TaxTMI 
TaxTMI 
2015 (5) TMI 654
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....he knowledge of the assessing officer. The alleged escapement of income from tax is founded on the premise that the transfer of the unexpired value of contracts by the petitioner to its 100% subsidiary (Lahmeyer International Consulting Engineers Gmbh) ('LICEG') in lieu of shares of LICEG in August 2007 would be exigible to capital gains tax at the hands of the petitioner. According to the petitioner, the said transfer of business was a part of a restructuring exercise and was well within the the knowledge of the assessing officer and the Dispute Resolution Panel ('DRP') in the course of the original assessment proceedings. Therefore, the fact that no such addition was made was, in itself, an indication that the assessing officer and the DRP had formed an opinion that the transaction was not taxable. Consequently, it was submitted on behalf of the petitioner, the attempt to re-open the assessment was clearly based upon a change of opinion, which was not permissible in law. It was also urged that no new material had surfaced after the assessment order and, therefore, the assessing officer could not invoke section 147 of the said Act. 3. The revenue, on the other hand, took the stan....
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....rivate Ltd. ('JVPL'). The receipts earned from 1st April 2007 to 31st July has been offered to taxation in the hands of the assessee. Receipts earned from 1st August 2007 till 31st March 2007 in India has been offered to tax in the hands of M/s. Lahmeyer International GmbH ('LIG') which is a Company incorporated in Germany on July 20th 2007." 6. The petitioner filed objections to the draft order on 07.01.2011. The variations proposed by the Assessing Officer and the objections filed by the petitioner did not relate to the question of the transfer of the unexpired value of the contracts by the petitioner to LICEG (Now 'LIG') in exchange of shares of the latter. However, from the directions under Section 144C (5) of the said Act given by the DRP on 28.09.2011, it is evident that during the DRP proceedings, a clarification had been sought from the petitioner with regard to the restricting undertaken by the applicant during the relevant assessment year. The same had been replied to by the petitioner through its letter of 23.09.2011. The observations of the DRP with regard to the business transfer from the petitioner to LICEG (Now 'LIG') are extracted hereinbelow:- "5. Observations of....
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....ole of deeds No. M 319/2007, was concluded between Lahmeyer International GmbH, registered with the Commercial Register of the Municipal Court Frankfurt / Main HRB 72343 and Lahmeyer International Consulting Engineers GmbH, registered with the Commercial Register of the Municipal Court Frankfurt / Main HRB 80852, about the transfer of the sum total of business activities of Lahmeyer International GmbH to Lahmeyer International consulting Engineers GmbH. The above mentioned transfer of the sum total of business activities of Lahmeyer International GmbH to Lahmeyer International Consulting Engineers GmbH was effected to satisfy Lahmeyer International GmbH's obligation to contribute to the capital increase as agreed upon by the extraordinary shareholders' meeting of Lahmeyer International Consulting Engineers GmbH on August 16, 2007, by legal document role of deeds No. M 318/2007. The capital increase was registered in the Commercial Register of the Municipal Court Frankfurt / Main on October 31, 2007 under the above mentioned HRB No. 80852. Berlin, November 7, 2007 Seal: Illegible signature Dr. Johannes Meinel Coat of arms of Berlin Notary public in Berlin What emerge....
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....er International GmbH the DRP has given the following observation. "The DRP during proceeding before it had sought clarification regarding the business restructuring undertaken by the applicant during the relevant assessment year. The applicant vide its letter dated 23rd September, 2011 has furnished the following reply: "As submitted earlier, Lahmeyer International GmbH (now known as LHG) transferred its entire business (on a going concern basis) to LICG (now known as LIG) with a view to increase its capital contribution in LICG, English translation of the audited financial statement of LIG (now known as LHG), alongwith a certificate form notary public, duly evidencing the said fact, have been enclosed as Annexure 1. Also English translation of the audited financial statements of LICG (now known as LIG) is enclosed as Annexure 2. It is submitted that prior to the business transfer on August 16, 2007, all Indian contracts were executed by LIG (now known as LHG). Accordingly, consideration receivable in respect of following Indian contracts, as relevant for the subject AY, upto July, 2007 was accrued and duly offered tax in the hands of LIG (now known as LGH): * Jammu and Kashmi....
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....amination of the reply read with the certificate from the notary public during DRP Proceedings is that, as part of its business restructuring. * The applicant has transferred all pending contracts to its 100% subsidiary Lahmeyer International Consulting Engineers (LICE) whose name was subsequently changed to Lahmeyer International which has in lieu thereof allotted applicant shares. * Although, the contracts were all allotted to applicant, no addendum was executed with the Indian customers pursuant to business restructuring. * The structures post the restructuring exercise and allotment of shares remains that of holding company (Lahmeyer Holding) and 100% subsidiary (Lahmeyer International). 4. That above information regarding business restructuring and transfer of business in lieu shares was not placed before the Assessing Officer during the time of assessment proceedings. 5. Further, based on the facts and discussion made in the aforesaid paragraphs, it is concluded that transfer of unexpired value of contracts in lieu of shares is chargeable to capital gain tax as per Article 13 of DTAA as well as provisions of the Income tax act. 6. As the assessee has not offered any inc....
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....in his draft assessment order and the DRP also had no occasion to consider it as no variation on this aspect had been proposed by the Assessing Officer. It was further the case of the revenue that the transaction came to light only as a result of the queries raised by the DRP with regard to the business restructuring arrangement of the petitioner. But, as the DRP had not given any directions with regard to the taxability of the transaction, the Assessing Officer could not include it on his own in the assessment order. Consequently, it was submitted that when this "new" material was available with the Assessing Officer, he was well within his rights to initiate reassessment proceedings. 15. The counsel for the parties referred to a Full Bench decision of this court in CIT V. Usha International Limited: 2012 (348) ITR 485. In the said decision, it was, inter alia, observed as under:- "It is, therefore, clear from the aforesaid position that:- (1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion. (2) Reassessment proceedings will be inva....
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.... If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of "change of opinion" will not apply. The reason is that "opinion" is formed on facts. "Opinion" formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of "change of opinion". Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression "material facts" means those facts which if taken into account would have an adverse effect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers juris-diction to reopen the assessment." (underlining added) Specifically,....
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....iling which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-conditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief." (underlining added) 18. From the above decision, it is evident that a distinction has to be made between the power to review and the power to re-assess. The Supreme Court clearly observed that the Assessing Off....
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....t formed any opinion with regard to the said transaction. This argument cannot be accepted for two reasons. First of all, the Assessing Officer himself in the draft assessment order had noticed the restructuring and had specifically recorded that receipts upto and including July 2007 were being taxed in the hands of the petitioner and for the balance period from August 2007 to March 2008 were to be taxed in the hands of the petitioner's 100% subsidiary 'LIG'. The Assessing Officer was, therefore, aware of the entire transaction. Secondly, and, in any event, the DRP in the course of the proceedings before it, made specific queries with regard to the business restructuring of the petitioner and the transaction in question. The petitioner gave a detailed reply and the same has been noted in the observations of the DRP which we have extracted in the earlier part of the judgment. The DRP, after examining the entire business restructuring arrangement and the transaction in question, did not make any addition. The Assessing Officer in his final assessment order also did not make any addition on account of the subject transaction. It must be noted that the DRP procedure is part of the asse....
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....ion. In response to this, the learned counsel for the petitioner drew our attention to the Explanation added after Section 144 C(8). It was submitted by the learned counsel for the petitioner that by virtue of the said Explanation, the DRP always had the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. Section 144 C(8) and the Explanation appended thereto reads as under:- "144C (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. Explanation. - For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee." 24. The said explanation was introduced....