TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 526
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the I.T.Act dated 01.02.2010, to which, the petitioner filed their objection dated 03.05.2010 to the reopening of the assessment, but, the respondent proceeded with re-assessment proceedings and therefore, the petitioner filed their detailed objection dated 09.09.2010, expressing its view on non-adjudication of the objections on jurisdictional issue. ii) After certain litigation, the respondent issued a notice under Section 142 (1) of the Act dated 28.04.2022 stating that no return was filed in response to the notice issued under Section 148 of the I.T.Act. The petitioner filed a reply dated 29.04.2022 stating that the return of income has already been filed in response to notice under Section 148 of the Act, consequent upon which, the respondent issued a notice under Section 143 (3) r/w Section 147 of the Act dated 29.04.2022, acknowledging the receipt of the return of income and requested the petitioner to file their response pertaining to the sole issue for non-recurring expenditure claimed by the petitioner/assessee to the tune of Rs. 10,00,00,000/- on or before 02.05.2022. Thereafter, the petitioner also received a communication dated 29.04.2022, stating that the objecti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as passed on 28.03.2005, and hence, it is not open to the respondent to reopen the assessment once again by virtue of issuing notice under Section 148 of the Act dated 01.02.2010, when the reason for reopening is merely based on the materials that were already on record and when the documents were also scrutinized by the respondent. 3.2 Further, the learned counsel for the petitioner would contend that the respondent proposed to reopen the concluded assessment in respect of the AY 2003-04 by issuing notice under Section 148 on an erroneous assumption that a portion of payment of non-compete fees by one of the agreements, dated 17.08.2002 was capital in nature and not fully allowable as revenue expenditure; that the petitioner filed their objections stating that as per the terms of the second agreement for a consideration of Rs. 2.5 crores, it is agreed that the CP group will not jointly or severally in any manner, assist any Competitor of the petitioner-Company in carrying on or developing any specified products or business to create Competition in the Indian Market, for the above covenant, the petitioner-Company agreed to pay the CP groups a sum of Rs. 10 crores on 17.08.2002, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er the garb of re-assessment is illegal and untenable, especially, when the same was already answered by the petitioner/assessee and the scrutiny assessment was already completed based on the materials already on record. To buttress such contention, the learned counsel relied on a decision of the Hon'ble Supreme Court, in the case of CIT Vs. Kelvinator of India Ltd., reported in 320 ITR 561. 3.4 Finally, the learned counsel for the petitioner summed up his arguments by contending that when the respondent, while scrutinizing the assessment proceedings called upon the petitioner to produce all particulars/documents/details with regard to the two agreements entered into between the petitioner and the CP group, which were furnished by the petitioner and the same was gone through in a careful manner and after thorough examination of the same, passed the assessment order, and in the absence of any reasons recorded by the respondent either in the order disposing of the petitioner's objection dated 29.04.2022 or in the impugned order of rejection of the petitioner's additional objection dated 03.01.2023 that the petitioner has deliberately failed to disclose fully and truly th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his agreement is to confer an enduring benefits in perpetuity to the petitioner-Company by way of licence granted by CP group to the petitioner-Company and the CP also grants the petitioner-Company the right to licence to manufacture and supply the know-how to any person, however, on perusal of the note on these transaction dated 25.01.2005, furnished by the petitioner during the proceedings, this aspect of the agreement is seems to have been omitted; that neither in the details of the agreement or purpose of agreement, this aspect of grant of license in perpetuity takes place. 4.1 Therefore, it is contended by the learned Senior Standing Counsel that the clause 2.4 of the second agreement was intended to override the restriction of period of licence and right to sell the products contemplated as per collaboration agreement between C.P Group and the petitioner-Company entered into on 07.1.1997, hence, a portion of it was for purchase of licence and right to manufacture and sale and the same is capital in nature; that though the agreement copy was filed before the respondent/Assessing Officer, the petitioner did not point the aforesaid particular aspect in the written reply and kep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....., Vs. CIT reported in 159 ITR 624. 4.4 Therefore, it is contended by the learned Senior Standing Counsel for the respondent that the aspect of clause 2.4 of the second agreement dated 17.08.2002 for a consideration of Rs. 2.5 crores, which confers the enduring benefits in perpetuity to the petitioner-Company was purposely omitted and that the petitioner has made a false averment to the extent, where, the petitioner has claimed that the agreements are only for a period of two years and five years respectively and the respondent/AO had no occasion to go through the same and therefore, treated the non-compete fee paid by the petitioner as capital expenditures. Therefore, the objection raised by the petitioner that once the assessment is completed, the same cannot be opened, and that explanation 2 to section 147 will not apply, inasmuch as there is no fresh material in possession of AO to reopen the assessment proceedings, and that the proceedings under Section 148 is barred by limitation were overruled by the respondent. Therefore, the learned Senior Standing Counsel prays for for dismissal of the Writ Petition. 5. In reply, the learned counsel for the petitioner would submit that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ner, specifically, raising a query on the issue of noncompete fees paid to M/s.Atlas Copco and calling for details of the claim of Rs. 10 crores two non-recurring and exceptional items. The petitioner, in response to the said letter dated 25.08.2004 furnished copies of two tripartite agreements dated 17.08.2002 along with a brief note, categorically stating nature of the transaction that the petitioner has claimed that the sum of Rs. 10 crores paid vide two agreements entered into between the petitioner and the CP was for the purpose of preventing a potential competitor from entering into the Indian Market; that the first agreement was for a period of two years for a consideration of Rs. 7.5 crores and the second agreement was for a period of five years for a consideration of Rs. 2.5 crores. The respondent/Assessing Officer, after a detailed examination of the submission of documents by the petitioner and after considering the explanation offered by the petitioner, proceeded to complete the assessment under Section 143 (3) of the I.T.Act on 28.03.2005. 9. Therefore, it is the contention of the petitioner that when the respondent/AO already completed the assessment for the year 200....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n a perusal of the same, it is clear that the entire issue revolves around on the interpretation of clause 2.4 of the second agreement dated 17.08.2002, which formed the basis for reopening of the assessment. 13. It is the case of the petitioner that the payment of non-compete fees vide two agreements dated 17.08.2002 for Rs. 7.5 crores and Rs. 2.5 crores was only revenue expenditure and it was made only for restriction for a short period of two years and five years respectively and no permanent advantage or enduring benefit was obtained; whereas, according to the respondent, clause 2.4 of the second agreement dated 17.08.2002, confers an enduring benefit in perpetuity to the petitioner-Company by way of licence granted by CP group and CP groups also grants right of licence to the petitioner-Company for manufacture and sale of products to know-how. 14. The petitioner further submits that the ROI filed by the petitioner for the subject assessment year was scrutinized by the respondent/AO, explanation called for was submitted, details required for were also produced, viz., two agreements dated 17.08.2002; that when the respondent/Assessing Officer himself concedes that the agreemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and the petitioner also, in response to such letter, furnished the copies of two tripartite agreements dated 17.08.2002 along with a brief note, categorically stating nature of the transaction and the same was also gone through by the respondent in a careful manner, and having satisfied with the explanation offered by the petitioner and being convinced with the documents produced by the petitioner, the AO completed the assessment on 28.03.2005 by arriving a conclusion that the income of Rs. 2.5 crores and 7.5 crores paid by the petitioner was non-compete fees and treated the same as revenue expenditure. Therefore, as rightly pointed out by the learned counsel for the petitioner that the respondent/AO having inferred that the expenditure is wholly revenue, such a view cannot be reviewed under the guise of re-assessment, unless and until, the respondent/AO fullfills the requirement of first proviso to Section 147, and hence, the assessment cannot be reopened and the same can be only reviewed under Section 263 of the Act. This Court is in complete agreement with the submission of the learned counsel for the petitioner. 18. Further, it is seen that the respondent has issued a notice u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for the year 2003- 04, when the facts remains that the receipt of Rs. 15 crore was accepted in the scrutiny as revenue for the AY 2004-05. Therefore, as rightly contended by the learned counsel for the petitioner the respondent has grossly erred in observing that there is no strict correlation between the revenue expense of Rs. 10 crores claimed as non-compete fee in AY 2003-04 and the receipt of Rs. 15 crores admitted as revenue income in the AY 2005-06. 20. Therefore, the reasons cited by the respondent for reopening of the assessment that the brief note on the transaction dated 25.01.2005 submitted by the petitioner during the assessment proceedings does not specifically states about clause 2.4 and that particular clause is seen to be omitted and that the petitioner did not point the said aspect in the written reply and kept silence on this particular clause; that the wrongful interpretation of clause 2.4 stating that purpose of the said tripartite agreement is to confer an enduring benefits in perpetuity to the petitioner- Company by way of licence granted by CP group to the petitioner-Company and the CP also grants the petitioner-Company the right to licence to manufacture a....