2017 (6) TMI 85 - HC - Income Tax

Court rules in favor of Oracle Systems, sets aside assessment notice. Lack of fresh material cited.

The court set aside the notice and order disposing of objections, ruling in favor of the petitioner, Oracle Systems Corporation. The court found the basis ... Reopening of assessment - failure to offer for taxation the corresponding amount either separately or as royalty income in the form of 'incoming shares service charges paid by ‘OIPL to OSC', in its return of income filed for the AY 2007-2008 - Held that:- As rightly pointed out by the Assessee even for AY 2006-2007, the DRP by order dated 16th August 2013, disagreed with the draft assessment order dated 2nd November, 2012 of the AO of OIPL wherein identical additions were suggested. The DRP held that the said two items viz. (i) incoming shared service charges and (ii) alleged excess payment for software media pack/master copy, were not income in the hands of the Assessee herein. On the basis of the above order of the DRP, the final assessment order for AY 2006-2007 in the case of OIPL was passed on 30th November, 2013. This was followed in 2007-08 where again the draft assessment order of the AO of OIPL was not concurred with by the DRP. The DRP’s order dated 29th August, 2014 held that the in respect of both the issues no income resulted in the hands of the Assessee herein. This order was acted upon and the final assessment order was passed by the AO on 30th October, 2014. With the very basis of the reopening of the assessment in the present case having been eroded, the Court hereby sets aside the impugned notice dated 26th March, 2014 and the consequent order dated 23rd March, 2015 passed by the AO disposing of the Assessee’s objections. Issues:Reopening of assessment under Section 148 of the Income Tax Act for AY 2007-08 based on shared service charges and excess payment for software media pack/master copy.Analysis:The petitioner, Oracle Systems Corporation, filed a writ petition under Article 226 of the Constitution to quash the notice seeking to re-open the assessment for AY 2007-08. The initial return filed by the petitioner was picked up for scrutiny, leading to a draft assessment order under Section 144 C of the Act. Subsequently, a rectification order was passed, and the petitioner appealed before the ITAT against the additions made in the final assessment order. The notice under Section 148 was issued based on information received regarding shared service charges and excess payment for software media pack/master copy. The petitioner objected to the assumption of jurisdiction, highlighting that the findings forming the basis for reopening were reversed by the DRP in the case of OIPL. Despite objections, the AO proceeded to dispose of them, leading to the filing of the writ petition.The petitioner's counsel argued that the DRP disagreed with the findings of the AO of OIPL for the same AY in question, indicating a lack of fresh tangible material for invoking Section 147 of the Act. The counsel for the Revenue acknowledged the DRP's disagreement with the AO's draft assessment order. The court noted that the AO's order disposing of objections failed to address the issue adequately. Referring to the DRP's orders for AY 2006-07 and 2007-08, where identical additions were suggested but later held not to be income in the petitioner's hands, the court found the basis for reopening the assessment to be non-existent.Consequently, the court set aside the notice and the order disposing of objections, ruling in favor of the petitioner. The writ petition was allowed with no orders as to costs, emphasizing the lack of a valid basis for the assessment reopening based on shared service charges and excess payment for software media pack/master copy for AY 2007-08.