TaxTMI 
TaxTMI 
2012 (11) TMI 939
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessment order may please be cancelled." 3. The assessee is a company engaged in the business of software manufacturing and trading of imported software. As far as A.Y 1997-98 and 1998-99 are concerned the assessee had filed its return of income on 28/11/1997 and 27/11/1998 respectively. An order of assessment under section 143(3) was passed on 22/3/99 and 27/2/2001 respectively. These assessments were reopened by issue of a notice dated 20/10/2003. As per the provisions of proviso to section 147 of the Act where an assessment for any assessment year has already been made under section 143(3) of the Act and the AO wants to issue notice under section 147 of the Act for reassessment i.e. to bring to tax income which has escaped assessment, after the expiry of 4 years from the end of the relevant assessment year, then the escapement of income chargeable to tax in the original assessment should be because of the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. Thus the validity of initiation of reassessment proceedings for A.Y 1997-98 and 1998-99 has to be tested on the basis of the satisfaction of the condition contem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cts is a condition precedent for initiation of reassessment proceedings. 6. We have considered the rival submissions. Reasons recorded for initiation of reassessment proceedings have already been set out above. Perusal of the same shows that there is no allegation by the Assessing Officer that income has escaped assessment by reasons of failure of the assessee to disclose material facts fully and truly. Since, reassessment proceedings were being initiated after expiry of 4 years from the end of assessment year, this was condition precedent for valid initiation of reassessment proceedings. In the case of Grindwell Nortion Ltd. (supra), the question regarding validity of initiation of reassessment after expiry of four years from the end of the assessment year came up for consideration. The court as a fact found that nowhere in the reasons recorded by the Assessing Officer it was stated that there was a failure on the part of the assessee to disclose material facts in the return filed by the assessee. The court held that reopening of assessment beyond the period of four years could not be sustained. The court followed its own decision on identical issue in the following case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....observed that as per Section195 of the Act, Tax has not been Deducted at Source. He thereafter has observed that in accordance with the provisions of Section 40(a) of the I.T. Act, such payments are not to be allowed as a deduction. It is apparent that the AO has concluded that the payments made by the Assessee to foreign parties are for right to use copyright and therefore would constitute "Royalty" paid to a non-resident and therefore tax ought to be deducted at source while making payments. As to whether these were payments for license to use of software which would constitute the payment as royalty attracting the provisions of Sec.40(a) of the Act or a payment for purchase of software which would not attract the provisions of Sec.40(a) of the Act was a matter which ought to have been examined by the AO when he completed the original assessment proceedings. The AO was satisfied with the claim of the Assessee and had not made any disallowance u/s.40(a) of the Act of the payments made to non-residents for software. Though there is no discussion in the order of assessment in this regard, since the order of assessment is passed u/s.143(3) of the Act, such a presumption tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve on the basis of such information which he has received after the completion of the original assessment. The ld. Counsel for the assessee also pointed out that the decision of the Hon'ble Supreme Court in the case of CIT vs. Kalvinator of India Ltd., 320 ITR 561. The Hon'ble Supreme Court held as follows: "Prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions and fulfillment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 (w.e.f. 1st April, 1989), they are given a go by and only one condition has remained, viz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. The conceptual difference between power to review and power to reassess should also to be kept in mind. The AO has no power to review; he has th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at section 10A was a provision granting a benefit and if an assessee chooses not to avail of the benefit for some reason, the benefit could not be foisted on him. 13. On the above facts, the Hon'ble Bombay High Court held in the case of Siemens Information Systems Ltd. (supra) that there could be no reassessment either on the basis of a subsequent decision of the Tribunal or on the Assessing Officer's own interpretation. In either case, it would be a mere change of opinion, so that the notice was not valid. The Hon'ble Bombay High Court followed the decision of Hon'ble Delhi High Court in the case of Kelvinator India Ltd. (supra). 14. The learned counsel for the Assessee submitted that the decision of the CIT(A) in the case of Lucent Technologies Ltd. had held that payment for software made by the Assessee in the said case was treated as Royalty and therefore there was obligation on the part of the payee to deduct tax at source while making payment. The ld. Counsel for the assessee brought to our notice the decision of the Hon'bl;e Gujarat High Court in the case of Austin Engineering Company Ltd. vs. JCIT, 312 ITR 70 (Guj). In the aforesaid case the notice of reassessm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessment proceedings in relation to escaped income can be initiated, and beyond the prescribed period of limitation, even if income has escaped assessment, if the required conditions enumerated in the proviso are not shown to exist, no action can be initiated under S. 147 regardless of the fact that income may have escaped assessment. In the circumstances, impugned notice unders. 148 for each of the assessment years in question is hereby quashed." 15. The ld. D.R on the other hand reiterated the stand of the Department that in the original assessment AO has not applied his mind to question whether the payment made by the assessee foreign parties for software amounts to royalty and as to whether the assessee had to deduct tax at source of such payments, therefore, there was no opinion expressed by the AO. She submitted that the reassessment proceedings were validly initiated. The ld. D.R however pointed out it is not known as to whether the decision of the CIT(A) in the case of Lucent Technologies Ltd., which has been referred by the AO in the reasons recorded was rendered prior to or after the order of assessment u/s.143(3) of the Act for the various assessment years in the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AT) 1 (Bom). 18. The Hon'ble Bombay High Court held that the reopening of assessment was based on a change of opinion. The following observations of the Hon'ble Bombay High Court in the case of Siemens Information System Ltd.(supra) would be relevant: "In the instant case, the second Assessing Officer for the assessment year 2003-04 on the same set of facts has taken a view which is different from the view taken by the previous Assessing Officer for the assessment year 2001-02, on the interpretation of the same provisions of law. It is possible in the absence of finality to a question of law, that an Assessing Officer on the same set of facts could take a different view. Would that attract the provisions of section 148 of the Income-tax Act because the second Assessing Officer holds a different view on the interpretation of the provisions. The accounting system is the same. The returns have been filed in the manner prescribed by the form. On these facts because the second Assessing Officer differs with the opinion of the earlier Assessing Officer on the interpretation of the provision without any other additional material, is he entitled to assume jurisdiction to issue a noti....