TaxTMI 
TaxTMI 
2013 (5) TMI 332
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....ny, a cellular service provider in the state of Gujarat filed its return of income for A.Y.2008-09 on 29.08.2008 declaring total income of Rs.5,155/- and book profit of Rs. 6,28,89,90,200/- u/s.115JB of I.T. Act. The income was assessed at Rs. 8,99,14,61,917/- under normal provision of Act and Rs. 6,31,71,70,249/- under special provision (115JB) u/s.143(3) of IT Act on 30.12.2010. The assessee company followed mercantile system of accounting. Schedule 11, Current Liabilities of the Balance Sheet, reflected an amount of Rs. 123,96,00,000/- as "Advance Income". The business of cellular service caters to mainly two category of customers i.e., post-paid customers and prepaid customers. Postpaid customers were billed periodically. However, as far as Prepaid Services was concerned, customers in this category were required to pay for the service in advance by purchase of "Recharges". The advance paid was non-refundable even if the service could not be ultimately utilized by the customer. Even where such customer opts to cancel using assessee's service, the unutilized balance was not refundable. Thus, the amount paid for prepaid service was for outright purchase of "Recharge" and not an....
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....t year, the crucial question is whether in the original assessment, such claim was examined by the Assessing Officer and that therefore, any reconsideration of such an issue would only amount to permitting the Assessing Officer to change his opinion. We may record that the counsel for the petitioner did not argue that even the reason recorded lack validity. A short inquiry of the Court therefore has been whether in the original assessment, the claim on the basis of which notice for reopening has been issued, was examined. 5. Before taking note of the materials that came on record perusing the original assessment proceedings, we may analyze the reasons recorded by the Assessing Officer for reopening the assessment. Such reasons suggest that the petitioner, who is in the business of providing cellular services, caters to two categories of customers - one of them being pre-paid service recipients. Such customers make advance payment while purchasing re-charge. Such advance is non-refundable; even if the service is not ultimately utilized by the customer, if the customer opts to cancel the service, the balance would not be refundable. Thus, the amount paid for such pre-paid service ....
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....expenses are directly linked to level of activities i.e., expenses will with the increase of activity and vice-a-versa. Examples of variable costs could be like IUC charges, license fees etc. Thus, in the given case fixed expenses are incurred irrespective of telecommunication services rendered to the customers. While variable expenses like license fees, IUC Charges, Roaming expenses are directly linked with rendering of services and may be at variance with the increase/decrease with rendering of actual services. It is submitted that expenses in respect of license fees, IUC charges, roaming expenses and WPC charges are accounted for on a matching concept basis with rendering of services and hence nothing has been accrued and accounted for the income received in advance as no services are rendered to the customers. In view of the same no disallowing is required to be made while finalizing the assessment proceedings." "Thus, based on the above classification, majority of expenses incurred by the assessee are fixed in nature and are not dependent on the rendering of services. Further variable expenses are directly relatable to rendering of telecommunication services are not incu....
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....sallowed. The assessee vide letter dated 24-12-2010 has furnished its reply. The reply is reproduced below for ready reference : "These are expenses incurred in relation to purchase of pre printed SIM cards and recharge coupons. SIM cards are charged off to the revenue as and when the same has been activated by the customers and the same is not linked with rendering of services......." "Marketing, Sales and Distribution Expenses-These expenses include expenses towards marketing, business and sales promotion and other selling and distribution expenses. These expenses are incurred for generating sales and (are) not variance with the services rendered..." 5.7 The reply of the assessee has been considered. As far as the issue of SIM card is concerned the same is not found acceptable. The SIM cards cannot be activated in a vacuum. For the usage of SIM card, recharge is required. Without any balance in the SIM, the consumer cannot avail of the facility of the services provided by the assessee. Therefore, the contention of the assessee that the same is not related to the rendering of the services cannot be accepted. The same principle and in fact with more vigour, wo....
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....he Direct Tax Law (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April 1989), they are given a go-by and only one condition has remained viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reasons to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re....
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....f four years of such an assessment would be permissible." 42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give an....
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....he expression, "tangible material" does not mean material alien to the original record. 11. Very similar conclusions were recorded by the Full Bench of Delhi High Court in case of CIT v. Usha International Ltd. [2012] 348 ITR 485. In the majority judgment, it was held and observed as under :- "13. It is, therefore, clear from the aforesaid position that :- (1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is under taken. In such case there is no change of opinion. (2) Reassessment proceedings will be invalid in case of assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of "change of opinion". (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situation it should be accepted that the issue was examined but the ....
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....he assessee thereafter proceeded to explain that the expenditure relateable to such incomes would be available deduction during the year itself. We are not on the issue of validity of the petitioner's claim of not accounting income during the year in which payments were made. We are equally not on the validity of the Assessing Officer's finding in the assessment order that the expenditure for such income must be deferred and cannot be claimed in the year itself. What we however find is that the entire issue and the manner in which the assessee received payment towards recharges and the treatment that the petitioner accords to such receipts was at large before the Assessing Officer. If the Assessing Officer was of the opinion that the accounting practice adopted by the petitioner to defer such receipts for treating it as its income only at the point of time when such talk-time is utilized by the customers, it was certainly open for the Assessing Officer to do so, if the law otherwise permitted. In the assessment order that the Assessing Officer framed, no such attempt was made. In fact, the Assessing Officer addressed the issue from another angle. He in his detailed reasoned order o....