PCIT Vs Superior Films Private Limited (Delhi High Court)
When the assessee has filed a return u/s 139 of the Act or in response to sections 142(1) or 148 of the I.T.Act and when an assessment order u/s 143(3) or u /s 147 of the Act has already been passed then the assessee enjoys statutory protection under proviso to section 147 of the Act from any action u/s 147 of the Act after the expiry of four years from the end of the relevant assessment years; unless income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to fully and truly disclose all material facts necessary for his assessment for that assessment year. Onus is on Revenue to show that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for his assessment for that assessment year and in the instant case, Revenue has failed to discharge this onus. When it is not the case of the Revenue that there was failure on the part of the assessee to disclose all material facts fully and truly, Revenue cannot violate the statutory protection enjoyed by the assessee under proviso to section 147 of the Act.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This appeal has been heard by way of video conferencing.
2. This appeal has been filed challenging the order dated 07.2019 passed by the learned Income Tax Appellate Tribunal (hereinafter referred to as the ‘ITAT’) in ITA No. 4938/Del/2012.
3. The dispute originates from the return of income filed by the respondent under Section 139 (1) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) for the assessment year 2004-05 on 11.01.2004. The said return was selected for scrutiny and a notice under Section 143 (2) of the Act was issued by the Assessing Officer to the respondent on 21.11.2005. The same resulted in Assessment Order dated 29.12.2006 making an addition of Rs.96,36,129/- to the taxable income of the respondent after calculating depreciation (Rs.9,08,897/-) and adjusting the brought forward losses of previous assessment year under Section 72 of the Act (Rs.76,80,953/-), the income of the respondent was assessed at Rs.10,46,779/-. The respondent challenged the Assessment Order before the Commissioner of Income Tax (Appeals)-XII. The Commissioner of Income Tax (Appeals)-XII was pleased to allow the appeal vide order dated 30.01.2009 and a relief of Rs.12,94,257/- was granted to the respondent. It is only on 22.03.2011 that a notice under Section 148 of the Act was issued by the Assessing Officer to the respondent claiming that a deduction of franchise fee of Rs.2,40,00,000/- paid by the respondent to M/s Satyam Cineplex Limited was wrongly allowed as it gave an enduring benefit to the respondent and was an expense of capital nature. It was stated that allowing depreciation at the rate of 25% amounting Rs.60,00,000/-, balance amount of Rs.1,80,00,000/-should have been added to the income of the respondent for the Assessment Year 2004-05. The said proceedings resulted in Assessment Order dated 19.12.2011 on the same terms.
4. The Assessment Order was challenged by the respondent before the Commissioner of Income Tax (Appeals)-XII, who vide order dated 18.06.2012 was pleased to allow the appeal holding that as the Assessing Officer has not alleged any failure on the part of the respondent to disclose truly and fully all material facts, the notice under Section 148 of the Act after the expiry of four years from the end of the relevant Assessment Year was not maintainable. It was further held that this was a case of change of opinion by the successor Assessing Officer and in fact the claim of the respondent for the Assessment Year 2003-04 to 2009-10 had also been accepted.
5. The appellant challenged the above order before the learned ITAT, which was pleased to dismiss the appeal vide its Impugned Order dated 31.07.2019 observing that as the notice under Section 148 of the Act was issued more than four years from the end of the Assessment Year and it remained undisputed that the Assessee did file return under Section 139 of the Act; an Assessment Order under Section 143 (3) of the Act was passed on 19.12.2011; reassessment proceedings under Section 147 had been initiated only on 22.03.2011; and the Revenue had failed to show which material facts were not disclosed by the Assessee, no action under Section 147 of the Act could be taken by the appellant.
6. The learned counsel for the appellant submits that in terms of the third proviso to Section 147 of the Act a four-year period provided in the first proviso to the said section would commence only on the final adjudication of the appeal filed by the respondent, which in the facts of the present case was disposed of by the Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘CIT (Appeals)’] vide order dated 30.01.2009. He submits that therefore, the notice under Section 148 of the Act issued on 22.03.2011 was within the four-year period as provided in the first proviso to Section 147 of the Act.
7. We are unable to agree with the submission made by the learned counsel for the appellant. The relevant extracts from Section 147 of the Act are as under: –
“Income escaping assessment.
147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in section 148 to 153, referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless 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 in response to a notice issued under sub-section (1) of section 142 section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) 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 matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.”
8. The learned CIT (Appeals) in his order dated 18.06.2012 while allowing the appeal of the respondent observed as under: –
“A notice under section 148 was served upon the assessee on March 22, 2011. The Assessing Officer has recorded the reason for reopening as under:-
“In this case it has been noticed that the assessee has claimed and was allowed franchise fee of Rs.2,40,00,000/-. The franchise fee being of capital nature was not allowable and should have been disallowed and added back to the income of the assessee after allowing depreciation at the rate of 25% amounting to Rs.60,00,000/- and balance amount of Rs.1,80,00,000/- should have been added back to the income of the assessee”
From the reason so recorded, the AO has not alleged any failure on the part of the assessee to disclose truly and fully all material facts which is a pre-condition for taking action u/s 148 where action is taken after expiry of 4 years. The assessee has disclosed full details in return of income accompanied by audited accounts and copy of agreement submitted during the course of assessment proceedings u/s 143(3).
From the fact stated by the assessee as well as those recorded in the assessment order it appears that at the time of scrutiny assessment proceedings, the assessee had fully and truly disclosed all material facts and thereafter scrutinizing the details furnished by the appellant, the AO made the regular assessment u/s 143(3)and had formed an opinion that the appellant has correctly claimed these expenses as revenue in nature. Also the AO without bringing any new facts or material on record formed an opinion that this expenditure gave benefits of an enduring nature to the appellant and the same should be treated as capital expenditure in the nature of intangible asset.
After perusal of the above facts and the facts stated in the assessment order I am of the opinion that this is a case of change of opinion as the successor Assessing Officer has merely recorded a different opinion in relation to an issue to which the earlier Assessing Officer who framed the original assessment has already applied his mind and come to a conclusion that payments are revenue in nature. Moreover this very issue of franchise payment has been accepted by the Department in the Asst. Year 200304 to 2009-10 which is as under:-
