Botil Oil Tools (I) Pvt. Ltd., New Delhi vs Department Of Income Tax

Deputy CIT, vs. Botli Oil Tools (I) Pvt. Ltd., Circle 3(1), 4th Floor, Mohila Building, New Delhi. 4-Bhikaji Cama Place, New Delhi. (PAN: AAACB0222G) (Appellant) (Respondent)

Appellant by: Shri Y. Kakkar. DR Respondent by: Shri Anil Bhalla, CA

Date of hearing : 16.12.2014 Date of pronouncement: :02.2015

ORDER

PER I.C. SUDHIR: JUDICIAL MEMBER ITA No. 4741/Del/2013:

The Revenue has questioned first appellate order mainly on the

ground that the Learned CIT(Appeals) has erred in annulling the assessment

order under section 143(3)/147 of the Income-tax Act, 1961 while holding

the reopening under section 147 as invalid.

2. We have heard and considered the arguments advanced by the parties

in view of orders of the authorities below, material available on record and

the decisions relied upon.

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3. The facts in brief are that the assessee filed its return of income on

29.10.2009 declaring income of Rs.5,81,20,574 which was processed under

sec. 143(1) of the Act. Later on, the case was selected for scrutiny and

assessment was framed on 29.12.2006 at assessed income of Rs.6,42,94,200.

Subsequently, the Assessing Officer noted from the records that the assessee

company had paid royalty of Rs.75,52,343 to M/s. Chancellor Oil Tools, a

company incorporated under U.S. Law. The Assessing Officer noted that as

per the decision of Hon'ble Supreme Court in the case of Southern Switch

Gear Ltd. vs. CIT - 232 ITR 359 (S.C), 25% of royalty payment has to be

capitalized. He accordingly worked out the amount of Rs.18,86,085 (25% of

Rs.75,52,343) which should have been capitalized. This resulted in

escapement of income to the tune of Rs.18,88,085, reasoned the Assessing

Officer. The Assessing Officer noted further that the facts of this year are

similar to the facts of assessment year 2006-07, hence, for this year also, the

royalty expenses should have been capitalized. He accordingly issued notice

under sec. 148 of the Act. The assessee objected the proceedings on the

ground that the issue has already been scrutinized by the Assessing Officer

under sec. 143(3) of the Act and allowed the claim as business revenue

expenditure and that mere change of opinion is not a valid ground for

reopening of assessment under section 147 read with section 148 of the Act. 3

The Assessing Officer did not agree with the objection and rejected the

same. The Learned CIT(Appeals) has, however, accepted the contention of

the assessee and held that the reopening of assessment proceedings was

based on mere change of opinion, hence, the Assessing Officer was not

justified in reopening of the assessment under sec. 147 of the Act. He held

that the reopening proceedings is void-ab-initio and consequently held the

order passed under sec. 143(3) read with section 147 as annulled. Against

this action of the Learned CIT(Appeals), the Revenue is in appeal.

4. At the outset of hearing, the learned AR pointed out that the issue

raised is fully covered by the decision of the ITAT in the case of assessee

itself for the assessment year 2003-04 vide order dated 14.11.2014 in ITA

No.4740/Del/2004, a copy whereof was made available to the Bench and

Learned DR.

5. The Learned DR on the other hand submitted that different facts were

there before the ITAT for the assessment year 2003-04 as therein, the

reassessment proceedings have been held as barred by limitation as per the

proviso to sec. 147 of the Act. He submitted that there was no change of

opinion but escapement of assessable income was there as per the decision

of the Hon'ble Supreme Court in the case of Southern Switch Gear Ltd. vs.

CIT (supra). He placed reliance on the following decision to support his 4

contention that even the decision of Hon'ble court on an issue coming to the

knowledge of the Assessing Officer is information to be considered for

reopening of assessment:

i) Chandi Ram vs. ITO (1997) - 225 ITR 611 (Raj.); ii) Shri Krishna Pvt. Ltd. vs. ITO (1996) - 221 ITR 538 (S.C); &

iii) CIT vs. Nova Pan India Ltd. (1990) - 236 ITR 746 (AP).

6. The learned AR on the other hand reiterated the submissions made

before the authorities below, with this further submission that the decision of

the Hon'ble Supreme Court in the case of Southern Switch Gear Ltd. vs. CIT

(supra) was delivered on 21.12.1997 i.e. much prior to the scrutiny of

assessment order. He submitted that there was no change in the facts and law

relating to the issue involved. In the present case, after the assessment

framed under sec. 143(3) of the Act on 29.12.2006 which was passed by the

Assessing Officer after considering various aspects of the case, the case has

been subsequently reopened on the basis of same material which was already

available on record. It is not the case of the Assessing Officer that any new

information has come to his notice which could lead to the formation of

belief that income has escaped assessment. He placed reliance on the

following decisions:

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i) CIT vs. Kelvinator of India Ltd. - 123 Taxman 433 (Del.) affirmed by the Hon'ble Supreme Court reported in 187 Taxman 312 (S.C); &

ii) CIT vs. Munjal Showa Ltd. (2012) - 19 Taxman.com 39 (Del.).

7. Having considered the above submissions, we find that in the

assessment year 2003-04 in the reasons recorded, the Assessing Officer had

also shown Rs.5,02,778 (25% of Rs.20,11,115) which was to be capitalized

in view of the decisions of Hon'ble Supreme Court in the case of Southern

Switch Gear Ltd. vs. CIT (supra). Hence, it was held escapement of

assessable income. The ITAT held that all the three issues including issue of

25% capitalization of the royalty payment raised by the Assessing Officer

were dealt with during the original assessment under sec. 143(3) of the Act,

hence, it was a clear case of change of opinion, correctly held by the

Learned CIT(Appeals) following the ratios decidendi of the Hon'ble

Supreme Court in the case of Kelvinator India Ltd. - 320 ITR 561 (S.C)

wherein it was held that mere change of opinion cannot per se be reasoned to

reopen and does not confirm jurisdiction under sec. 147 of the Act. In the

Assessment year under consideration before us, this material aspect of the

case has not been rebutted that the issue of allowability of royalty of

expenses was duly considered by the Assessing Officer while framing the

original assessment under sec. 143(3) of the Act on 29.12.2006 and since 6

then, there was no change of law or material and the decision of the Hon'ble

Supreme Court in the case of Southern Switch Gear Ltd. vs. CIT (supra)

dated 11.12.1997 was very much in existence, when the original assessment

order was framed on 29.12.2006. We are thus respectfully following the

ratios laid down by the Hon'ble Supreme Court in the case of CIT vs.

Kelvinator India Ltd. (supra) hold that the Learned CIT(Appeals) has rightly

come to the conclusion that the Assessing Officer was not justified in

reopening of the assessment under sec. 147 of the Act holding the same as

void ab initio and consequently the assessment in question as annulled. We

thus hold that there is no infirmity in the first appellate order on the issue.

The same is upheld.

8. The decision relied upon by the Learned DR having distinguishable

facts are not helpful to the Revenue. In the case of Chandi Ram vs. ITO

(supra), the decision of the Hon'ble Supreme Court was pronounced after

issue of notice of reassessment, hence, reassessment was held valid as new

information was received by the Assessing Officer. In the case of Shri

Krishna Pvt. Ltd. vs. ITO (supra), there was failure on the part of the

assessee to disclose material fact necessary for assessment. There is,

however, no dispute on the ratio laid down by the Hon'ble Andhra Pradesh 7

High Court in the case of CIT vs. Nova Pan India Ltd. (supra) that

"information" includes information as to relevant judicial decisions. Here

also, the facts were different as the decisions of hon'ble court had come to

the knowledge of the ITO after assessment was framed. The decision of

Hon'ble Delhi High Court in the case of CIT vs. Munjal Showa Ltd. (supra),

relied upon by the learned AR is on the other hand squarely covers the issue

raised having almost similar facts. In that case also, the reopening of

assessment proceedings were initiated in view of the decision of the Hon'ble

Supreme Court in the case of Southern Switch Gear Ltd. (supra) that 25% of

the royalty expenses should have been considered as capital expenditure.

The ITAT set aside the reassessment proceedings holding that it was based

on a mere change of opinion. On Revenue's appeal before the Hon'ble High

Court, it was noted that question of payment of royalty was examined before

the assessment order under sec. 143(3) was passed and the decision of the

ITAT was approved.

9. In view of the above discussion, we do not find substance in the

contentions of the Revenue raised in ground of the appeal. The ground is

accordingly rejected.

10. In result, the appeal is dismissed.

8 ITA No.3624/Del/2013:

11. The Revenue has questioned action of the Learned CIT(Appeals)

whereby he has deleted the penalty imposed under sec. 271(1)(c) of the Act

amounting to Rs.8,44,316. The contention of the Revenue in the ground

raised is that the Learned CIT(Appeals) while deleting the penalty has

ignored the fact that assessee had made a wrong claim of Rs.23,07,349 in

relation to the commission of the ex-gratia paid to its directors even though

the same was not allowable as per the provisions of sec. 36(1)(ii) of the

Income-tax Act, 1961 and that the findings of the Assessing Officer were

confirmed by the Learned CIT(Appeals).

12. In support of the ground, the Learned DR has reiterated the penalty order with this submissions that the assessment has escaped with a wrong claim made deliberately by the assessee to evade tax had the scrutiny assessment be not taken in the case.

13. The learned AR, however, pointed out that the penalty in question

also does not stand since in between the ITAT in the year under

consideration i.e. assessment year 2005-06 in ITA No. 2281/Del/2009 vide

order dated 29.8.2014 has decided the issue of validity of addition made on

account of payment of commission to its directors as not valid in view of the

decision of the Hon'ble jurisdictional High Court in the case of Meta Plast

Pvt. Ltd. vs. DCIT - 341 ITR 563 (Del.) holding that sec. 36(1)(ii) is not 9

attracted if the payment of commission is part of salary paid by the company

in terms of the appointment order, which is approved at the Annual General

Meeting. A copy of this order of the ITAT has been made available.

14. In view of the above submissions, we find that the very addition made

by a disallowance of Rs.23,07,349 on account of commission and ex-gratia

payment made to directors of the assessee company by invoking sec.

36(1)(ii) of the Act, which remained the subject matter of penalty in

question, has been deleted by the ITAT. The ITAT has also approved the

first appellate order in this regard on an identical issue for the assessment

year 2004-05 in ITA No.3821/Del/2008, following which the Learned

CIT(Appeals) in the assessment year under consideration has held the levy

of penalty as unjustified on the basis that in the assessment year 2004-05, the

Learned CIT(Appeals) has allowed the appeal of the assessee on the issue.

We thus do not find any reason to interfere with the first appellate order. The

same is upheld. The ground is accordingly rejected.

15. In result, the appeal is dismissed.

16. In summary, both the appeals preferred by the Revenue are dismissed.

The order is pronounced in the open court on 25 .02.2015

Sd/- ( T.S. KAPOOR ) Sd/- ( I.C. SUDHIR ) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 25 /02/2015 Mohan Lal 10

Copy forwarded to:

1) Appellant

2) Respondent

3) CIT

4) CIT(Appeals)

5) DR:ITAT

ASSISTANT REGISTRAR

Date Draft dictated on 24.02.2015 Draft placed before author 25.02.2015 Draft proposed & placed before the second member

Draft discussed/approved by Second Member. 25.02.2015 Approved Draft comes to the Sr.PS/PS Kept for pronouncement on File sent to the Bench Clerk 26.02.2015 Date on which file goes to the AR Date on which file goes to the Head Clerk.

Date of dispatch of Order.