TaxTMI 
TaxTMI 
2018 (9) TMI 425
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....emitted the matter to the Assessing Officer ['AO' for short] for consideration afresh over the petitioner's objections and to pass a speaking order in accordance with law assigning the reasons after extending an opportunity of hearing to the petitioner, within a week from the date of the Order. The petitioner was directed to appear before the Authority on 29.06.2015 at 3 pm without further notice. In pursuance to the aforesaid order of this Court dated 25.06.2015, the respondent- AO passed an order on 1.7.2015 [Annexure-Q] rejecting the objections of the Assessee for reopening the proceedings under section 147 of the Act. Hence this writ petition. 3. The facts in brief are: The petitioner is a limited company incorporated under the Companies Act, 1956 and is a manufacturer and seller of domestic kitchen home appliances like pressure cooker, non-stick cookwear, gas stoves, mixies etc. The petitioner is an Assessee under the Act. The return of income for the Assessment Year 2009-10 was filed by the petitioner with the respondent on 30.09.2009. One of the deductions claimed by the petitioner in the said return and computation was a sum of Rs. 1.99 Crores representing the licence....
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....tion. It was submitted that the respondent has denied the fact of reopening the assessment concluded under section 143[3] of the Act based on any audit query. If so, the AO had no tangible material to reopen the assessment and it can at best to be considered as 'change of opinion'. It was strongly argued that the essential requirement of 'reason to believe' envisaged in Section 147 of the Act is apparently not found in the reasons recorded by the AO to reopen the assessment concluded, on the ground of escapement of income to assessment. Learned Counsel made an endeavour to highlight the importance of the words 'reason to believe' employed in section 147 subsequent to the amendment to the said provision by the amending Act of 1989 with effect from 1.4.1989 in giving a schematic interpretation to the words 'reason to believe'. The conceptual difference between the power to review and power to reassess was brought to the notice of the Court, arguing that, on concluding the assessment under section 143[3] of the Act, with all the material facts available on record, the presumption u/s. 114[e] of the Indian Evidence Act, 1872 would be that the AO has looked into all the aspects of....
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....dent completed the assessment under Section 143[3] on 25.03.2014 for the Assessment Year 2011-12, allowing the revenue expenditure claimed towards logo fees. These factual aspects demonstrate that all the material facts were on the record when the assessment for the Assessment Year 2009-10 was made. Nextly, it was contended that the licence fee paid by the petitioner was the fee for use of the monogram 'ttk' and that too for a certain period as per the agreement entered into between the Assessee and the TTK & Company. The brand name always vested with the TTK & Company. The right to use the monogram cannot be construed as a goodwill. No doubt, goodwill is an asset, but what was paid by the petitioner was not for the exclusive right to use the monogram. The other companies are also paying the licence fee to use the very same monogram 'ttk'. This very issue was adjudicated before the Income Tax Appellate Tribunal, Chennai and the decision was rendered in favour of the Assessee and has reached finality. Though this material fact was brought to the notice of the AO while filing the objections to the notice under Section 148, the same has not been considered and addressed by the AO. ....
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....47 of the Act. Learned Counsel submitted that passing of the order under Section 143[3] of the Act either for the previous year or subsequent years allowing the expenditure claimed by the Assessee as 'revenue expenditure' towards logo commission paid to TTK & Company at most could be considered as escapement of income to assessment, but not the opinion formulated therein. According to the learned Counsel, unless the subject matter of commission of logo is deliberated, addressed and opinion/finding is given by the Authorities, it cannot be held that the AO has applied his mind to the subject matter and formed an opinion. In none of the orders passed under Section 143[3] of the Act, there is any deliberation or opinion formulated by the AO. In such circumstances, at no stretch of imagination, it can be construed that the opinion taken by the AO in the order passed under Section 143[3] has been changed now to invoke the proceedings under section 147 of the Act. If the order is silent on the particular issue of logo commission paid to TTK & Company, it indicates the non application of mind by the AO. The AO had 'reason to believe' that there was escapement of income to assessment, c....
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....rejected the same assigning valid reasons after hearing the Assessee which do not warrant any interference by this Court. Learned Counsel relied upon the Judgment of the Hon'ble Apex Court in the case of 'ASSISTANT COMMISSIONER OF INCOME TAX vs. RAJESH JHAVERI STOCK BROKERS [P] LTD.,' [(2007) 291 ITR 500]. 7. Before adverting to the arguments advanced by learned Counsel for the parties, it is apt to collate the legal position enunciated by the various courts on the point of invoking section 147 of the Act, vis-à-vis, interpretation of the phrase 'reason to believe' qua the concept of 'change of opinion'. 8. In the case of KELVINATOR supra, the Hon'ble Apex Court has held thus: "A short question which arises for determination in this batch of civil appeals is, whether the concept of "change of opinion" stands obliterated with effect from 1st April, 1989, i.e., after substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987? To answer the above question, we need to note the changes undergone by Section 147 of the Income Tax Act, 1961 [for short, "the Act"]. Prior to Direct Tax Laws (Amendment) Act, 1987, Section 147reads as....
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....be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment 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 re-open the assessment. Therefore, post-1st April, 1989, power to re- open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re- open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Offi....
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....nt and whether and when in such cases reopening is valid or invalid on the ground of change of opinion? (iii) Whether the bar or prohibition under the principle "change of opinion" will apply even when the Assessing Officer has not asked any question or query with respect to an entry/note, but there is evidence and material to show that the Assessing Officer had raised queries and questions on other aspects? (iv) Whether and in what circumstances Section 114 (e) of the Evidence Act can be applied and it can be held that it is a case of change of opinion?" Analyzing the Judgments of the Hon'ble Apex Court and Hon'ble Delhi High Court in extenso, observed thus: "(1) Reassessment proceedings can be validly initiated in case return of income is processed under Section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion; (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assesse. Reassessment proceedings in the said cases will be hit by principle of ― change of opinion. (3) Reassessment proceedings will be invalid in case an iss....
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....had not considered the material and subsequently come by the material from the record itself, then such a case would fall within the scope of Section 147(b) of the Act. (emphasis supplied) The aforesaid observations are complete answer to the submission that if a particular subject matter, item, deduction or claim is not examined by the Assessing Officer, it will nevertheless be a case of change of opinion and the reassessment proceedings will be barred. We are conscious of the fact that the aforesaid observations have been made in the context of Section 147(b) with reference to the term 'information' and conceptually there is difference in scope and ambit of reopening provisions incorporated w.e.f. 1st April, 1989. However, it was observed by the Supreme Court in Kelvinator India (supra) that amended provisions are wider. What is important and relevant is that the principle of 'change of opinion' was equally applicable under the unamended provisions. The Supreme Court was therefore conscious of the said principle, when the observations mentioned above in A.L.A. Firm [1991] 189 ITR 285 were made. It will be appropriate to reproduce the succeeding passage from A.L. A. Firm ....
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....mal human conduct. Such cases have to be examined individually. Some matters may require examination of the assessment order or queries raised by the Assessing Officer and answers given by the assessee but in others cases, a deeper scrutiny or examination may be necessary. The stand of the Revenue and the assessee would be relevant. Several aspects including papers filed and submitted with the return and during the original proceedings are relevant and material. Sometimes application of mind and formation of opinion can be ascertained and gathered even when no specific question or query in writing had been raised by the Assessing Officer. The aspects and questions examined during the course of assessment proceedings itself may indicate that the Assessing Officer must have applied his mind on the entry, claim or deduction etc. It may be apparent and obvious to hold that the Assessing Officer would not have gone into the said question or applied his mind. However, this would depend upon the facts and circumstances of each case." 11. In the recent Judgment of the Hon'ble Apex Court in the case of M/s. TECHSPAN INDIA PRIVATE LIMITED [supra], it is observed as under: "The language....
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....o re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe"..... Section 147 would give arbitrary powers to the Assessing Officer to re- open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. 6. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. 7. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "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." 12) Before inter....
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.... terms of the agreement, the assessee acquired a "benefit of an enduring nature" which will constitute "acquisition of an asset" and so the amount paid for the same is a "capital expenditure" or whether the assessee had only acquired technical knowledge for the manufacture of any particular item for a specific duration, and he acquired only a "license to use the other party's patent and knowledge" and the amount paid would only be a "revenue expenditure". Having taken a proper view of the principles to be applied, the High Court arrived at the following conclusion: "Having regard to the said Clauses, we are clearly of the opinion that the Tribunal was right in its conclusion that the whole of the amount paid by the assessee constitutes revenue expenditure and has to be allowed as a deduction. From the terms of the agreement referred to above, the following facts are clear; (1) The agreement itself provides that what was granted by Aturia to the assessee is merely a license to use its patents and designs exclusively in India; (2) The agreement is for a duration of 10 years with the parties having the option to extend the agreement or renew the same,....
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....e Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is 'reason to believe', but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]." 15. In the light of the Judgments referred to above, the facts of the present case are examined. The point that arise for consideration in the present case is akin to substantial question of law No.2 considered by the full Bench of the Delhi High Court viz., (ii) Whether asses....
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....This would indicate that on the query made by the AO with respect to logo commission expenditure, the explanation was offered by the Assessee which calls for presumption of application of mind by the AO on this subject of expenditure towards logo commission. It is true that the principles of res judicata may not be strictly applicable to income tax proceedings. However, in the light of the Judgment enunciated by the Hon'ble Apex Court in the case of RADHASOAMI SATSANG supra, much weightage has to be given to this fact. Consistency of the orders in the same set of facts would be necessary even in the tax proceedings, when the Revenue has allowed that position to be sustained even in the subsequent assessment years 2010-11 and 2011- 12. I am astound by the action of the Assessing Officer in passing the assessment order under Section 143[3] for the Assessment Year 2011-12 on 25.03.2014, allowing the expenditure claimed towards the logo commission as 'revenue expenditure' despite the fact of issuing the notice under Section 148 of the Act for the Assessment Year 2009-10 on 11.02.2014. Though learned Counsel for the Revenue contended that this Order of Section 143[3] of the Act for t....
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....located outside India, chargeable to tax, has escaped assessment for any assessment year. Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. " Indisputably, petitioner is not claiming any assistance of the first proviso to Section 147. Admittedly, re- assessment proceedings were initiated within a period of four years from the end of the relevant assessment year. Learned Counsel for the Petitioner placed reliance on the main provision, particularly the phrase 'reason to believe' to substantiate his case. 17. The reasons recorded by the AO to invoke reassessment proceedings under Section 147 of the Act are quoted hereunder for ready reference: "The assessee company has filed its return of income for the relevant assessment year on 30.09.2009 declaring total income of Rs. 26,61,99,014/-. The case was assessed u/s 143(3) on 18.04.2011 determining total income at Rs. 25,59,90,979/-. Subsequently it is noticed that the assessee had claimed an expenditure of Rs. 14,783.96 lakh under the head....
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....8373/- by disallowing the depreciation loss. Audit scrutiny of assessment records revealed that the assessee had claimed an expenditure of Rs. 14783.96 lakh under the head expenses as per Schedule 17 to accounts. However, on perusal of records it was observed that the assessee while furnishing the details for Miscellaneous expenses claimed at Rs. 402.36 lakh, an amount of Rs. 19897036/- was towards Licence fee/logo. As this expenditure claimed is in the nature of goodwill and having enduring benefit needs to be capitalized and added back to income. Omission to do so has resulted in under assessment of income by Rs. 14922777/- (i.e. Rs. 19897036/- less 25% depreciation applicable) with consequent tax effect of Rs. 6340340/- (including interest u/s 234B for 25 months). This issue may kindly be examined." 20. Learned AO filed a reply dated 8.7.2013 to the said audit objections. The relevant paragraphs of the same are extracted hereunder: "On examination of the objection with reference to the information available on record and also during the course of scrutiny assessment hearing for the A.Y.2010-11, it is seen that the amount of Rs. 1,98,97,036/- was towards the expenses for....
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....had no independent reason to believe that the income of the Assessee-Company/petitioner chargeable to tax has escaped assessment. It is nothing but the change of opinion at the instance of the audit authority. The action of the AO based on the audit query would impliedly establish that there was no independent application of mind by the AO to take a decision for reopening the assessment, rather it is manifest that the AO objected to the audit objections in giving a reply to the audit objections. The AO was of the firm view that there is no revenue loss involved and the expenditure amount of Rs. 1,98,97,036/- claimed by the Assessee, towards the expenses for licence fee/logo was established to be revenue expenditure/business expenditure reflected in the "schedule of miscellaneous expenses". AO was also of the firm opinion, the Agreement dated 19.12.2012 executed by the Assessee- Company with TTK & Company shows that by virtue of the agreement, the Assessee-Company has been permitted to use the name and logo 'ttk' to promote its business by using the said name and logo on all its products, advertisements, letter heads and all communications for which logo licence fees computed at 0.5....
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.... tax has escaped assessment. However, in a case like this where even while sending the proposal to the higher authority to grant the approval for initiation of the reassessment proceedings, the Assessing Officer still maintain that the audit objection raised by the audit party is not valid and/or correct. Therefore, as such it cannot be said that the Assessing Officer had independently formed an opinion and/or had reason to believe independently that the income chargeable to tax has escaped assessment. From the correspondence between the Assessing Officer and the higher authority it appears that through the Assessing Officer maintains that the audit objection raised by the audit party is not correct, however, as the amount involved is very high as mentioned by the audit party and to safeguard the interests of the Revenue and the guidelines issued the reassessment proceedings have been initiated. Therefore, as such the formation of the opinion by the Assessing Officer that the income chargeable to tax has escaped assessment has been vitiated and, therefore, the impugned reopening of the assessment cannot be sustained and the same deserves to be quashed and set aside." 24. In a re....
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....und or reason to make addition or reject the stand of the Assessee. In the circumstances, it must be presumed that the AO had formed an opinion while framing the assessment under Section 143(3) of the Act. The arguments of the learned Counsel for the Revenue that the issue was not addressed by the AO, is a case of 'no opinion' cannot be countenanced. 28. Paragraph-39 of the full Bench decision of the Delhi High Court clearly envisages that the AO in the first round did not examine the question or subject matter and formed an opinion, would be contrary and opposed to normal human conduct because the aspect or question may be too apparent and obvious. It is identical in the present case also. Thus, I am of the considered opinion that the Revenue has failed to show that the AO had the 'reason to believe' escapement of income to assessment. This view is also fortified by recent Judgment of the Hon'ble Apex Court wherein the Judgment of KELVINATOR supra, has been considered. It is for the AO to show the availability of the tangible material to believe escapement of income from assessment. In the absence of establishing any tangible material, it would be mere 'change of opinion'. The ....