TaxTMI 
TaxTMI 
2019 (1) TMI 1072
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....cipal Commissioner of Income Tax is the second respondent to the present writ petition and that BIL is a company and a subsidiary of Bharti Airtel Limited (BAL, for short). 3. BIL in its return of income for the Assessment Year 2008-09 filed on 15th October, 2008 had declared a loss of Rs. 157,27,09,173/- under the normal provisions and book profits of Rs. 63,54,91,170/- under Section 115 JB of the Act. Revised return filed on 31st March, 2010 had enhanced the book profits to Rs. 63,89,40,500/- 4. Return for Assessment Year 2008-09 was taken up for scrutiny assessment vide issue of notices under Section 143(2) and 142 of the Act. Questionnaires were issued to which BIL had responded by furnishing details and documents which would be referred subsequently, culminating in the order of assessment dated 20th December, 2010 under Section 143(3) of the Act. 5. Thereafter, reassessment proceedings were initiated by the first respondent by issue of impugned notice under Section 148 read with Section 147 of the Act, which was served on BIL on 1st April, 2015. BIL by letter dated 8th April, 2015 had informed the assessing officer that the revised return filed by them on 31st March, ....
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....ve, which shall constitute Free Reserves available for all purposes as the Transferee Company at its own discretion considers proper including in particular for off-setting any additional depreciation that may be charged by the Transferee company. Explanation: Additional depreciation means depreciation provided, charged or suffered by the Transferee Company on the assets transferred by the Transferor Company under the Scheme in excess of what would be chargeable on the original book value of these assets as if there had been no revaluation on transfer of these assets and basing the cost of these assets on the historical cost as appears in the books of the Transferor Company. The reserve as above shall be treated as arising from this Scheme and shall not be treated as a reserve created by the Transferee Company. 3.3 ****** During the assessment proceedings for the A.Y. 200809 in the case of M/s Bharti Airtel Ltd. (BAL), the entire scheme of transfer of assets from BAL to Bharti Infratel Limited (BIL) was examined in the light of Scheme of Arrangement (SOA) approved by the Hon'ble High Court of Delhi. During the examination of the scheme, it is seen from th....
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....y and fully all material facts necessary for its assessment. Since period of four years has expired from the end of the relevant assessment year, sanction for issue of notice u/s 148 of the Income-tax Act, 1961 as prescribed under proviso to Section 151(1) of the Income-tax Act, 1961, may kindly be accorded. Submitted for kind perusal and approval." 9. The 'reasons to believe' state that BAL had transferred telecom infrastructure assets worth Rs. 5739.60 crores to its subsidiary and the present petitioner-BIL on 31st January, 2008 for nil consideration under a Scheme of Arrangement ('SOA', for short) approved by the Delhi High Court. As per SOA, BIL had re-valued the said assets to Rs. 8218.12 crores on the assets side of their balance sheet for the year ending 31st March, 2008. Contemptuously Rs. 8218.12 crores were added to the general reserve on the liability side of BIL' s balance sheet as per Part III of the SOA. Thereafter, Part III of SOA has been quoted to state that the amount credited to the reserves on account of transfer of telecom infrastructure assets constituted free reserves that would be available to BIL as a company in its discretion with liberty to set-o....
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....the written down value of the assets transferred by BAL to BIL and the re-valuation of investment had been taxed in the hands of BAL. Re-assessment in the case of BIL was necessary and required as gain of Rs. 5739.60 crores in the form of transfer of assets from BAL to BIL had escaped assessment. This was taxable income under Section 2(24) of the Act as the declared written down value of the assets received from BAL was nil, thereby resulting in gain of Rs. 5739.60 crores being the written down value. Thus, there was failure on the part of the petitioner to disclose truly and fully all material facts. 10. The petitioner has challenged reopening primarily on four grounds:- (i) Absence of rational and intelligible nexus between material relied upon in the reasons to believe and escapement of income. (ii) Change of opinion. (iii) Non-satisfaction of pre-conditions specified in the proviso read with Explanation 1 to Section 147 of the Act. (iv) Lack/ absence of valid sanction under Section 151 of the Act. 11. Fourth objection was not pressed. First objection we would observe would relate to merits and is not being examined as we find that BIL should succeed in view of....
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....ent is initiated after expiry of four assessment years from the date of the relevant assessment year, an additional requirement in the form of satisfaction of one of the three preconditions; failure to file return under Section 139; failure to respond to notice under Section 142(1) or 148; or failure to disclose fully and truly material facts necessary for assessment, must be satisfied. First Explanation states that mere production of account books or other evidence before the Assessing Officer from which material evidence could have been discovered with due diligence by the Assessing Officer would not necessarily amount to disclosure within the meaning of the proviso. We would elaborate and discuss the effect of the Explanation 1 with the proviso. 14. Explanation 1 and proviso to Section 147 have to be interpreted harmoniously and are not to be treated as ante-thesis, to ensure that both the proviso and the Explanation 1 are applied and given effect to without negating or nullifying one of them and making one override the other. Proviso clearly states that no action under Section 147 will be taken by the Assessing Officer unless any income chargeable to tax has escaped assessme....
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....r-assessee had disclosed the primary facts, reference to which has been made in the ' reasons to believe' . Secondly, we have to examine, whether this is a case of ' change of opinion' , which as recorded above, is a different aspect and jurisdictional requirement for the law relating to reopening under Section 147 of the Act does not permit re-opening on ' change of opinion' . 15. Full Bench of this Court in majority judgment authored by one of us (Sanjiv Khanna, J.) in Commissioner of Income Tax-VI, New Delhi versus Usha International Limited, (2012) 348 ITR 485 (Delhi)(FB) had drawn distinction between cases where re-opening is done within four years of the end of the assessment year and cases where re-opening is post four years of the end of the assessment year. This distinction was drawn, as earlier Full Bench of this High Court in Commissioner of Income Tax, Delhi versus Kelvinator of India Limited, (2002) 256 ITR 1 Delhi (FB) and in appeal the Supreme Court of India in Commissioner of Income Tax, Delhi versus Kelvinator of India Limited, (2010) 2 SCC 723 had held that re-opening is impermissible on 'change of opinion' and in that context had drawn distinction ....
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....tion is not examined by an Assessing Officer, it cannot be presumed that he must have examined the claim/deduction or the entry, and therefore, it is the case of "change of opinion". When at the first instance, in the original assessment proceedings, no opinion is formed, principle of "change of opinion" cannot and does not apply. There is a difference between change of opinion and failure or omission of the Assessing Officer to form an opinion on a subject matter, entry, claim, deduction. When the Assessing Officer fails to examine a subject matter, entry, claim or deduction, he forms no opinion. It is a case of no opinion. 26. In 3i Infotech Ltd. v. Assistant Commissioner of Income Tax (2010) 329 ITR 257 (Bom.) it was observed that producing voluminous record before the Assessing Officer does not absolve the assessee and the assessee cannot be heard to say that if the Assessing Officer were to conduct a further inquiry, he would have come into possession of material evidence with the exercise of due diligence. Assessments can be complex and require examination of several subject matter, claims, entries or deductions. The Assessing Officer inspite of best efforts or intention c....
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....ssessment proceedings to be reopened. (See Binani Industries Ltd. v. CCT [Binani Industries Ltd. v. CCT, (2007) 15 SCC 435]; A.L.A. Firm v. CIT [A.L.A. Firm v. CIT, (1991) 2 SCC 558].) If a conscious application of mind is made to the relevant facts and material available or existing at the relevant point of time while making the assessment and again a different or divergent view is reached, it would tantamount to "change of opinion". If an assessing authority forms an opinion during the original assessment proceedings on the basis of material facts and subsequently finds it to be erroneous; it is not a valid reason under the law for reassessment. Thus, reason to believe cannot be said to be the subjective satisfaction of the assessing authority but means an objective view on the disclosed information in the particular case and must be based on firm and concrete facts that some income has escaped assessment. 30. In case of there being a change of opinion, there must necessarily be a nexus that requires to be established between the "change of opinion" and the material present before the assessing authority. Discovery of an inadvertent mistake or non-application of mind during as....
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....he assessing officer certainly has the power to reassess any income which escaped assessment for any assessment year subject to the provisions of Sections 148 to 153. However, the use of this power is conditional upon the fact that the assessing officer has some reason to believe that the income has escaped assessment. The use of the words "reason to believe" in Section 147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such reassessment proceedings merely on his change of opinion on the basis of same facts and circumstances which has already been considered by him during the original assessment proceedings. Such could not be the intention of the legislature. The said provision was incorporated in the scheme of the IT Act so as to empower the assessing authorities to reassess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge; and the said fact would have material bearing on the outcome of the relevant assessment order. 5. Section 147 of the IT Act does not allow the reassessment of....
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....nvalid, in terms of the proviso to Section 147 of the Act, where there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Courts, including this Hon' ble Court have consistently held that where there was no case of any failure on the part of the assessee to truly disclose all material facts and it was only a question of drawing an inference from these facts, reopening of assessment beyond the period of four years from the end of the relevant assessment year was invalid. 40. Reliance in this regard is placed on the following judicial pronouncements: -CIT vs. Foramer France:264 ITR 566 (SC) -CIT vs. Purolator India Ltd: 343 ITR 155 (Del.) -CIT vs. Motor and General Finance: 184 Taxman 465 (Del.) -CIT vs. Fenner India Ltd.: 241 ITR 672 (Del) -Avtec Ltd. vs. DCIT: 370 ITR 611 (Del) -D.T. and T.D.C. Ltd. vs. ACIT: 232 CTR 260 (Del.) -Atma Ram Properties P. Ltd. vs. DCIT: 343 ITR 141 (Del) -Titanor Components Ltd. vs. ACIT: 343 ITR 183 (Bom.) -Haryana Acrylic Manufacturing Company vs. CIT: 308 ITR 38 (Del.) -German Remedies Ltd.....
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....fers only to the primary facts and the duty of the assessee is to disclose such primary facts. The court further observed that there is no duty cast on the assessee to indicate or draw the attention of the ITO to what factual or legal or other inferences can be drawn from the primary facts disclosed. There is not a word in the order of assessment if the respondent-assessee omitted to disclose any material fact." (emphasis supplied) 44. Reliance in this regard is also placed on the following judicial pronouncements: -Oriental Carpet Manufactures (India) Ltd vs. ITO: 168 ITR 296 (P and H) -CIT vs. Fenner India Ltd.: 241 ITR 672 (Mad.) -Tata Business Support Services vs. DCIT: W.P. No 2959/2015 (Bom) 45 In the present case, as pointed above, original assessment was completed under Section 143(3) of the Act vide order dated 20.12.2010. The impugned notice under Section 148 was issued on 31.03.2015, i.e. much beyond the period of four years from the end of the relevant assessment year 2008-09. The bar of limitation contained in proviso to Section 147 of the Act was thus clearly attracted. 46. Although the reasons recorded by Respondent No. 1 allege....
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....ed from BAL have been recorded at fair market value and an equivalent amount has been credited to the General Reserve in accordance with the scheme of arrangement approved by this Hon'ble Court. The relevant portion of the aforesaid disclosures are reproduced hereunder for ready reference: "Note 1(a) on Schedule 16 to the financial statement relating to the account pursuant to the Scheme of Arrangement (' the Scheme' ) for the transfer of the passive infrastructure of Bharti Airtel Limited ('Bharti Airtel' ) ('the transferor Company') to the Company, approved by the Hon' ble High Court of Delhi effective from January 31, 2008. The transfer has been accounted for in accordance with the purchase method referred to Accounting Standard 14- Accounting for Amalgamation (AS 14'). In accordance with the Scheme, the passive infrastructure transferred from Bharti Airtel has been recorded at fair value of Rs. 82,359,656 thousand and a similar amount has been credited to the general reserve. In accordance with the generally accepted accounting principles, the capital reserve is lower by Rs. 82,359,656 thousand, general reserve is higher by Rs. 81,971,448 thousand and depreciatio....
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....s have been recorded at following fair values [based on independent fair valuation report for asssets and capital work-in progress and management estimate for current assets, liabilities and deferred tax liability] and the amount of the General Reserve is computed as below:- Particulars Amount Fair Value of Assets and Liabilities Fixed Assets 89,600,620 Capital Work in Progress (including Capital Advances) 2,502,324 Current Assets 2,423,048 Current Liabilities (10,608,193) Deferred Tax liability (1,558,143) 82,359,656 Had the scheme not provided for the above accounting the general reserve would have been lower and capital reserve would have been higher by Rs. 82,359,656 thousand, in accordance with accounting standard 14 'Accounting for Amalgamation' and depreciation charge for the period from February 1, 2008 to March 31, 2008 would have been higher by Rs. 388,208 thousand being the additional depreciation, in accordance with Accounting Standard 6 issued by the Institute of Chartered Accountant of India." d) A note providing details of the subsequent joint venture agreement....
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.... Petitioner." The Petitioner craves leave to rely upon the audited financial statements, tax audit report under Section 44AB of the Act, return and computation of income, at the stage of hearing. Copy of accountant' s report under Section 115JB of the Act, is annexed hereto and marked as Annexure ' L' . 47. Further, during the course of assessment proceedings under Section 143(3) of the Act, the concerned assessing officer (i.e. Deputy Commissioner of Income Tax, Circle-2(1), New Delhi, hereinafater referred to as ' assessing officer' ) vide questionnaire dated 10.02.2010, inter alia, directed the Petitioner to provide "a brief note on the business activity and history of the assessee company", in reply to which, the Petitioner vide letter dated 21.04.2010, duly mentioned that the PI assets of BAL were demerged into the Petitioner vide scheme of arrangement under Sections 391-394 of the Companies Act, 1956, which had been accorded approval by this Hon' ble Court. Copies of the questionnaire dated 10.02.2010 and reply dated 21.04.2010 are annexed hereto and marked as Annexure ' M' and Annexure ' N' respectively. 48. Further, the Petitione....
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....marked as Annexure 'Q' . 52. On the basis of the aforesaid, it is clearly evident that all facts/details/documents in respect of subject scheme of demerger of assets from BAL to the Petitioner and subsequent transfer to Indus were duly placed on record by the Petitioner and thus, there can be no doubt that the Petitioner had disclosed fully and truly all material facts necessary for assessment of its income for the assessment year 2008-09. 53. As regards allegation of Respondent No. 1 regarding non-disclosure in the notes to accounts, etc. of transfer of assets by BAL to the Petitioner being made without consideration, it is submitted that, the disclosures in the accounts read with the SOA, elaborately dealt with hereinbefore, which were placed on record during the course of original assessment proceedings, would unequivocally show that assets were received from BAL without consideration in as much as there was increase in assets without any corresponding outflow, including increase in share-capital. On the contrary, the corresponding increase in general reserves was made only because assets were received without consideration, which was fully and properly explained in the ac....
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....opening of the assessment in this case is invalid as it was done beyond 4 years from the end of the relevant assessment year. However, as per Section 151(1) of the Income Tax Act, 1961 no notice shall be issued u/s 148 by an Assessing Officer after the expiry of a period of 4 years from the end of the relevant Assessment Year, unless Pr. Chief Commissioner or Chief Commissioner or Pr. Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. The provisions of this section have been duly complied with in this case as the Pr. Commissioner had accorded his satisfaction on the reasons recorded for re-opening of assessment by the Assessing Officer. 24. The contents of para 45 and 46 are denied. The petitioner has argued that it had fully and truly disclosed all material facts necessary for assessment during assessment proceedings u/s 143(3) by way of submission of audited financial statements and thus the limitation u/s 147 is upto the expiry of four year from the end the end of the relevant Assessment year. However, production before the Assessing Officer of the account books or other evidence from....
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....ome time to obtain instructions and also file an affidavit of the then Assessing Officer, namely, Mr.Raghuveer Singh Dagur on whether or not the said material and information was known and available on record when the assessment order dated 20.12.2010 was passed. The said affidavit would be filed within three weeks. Response thereto may be filed within two weeks thereafter. Re-list on 16th May, 2018." 22. Pursuant to the said directions, Mr. Raghuveer Singh Dagur, who is now working as Additional Commissioner of Income Tax, Audit, Jaipur has filed compliance affidavit. In this affidavit, he has stated that the assessment order dated 20th December, 2010 was passed by him on the information submitted by the assessee in the form of Director' s report along with notes on accounts. He has stated on oath that information with regard to value of assets transferred initially by BAL to BIL and re-valuation was not mentioned in the Director' s report or the notes on accounts. Secondly, no specific query with regard to tax on valuation of assets and subsequent transfer to M/s Indus Tower Limited was made in the notice issued to the assessee under Section 143(2) of the Act. Thirdly, the ....
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.... The said reserve, could be employed by the Petitioner in a manner it so deemed fit, inter-alia, for the purposes of setting-off additional depreciation on the revalued assets. It is equally significant to consider that the said passive infrastructure assets were not handled by the Petitioner for a single day and were transferred to the Indus JV. The petitioner also claimed proportionate depreciation on the revalued assets for the Assessment Year 2008-09 (' the relevant period')." 24. Clearly the affidavit of the assessing officer Mr. Raghuveer Singh Dagur not only refers to transfer of assets in the form of towers, etc., called passive infrastructure, for NIL consideration paid by BIL to BAL for book value of infrastructure asset was Rs. 5371.67 crores, on revaluation the assets were valued at Rs. 8218.12 crores and gain on revaluation was transferred to the reserve to be employed in a manner deemed fit. It also states that passive infrastructure was not handled by BIL for a single day and was transferred to Indus JV. BIL could claim proportional depreciation was stated. Similarity between the factual assertions made in the affidavit of Mr. Raghuveer Singh Dagur and the factual....
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....ed to your good office vide our submission dated 24 September 2009. However, the same is being enclosed herewith for your reference. 9. The amount of Rs. 157,27,09,173/- is being carried forward as unabsorbed depreciation pertaining to AY 2008-09. 10. The year under question is first year of operation, hence comparative GP / NP rates are not available." 26. BIL has also relied upon audited financial statement for the year ending 31st March, 2008 submitted to the Assessing Officer in the original assessment proceedings making the following disclosures: - (a) Director' s report dated 24th April, 2008 in which there was complete disclosure recording the SOA between BIL and BAL for transfer of tower business and subsequent transfer of a portion of the assets to M/s Indus Tower Limited, a joint venture under the head "Business Review". The Relevant portion of the disclosure has been quoted in the writ petition which states and refers to the Scheme of Demerger of tower business from BAL to BIL on the scheme being sanctioned and accordingly the petitioner had acquired 52000 towers infrastructure. BIL had subsequently entered into joint venture with Vodafone Essar Limited an....
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....ed to M/s Indus Tower Limited. Thus, note on disclosures had referred to the joint venture agreement dated 8th December, 2007 and that the Indian tower company, M/s Indus Tower Limited would provide passive infrastructure services in 16 circles in India. BIL would acquire 42% stock/shares in M/s Indus Tower Limited and shares of equal status would be acquired by M/s Vodafone Essar Limited, and balance 16% shares would be held by M/s Idea Cellular Limited. It was stated that "for this purpose M/s Bharti Infra Venture Limited has been incorporated as wholly owned subsidiary of BIL wherein relevant assets are to be transferred for ultimate merger in M/s Indus Tower Limited". Pursuant to the aforesaid agreement, the BIL had acquired 50000 equity shares of Rs. 10/- each on 17th December, 2007 in M/s Bharati Infratel Venture Limited for aggregate value of Rs. 5,00,000/-. (f) Tax audit report in Annexure-2 to clause 14 again gave complete details regarding written down value of the assets transferred by BAL having aggregate of Rs. 5371.67 crores comprising of written down value of Rs. 5229.32 crores and additional depreciation of Rs. 142.36 crores claimed by BIL. (g) Note 3 of the n....
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....ad mentioned full details. 28. Aforesaid documents show that the contention of BIL/petitioner is factually correct for note 3 had specifically referred to the fact that passive infrastructure was transferred from BAL had been recorded in the accounts of BIL at its fair value of Rs. 8235.96 crores and credited to the general reserve, etc. Balance sheet under the head "Reserve and Surplus" also reflects the said position. Further, an addition made to the general reserve arising from the SOA. Reference can be made to Note 1(a) of Schedule 16. Schedule 4 relating to fixed assets refers to addition made during the year and gives full details after referring to Notes 3, 4 and 10 of Schedule 15 and Note 4 of Schedule 16. Schedule 16 is very detailed and refers to the entire SOA between BIL and BAL. It states that BIL was incorporated on 30th November, 2006 with the object of, inter alia, setting up, operating and maintaining wireless communication towers, provide network development facilities and to engage in video and voice data and internet transmission business in and out of India. SOA between BIL and BAL, the orders passed by the Court, the details of the terms of the scheme, gene....
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....he depreciation on such assets for the Assessment year 2008-09 has been apportioned between the two companies in the ratio of number of days for which the assets were used by the respective companies, computed as follows; a. Total depreciation on WDV of assets trans from BAL for FY 2007-08 Rs. 868,38,09,952 b. Depreciation on the above assets for 60 days (1 Feb' 08 to 31Mar' 08) Rs. 142,35,75,402. c. Depreciation on the same assets for 306 days (1 Apr' 07 to 31' Jan' 08) Rs. 726,02,34,550. The details of circle wise WDV of assets transferred along with computation of total depreciation of Rs. 868,38,09,952/- is enclosed as "Annexure 2". 30. The petitioner has also stated that a note on the factum of demerger of assets by BAL and transfer to BIL and the fact that it was without consideration as mentioned in the SOA duly approved by the High Court, was furnished to the Assessing Officer by producing and filing on record both SOA's and the orders passed by the High Court, which was taken note of and considered. 31. In the aforesaid factual background and the legal position elucidated, it has to be held that BIL had made full and true disclosure of material facts i.e.....