ORDER

PER N.K. BILLAIYA, ACCOUNTANT MEMBER,

This appeal by the Revenue and cross objection by the assessee are preferred against the order of the CIT(A) - 6, Delhi dated 25.05.2015 pertaining to A.Y 2005-06..

2. The grievances of the revenue read as under:

1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A)is justified in not upholding the reopening of assessment proceedings u/s 148 of the Income Tax act, 1961 (the Act) and in quashing reassessment proceedings?

2. Whether on the facts and circumstances of the case & in law, the Ld. C1T(A) is justified in quashing the proceedings u/s 147 of the Act without considering Explanation 1 to section 147 of the Act?

3. Whether on the facts and circumstances of the case and in law, the Ld. C1T(A) is justified quashing the proceedings u/s 147 of the Act without considering that one of the purpose of section 147 is to ensure that an assessee cannot get away by making an incorrect claim of deductions?

4. That the order of the CIT(A) is erroneous and is not tenable on facts and in law.”

3. The assessee has raised the following grounds in its cross objections:

“1. That the CIT(A) erred on facts and in law in upholding the action of the assessing officer of initiating reassessment proceedings u/s 147 of the Income Tax Act, 1961 (The Act') on the basis of audit objections, without any independent satisfaction regarding escapement of income.

Without prejudice:

2. That the C1T(A) erred on facts in not deciding the appeal on merits thereby upholding the action of the assessing officer in disallowing business development and marketing expenses amounting to Rs. 1.71,75,835/- holding the same to be capital expenditure, as against revenue expenditure claimed by the assessee.

2.1 Further without prejudice, if the business development and marketing expenses aggregating to Rs. 1,71,75.835 are to be held as capital expenditure, the assessing officer be directed to allow depreciation u/s 32 of the Act.”

4. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules and have also perused the judicial decisions relied upon by both the sides.

5. Briefly stated, the facts of the case are that the assessee is a limited company, engaged in the business of offering full range BPO and call-center solution services. The assessee filed return of income declaring loss of Rs.8.81 crores. The return was selected for scrutiny assessment and assessment order was framed u/s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] vide order dated 26.03.2007.

6. On the basis of audit objection raised by the Internal Audit Wing of the Department, the Assessing Officer issued notice dated 24.09.2007 directing the assessee to explain as to why the business development and marketing service expenses of Rs.1.71 crores debited in profit and loss account under head “Professional Charges” may not be treated as capital expenditure and thus disallowed.

7. A detailed reply was filed by the assessee vide letter dated 05.12.2007 explaining the nature, details and breakup of such expenses. No further query/clarification was sought by the Assessing Officer.

8. However, based on the audit objection reassessment proceedings were initiated vide notice dated 23.03.2012. The reasons for reopening the assessment read as under:

9. The reassessment proceedings were completed vide order dated 04.02.2013 wherein loss was assessed at Rs. 7.09 crores after disallowing business development and marketing service expenses of Rs.1.71 crores holding the same to be capital in nature.

10. The assessee preferred an appeal before the ld. CIT(A) and the ld. CIT(A) allowed the appeal of the assessee quashing the reassessment proceedings by holding that it is a case of change of opinion.

11. Before us, the ld. DR strongly supported the