Commissioner Of Income Tax vs Eicher Limited
2010 Latest Caselaw 3420 Del

                               Reportable

*           IN THE HIGH COURT OF DELHI AT NEW DELHI

                           ITA No. 958 of 2008

      %                                  Date of Decision: 22nd July, 2010


      COMMISSIONER OF INCOME TAX                             ..... Appellant

                        Through:    Ms. Prem Lata Bansal, Advocate

                  versus


      EICHER LIMITED                                      ..... Respondent

                        Through:    Mr. Ajay Vohra with Ms. Kavita Jha,
                                    Ms. Akansha Aggarwal and
                                    Mr. Somnath Shukla, Advocates

CORAM :-
    HON'BLE MR. JUSTICE A.K. SIKRI
    HON'BLE MR. JUSTICE REVA KHETRAPAL

      1.    Whether Reporters of Local newspapers may be allowed
            to see the Judgment?
      2.    To be referred to the Reporter or not?
      3.    Whether the Judgment should be reported in the Digest?

A.K. SIKRI, J. (Oral)

1. The respondent-assessee has filed the return of its income in

respect of the Assessment Year 1999-2000 declaring income at

9.49 Crores under Section 115JA of the Income Tax Act

(hereinafter referred to as „the Act‟). This return was processed

under Section 143(1) of the Act and the assessment was

completed under Section 143(3) at an income of Rs.44,13,247/-

under normal provisions of the Act and at Rs.10.17 Crores under

Section 115JA of the Act. This assessment order was passed on

28.03.2002.

2. Within two years, however, the Assessing Officer (AO) sought to

reopen the assessment by issuing a notice under Section 148 of

the Act on 18.03.2004. Based thereupon, afresh assessment

order was passed on 22.02.2005. The AO added an income of

Rs.15,662,632/- on the ground that when the first assessment

order was passed while computing the business income, a

deduction of Rs.5,67,48,804/- was claimed and the same was

allowed under Section 37(1) of the Income Tax Act as part of the

company‟s plan to expand its product range into higher horse

power tractor segment, higher horse power tractors and its

components and motorcycles, in the course of its existing

business of manufacture and sale of tractors and its components

and motor cycles. The addition of Rs.15,662,632/- to the

aforesaid expenditure on its expansion of business was treated as

„capital expenditure‟ on the premise that it was made with a view

to bringing into existence an asset or an advantage for the

enduring benefit of the business.

3. The assessee challenged this order by an filing an appeal before

the CIT (Appeals). Main contention of the assessee was that all

the relevant facts in this behalf were placed before the AO when

the assessment was carried out in the first instance and the AO

had taken a categorical view that the entire expenditure was in

the nature of revenue expenditure and therefore, liable for

deduction. Relevant discussion contained in the order of the

CIT(A) runs as follows:

"3.3 On verification of the assessment record it was found to be correct that the original assessment proceedings u/s 143(3) was completed by the AO vide its order dated 28-03-2002 and during that proceedings the claim of the appellant in respect of the expenditure incurred in reference to development of higher horse power tractors and motorcycles was examined and the claim as per Note VI to the Computation of Income was allowed to the appellant."

4. On this premise, the CIT (A) quashed the notice issued under

Section 148 as well as the second assessment order. We may

also state that even on merits, CIT(A) found the addition to be

unsustainable, as he was of the opinion that the expenditure was

revenue in nature.

5. It was now the turn of the Department to feel aggrieved and the

Department accordingly approached the Income Tax Appellate

Tribunal (hereinafter referred to as „the Tribunal‟) by way of filing

the appeal and challenging the orders of the CIT (A). The appeal

of the Department has, however, been dismissed vide orders

dated 31.10.2007. The order of the Tribunal would show that it

has extracted the aforesaid portion of the order of the CIT(A) and

on that basis, remarked as under:

"11. It may be pointed out here that we have asked the ld. DR that whether he is disputing these findings of ld. CIT(A). He said that he is not disputing these findings of CIT(A). If it is so, then it is an established fact that the claim of the assessee was looked into by the AO during the course of original assessment proceedings and after due application of mind the claim was allowed in the original assessment proceedings. The present reassessment proceedings are carried out only on the basis of mere change of opinion. It is also not the case of revenue that any material evidence was not fully and truly disclosed by the assessee. Law on reassessment is well settled that mere change of pinion does not confer jurisdiction to reopen a completed assessment on the interpretation of a particular provision earlier adopted by the AO. The scope of Section 148 does not extend to reviewing its earlier order sou moto irrespective of there being any material to come to a different conclusion apart from just having second thought about the inference drawn earlier. It has already been pointed out that it is not disputed that the claim of the assessee was looked into by the AO during the course of original assessment proceedings and the AO had formed an opinion of the issue and had allowed the claim of the assessee. Reliance by the ld. DR on the decision in the case of Consolidated Photo And Finvest Ltd. v. ACIT (supra) cannot advance the case of the department as the said decision was subsequently considered by the Hon‟ble jurisdictional High Court in the case of CIT v. M/s. Eicher Ltd., 163 Taxman 259 (Del) (supra) (a copy of which has been submitted in the paper book at pages 62 to 65) wherein referring to that decision it was observed by Hon‟ble jurisdictional High Court that in view of earlier Full Bench decision of Delhi High Court in the case of KLM Royal Dutch Airlines vs. ADI (159 Taxman 191) the view expressed in the case of Consolidated Photo And Finvest Ltd. v. ACIT (supra) cannot be said to have laid down correct law....."

6. As it is clear that even the verification of the assessment record

has revealed that all the facts were placed before the AO at the

time of first assessment and the findings of the CIT(A) in this

behalf could not be disputed by the departmental representative

even before the Tribunal. Thus, no fault can be found in the

approach of the Tribunal.

7. Faced with the aforesaid situation, the learned counsel for the

Revenue has made altogether different submission before us. She

argued that in the „reasons to believe‟ recorded by the AO while

reopening the assessment, three aspects were noted. Apart from

the aforesaid question relating to the expenditure in the

assessee‟s plan to expand its product range into higher horse

power tractor segment, higher horse power tractors, etc. and the

part of the expenditure thereupon, revenue or capital in nature,

she pointed out that there were two more reasons given by the

AO in his „reasons to believe‟, which are as under:

"1. The assessee has created the provision of Rs.190 lakh towards gratuity but only Rs.75 lakh were actually paid. Excise provision of Rs. 115 lakh towards gratuity being an unascertained liability should have been disallowed.

2. While calculating effect of newly inserted section 145A an amount of Rs.3,53,56,437/- on account of excise duty payable on opening stock of raw material, work in progress, finished goods etc as on 01.04.1999, and there was no addition on account of excise duty in valuation of inventory as on 31.03.98, the deduction of Rs.3,53,56,437/- on account of excise duty on opening stock should have been disallowed."

8. Her submission was that the Tribunal did not even look into these

aspects, and they could form valid grounds for reopening of the

assessments. In continuation, she argued that even if the

additions on account of the aforesaid grounds, were not made by

the AO in the second assessment orders passed by it, these

grounds would still be relevant for consideration for reopening the

assessment under Section 148 of the Act. She also submitted that

even if one of the grounds for reopening of the assessment is

found valid, the notice under Section 148 of the Act cannot be set

aside.

9. This contention is to be rejected on two grounds. In the first

instance, we find that no such plea was taken before the Tribunal.

The entire case was argued on the basis that the third reason,

viz., treating the entire expenditure as revenue in nature was

incorrect and part of the expenditure could be treated as capital

expenditure.

10. We may state here that even before CIT(A), the matter proceeded

on this basis. It was presumably because of the reason that in

respect of the first two „reasons/grounds‟, the AO found that no

additions were warranted. Maybe in order to determine the

validity of the notice under Section 148 of the Act, this could still

be pressed as grounds showing the justification for reopening the

assessment. Fact remains that no such plea was taken by the

Department before the CIT(A) or before the Tribunal. Therefore,

such a plea cannot be allowed for the first time in this appeal.

11. Second reason is that the appellant has itself annexed „office

note‟ of the DCIT, Circle-11(1), New Delhi to the assessment order,

which discloses as to why no additions on the first two reasons

could be made at all. Relevant portion of this order reads as

under:

"1. Excess provision of Rs.115 lakh towards gratuity should have been disallowed. It may, however be mentioned that in the normal computation of income, the assessee has already disallowed the same under the head disallowance u/s 40A(7) amounting to Rs.1,14,95,024/-. Further even for the purpose of computation of income u/s 115JA, the same is allowable as the same was made on the basis of actuarial valuation and is, therefore, an ascertained and accrued liability as held by the Hon‟ble Supreme Court in the case of Metal Box Company of India Vs. Their Workmen 73 ITR 53.

2. While calculating effect of newly inserted section 145A, no addition on account of excise duty in valuation of inventory as on 31.03.1998 was done resulting in excess deduction of Rs.3,53,56,437/- claimed by the assessee. No disallowance on above account is being done as the aforementioned amount has not been debited to the audited P&L account in view of accounting policy of the assessee in respect of valuation of inventory and excise and custom duty as stated at Schedule L at page 20 of audited P&L account in view of accounting policy of the assessee in respect of valuation of inventory and excise and custom duty as stated at Schedule L at page 20 of audited P&L account in view of accounting policy of the assessee in respect of valuation of inventory and excise and custom duty as stated at Schedule L at page 20 of audited P&L account. It may further be mentioned when the adjustment are made in valuation of inventory this will affect both the opening as well as closing stock. Section 145A starts with non-obstante clause "Notwithstanding anything to the contrary contained in section 145", therefore, to give effect to section 145A the opening stock as on 01.04.1998 will also have to be increased by any tax, duty, cess actually paid or incurred with respect to such stock if the same has not been added for the purpose of valuation and amounts."

12. Thus, it was found that such reasons were not sustainable at all

and therefore, there is no basis for issuance of a notice under

Section 148 insofar as these two reasons are concerned.

Therefore, it is not permissible for the learned counsel for the

Revenue to now raise such a contention.

13. In the result, we are of the opinion that no substantial question

of law arises for our determination. This Appeal is accordingly

dismissed.

(A.K. SIKRI) JUDGE

(REVA KHETRAPAL) JUDGE JULY 22, 2010.

pmc