TaxTMI 
TaxTMI 
2021 (9) TMI 312
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....r took over the business of Cairn Energy India Private Limited and filed the present writ petition. 3. The petitioner company filed its return of income for the Assessment Year 2007-08 on 30.10.2007, declaring a total income of Rs. 6,58,26,875/-. The deduction was claimed. Tax payable on book profit under Section 115 JB was computed at Rs. 16,60,48,488 and tax payable under normal provisions of the Act was computed at Rs. 2,75,28,799/-. The petitioner claimed a refund in its return of income on the basis of TDS credits and advance tax payments. 4. The petitioner states that they have furnished true and adequate disclosure of the income of the petitioner, was filed along with the audited financial statements, Tax Audit Report as required under Section 44AB of the Act, Audit reports in Form 3CD regarding tax audit, Form 3 CEB concerning transfer pricing Audit and Form I OBB in respect of claim of 80IB deduction under the Act. The return of income was processed under Section 143(1) of the Act. The case of the petitioner was selected for scrutiny. The petitioner answered the queries raised by the Assessing authority. The Arm's length price was determined by the Transfer Pricing O....
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.... of Delhi in the case of Asoke Kumar Sen Vs. ITO reported in 132 ITR 707. This judgment has been rendered on a Writ Petition filed by the petitioner, wherein their Lordships of the High Court of Delhi held at Page.710 as under: "The words "if the Income-tax Officer has reason to believe" used in s. 147(a) suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act under this section on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The powers under this section are not plenary. They are subject to judicial review. The ITO in his affidavit has merely stated his belief but has not set out any material on the basis of which he formed such belief. there is nothing in the affidavit to suggest that the ITO had any material before him that would warrant a belief that a part of the income of the petitioner had escaped assessment by reason of his failure to make a true and full disclosure of the material facts. (See ITO v. Madnani Engineering Works Ltd. [1979] 118 ITR 1 SC.) The words "reason to believe" appear in most modern statutes. Words such as "reasonable cause to believe" or "h....
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....n of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far- fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action cannot be....
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....first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under-assessed. The second is that he must have also reason to believe that such " under assessment " has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under s. 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or re-assessment beyond the period of four years but within the period of eight years, from the end of the year in question.(Emphasis supplied)" (f) It is the submission of the petitioner that if the aforesaid tests as laid down by the Hon'ble Supreme Court (which holds good till date) when is applied, would show that the assumption of jurisdiction by the respondent to issue the notice and initiate the proceedings is outside the scope of the provisions of Section 147 of the Act. It had been held as above that before assum....
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....ression that the Respondent had failed to disclose " the true intention behind the sale of shares " may lack directness, but that deficiency of language is not sufficient to enable the Respondent to contend, in view of the circumstances alleged, that no failure to disclose facts was being complained of. On the facts as stated by the Income-tax Officer, it is clear that there had been a failure to disclose the fact that the Respondent was a dealer in shares and what the Income-tax Officer meant by the language used by him was that the Respondent had not disclosed that the sale of shares had been of the nature of a trading sale, made in pursuance of an intention to make a business profit, and not of the nature of a change of investment, made in pursuance of an intention to put certain capital assets into another form. If that be so, it is equally clear that the Income-tax Officer who, by the way, was a successor to the officers who had made the original assessments, was not merely changing his opinion as to facts previously known, but was taking notice of a new fact." (Emphasis supplied) The petitioner submitted that Section 34 of Income Tax Act, 1922, which is pari-materia ....
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....t the petitioner has given complete details in respect of loan guarantee fee and also submitted the agreement as well as the working of the Guarantee Fee. Thereafter, another notice was issued on 26.11.2010, wherein the following query was raised: "d) Bank loan and Guarantee Fee; Please state how the bank loan has been utilized. Reference is also invited to the terms of bank guarantee fee. As per the terms, "Plc shall invoice CEIPL before 25th day of April succeeding the last month of the Financial year (March) in respect of the Fee for the entire financial year or as mutually agreed. Payment of the undisputed portion of invoices submitted by Plc in accordance herewith shall be made by CEIPL to Plc within 30 days of the receipt of the invoice by CEIPL" With reference to the above and the payment details as per Annexure 10 to your reply, please further elaborate, (i) Whether there as any disputed portion (ii) Satisfaction of 'accrual principle in respect of the claim of the expenditure' In this notice, query was also raised regarding the TDS compliance." (j) In response to the aforesaid query, the petitioner filed its rep....
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....ndia Ltd., reported in 256 ITR 1 (FB) held as under: "On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4-1989), they are given a go-by and only one condition has remained viz. that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1-4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing 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 fulfi....
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....een received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself. We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of as....
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....come Tax Act. Now, on a mere relook, the officer has come to the conclusion that the income has escaped assessment and he is of course justified in his analysis. In our view, this is not something which is permissible under the proviso to Section 147 of the Income Tax Act which speaks about a failure on the part of the assessee to make a proper return. In the present case, no such case is made out on the record. In the circumstances, we allow this petition in terms of Prayer (a) and quash and set aside the notice dated 27-3-2006 directing reopening of the assessment for the year 1999-2000. It thus held as under: "Leave granted. We have heard learned counsel on both sides. The assessee had disclosed full details in the return of income in the matter of its dealing in stocks and shares. According to the assessee, the loss incurred was a business loss, whereas, according to the Revenue, the loss incurred was a speculative loss. Rejection of the objections of the assessee to the re-opening of the assessment by the assessing officer vide his order dated 23-6-2006, is clearly a change of opinion. In the circumstances, we are of the view that the order ....
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....sthan) xii. ITO Vs. Sirpur Papers Mills Ltd., 113 ITR 393 (AP) (r) It is significant to be noted that their Lordships considered in its judgment that where a petitioner had challenged the initiation of proceedings u/s 148 of the Act and filed objections, the Assessing Officer was required bylaw to consider such objections, to enable the Court to examine whether it is a case of change of opinion or otherwise. It is submitted that if the aforesaid principles of law as laid down is complied, it is evident that an order on objection deserves to be examined by the Court before expressing its discretion under Article 226 of Constitution of India. (s) There is no liability to deduct tax on loan guarantee fee as such, section 40(a)(i) is inapplicable: It is to be submitted that the Respondent in the purported reasons to believe has alleged that payment of guarantee fees is in the nature of fees for technical services and accordingly, the same is subject to tax in India under the Income-tax Act. However, such assumption of the respondent is legally unsustainable, since respondent has failed to appreciate that Article 13 of the India-UK DTAA, which categorically in....
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....include deferred tax credit of Rs. 85,37,56,383/- as per financial statements. In respect of section 40(a)(ia) the auditors have test checked material items and also relied on management representation for the purpose of reporting under this clause". Therefore, it is apparent that for the payment effected in foreign currency towards loan guarantee fee/ interest, no tax was deducted by the assessee at source. This provided for the Assessing Officer has 'reason to believe' for reopening of assessment. Thus, reopening of assessment in the present case is based on tangible material and the directives issued by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd., Vs. ITO, reported in 259 ITR 19 has been scrupulously followed and therefore, the petitioner / assessee has to participate in the process of reopening of proceedings in order to defend their case. 11. Though the learned Senior counsel for the petitioner elaborately argued and submitted umpteen number of judgments, the principles laid down by the Hon'ble Supreme Court in those cases are not disputed by the respondents. The learned Senior Standing counsel also emphasized that there is no dispute on the princi....
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....al Services" under clause 40(a), the explanation provides that it shall have the same meaning as in explanation 2 to clause (vii) of sub section (1) of Section 9 explanation 2 to clause (vii) of sub section (1) of 9 defines the term "Fees for technical services" to include any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy service (including the provision of services of technical or other personnel). So, in this case, the payment of loan guarantee fee to the PLC is covered by the term "fee for technical services." Hence, either in the name of fee for technical services or interest, the assessee was duty bound to deduct tax at source. As no tax was deducted at source, the loan guarantee fee/interest of Rs. 14,91,73,063/- paid to M/s.Cairn Energy PLC, Scotland needs to be disallowed under section 40(a) in computing the business income of the assessee." 12. The reasons would reveal that for the payment effected in Foreign currency towards loan guarantee interest, no tax was deducted by the assessee at source. Based on such material, which is tangible, the reopening of assessment is made in the present case....
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....e present case, the assessment is reopened within a period of four years and therefore, mere availability of tangible material would be sufficient for the purpose of invoking the powers under Section 147 of the Act. As pointed out in the reasons, the petitioner has represented that there is no item of expenditure falling under Section 40A of the Income Tax Act. However, the respondent subsequently found that the payment effected in Foreign Currency / interest, no tax was deducted by the assessee at source. This failure on the part of the petitioner was considered for reopening of assessment and the finding is given that the assessee company has misleading the assessing authorities by furnishing incorrect particulars. However, this Court cannot arrive a finding in this regard. It is for the assessee to establish his case during the course of reassessment proceedings. The writ petition is filed, challenging the reopening proceedings. Thus, objective satisfaction would be sufficient for the purpose of allowing the Assessing authority to proceed with the reopening proceedings. Once, the materials are available and such materials were not taken into consideration by the original assessi....