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2022 (1) TMI 691
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....th October 2019 passed by respondent No.2 (the Assessing Officer) rejecting the petitioner's objection to reopening of assessment for assessment year 2014-15. 3. The petition arises in the backdrop of the following facts : (a) The petitioner-company is engaged in the business of providing comprehensive information technology solutions to banks and other financial institutions globally. The petitioner develops and markets software products and operates primarily in two business segments : (i) Products and (ii) Services. Under the product business, the petitioner markets its package application software and derives revenue from license fee, customization fee and annual maintenance charges. Under the Service business, the petitioner provides services to customers which include IT solutions and consulting and professional services according to customer's requirements and standards. (b) For the said business, the petitioner has subsidiaries in different countries. The installation and implementation of the product at the location of the overseas customers requires the presence and supervision of technical personnel. These personnel are temporar....
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.... (g) Eventually, final assessment order was passed on 6th February 201,. (h) By the impugned notice dated 26th February 2019, the Assessing Officer sought to reopen the assessment on the ground that he had reason to believe that the petitioner's income chargeable to tax for the assessment year 2014-15 has escaped assessment. Thereupon, the petitioner solicited the reasons for the proposed reopening of the assessment. Vide communication dated 18^th February 2019, the Assessing Officer provided the petitioner with a copy of the reasons for the proposed reopening of the assessment. It was, inter-alia, recorded that from note 30, (expenditure in foreign currency) of the financial statement for the assessment year 2014-15, the petitioner had debited an amount of Rs. 728.793 Crore as 'Employee Cost'. However, in Assessment Year 2015-16, under same head of 'Employee Cost', a sum of Rs. 626.416 Crore had been disallowed under section 40(a)(i) of the Act, 1961, for non-deduction of TDS under section 195 of the Act, 1961. On parity of reasoning, for assessment year 2014-15, a sum of Rs. 658.318, (which constituted 90.33% of total employee cost of Rs. 728.793 Crore) was liable to b....
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....e reasons recorded, preceding the issue of the said notice, suffer from the vice of mere change of opinion. Amplifying the submission, Shri Shrivastava would urge that the issue of remittance of employee cost was duly considered during the course of assessment for assessment year 2014-15. All the relevant material facts and documents, which were solicited during the course of assessment, were placed before the Assessing Officer by the petitioner. The bold stand of the Assessing Officer, in the reasons, that the aspect of employee cost was not adverted to and considered by the Assessing Officer, during the course of assessment for the Assessment Year 2014-15, is against the weight of the material on record. Laying emphasis on the queries raised during the course of assessment and the response of the petitioner thereto, Shri Shrivastava strenuously submitted that the impugned action is nothing but an endeavour of taking a different view of the matter on the same set of facts without there being an iota of tangible material. Thus, it cannot be said that there was tangible material to form a reason to believe that income chargeable to tax had escaped assessment for the assessment year ....
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....cannot justify the recourse to the provisions contained under section 147 of the Act, 1961. 12. 'Existence of reason to believe' can be judged on the basis of the reasons recorded by the Assessing Officer. The test to be applied to judge the reasonability of belief is whether there is tangible material for the Assessing Officer to resort to the power under section 147 of the Act, 1961. Lest, the exercise of power suffers from the vice of arbitrariness. 13. A profitable reference, in this context, can be made to the judgment of the Supreme Court in the case of Commissioner of Income-Tax Vs. Kelvinator of India Ltd. & Anr. [2010] 320 ITR 561 (SC), wherein the test of "tangible material" to save the power under section 147 from the vice of arbitrariness, was enunciated. The observations of the Supreme Court in paragraph 6 are instructive and thus extracted below : "6...................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 re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. W....
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....s the primary requirement to reopen any assessment is a reason to believe that income chargeable to tax has escaped assessment. However, as observed by the Supreme Court in the case of CIT vs. Kelvinator India Limited 320 ITR 561 in the context of Sections 147/148, of the Act that reason to believe found therein does not give arbitrary powers to reopen an assessment. The concept of change of opinion is excluded/omitted from the words reason to believe. Thus a change of opinion would not be reason to believe that income chargeable to tax has escaped assessment. Besides the power to reassess is not a power to review. Further reopening must be on the basis of tangible material. 12. Therefore the power to reassess cannot be exercised on the basis of mere change of opinion i.e. if all facts are available on record and a particular opinion is formed, then merely because there is change of opinion on the part of the Assessing Officer notice under Section 147/148, of the Act is not permissible. The powers under Section-147/148, of the Act cannot be exercised to correct errors/mistakes on the part of the Assessing Officer while passing the original order of assessment. There is a s....
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....or assessment is required to be fulfilled. The existence of reason to believe is further qualified by the fact that it should be based on tangible material. Firstly, it cannot be the product of mere ipse dixit of the Assessing Officer. Secondly, it should not partake the character of a mere change in opinion as regards the same material and facts, which were considered at the time of original assessment. For the power is of reassessment and not review. Once the primary facts necessary for assessment are fully and truly disclosed and the Assessing Officer takes a conclusive view thereon, it is not permissible to reopen the assessment based on the very same material on the premise that it is susceptible to a different opinion favourable to the revenue. 16. On the aforesaid touchstone, reverting to the facts of the case, it may be apposite to note the reasons for reopening the assessment communicated vide communication dated 18^th February 2019. The relevant part reads as under : "2 It is found from Note 30 (expenditure in foreign currency) of the Financial Statements for A.Y.2014-15 of the assessee company that the assessee has debited an amount of Rs. 728.793 Crore as 'E....
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....or the assessment of A.Y. 2014-15. Therefore, the case falls under the purview of income which has escaped assessment as prescribed in Explanation 1 to Sec. 147 of the Act which is reproduced as under : "Production before the Assessing Officer of account books or other evidence from which material, evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso." In any case the above provision is not applicable as the case is being reopened within 4 years from the end of the relevant assessment year." 17. Shri Shrivastava, the learned counsel for the petitioner submitted that the assertion of the Assessing Officer, in the aforesaid reasons, especially in paragraph 6 extracted above, that the issue in question was neither discussed nor considered and examined by any questionnaire, order-sheet, noting and assessee's submission, during the original assessment proceedings, and consequently the Assessing Officer had no opportunity to consider the issue in the assessment order for assessment year 2014-15 is plainly against the weight of the material on record. This ....
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....cial Services Software b.v. on behalf of Oracle Financial Services Software Limited. Since the payment is to be made on account of reimbursement only, no Tax is required to be deducted." 22. The order under section 92CA(3) of the Act, 1961 passed by TPO also indicates that the petitioner had filed detailed submissions and furnished the details of reimbursement made to foreign subsidiaries. The break-up of total employee cost reimbursement and other costs reimbursement was also furnished. 23. The TPO, in his order dated 30th October 2017, inter-alia, recorded as under : "5.6.6 It is further evident that the Assessee pays huge reimbursement cost to the AEson account of salary reimbursement cost of its employees every year. During the year, the Assessee made reimbursement of Rs. 7,30,36,09,522/-. This reimbursement charges payment to the AE's indicates that the Assessee routinely send its employees for onsite work to various countries, where the AEs actually concluded the deal on behalf of the Assessee. Accordingly, it is clear that the salary of the employee paid by the AE is reimbursed by the Assessee to AE. This clearly shows that the entire business activity has bee....
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....e assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee--to tell the assessing authority what inferences-whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts. (11) If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ? (12) It may be pointed out that the Explanation to the sub- section has nothing to do with " inferences " and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground th....