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2022 (9) TMI 1312
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.... Act. Additional grounds raised by the assessee, since, are on purely legal and jurisdictional issues going to the root of the matter, we admit them. Hereinafter we will proceed to decide the appeals independently by addressing the legal issues raised by the assessee at the outset. ITA No.1829/Del/2009 (AY: 1997-98) 3. Before we proceed to deal with legal issues raised by the assessee, it is necessary to discuss the relevant facts. The assessee is a non-resident corporate entity incorporated in the Unites States of America (USA) and is stated to be one of the largest independent software company in the world. The assessee has a wholly owned subsidiary in India known as Oracle India Pvt. Ltd. (OIPL) which was incorporated in India in the year 1993 and started its operation by setting up a facility at Bangalore. As stated, the Indian subsidiary carries on business in two segments, i.e., software development support services and software duplication and distribution segment. For the assessment year 1997-98, the assessee had filed its return of income on 24.04.1997 declaring income of Rs.17,30,01,448/-. The return of income filed by the assessee was processed under section 143(1)....
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....ht approval for scrutiny assessment relating to assessment year 2001-02, assessments for preceding assessment years, including assessment year 1997-98 were reopened. Drawing our attention to the reasons recorded by the Assessing Officer for seeking approval for scrutiny assessment relating to assessment year 2001-02 and the approval of the Director of Income Tax (DIT), International Taxation, a copy of which is placed at page 91 of the paper-book, learned counsel submitted, while granting approval for scrutiny assessment of assessment year 2001-02, the DIT had specifically mentioned that reassessment proceeding for earlier assessment years should be initiated only if there is concrete information about escapement of income in those years. However, he submitted, the Assessing Officer, in complete disregard of the directions of the DIT, initiated reassessment proceeding for assessment years 1997-98 to 2000-01. 6. Proceeding further, he submitted, the Assessing Officer has initiated reassessment proceeding without independent application of mind by simply adopting his reasoning in the assessment order passed for assessment years 2000-01 and 2001- 02. Drawing our attention to the re....
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.... the following decision: 1. CIT Vs. Rainee Singh [2010] 189 Taxman 202 (Delhi) 7. The next contention of learned counsel for the assessee is, the reasons were recorded without independent application of mind and conclusions drawn in subsequent assessments cannot be the basis for initiating reassessment proceedings in absence of any new material. For such proposition, he relied upon the following decisions: 1. Precilion Holdings Ltd. Vs. DCIT, W.P. No. 3342 of 2018, judgment dated 25th February, 2019 (Bombay High Court) 2. CIT Vs. Orient Craft Ltd., [2013] 29 taxmann.com 392 (Delhi) 3. E-Funds IT Solution Inc., [2017] 399 ITR 34 (SC). 8. He submitted, the reasons recorded must have a live link with the material/information resulting in reassessment. He submitted, the expression 'reason to believe' postulates belief and existence of reasons for that belief must be held in good faith and cannot be pretended. In this context, he relied upon the decision of the Hon'ble Supreme Court in the case of Calcutta Discount Company Ltd. Vs. ITO, 41 ITR 191 (SC). He submitted, the reasons recorded are not reasons to belief in real sense of the term but are reas....
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....d. Basis the aforesaid reasoning, the Assessing Officer sought approval from the DIT (International Taxation) for scrutiny assessment for assessment year 2001-02. 11. While granting approval for scrutiny assessment for assessment year 2001-02, the DIT (International Taxation), in order dated 01.10.2002, had specifically observed that the reopening of assessment, if any, for the earlier assessment years should be done only after concrete information about escapement of income for those years are available with the department. In fact, in the reasons recorded for reopening of assessment for the impugned assessment year, the Assessing Officer himself admitted that based on the facts involved in assessment years 2000-01 and 2001-02, the assessments for the impugned assessment year was reopened. A careful perusal of the reasons recorded would reveal that the formation of belief regarding the escapement of income is on account of profit from royalty received from sale of software, which allegedly is attributable to the PE of the assessee, being the Hyderabad unit of OIPL. The Assessing Officer has alleged that all the core activities related to software development were undertaken in ....
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....t of OIPL, as, it was not in existence. Thus, it is quite clear, the reasons recorded for reopening of assessment is without independent application of mind but simply based on conclusions drawn in the subsequent assessment years without having any tangible material. It is further evident, the reasons recorded do not have any live link with material/information in possession of the Assessing Officer which could have establish escapement of income for the impugned assessment year. Thus, it is very much evident, the assessment has been reopened merely on reason to suspect rather than reason to belief. Thus, in our view, the reopening of assessment made by the Assessing Officer on irrelevant facts and on a mere reason to suspect cannot survive. Therefore, we hold that the reopening of assessment for the impugned assessment year is invalid. Hence, the subsequent action taken by the Assessing Officer in pursuance thereof resulting in the impugned assessment order is also invalid. Accordingly, we quash the assessment order for the impugned assessment year. Therefore, the impugned order of learned Commissioner (Appeals) having no leg to stand, is hereby set aside. Since, we have decided t....
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....e filed its return of income on 21st December, 1999 declaring income of Rs.35,00,88,180/-. Assessment in case of the assessee was completed under section 143(3) of the Act vide order dated 26.03.2002. Thus, from the aforesaid facts, it is crystal clear that assessment orders in these two assessment years were passed either under section 143(3) or section 147 of the Act. Further, reopening of assessment under section 147 of the Act, which is the subject matter of challenge in these appeals was initiated after expiry of four years from the end of the relevant assessment years. Therefore, the proviso to section 147 of the Act clearly applies. On a reading of proviso to section 147 of the Act, it is very much clear that in case of a particular assessee, where assessments have already been made, either under section 143(3) or section 147 of the Act for any assessment year, no action for reopening of assessment can be taken after expiry of four years from the end of the relevant assessment year, unless, the following conditions are fulfilled: (i) The assessee has failed to make a return under section 139 or in response to notice issued under section 142(1) or section 148. ....
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....se all the material facts necessary for the assessment. It is the case of the petitioner/assessee that the reasons recorded for reopening the assessment do not even allege that there has been any failure on the part of the assessee to fully and truly disclose all the material facts necessary for the assessment. 4. Reliance has been placed by the learned counsel on the decision of this court in Haryana Acrylic Manufacturing Co. Vs. CIT (2009) 308 ITR (Delhi). In that case, this court had observed as under: "In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, it is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the p....
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....all proceedings pursuant thereto including the order disposing of the objections are set aside." 20. The ratio laid down by the Hon'ble Jurisdictional High Court, as aforesaid, squarely applies to the facts of the present appeals. Thus, respectfully following the ratio laid down by the Hon'ble Jurisdictional High Court in assessee's own case as well as in other decisions cited before us, we hold that due to non-fulfillment of the conditions prescribed under the first proviso to section 147 of the Act, the reopening of assessment is invalid. Consequently, the assessment orders passed under section 143(3) read with section 147 of the Act for both the assessment years, being invalid, are quashed. As a natural corollary the impugned orders of learned Commissioner (Appeals) are hereby set aside. Since, we have decided the appeals on legal issue, the grounds raised by the assessee on merits having become academic are not adjudicated at this stage. 21. In the result, both the appeals are allowed. ITA No.1832/Del/2009 (AY: 2000-01) 22. Insofar as this assessment year is concerned, learned counsel appearing for the assessee, while challenging the validity of reopening of assessm....