COPERION IDEAL PRIVATE LIMITED v. COMMISSIONER OF INCOME TAX-II
[Citation -2015-LL-1009-4]

Citation 2015-LL-1009-4
Appellant Name COPERION IDEAL PRIVATE LIMITED
Respondent Name COMMISSIONER OF INCOME TAX-II
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 09/10/2015
Assessment Year 2002-03
Judgment View Judgment
Keyword Tags escaped assessment • original assessment • reason to believe • reopening of assessment • full and true disclosure of material facts • change of opinion
Bot Summary: In the first place, it is apparent that the said decision was not in the context of reopening of assessment sought to be made four years after the expiry of the relevant assessment year of the original assessment. Prior to 1st April 1989, in order to reopen an assessment the AO ought to have had reason to believe that the income of the Assessee has escaped assessment on account of the omission or failure by the Assessee to file a return or to disclose fully and truly all material facts necessary for assessment for that year. The escapement of income should be occasioned by reason of the failure on the part of the ITA No.557 of 2015 Page 5 of 8 assessee to make a return under section 139 or in response to a notice issued under sub-section(1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. In Haryana Acrylic Manufacturing Co. Ltd. v. CIT, 308 ITR 38, this Court reiterated the law in relation to reopening of an assessment under Section 147/148 of the Act after the expiry of four years after the assessment year for which the original assessment was made. Recently, in its decision ITA No.557 of 2015 Page 6 of 8 dated 22nd September 2015 in ITA No. 356 of 2013 this Court, in a case where reopening of assessment was sought to be made four years after the expiry of the original assessment, held that in order to reopen an assessment which is beyond the period of four years from the end of the relevant assessment year, the condition that there has been a failure on the part of the Assessee to truly and fully disclose all material facts must be concluded with certain level of certainty. The only reason for reopening the assessment was that the decision in Southern Switchgears Ltd. v. CIT 232 ITR 359, which was rendered by the Supreme Court several years earlier on 11th December 1997 was not noticed by the AO at the time of finalization of assessment at the first instance on 31st January 2005 under Section 143(3) of the Act. In light of the legal position after the amendment to Section 147 of the Act, as explained in CIT v. Kelvinator of India Ltd., the Court is of the view that, in a case where the assessment is sought to be reopened in 2009, four years after it was originally made, i.e. 2005, the mere fact that there was a judgment of the Supreme Court of 1997 which was not noticed ITA No.557 of 2015 Page 7 of 8 by the AO when he framed the original assessment cannot per se constitute the only material on the basis of which the assessment could have been reopened.


$ * IN HIGH COURT OF DELHI AT NEW DELHI 14 + ITA 557/2015 COPERION IDEAL PRIVATE LIMITED ..... Appellant Through: Mr. Salil Kapoor and Mr. Sumit Lalchandani, Advocates. versus COMMISSIONER OF INCOME TAX-II ..... Respondent Through: Mr. N.P. Sahni, Senior Standing counsel With Mr. Nitin Gulati, Advocate. CORAM: DR. JUSTICE S.MURALIDHAR MR. JUSTICE VIBHU BAKHRU ORDER % 09.10.2015 1. This appeal by Assessee under Section 260A of Income Tax Act, 1961 ( Act ) is directed against order dated 26 th September 2014 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 4375/D/2010 for Assessment year ( AY ) 2002-03. 2. Admit. 3. Having heard learned counsel for parties, following question of law is framed: Whether ITAT erred in law in upholding reopening of assessment by Assessing Officer under Section 147 of Income Tax Act, 1961 in facts of case? ITA No.557 of 2015 Page 1 of 8 4. Assessee filed its return of income for Assessment Year ( AY ) 2002-03 on 31st October 2002 declaring income at Rs.67,91,500. Assessee s case was selected for scrutiny under Section 143(1) of Act on 24th June 2003. order was passed on 31st January 2005 under Section 143(3), assessing income at Rs.71,46,170. One of items of expenditure was sum of Rs.20,71,489 under head Royalty & Cess . 5. On 5th September 2005, Assistant Commissioner of Income Tax ( ACIT ) issued notice under Section 154 of Act to Assessee seeking explanation on ground that there was mistake apparent from record since aforesaid amount should have been treated as capital expenditure as benefit was of enduring nature. Assessee replied to this notice on 21st September 2005 clarifying that (a) it was paying royalty at 5% on its domestic sales to M/s Coperion Waeschle Co. Germany on year to year basis; (b) that payment did not pertain to acquisition of technical knowhow and therefore was booked as revenue expenditure and debited to profit and loss (P&L) account. Assessee also pointed out that it had been paying royalty for previous 5-6 years based on turnover and in all those years it has been allowed as revenue expenditure. 6. It appears that audit objection was raised, in response to which ACIT wrote to Senior Audit Officer on 28th October 2005, clarifying that expenditure was rightly treated as revenue expenditure. 7. On 24th March 2009, more than four years after assessment was completed, ACIT penned reasons for reopening of assessment as ITA No.557 of 2015 Page 2 of 8 under: return of income in this case was filed on 31.10.2002 at income of Rs. 6791500 and processed u/s 143(1) IT Act, 1961 on 24.06.2003. Subsequently, case was selected for scrutiny and order u/s 143(3) IT Act, 1961 was passed on 31.01.2005 at assessed income of Rs. 7146170. Section 37 of IT Act, 1961, provides that any expenditure not being expenditure of capital nature laid out wholly or exclusively for purpose of business is allowable as deduction in computation of income chargeable under head 'profit and gain of business and profession'. Hon'ble Supreme Court had held (232 ITR 359 - Southern Switchgears Ltd. vs. CIT dated 11.12.1997) that grant of technical aid fees for setting up factory and right to sell products as per collaboration agreement is not allowable as revenue expenditure and was to be treated as capital expenditure. perusal of asstt. records for AY 02-03 reveals that assessee has debited amount of Rs 2071489/- under head 'royalty and cess' (Royalty Rs 1973337/-) that was of enduring nature and hence was capital expenditure and not allowable. As per decision of Hon'ble Supreme Court in aforesaid case, said expenditure is not allowable. In view of above facts of case, I have reasons to believe that income to tune of Rs 1973337/- has escaped assessment because of failure on part of assessee to disclose fully and truly material facts necessary for asstt. and hence notice u/s 148 is hereby issued for reopening u/s 147 of IT Act. 8. On that basis, notice was issued to Assessee on 30th March 2009 under Section 148 of Act seeking to reopen assessment for AY 2002-03. Assessee s objections to reopening were negatived and fresh order of assessment was passed on 30th November 2009 by Assessing Officer ITA No.557 of 2015 Page 3 of 8 ( AO ). amount of Rs.19,73,337 was added to income of Assessee and initiation of penalty proceedings was directed. 9. Commissioner of Income Tax (Appeals) [CIT (A)] allowed appeal of Assessee by order dated 2nd July 2010. ITAT, by impugned order dated 26th September 2014, allowed Revenue s appeal. 10. Reliance has been placed by Mr. N.P. Sahni, learned Senior Standing counsel for Revenue, on decision of Supreme Court in ALA Firm v. CIT (1991) 189 ITR 285 (SC) to urge that in similar circumstances where AO had overlooked binding precedent on issue, it was construed as sufficient material to justify reopening of assessment. 11. It requires to be noticed that in ALA Firm (supra) relevant AY was 1961-62. item of expenditure in respect of house property was allowed as deduction on ground that it was not assessable either as revenue or capital expenditure. When for subsequent AY 1962-63 Assessee filed its return showing nil income, Income Tax Officer issued notice on 3 rd September 1963 stating that amount ought to have been brought to tax in AY 1961-62 in view of decision of Madras High Court in Ramachari & Co. v. CIT (1961) 41 ITR 142. Following reply given by Assessee, ITO issued notice under Section 148 read with Section 147(b). Assessee objected to reopening of assessment. It was in above facts and circumstances, that Supreme Court held that material which constituted information and basis of which assessment was reopened was decision of Madras High Court which had not been ITA No.557 of 2015 Page 4 of 8 considered at time of original assessment. Accordingly, reopening of assessment was upheld. 12. There are at least two reasons why decision in ALA Firm (supra) would not be applicable in facts of present case. In first place, it is apparent that said decision was not in context of reopening of assessment sought to be made four years after expiry of relevant assessment year of original assessment. reopening was done not very long after initial assessment. Secondly, decision was rendered in respect of Section 147 of Act as it stood prior to its amendment with effect from 1st April 1989. 13. effect of change brought about to Section 147 by way of amendment with effect from 1st April 1989 requires to be examined. Prior to 1st April 1989, in order to reopen assessment AO ought to have had reason to believe that income of Assessee has escaped assessment on account of omission or failure by Assessee to file return or to disclose fully and truly all material facts necessary for assessment for that year. After amendment only requirement as far as Section 147 (1) is concerned is that AO should have reason to believe that income of Assessee has escaped assessment. However proviso to Section 147 (1) as amended kicks in where reopening is sought to be done after four years after end of relevant assessment year for which original assessment was made. This brings in requirement of AO satisfying himself of existence of either jurisdictional fact. escapement of income should be occasioned "by reason of failure on part of ITA No.557 of 2015 Page 5 of 8 assessee to make return under section 139 or in response to notice issued under sub-section(1) of section 142 or section 148" or "to disclose fully and truly all material facts necessary for his assessment, for that assessment year." 14. Supreme Court in CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) has held that, even in terms of amended Section 147 there has to be some tangible material for AO to have reason to believe that income has escaped assessment. Supreme Court emphasised that although power to reopen is much wider after amendment, words reason to believe needed schematic interpretation and that AO ought not be given power to reopen assessment on basis of mere change of opinion. It was emphasised that "re-assessment has to be based on fulfillment of certain pre-condition and if concept of 'change of opinion' is removed, as contended on behalf of Department, then, in garb of re-opening assessment, review would take place. One must treat concept of 'change of opinion' as in-built test to check abuse of power by Assessing Officer . Supreme Court held as under: Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to conclusion that there is escapement of income from assessment. 15. In Haryana Acrylic Manufacturing Co. Ltd. v. CIT, 308 ITR 38 (Del.), this Court reiterated law in relation to reopening of assessment under Section 147/148 of Act after expiry of four years after assessment year for which original assessment was made. Recently, in its decision ITA No.557 of 2015 Page 6 of 8 dated 22nd September 2015 in ITA No. 356 of 2013 (Commissioner of Income Tax II v. Multiplex Trading & Industrial Co. Ltd.) this Court, in case where reopening of assessment was sought to be made four years after expiry of original assessment, held that in order to reopen assessment which is beyond period of four years from end of relevant assessment year, condition that there has been failure on part of Assessee to truly and fully disclose all material facts must be concluded with certain level of certainty. 16. In present case, there was no failure on part of Assessee to disclose material particulars with return originally filed. On contrary, AO himself replied to audit objection pointing out that royalty was allowed to be claimed as revenue expenditure by Assessee for years earlier to AY 2002-03. copy of agreement under which royalty was being paid was provided to Revenue. only reason for reopening assessment was that decision in Southern Switchgears Ltd. v. CIT 232 ITR 359, which was rendered by Supreme Court several years earlier on 11th December 1997 was not noticed by AO at time of finalization of assessment at first instance on 31st January 2005 under Section 143(3) of Act. 17. In light of legal position after amendment to Section 147 of Act, as explained in CIT v. Kelvinator of India Ltd. (supra), Court is of view that, in case where assessment is sought to be reopened in 2009, four years after it was originally made, i.e. 2005, mere fact that there was judgment of Supreme Court of 1997 which was not noticed ITA No.557 of 2015 Page 7 of 8 by AO when he framed original assessment cannot per se constitute only material on basis of which assessment could have been reopened. When on same material, four years after assessment year for which original assessment is finalised, AO seeks to reopen assessment on basis of judicial precedent delivered more than eight years earlier, it would be case of mere 'change of opinion', something clearly held impermissible by CIT v. Kelvinator of India Ltd. (supra), threshold requirement of that AO should, on basis of some tangible material, conclude that there was escapement of income on account of Assessee failing to disclose material particulars, is not fulfilled in present case. Consequently, reopening of assessment was, in facts of present case, not justified. 18. question is accordingly answered in affirmative, i.e. in favour of Assessee and against Revenue. impugned order of ITAT is set aside. 19. appeal is allowed, but in circumstances, with no orders as to costs. S.MURALIDHAR, J VIBHU BAKHRU, J OCTOBER 09, 2015/mg ITA No.557 of 2015 Page 8 of 8 COPERION IDEAL PRIVATE LIMITED v. COMMISSIONER OF INCOME TAX-II
Report Error