Y. 1943-44 in relation to which a notice under old Sec. 34 of Indian Income Tax Act 1922 was issued on 9th September 1946. The notice was issued within a period of 4 years under the old Sec. 34 and consequently deals with provision of law which are not applicable or required to be interpreted in the present appeal.
31. The Ld. D.R. Shri Sunil Ganoo has also tried to define the word "lumpsum" with the assistance of Oxford Dictionary as per which a sum covering a number of items, and secondly money paid down at once. The Ld A.R Shri Dinesh Vyas also tried to define the payment of lumpsum consideration for acquiring any know-how as per the Contract Act. He submitted further that the decision in the case of Emico and KCP Ltd (Supra) is not applicable in the present case as in that case technical know-how paid in A.Y. 1969- 70 was claimed by the assessee as a revenue expenditure. The A.O denied this payment as revenue expenditure but considered same as of capital in nature and allowed 1/4th of the same u/s. 35A which deals with expenditure on acquisition of patent or copy right. On the other hand, the present assessee has claimed the deduction of technical know-how u/s. 35AB. Section 35 AB was introduced from the A.Y. 1986-87 specifically for expenditure on technical know-how. The Section reads any lumpsum consideration for acquiring any know-how for use for the purposes of business, 1/6th of amount so paid shall be deducted in computing the profits and gains of the business of that previous year. The Ld. A.R. asserted that the consideration denotes the consideration in cash or in kind. Any way, we are not going to decide the present case on merits (issue no. 2) since the only issue raised before us is the validity of the action of Ld CIT(A) in holding the assessment order framed u/s. 147 r.w.s. 143(3) as null and void since the assessee had disclosed all material facts necessary for his assessment fully and truly, hence initiation of re-opening after the expiry of 4 years from the end of the relevant A.Y. was not justified under the proviso to Sec. 147 of the Act. We have already decided the issue (No.1) in favour of the assessee and rejected the ground of appeal involving the issue preferred by the Revenue. The issue no. 2 has thus been turned academic only.
32. In result, appeal is dismissed.
C.O. No. 25/PN/200533. The C.O. has been preferred by the assessee only in support of the first appellate order holding that Department can not re- open the assessment order pertaining to A.Y. 1995-96 u/s. 147 of the Act, hence order dated 27-3-2003 passed u/s. 147 r.w.s. 143(3) was rightly set aside. In view of the above decision on the issue in the appeal preferred by revenue, the present C.O has become infructuous. The same is thus dismissed as such.
33.1. Before parting with the order, we would like to record our appreciation for extending proper assistance to the Bench by both the Ld. Authorized Representatives Shri Sunil Ganoo for the revenue and Shri Dinesh Vyas for the assessee.
10ITA NO. 918/PN/2004 &CO.No.25/PN/2005 Daimler Chrysler India Pvt. Ltd.
(Asstt. Year 1995-96)
34. Consequently, both the appeal and Cross Objection are dismissed.
The order is pronounced in the open Court on 23rd May 2012.
Sd/- Sd/-
(R.K. PANDA) (I.C. SUDHIR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, dated the 23rd May, 2012
US
Copy of the order is forwarded to :
1. The Appellant
2. The Respondent
3. The CIT IV,CIT-V, Pune
4. The CIT(A)-III, Pune
4. The D.R. "A" Bench, Pune
5. Guard File
By order
Senior Private Secretary
Income Tax Appellate Tribunal
Pune