Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ACCOUNTING STANDARDS :: form 3cd :: articles on VAT and GST in India :: VAT RATES :: list of goods taxed at 4% :: empanelment :: Central Excise rule to resale the machines to a new company :: VAT Audit :: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARD :: cpt :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: due date for vat payment :: TDS
 
 
From the Courts »
 Ravneet Takhar Vs. Commissioner Of Income Tax Ix And Ors.
 Jaiprakash Associates Ltd. Vs. Commissioner Of Income Tax
 Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
 Commissioner Of Income Tax International Taxation-3 Delhi Vs. Formula One World Championship Ltd. And Anr.
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)
 Ashok Prapann Sharma vs. CIT (Supreme Court)a
  Vatsala Shenoy vs. JCIT (Supreme Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 M.K.Overseas Pvt. Ltd. Vs. Pr.Commissioner Of Income Tax-06
 Arshia Ahmed Qureshi Vs. Pr. Commissioner Of Income Tax-21

MOSER BAER INDIA LTD. Vs. DEPUTY COMMISSIONER OF INCOME-TAX AND ANR.
October, 11th 2013
      *IN THE HIGH COURT OF DELHI AT NEW DELHI

     %         Judgment reserved on :  17th July, 2013
               Judgment pronounced on: 22nd August, 2013

     +                      WP(C) 1004/2013

     MOSER BAER INDIA LTD.                          ..... Petitioner
                    Through              Mr. Ajay Vohra, Ms. Kavita
                                         Jha   and     Mr.     Vaibhav
                                         Kulkarni, Advocates.
                            versus

     DEPUTY COMMISSIONER OF INCOME-TAX AND ANR.
                                      ..... Respondents
                   Through:  Mr.   Kamal       Sawhney,
                            Advocate.

     CORAM:
     HON'BLE MR. JUSTICE SANJ IV KHANNA
     HON'BLE MR. JUSTICE SANJEEV SACHDEVA

     SANJEEV SACHDEVA, J.

1.    The petitioner by way of the present petition has

      challenged the order dated 01.02.2013, passed by the

      Deputy Commissioner of Income Tax and the issuance

      of notice dated 04.05.2011 under Section 148 of the

      Income Tax Act, 1961 (hereinafter referred to as "the

      Act") and the proceedings initiated pursuant thereto.

2.    Assessment year in issue is 2005-06.

3.    The petitioner is a company engaged in the business of

     =====================================================================
     WP(C) 1004/2013                                           Page 1 of 18
      manufacture and sale of optical and magnetic storage

      media projects i.e. CD-Rom, Floppy Disks, etc. The

      petitioner during the relevant financial year pertaining to

      the Assessment Year 2005-06 had two units one at A-

      164, Sector-80, Noida and the other at 66, Udyog Vihar,

      Greater Noida. Both the units were eligible for deduction

      under Section 10B of the Act.

4.    On 31.10.2005, the petitioner filed its return of income

      for the Assessment Year 2005-06 declaring a loss of

      Rs.1,65,43,08,282/- under the normal provisions of the

      Act and book profit under Section 115JB of the Act at a

      loss   of   Rs.40,97,92,770/-.        The   petitioner    claimed

      deduction under Section 10B of Rs.29,08,16,451 in

      respect of the profit derived from the unit at A-164,

      Sector 80, Noida.       No such deduction was claimed in

      respect of the unit at 66, Udyog Vihar, Greater Noida.

5.    Pursuant to the filing of the return, the Assessing Officer

      issued      various     questionnaires        on     31.10.2007,

      01.10.2008        and      14.11.2008        seeking      details/

      explanations from the assessee.             The questionnaires


     =====================================================================
     WP(C) 1004/2013                                           Page 2 of 18
      among     other    details   sought    explanation     from    the

      assessee qua the claim under Section 10A/10B of the

      Act as well as claim of deduction of deferred revenue

      expenditure       for   technical   know-how        fee.      The

      petitioner/assessee responded to the questionnaires and

      submitted the requisite information/explanation.

6.    The assessment of the petitioner was completed under

      Section 143(3) of the Act and the claim of the petitioner

      under Section 10B and deduction of deferred revenue

      expenditure for technical know-how fee were accepted.

      The Assessing Officer completed the assessment at an

      income of Rs.95,47,60,410/- under the normal provisions

      making following additions and disallowances:-

               a. Addition     of    Rs.239,28,55,948       on
                  account of adjustm ent in the arm's
                  length    price    of   the    international
                  transaction     entered    into    by    the
                  Petitioner in the relevant financial year.

               b. Restricting the claim of deduction under
                  section     10B     of    the   Act     at
                  Rs.25,42,43,918          as       against
                  Rs.29,08,16,451      claimed    by    the
                  Petitioner.

               c. Disallowing royalty of Rs.11,50,83,837
                  being 25% of Rs.46,03,35,350 as


     =====================================================================
     WP(C) 1004/2013                                           Page 3 of 18
                  against actual expenditure on royalty of
                  Rs.37,73,17,928      claimed   by    the
                  Petitioner in the P&L account.

                d. Disallowing expenses of Rs.9,33,27,335
                   alleging the same to be incurred for
                   earning    exempt    dividend    income
                   invoking provisions of section 14A read
                   with Rule 8D of the Income-tax Rules,
                   1962.

7.    On 27.05.2009, the Assessing Officer passed an order

      under Section 154 of the Act rectifying the Assessment

      Order dated 31.12.2008 and reduced the claim of

      deduction      under     Section     10B     of    the   Act    to

      Rs.25,24,21,751/-         as       against        deduction     of

      Rs.25,42,43,918/- allowed in the earlier assessment

      order.




8.    On 04.05.2011, the Deputy Commissioner of Income Tax

      issued a notice to the petitioner under Section 148

      proposing to re-assess the income of the petitioner. The

      reasons to believe recorded for the said notice are as

      under:-

                  "Return  of income      was filed on
                  30.10.2005     declaring     loss    of
                  Rs.1,65,43,08,282/-. Assessment under
                  Section 143(3) was completed on
                  31.12.2008     at     Rs.95,47,60,410/-

     =====================================================================
     WP(C) 1004/2013                                           Page 4 of 18
            subsequently, rectified under Section
            154 on 27.05.2009 at an income of
            Rs.87,31,23,193/.

            Perusal of assessment record revealed
            that the assessee claimed from its total
            income      the     loss/depreciation   of
            Rs.1,44,81,23,306/-        pertaining   to
            Greater Noida unit (100% E.O.U.) which
            was eligible for deduction under Section
            10B. As the deduction under Section
            10B do not form part of total income, the
            loss (being negative deduction) should
            also have been excluded from the total
            income.       The mistake resulted in
            underassessment         of    income    of
            Rs.144,81,23,306/- involving tax effect
            of Rs.76,83,61,555/-.         Further, the
            assessee was allowed, in computation
            of     income,       a     deduction    of
            Rs.1,36,90,221 on account of deferred
            revenue expenditure as one-sixth of
            Rs.8,21,41,326/-            (sum        of
            Rs.1,80,05,185/- & Rs.6,41,36,441/-,
            being expenditure on technical know-
            how pertaining to financial years 2001-
            02 and 2002-03.         Out of the above,
            Rs.19,29,127/- & Rs.25,72,170/- were
            debited to P&L a/c in F.Y. 2001-02 and
            2002-03      itself    as    Miscellaneous
            Expenditure written off.       Out of the
            remaining       Misc.     expenditure   of
            Rs.7,76,40,029/-, Rs.5,20,83,202/- was
            capitalized and Rs.2,55,56,827/- was
            written off during financial year 2003-04.
            Hence, no balance remained out of the
            above expenditure to be written off.
            Thus, the deduction of Rs.1,36,90,211/-
            was inadmissible and should have been
            disallowed.     This mistake resulted in
            underassessment         of    income    of

=====================================================================
WP(C) 1004/2013                                           Page 5 of 18
                 Rs.1,36,90,221/- involving tax effect of
                 Rs.72,63,911. The failure on the part of
                 the assessee to disclose true and
                 correct particulars of its income.

                 Thus, I have reason to believe that
                 income of assessee to the extent of
                 Rs.1,46,18,527/-         has       escaped
                 assessment by way of not declaring true
                 and correct income.        Thus, there is
                 failure on the part of the assessee to
                 fully and truly disclose true particulars of
                 its income and the same is required to
                 be reassessed and taxed which requires
                 reopening of assessment by initiation of
                 proceedings under Section 147 by issue
                 of notice under Section 148. Therefore,
                 notice under Section 148 is hereby
                 issued.     The notice is issued after
                 obtaining approval from CIT-II, New
                 Delhi, vide her letter NO. F.No. CIT-II-
                 Delhi/Notice u/s 148/2011-12/292 dated
                 29.04.2011."

9.    The petitioner filed objections to the issuance of the said

      notice, inter-alia, on the grounds that the issuance of

      notice was barred under proviso to Section 147 as the

      petitioner had made full and true disclosure of material

      facts.   Notice under Section 148 seeking to reopen the

      assessment was based on change of opinion as no fresh

      information    or   tangible   material    had    come    to   the

      knowledge of the Assessing Officer.



     =====================================================================
     WP(C) 1004/2013                                           Page 6 of 18
10.    By the impugned order dated 01.02.2013, the Deputy

       Commissioner of Income Tax disposed of the objections

       raised by the petitioner by rejecting on the grounds

       raised by the petitioner. Aggrieved by the disposal of the

       objections vide order dated 01.02.2013 and the issuance

       of notice under Section 148 proposing to reopen the

       assessment, the petitioner has filed the present petition.

11.    In terms of the proviso to Section 147, any reassessment

       sought to be initiated after the lapse of a period of four

       years from the end of the relevant assessment year

       already subject matter of an order under section 143(3)

       of the Act, is permissible only if:-

              ".....any income chargeable to tax has
                   escaped      assessment     for   such
                   assessment year by reason of the
                   failure on the part of the assessee to
                   make a return under Section 139..... or
                   to disclose fully and truly all material
                   facts necessary for his assessment, for
                   that assessment year."

12.    The relevant assessment year in the present case is

       2005-06 and in terms of proviso to Section 147, the

       reassessment notice issued after the expiry of four years

       from the end of the assessment year has to satisfy the

      =====================================================================
      WP(C) 1004/2013                                           Page 7 of 18
       requirements of the said proviso i.e. the assessee has

       failed     to    disclose     fully   and    truly   all    material     facts

       necessary for his assessment for that year.                            In the

       present         case,   the     notice      seeking        to   reopen    the

       assessment has been issued on 04.05.2011, which is

       clearly beyond the stipulated period of four years.

13.    The contention of the petitioner is that there is full and

       true disclosure of all material facts and as such, the

       notice seeking to reopen the assessment was barred

       and invalid and that the reassessment proceedings were

       merely initiated for the purpose of reappraising the

       material on record and to change the opinion formed

       earlier.

14.    The original assessment order passed by the Assessing

       Officer was under Section 143(3) of the Act.                             The

       reasons to believe recorded prior to the issuance of

       notice dated 04.05.2011, pertain to the following: -

         (i)           Deduction under Section 10B of the Act;
         (ii)          Deduction on account of deferred revenue
                       expenditure    being   expenditure     on
                       technical know-how.

15.    With respect to the deductions under Section 10B, the

      =====================================================================
      WP(C) 1004/2013                                           Page 8 of 18
 record reveals that the petitioner alongwith the return of

 income had enclosed the profit and loss account of both

 the units as well as the computation of deduction under

 Section 10B in respect of both the units.           In the notes

 filed to the computation of income, the petitioner had

 specifically   disclosed    that   no   deduction    was    being

 claimed in respect of the unit at Greater Noida on

 account of loss in the said unit and had stated as under

 :-

        "1. Claim of benefit u/s 10B of the Income-
            tax Act, 1961 (`the Act')

        The assessee company is engaged in the
           business of manufacturing of compact
           disks, magnetic disks and other optical
           storage media devices, and is eligible to
           claim deduction u/s 10B of the Act.
           Accordingly, the assessee has claimed
           benefit u/s 10B of the Act in respect of
           the following units:-
      (a)   A-164, Sector ­ 80, Noida ­ Phase II ­
            The said unit is registered as a 100%
            Export Oriented Unit (on May 19, 1998)
            and is accordingly eligible for claiming
            tax-holiday benefits u/s 10B of the Act.
            The     said    unit   had    commenced
            commercial production w.e.f March 1,
            2000. The required Report in Form 56G
            in respect of the said benefit claimed u/s
            10B of the Act is enclosed.



=====================================================================
WP(C) 1004/2013                                           Page 9 of 18
            (b)   66, Udyog Vihar, Greater Nodia ­ The
                  said unit is registered as a 100%
                  Export Oriented Unit (on November
                  28, 2001) and is accordingly eligible
                  for claiming tax-holiday benefits u/s
                  10B of the Act. No deduction u/s 10B
                  of the Act has been claimed in view
                  of a loss situation.    The required
                  Report in Form 56G in respect of the
                  said unit is enclosed.

                  For computing the profits of the above
                  undertaking, certain expenses/income
                  debited/credited in the head office have
                  been allocated to such units in the ratio
                  of turnover."

16.    By     letters    dated     31.10.2007,       01.10.2008      and

       14.11.2008,      specific   queries    were     raised   by    the

       Assessing Officer with regard to the units eligible for

       deduction under Section 10B, which queries were replied

       to and detailed explanations rendered. After appreciating

       the response of the petitioner on the said issue of

       deductions under Section 10B of the Act, in respect of

       the respective units, the Assessing Officer allowed the

       deduction at Rs.25,42,43,918/- as against the deduction

       claimed of Rs.29,08,16,451/-. It is pertinent to note that

       even the allowed deduction of Rs.25,42,43,918 was

       subsequently rectified under Section 154 of the Act to


      =====================================================================
      WP(C) 1004/2013                                          Page 10 of 18
       Rs.25,24,21,751/-. The original assessment allowing the

       deduction claimed by the petitioner under Section 10B

       and the subsequent rectification on the same by the

       Assessing Officer clearly establishes that the Assessing

       Officer had formed a definite opinion on the claim of

       benefit under Section 10B as a deduction and also the

       fact that the unit at Greater Noida of the petitioner was

       eligible for such deduction.        It further establishes that

       having formed an opinion, the Assessing Officer now

       seeks to change the opinion and has thus sought to

       reopen the assessment. Further there was disclosure of

       full and true material factson the manner and mode of

       deduction u/s 10B and deduction was being claimed only

       for one unit.





17.    With regard to the reasons to believe recorded in respect

       of the deferred revenue expenditure, it is pertinent to

       note that the petitioner in Note No.2 attached with the

       return of income explained as under:-


              "3. Deferred Revenue Expenditure Written
                 Off


      =====================================================================
      WP(C) 1004/2013                                          Page 11 of 18
                  The       balance     in   Miscellaneous
                  expenditure written off as per annual
                  accounts of March 31, 20013 was
                  Rs.77,640,029 (sum of Rs.16,076,058
                  and Rs.61,563,971, being expenditure
                  incurred on technical know-how i.e.
                  Rs.18,005,185 and Rs.64,136,141 less
                  Rs.1,929,127 and Rs.2,572,170 debited
                  in profit and loss account in FY 2001-02
                  and FY 2002-03 respectively). Out of
                  the    above,     Rs.52,083,202,   being
                  technical      know-how      has    been
                  capitalized in the books of account by
                  adjusting the opening balance and
                  remaining Rs.25,556,827 has been
                  written off during the FY 2003-04.

                   However, as the Company would
                  deserve the benefit from technical know-
                  how for years to come, by relying on the
                  Supreme Court judgment rendered in
                  Madras         Industrial      Investment
                  Corporation Ltd. Vs. CIT (225 ITR 802),
                  the Company has deferred the cost of
                  acquisition of technical know-how for a
                  period of six years while computing
                  taxable    income.        Accordingly,   a
                  deduction     amounting    Rs.13,690,221
                  (sum of Rs.1/6 th of Rs.18,005,185 and
                  Rs.64,136,141) has been claimed in the
                  previous     year    relevant    to    the
                  assessment year 2007-08."


18.    During    the   original   assessment      proceedings      under

       Section 143(3) of the Act, the Assessing Officer had

       specifically in the questionnaire dated 31.10.2007 raised

       the query regarding deduction of Rs.1,36,90,221/- being

      =====================================================================
      WP(C) 1004/2013                                          Page 12 of 18
       1/6th share of the payment of technical know-how fee

       aggregating to Rs.8,21,326 pertaining to the previous

       years    2001-02        and   2002-03.      Vide    letter    dated

       21.11.2008,        the        petitioner      had      submitted

       details/explanation and also submitted worksheets for

       arriving at the said deduction and treatment of the

       deferred revenue expenditure relating to the technical

       know-how fee.


19.    The fact that the petitioner disclosed the deduction of

       deferred revenue expenditure on account of payment of

       technical know-how fee in the notes appended to the

       return of income and that a specific query was raised

       and responded to by the petitioner demonstrates that the

       petitioner has made true and full disclosure of all

       material facts.     The original assessment framed after

       receiving the response to the questionnaire specifically

       dealing with the said issue further establishes that the

       Assessing Officer had formed an opinion on the said

       claim of the petitioner.


20.    The     reasons    to    believe   recorded    by   the      Deputy

      =====================================================================
      WP(C) 1004/2013                                          Page 13 of 18
       Collector, Commissioner of Income Tax do not suggest

       that any fresh or further tangible material had come to

       the knowledge of the Assessing Officer whereby a

       reasonable bonafide belief could or was formed that

       income had escaped assessment on account of failure of

       the assessee to disclose truly and fully the material

       facts.


21.    There appears to be an intensive examination in the first

       instance in respect of the said issues which are no w

       sought to be made the basis for reopening of the

       assessment. It was necessary for the Assessing Officer

       to indicate specifically as to what other material or

       relevant facts subsequently came to the knowledge of

       the Assessing Officer whereby a subjective opinion could

       be prima facie formed that the assessee had failed to

       disclose truly and fully the material facts. There has to

       be a tangible material existing on record for the reasons

       to believe which should have a direct nexus to the

       formation of such belief.


22.    In the    case of the petitioner, with respect to              the

      =====================================================================
      WP(C) 1004/2013                                          Page 14 of 18
 Assessment Year 2004-05, a similar issue with regard to

 the claim of deduction under Section 10B was raised by

 issuance of a notice under Section 148 by the Deputy

 Commissioner of Income Tax. The petitioner had filed a

 writ petition ­ W.P.(C) 7677/2011, which was allowed

 vide judgment dated 06.12.2012 and the notice and the

 proceedings consequent thereto were quashed.                          The

 Court while allowing the petition held as under: -

      "17.           In the present case, the original return of the
             assessee was subjected to scrutiny assessment,
             under Section 143 (3). The assessee was apparently
             closely questioned on various aspects, including its
             claim for treatment of the three units, under Sections
             10-A/10B of the Act. In response to a query raised
             by Respondent No.1, the Petitioner by letter dated
             21.02.2005 furnished information regarding the units
             eligible for deduction u/s 10A/10B. In the reply the
             Petitioner listed all three units as units eligible for
             claiming deduction. The issue of deduction under
             Sections 10A/10B was specifically examined by the
             Assessing Officer during the original assessment.
             Furthermore, Form 56F/56G was also submitted
             along-with the return of income. In the forms the
             Petitioner had specifically claimed deduction u/s
             10A/10B in respect of profits of two units whereas
             NIL deduction for the third unit. Furthermore, in a
             Note (dated 12.01.2005), appended to the return of
             income, the writ petitioner specifically disclosed at
             Point 1(c) that, the claim for benefit under Sections

=====================================================================
WP(C) 1004/2013                                          Page 15 of 18
          10A/10B of the Act, in respect of 66, Udyog Vihar,
          Greater Noida- was eligible for claiming tax- holiday
          benefits under Section 10B of the Act. No deduction
          under Section 10B of the Act was claimed in view of
          a loss situation. The Report in Form 56G for the said
          unit to was enclosed. On 27.12.2006 the Petitioner
          filed an approval letter from the competent authority
          regarding eligibility of the units for deduction u/s
          10A/10B; approval letters regarding all three units
          were submitted.

      18. In the above background of facts, when there was
          intensive examination in the first instance in respect
          of the issue, which was the basis for re-opening of
          assessment, it was necessary for the AO to indicate,
          what other material, or objective facts, constituted
          reasons to believe that the assessee had failed to
          disclose a material fact, necessitating reassessment
          proceedings. That is precisely the "tangible material"
          which have to exist on the record for the "reasons"
          (to believe" bearing a "live link with the formation of
          the belief" as spelt out in Kelvinator. When the
          assessment is completed, as in the present instance,
          under Section 143 (3), after the AO goes through all
          the necessary steps of inquiring into the same issue,
          the reasons for concluding that reassessment is
          necessary, have to be strong, compelling, and in all
          cases objective tangible material. This court discerns
          no such tangible materials which have a live link that
          can validate a legitimate formation of opinion, in this
          case. It is not enough that the AO in the previous
          instance followed a view which no longer finds
          favour, or if the latter view is suitable to the revenue;
          those would squarely be change in opinion. Perhaps,

=====================================================================
WP(C) 1004/2013                                          Page 16 of 18
              in given fact situations, they can be legitimate
              grounds for revising an order of assessment under
              Section 263; but not for re-opening it, under proviso
              to Section 147.

        19.      As a result of the above discussion, it is held that
              the impugned notice, under proviso to Section 147,
              and consequent reassessment proceedings, are
              beyond jurisdiction. They are unsustainable, and are
              hereby quashed. The writ petition is allowed in these
              terms, without any order as to costs."


  23.         We were informed that the respondent/revenue

      had assailed the said judgment by filing a Petition for

      Special Leave to appeal to the Supreme Court and

      the said Special Leave Petition bearing SLP (Civil) CC

      No.11048/2013 has been dismissed vide order dated

      05.07.2013.

24.     In view of the above, we are of the considered

      opinion that the assessee cannot be held to have

      failed to disclose truly and fully all the material facts. It

      is also not a case where fresh tangible material has

      come to the knowledge of the Assessing Officer. The

      Assessing Officer, at the time of original assessment,

      clearly formed an opinion on both the issues and a

=====================================================================
WP(C) 1004/2013                                          Page 17 of 18
    notice under Section 148 seeking to reopen the

    assessment       is   clearly   an   instance    of   change   of

    opinion, which is impressible in law.


  25.      In view of the above, the impugned order dated

        1.02.2013   is    set   aside    and   the    notice   dated

        04.05.2011 and the proceedings initiated consequent

        thereto are hereby quashed.


  26.      The writ petition is accordingly allowed with costs

        of Rs.10,000/-.




                                SANJEEV SACHDEVA, J.


                                SANJIV KHANNA, J.
August 22, 2013
st




 =====================================================================
 WP(C) 1004/2013                                          Page 18 of 18

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Multimedia Presentations Multimedia Solutions 3D Solutions Corporate Presentations Business Presentations Multimedia Presentation India M

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions