TaxTMI 
TaxTMI 
2012 (10) TMI 508
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....nd consequently the learned CIT (A) erred in holding that the reassessment notice and the reassessment proceedings are valid under section 147 of the Act. 3.On the facts and circumstances of the case and in law, the assessee submits that no income chargeable to tax has escaped assessment and the learned CIT(A) erred in holding that the reopening of the assessment under section 147 of the Act is valid. 4 On the facts and circumstances of the case and in law, the assessee submits that the reassessment proceedings are based on a mere change of opinion by the Assessing Officer, and hence are invalid in law and the learned CIT(A) erred in holding that the reopening of the assessment under section 147 of the Act is valid. 5. On the facts and circumstances of the case and in law, the, assessee submits that the learned CIT(A) erred in confirming the disallowance of Rs.4,40,85,941/- made by the assessing officer out of Software Charges on the ground that it is capital expenditure. The assessee submits that the same should be allowed as revenue expenditure. 6. On the facts and circumstances of the case and in law, the assessee submits that the learned CIT(A) erred in confi....
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....36,291 Less: Expenditure capitalized 2,62,50,350 Balance allowed as revenue expenditure 4,40,85,941 Purchased / installed upto 30.9.2002 : 1,23,91,210 Purchased/ installed from 1.10.02 3,16,94, 731 Depreciation at 60% on 1,23,91,210 74,34,726 Depreciation at 30% on 3,16,94,731 95,08,419 1,69,43,145 Income escaped the assessment 44085941-16943145) 2,71,42,796 On perusal of the profit and loss account of the assessee ills also noticed that in computing the income, the Assessing Officer has worked out the entitled Long Term Capital Loss allowed to be carried forward as indicated below: L.T.C.L. of A. Y. 2002-03 5,11,55,521 L. T.C.L. of A. Y. 2003-04 66,87,789 Total LTCL allowed to carry forward 5,78,43310 Perusal of the record reveals that the loss of the A. Y. 2003-04 eligible to be carried forward was is Rs. 42,14,297/- only as indicated below:- Long term capital gain of A. Y. 2003-04 as per assessee 3,47,46,686 Less: Premium on debentures treated as capital by assessee 3,89,60,983 But treated as revenue by the Assessing Officer Long term....
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....ted to treat the return of income field on 24.11.2003 as return filed in response to notice u/s.148 of the Act. 7. The AO issued a show cause notice u/s.142(1) of the Act on 3.11.2008 requiring the assessee to show cause as under: i) As to why the sum of Rs.2,71,42,796 be not added to its income on account of disallowance of software charges. ii) As to why the excess allowance of long term capital loss be not disallowed. iii) As to why the assessee's claim of deduction amounting to Rs.6,97,50,863 be not disallowed." 8. The assessee filed its reply vide letter dt.17.11.2008 and objected to reassessment notice on the ground that reassessment proceedings are initiated on a mere change of opinion. 9. The AO stated that reassessment proceedings are initiated within a period of four years from the end of the assessment year and there is no need on the part of the AO to establish that escapement of income is because of failure on the part of assessee to make true and full disclosure. That the requirement to initiate reassessment proceedings is that the AO must have reason to believe that income chargeable to tax has escaped assessment. The AO also stated that afte....
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....o 30 of the assessment order dated 28.2.2006 allowed the sum of Rs..4,40,85,941 as revenue expenditure. We reproduce paras 12.1 to 12.4 of the assessment order, which read as under: "In schedule 'K' of the P&L account, the assessee has debited an amount of Rs.7,03,36,291 as software charges under the head "Administration, Selling & General expenses" as compared to Rs.10,89,08,148 in the immediate preceding year. During the course of proceedings, the assessee was caused to furnish details of these software charges and show cause as to why the same may not be treated as capital expenditure. The details of these expenses have been submitted vide Annexure 6 & 7 to the reply dated 5.9.2005 and explanation regarding the same is as follows: "During the year license fee of Rs. 1,18,42,850/- was paid to SAP for a nonexclusive license to use the software. Under this license agreement the licensee (i.e BCCL) acquires only the right to use the software under the terms and conditions of the agreement and does not acquire any ownership rights or titles. Octroi payment amounting to Rs.16,87,500 was paid to Mumbai Municipal Corporation for purchase of SAP Software from SAP India Ltd. The bal....
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.... the software itself was valid for a period not exceeding 6 months, thus, it could not partake the character of capital expenditure. In order to understand the application of capital vs. revenue expenditure vis-à-vis software expenses, it must be taken into account that development of software is a product of modern day technological revolution and cannot be treated as a conventional technology. It is primarily because of this differentiation that software technology cannot straight away be put into the jacket of conventional technology that often the nature of expenditure as capital expenditure vis-a-vis revenue expenditure is difficult to distinguish. It may also be considered here that research and development in software as gone by leaps and bounds and categorized within the software development. Thus, software even in a layman terms has come to be seen and identified primarily into two parts (1) 'System Software' which is the basic software; and 92) 'Application software' or 'Response Software' or operative. The 'Application Software' may become outdated, obsolete or get replaced at a faster rate but the system software is for a much longer period. To simplify it more, ....
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.... all the branches of the assessee throughout India over a period of 6 months through Siemens Informations Ltd., to whom the assessee made payment of Rs. 1.27 crore as consultancy services for project implementation on account of SAP and Rs.0.17 crore as octroi payment to Mumbai Muncipal Corporation. Thus, this expenditure is capital expenditure not only from the point that it is directly related to the source of income from booking of advertisements but also from the fact that this software has integrated the 'response' department of the assessee company all over India. This software is in operation for the last 2 1/2 years and will be functional for a long time with timely upgradation. Thus, acquisition and installation of this software , can very well be compared to obtaining technical know how to enhance and secure the source of revenue from booking of advertisements and it is because of this fact that the expenditure cannot be treated as charge to the profits, but capital expenditure. In this regard, reliance is also placed on the Rajasthan High Court's decision in the case of Arawali Construction Co. (P) Ltd. 259 ITR 30. In the said case their lordship gave their findings a....
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....y way affect computation of income for A.Y. 2003-04 . On account of allowance of that loss to be carried forward, the income assessed for A.Y. 2003-04 remained unaffected. Thus, no income to the extent of Rs.24,73,492 has escaped assessment as observed by AO while recording the reasons for reopening of assessment. 10.3 In respect of third ground taken by the AO in the reasons recorded to reopen assessment, to allow deduction of refund of interest u/s.234B of the Act, assessee stated that in the computation of income filed, assessee made full and complete disclosure in Note No.16 as under: "Rs.6,97,50,863 was received as refund of 234B interest. These were paid as follows in the past." Assessment year Rs. 1994-95 42,16,122 2000-2001 6,62,41,729 2001-02 93,33,004 In the above years the payment of the above interest was not allowed and was added back to the income of the respective years. Therefore, when part of it was refunded as over charge of interest u/s.234B refunded to us, they cannot be taxed. In this view of the matter, this amount of Rs.6,97,50,863 is excluded from chargeable income of this year." That during the course of assessment proceed....
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....pex Court in the case of CIT vs. Kelvinator of India Ltd, 320 ITR 561(SC). Ld AR submitted that similar issue was also considered by the Tribunal in the case of ACIT vs Rolta India Ltd., 132 ITD 98(tm). He contended that the initiation of reassessment proceedings is not in accordance with law and same should be quashed. 13. On the other hand, ld D.R. supported the orders of authorities below to initiate reassessment proceedings u/s.147 of the Act. Ld D.R. submitted that if the income chargeable to tax has escaped assessment and AO has reasons to believe that whether suo moto found by him from records or whether brought to his notice by audit party or any other agency, he is justified to reopen assessment u/s.147 of the Act and referred to the decision of Hon'ble Kerala High Court in the case of CIT vs. National Tyres & Rubber Co. of India ltd., (2011) 15 Taxmann.com 3 (Ker). Ld D.R. submitted that the order of ld CIT(A) to uphold the action of AO to initiate reassessment proceedings should be confirmed. 14. We have considered submissions of ld representatives of parties and orders of authorities below. We have also gone through the reasons recorded by the AO and also t....
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.... in the contention of ld A.R. that reopening of assessment on the same material which was already available with the AO while making original assessment order u/s.143(3) of the Act, would amount to reviewing assessment order by re-appreciating the facts on record. Hon'ble Bombay High Court has held in the case of Cartini India Ltd(supra) that section 147 of the I.T.Act contemplates the existence of material on record other than the material considered by the AO at the time of assessment u/s. 143(3) of the Act, on the basis of which a prima facie opinion could be formed by the AO that any income chargeable to tax had escaped assessment. The reopening of assessment based on the materials already considered and adjudicated would amount to reviewing the assessment order by re-appreciating the material already on record, which is not contemplated u/s.147 of the Act. Their Lordships further stated that the reopening of assessment is covered under Explanation 2 (c) of Section 147 of the Act based on any material other than the material considered by the AO at the time of assessment u/s.143(3) of the Act. Their Lordships held that once the AO, considering the material on record and the exp....
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....on the change of opinion of the officer." 19. The Hon'ble apex Court in the case of Asian Paints Ltd vs DCIT, 308 ITR 195 (SC) held that the legislators while giving jurisdiction u/s.147 of the Act to the AO to reopen the assessment have not conferred power on the AO to review his own order. It was held that when a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind. It was further held that if non-application of mind by the Assessing Officer in passing an order would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, it would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. Further, the Hon'ble apex Court in the case of Kelvinator of India Ltd (supra) held that even after the amendment by the Direct Tax Laws (Amendment) Acts, 1987 and 1989, in section 147 of the Act, the AO cannot reopen the assessment on mere change of opinion. The concept of change of opinion must be treated as an in-built test to check the abuse of power. In this regard, we state the ....
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....long term capital loss as well as refund of interest u/s.234B of the Act, AO has itself mentioned in the reasons recorded that the explanation given by the assessee at the time of making original assessment considered and, thereafter the claim of the assessee was allowed. No new tangible material is stated to be available with the AO to form the belief that income chargeable to tax escaped assessment by reason of allowing excess carry forward long term capital loss to the next year or to allow refund of interest u/s.234B of the Act. The Hon'ble apex Court has held in the case of ITO vs. Nawab Mir Barkat Ali Khan Bahadur(1974) 97 ITR 239(SC) that the AO cannot reinitiate proceedings u/s.147 of the Act after having a second thoughts on the same material. The apex Court has also held in the case of CIT vs. Bhanji Lavji (1971) 79 ITR 582(SC) that when the primary facts necessary for assessment are fully and truly disclosed, the AO is not entitled on change of opinion to commence proceedings for reassessment. The Hon'ble Delhi High Court in the case of Sita World Travel (India) Ltd vs. CIT, (2004) 140 Taxman 381 (Delhi) also held as under: "...From the original assessment orders as w....