TaxTMI 
TaxTMI 
2014 (5) TMI 887
X X X X Extracts X X X X
X X X X Extracts X X X X
....craves to amend, modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal." 3. The grounds raised by the Revenue in ITA No. 2434/Del/2010 for Assessment Year 2006-07 are as follows:- "1. Ld Commissioner of Income Tax (Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of Rs. 43,85,584/- made by the Assessing Officer by capitalizing the expenditure incurred by the assessee during the year for developing new products. 2. The appellant craves to amend, modify, alter add or forego any ground of appeal at any time before or during the hearing of this appeal." 4. Apropos ground No. 1, in ITA No. 2433/Del/2010 for Assessment Year 2004-05, wherein the ld CIT(A) held that the reopening of assessment in terms of section 147 of the Income Tax Act, 1961 (hereinafter "the Act") for Assessment Year 2004-05 is not sustainable in law. 5. Brief facts of the case is that the appellant company is engaged in the business of manufacturing of moulds and dies, visi coolers and deep freezers, hot beverage vending machines and trading in refrigeration appliances and stabilizers. In the assessment proceeding f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ho was pleased to allow the appeal and directed deletion of the said addition made by the Assessing Officer vide order dated 21.11.2010. Assailing the said order of the ld CIT(A), the Revenue is before us. 8. The ld DR contended that the Assessing Officer rightly found that the assessee company had adopted a diametrically opposite policy in claiming the said expenses as revenue expenditure in the computation of income which was totally contrary to its clear-cut policy, which can be noticed while perusing schedule 15 wherein it has been clearly mentioned that the expenses incurred on developing new products will be ammortised as per the assessment over a period of ten years. Therefore the ld DR contends that the Assessing Officer rightly reopened the assessment and has brought on record the wrong disallowance claimed by the assessee in this case. In the said factual ground, according to the ld DR the ld CIT(A) erred in holding that the reopening of assessment was bad in law and therefore, the impugned order is not sustainable in law and so invalid. On the other hand the ld AR submitted that the reassessment proceeding have been initiated without complying and satisfying the require....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on. Therefore the ld AR pleaded that the reason for reopening arose not out of the reason to believe but merely was a change of opinion and therefore, the reopening of the case should be treated as bad in law and hence cannot be sustained in the eyes of law and pleads that ldCIT(A) has rightly decided the issue and therefore we may not disturb the same. 9. The ld DR cited the following cases to justify the reopening and reassessment:- S. Srinivasan Vs. CIT (1975) 101 ITR 94 (Mad), VE.A. Vairavan Chettiar Vs. CIT (1973) 92 ITR 474 (Mad) and Smt. Nirmla Birla Vs. ITO (1976) 105 ITR 483 (Cal). 10. The ld AR cited the following cases to contend that merely on change of opinion, Assessing Officer cannot reopen the assessment:- Phool Chand Bajrang Lal Vs. ITO (1993) 203 ITR 456,Baldeo Ram Salig Ltd. Vs. ITO (1991) 198 ITR 554, Allahabad Bank Vs. CIT (1993) 199 ITR 664, CIT Vs. Punjab Financial Corporation (1990) 183 ITR 438 11. We have heard the rival submissions and have perused the records and the case laws cited before us. A perusal of the assessment order reveals that the Assessing Officer has disallowed the entire expenses of Rs. 34,88,584/- incurred on developing new products ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...."tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression reason to believe' in Section 147.-A number of representations were received against the omission of the words reason to believe' from Section 147 and their substitution by the opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, reason to believe' had been explained ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s was capitalized as per its accounting policy and since the nature of expenditure was revenue, it was claimed in the computation of income. The assessee had made disclosure about the said expenses at two places, one in the notes to accounts forming part of balance sheet and second in the accompanying notes to the return of income. According to the Assessing Officer, the original assessment order is silent on this issue, therefore he finds that this issue was not looked into by the predecessor Assessing Officer and this facilitated an escapement of income, cannot be countenanced by us. We find on record assessee's reply to Assessing Officer's notice u/s 143(2) to a specific query in this respect for the original assessment year, i.e. letter dated 14th September, 2005, in which the details of expenses under the head of Development/ Technical know-how in respect to expenditure incurred towards Research and Development of its products were explained in detail. Therefore we can safely assume that the predecessor Assessing Officer has applied his mind and was satisfied with the reply and documents produced before him by the assesse. So his non-mentioning of this issue cannot be the grou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3,85,584 for Assessment Year 2006-07, made by the Assessing Officer on capitalizing the expenditure incurred for development of new products. 16. Brief facts of the case is that the appellant company is engaged in the business of manufacturing of moulds and dies, visi coolers and deep freezers, hot beverage vending machines and trading in refrigeration appliances and stabilizers. In the assessment proceeding for the Assessment Year 2004-05 and the return of income in this case was filed u/s 139(1) of the Act on 29.10.2004 reflecting a loss of Rs. 1,71,44,330/-. The same was assessed at a reduced loss of Rs. 1,73,05,130/- vide order u/s 134(3) dated 20.09.2005. Subsequently, a notice u/s 148 was issued in this case on 31.01.2008. In response to the said notice vide letter dated 26.08.2008 the assessee. The assessee has filed a return depicting loss of Rs. 1, 71,44,227/- i.e. at which the loss was assessed vide order u/s 143(3). Vide order dated 26.03.2008 the assessee has raised objections regarding initiation of reassessment proceedings in this case. The said objection were rejected by the Assessing Officer vide order dated 10.10.2008 and the Assessing Officer proceeded to reasses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3 ITR 321 (SC), CIT Vs. Rajeev Grinding Mills (2005) 279 ITR 86 (Delhi), Commissioner of Income-tax Vs. Neo Poly Pack (P) Ltd (2000) 245 ITR 492 (Del), CWT Vs. RKKR International (P) Ltd (2005) 145 Taxman 322 (Delhi), Apex Court in Union of India Vs. Satish Pannalal Shah (2001) 249 ITR 221 (SC), Berger Paints India Ltd. Vs. CIT (2004) 266 ITR 99 (SC). 20. The ld AR took our attention to the details of the research and development expenses of Rs. 34,88,584/- which has been reproduced by the ld CIT(A) in page 7,8,9, 10,11 & 12 of the impugned order from which we can see that the ld CIT(A) has made a finding that out of the total expenses of Rs. 34,88,584/- the expenses to the tune of Rs. 29,82,115/- incurred by the appellant company for following items like electricity charges, canteen subsidy, electricity gas and water charges, house maintenance allowance, medical reimbursement, printing & stationery, professional service charges, rent, security charges, servant expenses, staff welfare, telephone reimbursement, uniform expenses, bank charges, book & periodicals, rates and taxes, additional repair reward, auto expenses, bonus, car expenses, conveyance allowance, dearness allowance, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....im could not, therefore, be regarded as conclusive one way or the other." 21. In the case of JCIT Vs. Modi Oliveti Ltd the Hon'ble Delhi High Court has defined the real import and meaning of deferred revenue expenses in the following terms- "the reason for making the addition by the revenue authorities below as capital expenditure was mainly that the assessee had treated the same as deferred revenue expenditure in its books of account and according to the revenue authorities, the said expenditure incurred on advertisement would results in benefits which would accrue to the assessee over a period of time beyond the previous year. The ICAI in its guidance note issued on the "terms used in financial statements" has defined the term "deferred revenue expenditure" as the expenditure for which payment has been made or liability has been incurred in a particular year, but which is carried forward on the presumption that it will give benefit over a subsequent period or periods. The ICMA has defined the said term in its publication as an expenditure incurred during an accounting period but not fully charged against income in that period, the balance period being carried forward and charge....