2016 (6) TMI 301 - HC - Income Tax

Court invalidates reopening of assessments under Section 148, emphasizing full disclosure of material facts

M/s Alcatel-Lucent France And Another Versus Assistant Director of Income Tax

The court quashed the notices issued under Section 148 and rejected the objections to reopening assessments for the relevant Assessment Years. The court ... Reopening of assessment - existence of PE in India to which its profits are attributable - software income earned by ALF was taxed as royalty income under the provisions of the Act and the tax treaty - date of execution of the agreement with Indian customers was not taken into account - Held that:- The desperate attempt by the Revenue at trying to infer the failure to disclose material particulars because of the inconsistent stand of ALF on whether it has a PE in India deserves to be rejected. Reasons for the second time were recorded by the AO on 14th March 2013 for reopening the assessment for AY 2006-07 and 13th March 2013 for AY 2008-09. This was after the order dated 29th September 2012 of the CIT(A) which negatived the plea of ALF that it had no PE in India. The AO was aware that ALF was nevertheless maintaining its stand that it did not have a PE although it did not appeal against the order of the CIT(A). It cannot be said that there was any failure to disclose any material particulars only because ALF continued with its stand of not having a PE in India. In any event this was known to the AO and yet in the reasons recorded for reopening the assessment this is not referred to as a failure on the part of ALF to disclose true and material particulars. The reasons for reopening the assessment for AY 2004-05 do not made any reference to Section 44DA(1). Although it has been mentioned in the reasons for the other three AYs in question, this was not an issue that arose for the first time based on any tangible material that came to the notice of the AO subsequent to the original assessment orders which were themselves under Section 147 read with Section 143 (3) of the Act. As far as the issue regarding the agreements, this appears to be brought up for the first time at the stage of rejection of the objections. It did not form part of the original reasons for reopening the assessments. Section 147 is not to be casually invoked to suit the convenience of the Revenue and at every stage to correct the errors of AOs which could have easily been avoided had there been a proper discharge of the statutory duty. Once that legal perspective is kept in view, repeatedly invoking Section 147 of the Act on the same materials, only because there is no statutory bar against it, would constitute an abuse of the process of law. The Court would also like to observe that it is extraordinary that Sections 147 and 148 of the Act have been invoked by the Revenue not once but twice in respect of the same Assessee and on the same set of facts and same reasons. Thus there was no justification for the Revenue to have invoked the power under Sections 147 and 148 of the Act for the second time in respect of ALF for AYs 2004-05, 2005-06, 2006-07 and 2008-09 - Decided in favour of assessee The reasons for reopening merely repeat the words of the statute that there has been a failure by ALF to disclose material particulars. This is certainly not sufficient as far as the legal requirement is concerned. It has been repeatedly held by the Court that the mere repeating of the words in the statute is hardly sufficient compliance - Decided in favour of assessee Issues Involved:1. Validity of reopening assessments under Section 148 of the Income Tax Act, 1961.2. Whether the reopening was based on a change of opinion.3. Applicability of the third proviso to Section 147 of the Act.4. Compliance with the requirement of disclosing material facts fully and truly.Detailed Analysis:1. Validity of Reopening Assessments under Section 148 of the Income Tax Act, 1961:The primary issue was whether the notices issued under Section 148 for reopening the assessments were valid. The court examined the reasons for reopening the assessments for various Assessment Years (AYs) and found that the reasons were identical to those previously quashed by the court for AY 2003-04. The court noted that the reopening was initiated despite the absence of any new material facts that came to the knowledge of the Assessing Officer (AO) after the completion of the original assessment proceedings.2. Whether the Reopening was Based on a Change of Opinion:The court determined that the reopening of the assessments was merely based on a change of opinion. The original assessments for AYs 2004-05, 2005-06, 2006-07, and 2008-09 were conducted under Sections 148/143(3) of the Act, and the AO had already examined whether there had been any escapement of income. The court emphasized that the mere reconsideration of the same facts did not justify initiating reassessment proceedings. The court cited the Supreme Court's decision in CIT v. Kelvinator of India Ltd. to highlight that reassessment must be based on tangible material and not merely a change of opinion.3. Applicability of the Third Proviso to Section 147 of the Act:The court highlighted the third proviso to Section 147, which restrains the AO from reopening an assessment that is the subject matter of an appeal, reference, or revision. The court found that the orders initiating the reopening of the assessments were issued while appeals against the original assessment orders were pending before the Commissioner of Income Tax (Appeals) [CIT(A)] or the Income Tax Appellate Tribunal (ITAT). The court held that the AO overlooked this proviso, rendering the reopening notices invalid.4. Compliance with the Requirement of Disclosing Material Facts Fully and Truly:The court examined whether the petitioners had failed to disclose fully and truly all material facts necessary for the assessment. The court found that the reasons for reopening merely repeated the statutory language without specifying any particular material that was not disclosed by the petitioners. The court reiterated that the requirement of disclosing material facts fully and truly is a sine qua non for reopening assessments beyond four years from the end of the relevant assessment year. The court cited previous judgments to emphasize that mere repetition of statutory language is insufficient for compliance.Conclusion:The court quashed the impugned notices issued under Section 148 and the corresponding orders of the AO rejecting the objections of the petitioners to the reopening of the assessments for the AYs in question. The court allowed the writ petitions filed by the companies belonging to the Alcatel-Lucent group, holding that the reopening of assessments was unjustified and based on a change of opinion. The court also observed that the AO failed to consider the third proviso to Section 147, which mandates that the AO cannot reopen assessments that are the subject matter of pending appeals.