Income Tax Appellate Tribunal - Mumbai
Ups Freight Services India P.Ltd, ... vs Ito 10(3)(3), Mumbai on 30 June, 2017
आयकर अपील य अ धकरण "एफ" यायपीठ मुंबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "F" BENCH, MUMBAI BEFORE SHRI RAJENDRA, AM AND SHRI SAKTIJIT DEY, JM आयकर अपील सं./I.T.A. No. 7036/Mum/2014 ( नधारण वष / Assessment Year: 2007-08) UPS Freight Services India Private ITO-10(3)(3), Limited Aayakar Bhavan, (Formally known as Fritz Freight Mumbai-400 020 Forwarding India Private Limited) बनाम/ Compartment No. 10/11, Bhagwati Compound Plot 1, Vs. 2, Marol Co-operative Industrial Estate, Off. M. V. Road, Andheri (E), Mumbai-400 059 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAACF 0671 R (अपीलाथ /Appellant) : ( यथ / Respondent) अपीलाथ क ओर से / Appellant by : Shri P. J. Pardiwala यथ क ओर से/Respondent by : Shri B. S. Bist सनु वाई क तार ख / : 07.06.2017 Date of Hearing घोषणा क तार ख / : 30.06.2017 Date of Pronouncement आदे श / O R D E R Per Saktijit Dey, J. M.:
This is an appeal by the assessee against the order dated 17.9.2014 of Commissioner of Income Tax (Appeals)-22, Mumbai ('CIT(A)' for short) for the assessment year (A.Y.) 2007-08.2
ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO
2. In ground no. 1 along with its sub grounds, the assessee has challenged the validity of reopening of assessment u/s. 147 of the Act. Since, the issue raised in the afore-said ground is purely legal and jurisdictional issue, going to the root of the matter, we propose to deal with the same at the very outset.
3. Briefly the facts which are relevant for deciding the issue are, the assessee a company, at the relevant time was engaged in the business of freight forwarding logistic services. Subsequently, the assessee transferred its assets relating to freight forwarding and logistic business to UPS SCS (India) Pvt. Ltd. w.e.f. 01.4.2006. For the assessment year under dispute, the assessee filed its return of income on 31.12.2008 declaring income of Rs.80,59,171/-. The assessment in case of the assessee was originally completed u/s. 143(3) of the Act vide order dated 12.11.2009. Subsequently, the Assessing Officer (A.O.) on examining the assessment records found that the assessee had received an amount of Rs.1.94 crores on account of transfer of customer data base and human resources which was treated by the assessee as capital receipt, hence, not taxable. The A.O. was of the opinion, since, the customer data base and human resources are linked to the activities carried on by the assessee, it is chargeable to tax as revenue receipt. Accordingly, after recording reasons, A.O. proceeded to reopen the assessment u/s. 147 of the Act by issuing a notice u/s. 148 of the Act. In response to the notice issued u/s. 148 of the Act, the assessee appeared before the A.O. and objected to the initiation of proceedings u/s. 147 of the Act. As 3 ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO far as the issue of taxability of the amount received towards transfer of customer data base, it was submitted by the assessee that at the time of original assessment proceeding, the A.O. has examined the issue in detail by verifying the relevant agreement, valuation report etc. and concluded that the amount received is not taxable. It was submitted, in absence of any other tangible material brought on record, the reopening of assessment on the very same issue concluded in the original assessment proceeding amounts to reopening on a mere change of opinion. Besides objecting to the validity of reopening, the assessee also submitted that the amount in question being in the nature of capital receipt, is not taxable. The A.O., however, did not find merit in any of the submissions of the assessee and proceeded to complete the assessment by treating the amount of Rs.1.94 crores received by the assessee on account of transfer of customer data base and human resource as in the nature of revenue receipt and added it to the income of the assessee.
4. Being aggrieved of the assessment order so passed, the assessee preferred an appeal before the ld. CIT(A), inter alia, on the ground that the reopening of assessment is invalid.
5. The ld. CIT(A), however, rejecting the grounds raised by the assessee confirmed the assessment order.
6. The ld. Authorized Representative (AR) submitted before us, in the computation of total income filed along with the return of income the assessee has 4 ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO specifically stated that the amounts received from transfer of human resources and customer relationship value is in the nature of capital receipt, hence not taxable. Alternatively, it was also stated that since the cost of acquisition of these assets are unascertained, as per the decision of Hon'ble Supreme Court in the case of CIT vs. B. C. Srinivasa Shetty 128 ITR 294, the computation of capital gain cannot be made. He submitted, in a separate note attached to the return of income, the assessee has made a detailed submission with regard to non taxability of the amount received towards transfer of human resource and customer relationship value. The ld. AR submitted, during the original assessment proceeding after examining the return of income and other material, the A.O. had not only enquired into the issue but called upon the assessee to furnish various details in relation to the transfer of assets to UPS SCS (India) P. Ltd. He submitted, in response to the query raised by the A.O., the assessee had furnished all details relating to transfer of assets including the transfer of human resources and customer relationship value. In this context, the ld. AR drew our attention to assessee's reply dated 11.11.2009 along with Annexure, a copy of which is at page 21 of the paper book. He submitted, before that, on 06.11.2009, the assessee had furnished details of transfer of assets to UPS SCS (India) P. Ltd. He submitted, the A.O. after making enquiry and examining the materials brought on record as well as submissions made by the assessee, with due application of mind has completed the assessment accepting assessee's claim that the amount received on account of transfer of human resource and customer relationship being a capital receipt, is not taxable. He 5 ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO submitted, inspite of the fact that the issue was examined by the A.O. during the original assessment proceeding and while accepting the assessee's claim, he has already formed opinion, without any fresh tangible material brought to on record, the A.O. re-examining the materials already available on record and considered in the original assessment proceeding has reopened the assessment on a mere change of opinion that the amount received by the assessee is not a capital receipt. He submitted, in absence of any fresh material brought on record indicating escapement of income, the A.O. cannot reopen the assessment u/s. 147 by relying upon the material which was considered at the time of original assessment. In support of such contention, the ld. AR relied upon the following decisions:
1 CIT vs. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) 2 Idea Cellular Ltd. v. Dy. CIT [2008] 301 ITR 407 (Bom) 3 GKN Sinter Metals Ltd. v. Ms. [2015] 371 ITR 225 (Bom) Ramapriya Raghavan, ACIT
7. The ld. Departmental Representative (DR) submitted, in case of the assessee reopening of assessment u/s. 147 of the Act was made within a period of four years from the end of the relevant previous year, therefore, the proviso to section 147 is not applicable. On the other hand, Explanation 1 to section 147 would apply. He submitted, perusal of the original assessment order clearly reveals that the A.O. has neither examined nor applied his mind to the materials available on record as far as it relates to the amount received on transfer of human resource and customer relations value. He submitted, though it may be a fact that the assessee in the return of income 6 ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO and in the course of original assessment proceeding has furnished information/material relating to the transfer of assets to another company, however, the A.O. has not examined those materials in proper prospective to determine the nature and character of the receipt. He submitted, when the A.O. in the original assessment proceeding has neither enquired into nor examined the issue relating to the nature and character of the amount received by the assessee from transfer of the human resources and customer relies value, there is no question of change of opinion as no opinion was formed by the A.O. while completing the original assessment. He submitted, subsequently the A.O. while examining the materials available on record in assessment record having found the omission on the part of the A.O. which resulted in escapement of income has exercised his powers u/s. 147 of the Act. Therefore, the validity of the reopening cannot be challenged.
8. We have patiently and carefully considered the submissions of the parties and perused the materials on record and have applied our mind to the decisions placed before us. Undisputed facts are, the assessee has not only filed its return of income voluntarily as provided u/s. 139(1) of the Act, but, the assessment in case of the assessee was also completed originally u/s. 143(3) of the Act which presupposes that the A.O. has completed the assessment after examining the facts and materials on record. It is evident, in the computation of total income filed along with the return of income, the assessee had specifically mentioned the reason for not offering to tax the 7 ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO amount received from transfer of human resource and customer relationship value. Further in a separate note attached to the return of income, the assessee had again made elaborate submissions, why the amount received on account of customer relationship and human resource is not taxable. It is relevant to observe, during the original assessment proceeding, the return of income along with the computation of total income was subject matter of scrutiny by the A.O. as it forms the very basis of a scrutiny assessment. Further, from the reply dated 06.11.2009 along with its Annexure as submitted in the paper book, it is noticed that in response to query raised by the A.O., the assessee has not only furnished the details of assets transferred to UPS SCS (India) P. Ltd., but also submitted a detailed note in respect of item-wise assets transferred along with the copy of the agreement between the parties. Further from letter dated 11.11.2009 filed by the assessee during the original assessment proceeding, it is observed that not only the A.O. had specifically called upon the assessee to furnish the valuation report in respect of assets transferred to UPS SCS (India) P. Ltd., but, the assessee also furnished valuation report in respect of assets transferred along with the working of capital gain. Thus, from the afore-said facts and material brought on record, it is clearly proved that during the original assessment proceeding, the A.O. has examined all issues relating to the transfer of assets to UPS SCS (India) P. Ltd., including the transfer of human resource and customer relationship. In the backdrop of the aforesaid facts emerging from the record, let us 8 ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO examine the reasons on which the A.O. has reopened the assessment u/s. 147 of the Act, which is as under:
No. ITO10(3)(3)/DO/2012-13 Date: 11.12.2012
Principal Officer
UPS Freight Services India Pvt Ltd
901, Alpha Matn Street,
Hiranandani Garden, Powai
Mumbai-400 076
Sir,
Sub: Reopening u/s. 147 in your case - A.Y. 2007-08 - regarding Please find the reasons recorded for reopening the assessment in your case for A.Y. 2007-08 as under:
"The assessment records reveal that the assessee has received an amount of 1.94 crore on account of transfer of customer database and human resource. The assessee treated the same as capital receipts and did not offer the same for tax, neither as business receipts nor as capital receipt. As customer database and human resources are linked to the activities carried on by the assessee company, the same are chargeable to tax as revenue receipts. As amount received towards transfer of skilled human resources and sharing of database is revenue receipts chargeable to tax.
9. From the afore-said reasons recorded by the A.O., prima facie, it is evident that on examining the assessment records, the A.O. forms an opinion that the amount of Rs.1.94 crores received on account of transfer of customer data base and human resource is taxable as revenue receipt. Thus, it is clearly evident that the A.O. has formed his opinion on the basis of materials already available in the assessment record at the time of original assessment proceeding and there is no fresh tangible material, coming to the possession of the A.O. after completion of the original assessment. In fact, the aforesaid factual position has not been disputed by the ld. DR. He has 9 ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO supported the reopening of assessment on the reasoning that the A.O. did not examine the issue during the original assessment proceeding. However, as per the facts discussed in the earlier paragraphs, we have found that in course of original assessment proceeding, the A.O. not only enquired into all the issues relating to transfer of assets, including transfer of human resource and customer relationship, but after applying his mind to the materials brought on record, he completed assessment u/s. 143(3). Therefore, the contention of the ld. DR that the A.O. did not examine the issue in the original assessment proceeding, is unacceptable.
10. Therefore, the A.O. having examined the issue in the original assessment proceeding and formed an opinion that the amount received by the assessee on account of transfer of human resource and customer relationship, is not taxable, the reopening of the assessment on the issue by revisiting the very same material which were considered at the time of original assessment, amounts to review of the earlier order on a mere change of opinion, which is impermissible. In this context, we rely upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. (supra), wherein the Hon'ble Supreme Court held that reopening of assessment cannot be made on the basis of mere change of opinion. The Hon'ble Supreme Court observed, once an opinion was formed by the A.O. while completing the original assessment, it cannot be reviewed by taking recourse of section 147 of the Act. Same view has been expressed in other decisions cited before us by ld. AR. In 10 ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO fact, in case of GKN Sinter Metals Ltd. (supra), the Hon'ble Bombay High Court while dealing with similar issue held as under:
14. Mr. Chhotrary, learned Counsel appearing for the Revenue submits that there has been no formation of opinion on allocation of expenditure amongst the three manufacturing units by the Assessing Officer as the Assessment Order dated 9th March, 2005 passed under Section 143(3) of the Act contains no discussion on the same. According to the Revenue, it could only be when the assessment order contains discussion with regard to particular claim can it be said that the Assessing Officer had formed an opinion with regard to the claim made by the assessee. This Court in Idea Cellular Ltd. v Dy. CIT [2008] 301 ITR 407 has expressly negatived on identical contention on behalf of the Revenue. The Court held that once all the material was placed before the Assessing Officer and he chose not to refer to the deduction/claim which was being allowed in the assessment order, it could not be contended that the Assessing Officer had not applied his mind while passing the assessment order.
Moreover in this case, it is evident from the letter dated 6th August, 2007 addressed by the Assessing Officer to the Petitioner containing the reasons recorded for issuing the impugned notice also record the fact that during the regular assessment proceedings, the Petitioner has been asked to furnish details in support of the claim for exemption under Section 80IA/IB of the Act. The letter further records that the details sought for were furnished and it is now observed that there has been a dis-proportionate distribution of expenses between various units belonging to the Petitioner for claiming deduction under Section 80IA/IB of the Act. This is a further indication of the fact that the Assessing Officer had during the regular assessment proceedings for Assessment Year 2002-03 sought information in respect of the allocation of expenses and the explanation offered by the Petitioner was found to be satisfactory. This is evident from query dated 27th December, 2004 and the Petitioner's response to the same on 25th January, 2005 explaining the manner of distribution of common expenses for delaying the process of claiming deduction under Section 80IA/IB of the Act. All this would indicate that Assessing Officer had formed an opinion while passing the order dated 9th March, 2005. This Court in Aroni Commercials Ltd. v. Asstt. CIT [2014] 367 ITR 405 had occasion to consider somewhat similar submission made by the Revenue and negatived the same by holding that when a query has been raised with regard to a particular issue during the regular assessment proceedings, it must follow that the Assessing Officer had applied his mind and taken a view in the matter as is reflected in the Assessment Order. Besides, the manner in 11 ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO which an Assessing Officer would draft/frame his order is not within the control of an assessee. Moreover, if every contention raised by the assessee which even if accepted is to be reflected in the assessment order, then as observed by the Gujarat High Court in CIT v. Nirma Chemicals Ltd. [2009] 309 ITR 67/182 Taxman 183the order would result into an epic tome. Besides, it would be impossible for the Assessing Officer to complete all the assessments which have to under gone scrutiny at its hand. In the above view, it is clear that once a query has been raised during the assessment proceedings and the Petitioner has responded to the query to the satisfaction of the Assessing Officer as is evident from the fact that the Assessment Order dated 9th March, 2005 accepts the Petitioner's claim for deduction under Section 80IAIIB of the Act. It must follow that there is due application of mind by the Assessing Officer to the issue raised.
15. Therefore, as there is a change of opinion in issuing the impugned notice having regard to the opinion formed while passing the assessment order under Section 143(3) of the Act, the Assessing Officer would cease to have any reason to believe as held by the Supreme Court in Kelvinator of India Ltd. (supra). Moreover, the power to re-assess under Section 147/148 of the Act is not a power to review an order of assessment passed under Section 143(3) of the Act.
11. Thus law is fairly well settled that in the absence of any tangible material, the assessment cannot be reopened merely on a change of opinion. Though, it is not necessary to deal with all the decisions relied upon by the ld. AR, however, for the sake of clarity, we refer to the following decisions in this regard:
1. CIT v. Orient Craft Ltd. [2013] 354 ITR 536 (Del)
2. Alliance Space (P.) Ltd. vs. ITO [2015] 375 ITR 473 (Bom)
3. Pr. CIT vs. Tupperware India (P.) Ltd. [2016] 236 Taxman 494 (Del HC)
12. Thus, after examining the facts of the present case, we are of the view that the issue relating to the amount received by the assessee's transfer of various assets including human resources and customer relationship was not only examined by the 12 ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 ) UPS Freight Services India Private Limited (Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO A.O. during the original assessment proceeding, but the A.O. also formed an opinion while accepting the assessee's claim of non taxability of the said amount. Therefore, the A.O. having formed an opinion during the original assessment proceeding, it cannot be a subject matter of review in the garb of reassessment proceeding u/s. 147 of the Act. Therefore, we hold that the initiation of proceeding u/s. 147 of the Act in the present case is invalid. Accordingly, we quash the impugned assessment order passed u/s. 143(3) r/w s. 147 of the Act. Resultantly, the impugned order passed by the ld. CIT(A) is hereby set aside.
13. In the result, ground no. 1 is allowed.
14. In view of our decision in ground no.1, the other grounds raised on merit have become redundant. Hence, there is no need to adjudicate them.
15. In the result, the assessee's appeal is allowed.
प रणामतः नधा रती क अपील वीकृत क जाती है ।
Order pronounced in the open court on 30.06.2017
Sd/- Sd/-
(Rajendra) (Saktijit Dey)
लेखा सद य / Accountant Member या यक सद य / Judicial Member
मंब
ु ई Mumbai; दनांक Dated : 30.06.2017
व. न.स./Roshani, Sr. PS
13
ITA No. 70 3 6/ Mu m/ 2 0 14 ( A.Y . 2 00 7 -08 )
UPS Freight Services India Private Limited
(Formally known as Fritz Freight Forwarding India P. Ltd.) v. ITO आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR, ITAT, Mumbai
6. गाड फाईल / Guard File आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai