Bharti Infotel Ltd., New Delhi vs Department Of Income Tax

ACIT, Circle 2 (1), vs. M/s. Bharti Infotel Ltd. New Delhi. (now Bharti Airtel Ltd.), H - 5/12, Qutab Ambience, Mehrauli Road, New Delhi.

(PAN : AAACB2798R)

(APPELLANT) (RESPONDENT)

ASSESSEE BY : Shri Anil Bhalla, CA REVENUE by : Ms. Y. Kakkar, Senior DR

Date of Hearing : 13.04.2015 Date of Pronouncement : 20.04.2015

ORDER

PER GEORGE GEORGE K., JM :

This appeal, at the instance of the revenue, is directed against the

order of the CIT (A)-X, New Delhi dated 23.10.2012. The relevant

assessment year is 2004-05.

2. The effective grounds raised are as follows :-

"1. The Ld. CIT (A) has erred on facts in law in deleting the addition made on account of technical know-how fees amounting to Rs.73248000/- ignoring the fact that the assessee company at the time of reassessment proceedings were given 2 ITA No.6343/Del./2012

ample opportunity to substantiate its claim and was requested to provide justification/submission/provide proof of the claim.

2. The Ld. CIT (A) erred in holding that because at the time of initiation of proceeding u/s 147 the AO had not recorded reason towards claim of incorrect technical knowhow fees, the addition made on this ground subsequently in the assessment order could not survive."

3. Brief facts of the case are as follows. The assessee is a company

engaged in the business of providing basic telephonic services. For the

relevant assessment year, return of income was filed on 01.11.2004,

declaring nil income. Assessment was completed vide order dated

29.12.2006 wherein the total income was assessed at Rs.1.69 crores.

Subsequently, assessment was reopened on 21.09.2007 by issuance of

notice u/s 148 of the Income-tax Act, 1961 (for short, the Act), for the

reason that the provision for doubtful debts ought to be taxed u/s 115JB of

the Act. In the course of reassessment proceedings, it was explained that

the provisions for doubtful debts are made as per the company's policy and

it is not a contingent liability in terms of section 115JB of the Act. In

support of the contention, the assessee relied on the judgment of Hon'ble

Supreme Court in the case of HCL Comet Systems and Services Ltd. The

AO accepted the submissions of the assessee's company and made no

addition. However, the AO issued a show-cause notice on 05.12.2008

stating that assessee had claimed technical know-how fees amounting to

Rs.7,32,48,000/- as revenue expenditure and why said expenses should not 3 ITA No.6343/Del./2012

be treated as capital expenditure. The reassessment was completed vide

order dated 29.12.2008 wherein the technical know-how fees claimed as

revenue expenditure was disallowed as capital expenditure.

4. Aggrieved assessee preferred an appeal before the first appellate

authority. Before the CIT (A), it was submitted that since the reasons

recorded for issuance of notice u/s 148 of the Act was explained and no

addition was made, the Assessing Officer ceased to possess jurisdiction u/s

147 to assessee any other income. For the above proposition, reliance was

placed on the judgment of Hon'ble jurisdictional High Court in the case of

Ranbaxy Laboratories Ltd. vs. CIT - 336 ITR 136, which in turn had

followed the judgment of Hon'ble Bombay High Court in the case of CIT

vs. Jet Airways (I) Ltd. - 331 ITR 236. The CIT (A) allowed the appeal

of the assessee by holding that reopening of assessment is not valid. The

CIT (A) followed the judgments of Hon'ble Delhi High Court in the case

of Ranbaxy Laboratories Ltd. vs. CIT (supra) and Hon'ble Bombay High

Court in the case of CIT vs. Jet Airways (I) Ltd. (supra). The CIT (A) did

not adjudicate the issue on merits, since the reopening was held to be

invalid. The relevant finding of the CIT (A) read as under :-

"4. The issue involved and the submissions made by the appellant have been considered. From the assessment order and page 14 to 15 of the paper book it has been seen that proceedings u/s 147 were initiated on the issue of 'provision for doubtful debts' but in the assessment order passed on 29.12.2008 no addition has been made on this account; rather addition has been made on account of technical 4 ITA No.6343/Del./2012

knowhow, which is not in order in view of the judgements referred to by the appellant-"the AO had the jurisdiction to reassess issues other than the issues in respect of which proceedings are initiated but he was not so justified when the reasons for the initiation of those proceedings ceased to survive." Therefore the addition made the AO is deleted and the ground of appeal is allowed.

5. Since appeal is allowed on legal ground, ground of appeal no.2 is not adjudicated."

5. The revenue being aggrieved is in appeal before us.

6. The ld. DR submitted that the CIT (A) is not justified in following

the judgment of Hon'ble jurisdictional High Court in the case of Ranbaxy

Laboratories Ltd. vs. CIT (supra), since the said judgment has not

considered the amendment to the Third Proviso to Section 147

(amendment w.e.f. 1.7.2012 by Finance Act, 2012). It was submitted by

the ld. DR that the judgment was rendered prior to the amendment and

their Lordships have no occasion to consider the above said amendment.

On the other hand, ld. AR reiterated the submissions made before the

Income-tax authorities. It was further stated that the Third Proviso to

Section 147, as it stands now, in no way, help/advance the case of the

revenue.

7. We have heard rival submissions and perused the material on

record. The solitary issue that arises for our consideration is whether the

CIT (A) is justified in quashing the reassessment. The CIT (A) has

quashed the reassessment for the reason that when no addition is made for 5 ITA No.6343/Del./2012

the reasons recorded for issuance of notice u/s 148 of the Act, the AO

ceased to possess jurisdiction u/s 147 of the Act to tax any other income.

In the instance case, reasons were recorded u/s 148(2) of the Act to bring

to tax u/s 115JB of the Act "Provisions for doubtful debts". However, no

addition was made on this account when reassessment order u/s 147 read

with section 143(3) was passed on 29.12.2008 Rather addition was made

on account of disallowance of technical know-how fees for the reason that

the said expenses were not revenue in nature. The above issue for our

consideration is no longer res integra, since the Hon'ble jurisdictional High

Court in the case of Ranbaxy Laboratories Ltd. vs. CIT (supra) held that

when reasons are recorded for bringing to tax 'X' income and no

assessment is made on the 'X' income, the AO does not possess the

jurisdiction to tax any other income in the reassessment order. The

Hon'ble jurisdictional High Court agreed with the judgment of Hon'ble

Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. (supra).

The relevant finding of the Hon'ble Bombay High Court, after considering

the Explanation 3 to section 147, reads as follows :-

"11. ... Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under Section 147 and following the issuance of a notice under Section 148, the Assessing Officer has the power to assess or reassess the income which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words "and also" cannot be ignored. The interpretation which the Court places on the provision should 6 ITA No.6343/Del./2012

not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word "and". The words "and" as well as "also" have been used together and in conjunction."

...

Evidently, therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe Under Section 147 and the issuance of a notice under Section 148(2) must assess or reassess: (i). 'such income'; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words 'such income' refer to the income chargeable to tax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under Section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of Section 147 with effect from 1st April 1989 clearly stipulated that the Assessing Officer has to 7 ITA No.6343/Del./2012

assessee or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment the former, he cannot independently assess the latter."

Section 147 has this effect that the Assessing Officer has to assessee or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings However, if after issuing a notice under Section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under Section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee."

8. In view of the above Hon'ble High Court judgment, we hold that the

CIT (A) is justified in quashing the reassessment proceedings.

9. Before concluding, it is necessary to deal with the ld. DR's

contention that the Third Proviso to Section 147 of the Act in fact

advances the case of the revenue. To understand the contention of the ld.

DR. The Third Proviso, as it stands now, is reproduced below :

"Provided [also] that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

8 ITA No.6343/Del./2012 The Third Proviso was inserted by the Finance Act, 2008, w.e.f. 1.4.2008.

However, the word "also" was substituted for the word "further" by

Finance Act, 2012 w.e.f. 1.7.2012. The contention of the ld. DR is that by

virtue of the Third Proviso, as it stands now, the AO may now assess or

reassess any income irrespective whether the income is not assessed for

which the reopening has been initiated. This contention of the ld. DR, we

are afraid, is de hors any merit. The Third Proviso only brings about

restriction in assessing income involving matters which are subject matter

of any appeal, reference or revision. In no way, the Third Proviso helps

the case of the revenue.

10. In the result, for the aforesaid reasoning, we dismiss the appeal of

the revenue. It is ordered accordingly.

Order pronounced in open court on this 20th day of April, 2015.

Sd/- sd/- (T.S. KAPOOR) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated the 20th day of April, 2015 TS

Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-X, New Delhi 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.