2012 (8) TMI 383 - HC - Income Tax

Court Quashes Re-Assessment Order for Lack of Jurisdiction

The court allowed the writ petition, quashing the notice, order, and draft re-assessment order. It clarified that the decision did not touch upon the ... Re-opening of assessment under Sections 147/148 - reason to believe - change of opinion - proviso to Section 147 - full and true disclosure - jurisdictional pre-condition for initiation of reassessment - attribution of income to permanent establishment / project officeRe-opening of assessment under Sections 147/148 - reason to believe - change of opinion - jurisdictional pre-condition for initiation of reassessment - Validity of the reopening notice dated 31.3.2009 for A.Y. 2002-03 in light of the reasons recorded. - HELD THAT: - The Court examined the reasons recorded for reopening and found that the Assessing Officer's reasons largely reproduced the assessment order for A.Y. 2005-06 and did not disclose any new material facts for A.Y. 2002-03. The Assessing Officer in the original 143(3) order had considered and decided the same core factual and legal questions (business connection, permanent establishment, treatment of DMRC receipts, application of a gross profit rate and attribution). The present reasons reflected merely a different conclusion on rate of gross profit and extent of attribution (i.e., a disagreement with the earlier conclusion), which amounted to a change of opinion rather than the discovery of tangible material showing escapement of income. Applying the settled principle that reopening cannot be based on mere change of opinion and that 'reason to believe' must have a live link to tangible material, the Court concluded that the jurisdictional pre-condition for initiating reassessment was not satisfied. [Paras 19, 20, 21, 22, 23]Notice under Section 148/147 quashed for A.Y. 2002-03 as being founded on change of opinion and not on fresh tangible material establishing escapement of income.Proviso to Section 147 - full and true disclosure - re-opening of assessment under Sections 147/148 - Whether the proviso to Section 147 (bar where assessee has disclosed fully and truly all material facts) applies to preclude reopening. - HELD THAT: - The Court found that the assessee had disclosed the material facts relevant to taxation of DMRC-related receipts during the original assessment proceedings: details of turnover, existence of liaison and project offices, and the claim on profit attribution were placed on record and considered in the 143(3) order. No new primary facts or particulars surfaced subsequently. The dispute at reopening related to the conclusion to be drawn from those disclosed facts (appropriate GP rate and proportion attributable to India), which does not amount to failure to disclose full and true particulars. Therefore the proviso to Section 147 operates to bar reopening on the present facts. [Paras 5, 22, 23]Proviso to Section 147 applies and bars reassessment since full and true material facts were disclosed in the original proceedings.Approval under Section 151 - re-opening of assessment under Sections 147/148 - Whether the approval by Director of Income Tax (International Taxation) for issuance of notice was back-dated and therefore invalid. - HELD THAT: - The Court noted that affidavits of the assessing officer were produced and the original file-sheet placed before the Court showed that the Director of Income Tax (International Taxation) granted sanction/approval on 31.3.2009. In absence of contrary material from the approving authority, the petitioner's contention that the approval was back-dated was rejected. [Paras 4]Contention that approval was back-dated rejected; approval recorded as granted on 31.3.2009.Final Conclusion: Writ petition allowed: the notice dated 31.3.2009 under Section 148 and the consequential order dated 26.11.2009 and draft reassessment order for A.Y. 2002-03 are quashed on jurisdictional grounds; the Court has not expressed any view on the substantive merits (appropriate GP rate or extent of attribution), which remain open for adjudication if competent proceedings are validly initiated. Issues Involved:1. Change of opinion.2. Full and true disclosure of material facts.3. Specific recording of failure to disclose material particulars.4. Escapement of income.5. Approval under Section 151 of the Income Tax Act.6. Agreed assessment and its reopening.Issue-wise Detailed Analysis:1. Change of Opinion:The petitioner argued that the initiation of re-assessment proceedings under Section 147 of the Income Tax Act, 1961, was a case of change of opinion, as the Assessing Officer had already examined the income earned by the project office from sales made to Delhi Metro Rail Corporation (DMRC) during the original assessment proceedings. The court agreed, noting that the Assessing Officer had indeed gone into all aspects now mentioned in the reasons to believe for re-assessment during the original assessment. The Supreme Court's ruling in CIT v. Kelvinator of India Ltd. was cited, emphasizing that the Assessing Officer cannot reopen a concluded assessment on the basis of a mere change of opinion.2. Full and True Disclosure of Material Facts:The petitioner contended that they had made a full and true disclosure of all material facts, invoking the bar stipulated in the proviso to Section 147 of the Act. The court found this contention valid, noting that the petitioner had disclosed all material facts at the time of the original assessment, including turnover, expenses, and the existence of a project office as a permanent establishment. The court concluded that no new material facts had come to the Assessing Officer's notice, and thus, the petitioner had indeed made a full and true disclosure.3. Specific Recording of Failure to Disclose Material Particulars:This issue was considered part of the second contention. The court observed that the reasons recorded for reopening the assessment did not specifically mention that the petitioner had failed to disclose full and true material particulars. This omission further supported the petitioner's case against the re-assessment proceedings.4. Escapement of Income:The petitioner argued that there was no escapement of income. The court was not impressed by this contention, noting that re-assessment can be initiated if the conditions mentioned in Section 147 are satisfied, even if the first/original assessment was on agreed terms. The court emphasized that at the stage of issuing a notice, only a prima facie or tentative view is required.5. Approval under Section 151 of the Income Tax Act:The petitioner claimed that the approval granted under Section 151 by the Director of Income Tax (International Taxation) was backdated and not taken on or before 31st March 2009. The court rejected this contention, noting that affidavits filed by the then assessing officer confirmed that the approval was granted on 31st March 2009. The court found no basis to support the petitioner's claim.6. Agreed Assessment and Its Reopening:The petitioner argued that the original assessment order under Section 143(3) was an agreed assessment and should not be reopened. The court dismissed this contention, stating that a wrong or incorrect assessment can result in under-assessment or escapement of tax, and re-assessment can be initiated if the conditions under Section 147 are met, regardless of whether the original assessment was agreed upon.Conclusion:The court allowed the writ petition, quashing the impugned notice dated 31.3.2009, the order dated 26.11.2009, and the draft re-assessment order. The court clarified that it had not expressed any opinion on the merits of the case, such as the appropriate GP rate or the percentage of income attributable to the Indian office. The only issue examined was the jurisdictional pre-condition for initiating the re-assessment proceedings. The writ petition was allowed with no order as to costs.