Allowability of sponsorship expenses in the absence of comment of AO in the original order

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH ‘G’: NEW DELHI

BEFORE SHRI G.D.AGRAWAL, VICE PRESIDENT AND

SHRI I.C.SUDHIR, JUDICIAL MEMBER

ITA No.496/Del/2010

Assessment Year: 2006-07

Deputy Commissioner of

Income Tax,

Central Circle-9,

New Delhi.

(Appellant)

Vs.

M/s SPA Enterprises Limited,

303, D-2, Southern Park,

District Centre Saket,

New Delhi – 110 020.

PAN: AACCS0628R.

(Respondent)

Appellant by: Shri Ramesh Chandra, CIT-DR.

Respondent by: Shri Ajay Wadhwa, Advocate.

ORDER

PER G.D.AGRAWAL, VP:

This appeal by the Revenue is directed against the order of learned CIT(A)-II, Delhi dated 23rd November, 2009 for the AY 2006-07.

2. The grounds raised by the Revenue read as under:-

“1.(a) On the facts and in the circumstances of the case, the ld.CIT(A) has erred in annulling the re-assessment proceedings u/s 147 on the basis of change of opinion by the AO on the issue of ‘allowability of Sponsorship Expenses’ even when the AO did not comment upon this issue either in the original order u/s 143(3) or in the Office Note appended thereto, the assessee’s claim of ‘Sponsorship Expenses’ having being a reasons for reopening of the original assessment.

1(b) On the facts and in the circumstances of the case, the ld.CIT(A) has erred in annulling the re-assessment proceedings u/s 147 without going in to the merits of the additions including the addition of Rs.2.0 Crore on account of accommodation entries of Rs.2.00 Crore taken by the assessee from M/s B.T.Technet Ltd., admittedly an entry provider.”

3. The facts of the case are that the original assessment under Section 143(3) was completed on 30th December, 2005 at the income of `3,58,02,994/-. Thereafter, the Assessing Officer issued notice under Section 148 on 24.07.2007 and reassessment was completed on 24.12.2008 at the total income of `5,84,46,500/-. The learned CIT(A) cancelled the reopening with the following finding:-

“4.9 Based on the above discussions and decisions, I agree with the contention of the appellant raised through these four grounds that in the instant case also where reopening of the assessment has been done purely based on the change of opinion and therefore reassessment proceedings have to be held to be invalid. The first four grounds are, therefore, decided in favour of the appellant.”

4. The Revenue, aggrieved with the order of learned CIT(A), is in appeal before us.

5. At the time of hearing before us, it was pointed out by the assessee’s counsel that the assessment has been reopened only on the ground that the sponsorship expenses incurred by the assessee were not for regular running of the business and should have been capitalized. That during the course of assessment proceedings under Section 143(3), the Assessing Officer has raised the query with regard to sponsorship expenses and the assessee has furnished the reply dated 6.10.2005. Thus, the assessment has been reopened merely on change of opinion. Apart from relying upon various decisions referred to in the order of learned CIT(A), he further relied upon the recent decision of Hon'ble Jurisdictional High Court dated 12th December, 2012 in the case of CIT Vs. Orient Craft Limited in ITA No.555/2012.

6. Learned DR, on the other hand, relied upon the order of the Assessing Officer.

7. We have heard both the sides and perused the material placed before us. The copy of reasons recorded for issue of notice under Section 148 is placed at page 29 of the assessee’s paper book, the relevant portion of which reads as under:-

“Assessment in this case was completed u/s 143(3) at an income of Rs.35802994/- which was subsequently rectified at Rs.35602994/-.

Later on it was noticed that sponsorship expenses amounting to Rs.3554382/- allowed to the assessee were on account of payments made by the assessee on behalf of its candidates send abroad for higher studies. As the expenditure incurred was not for regular running of the business and has enduring benefits on the business of the assessee the same should have been capitalized and added back to the income of the assessee.

I have therefore, reason to believe that an amount of Rs.3554382/- has escaped assessment within the meaning of section 147(b) of the IT Act, 1961.”

8. However, we find that during the course of assessment proceedings, the Assessing Officer had raised a query in this regard and the assessee had furnished the reply thereto on 6.10.2005. Therefore, the aspect of the sponsorship expenses was duly examined in original assessment proceedings. Even from the reasons recorded for reopening of assessment, it is evident that the Assessing Officer noticed about the sponsorship expenses from the material already on record taken during the original assessment proceedings. Therefore, clearly, the reopening of assessment is on the basis of change of opinion by the Assessing Officer. We find that in a recent decision, Hon'ble Jurisdictional High Court in the case of Orient Craft Limited (supra) held as under:-

“14. In the present case the reasons disclose that the Assessing Officer reached the belief that there was escapement of income “on going through the return of income” filed by the assessee after he accepted the return under Section 143(1) without scrutiny, and nothing more.

This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer, both strongly deprecated by the Supreme Court in CIT vs. Kelvinator (supra). The reasons recorded by the Assessing Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words “reason to believe” vis-a-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147.

15. For the above reasons, we answer the substantial question of law framed by us in the affirmative, in favour of the assessee and against the Revenue. The appeal of the Revenue is accordingly dismissed. There shall be no order as to costs.”

9. Thus, Hon'ble Jurisdictional High Court has held that even if there is no regular assessment, the review of the earlier proceedings is not possible. The case of the present assessee is much better because in its case, original assessment was completed under Section 143(3) and during the course of assessment proceedings, the Assessing Officer examined the aspect of sponsorship expenditure. In view of the above, we are of the opinion that the above decision of Hon'ble Jurisdictional High Court would be squarely applicable to the case of the assessee. Respectfully following the same, we uphold the order of learned CIT(A) and dismiss the appeal filed by the Revenue.

10. In the result, the appeal of the Revenue is dismissed.

Decision pronounced in the open Court on 2nd August, 2013.

Sd/- Sd/-

(I.C.SUDHIR) (G.D.AGRAWAL)

JUDICIAL MEMBER VICE PRESIDENT

Dated: 02.08.2013

VK.

Copy forwarded to:

1. Appellant: Deputy Commissioner of Income Tax, Central Circle-9, New Delhi.

2. Respondent: M/s SPA Enterprises Limited, 303, D-2, Southern Park, District Centre Saket, New Delhi – 110 020.

3. CIT

4. CIT (A)

5. DR, ITAT

Assistant Registrar