2006 (10) TMI 126 - HC - Income Tax

Proceedings initiated u/s 147 - income escaping assessment - Notices issued u/s 148 - mere change of opinion - assessment sought to be reopened after four years - business of subscription agent of foreign technical and scientific journals and other information products - claim for deduction u/s 80-O - HELD THAT - We find that in respect of the assessment years 1992-93 1993-94 and 1994-95 the notices u/s 148 of the Act have been issued on October 25, 2001 i.e. much after the expiry of the period of four years from the end of the relevant assessment year. It can be justified only if there has been failure on the part of the petitioner to disclose fully and truly all material facts necessary for that assessment year. It is not in dispute that the petitioner had in its letter dated October 7 1993 filed during the course of the assessment proceedings for the assessment year 1992-93 had made a claim u/s 80-O of the Act by stating that it is also extending its service to several customers outside India and earning commission from foreign publishers in convertible foreign exchange for such service. The assessing authority apart from finding that the petitioner had received commission from foreign enterprises for services rendered outside India had also found that it had specialised in marketing scientific and technical knowledge and has developed several database with the help of advance computers concerning various research projects activities books periodicals corporate publications technical reports patents and standards for use by its foreign clients and has received commission in convertible foreign exchange in U. S. dollars and U. K. pounds. The claim was accepted and the deduction u/s 80-O of the Act was accordingly allowed. In respect of the assessment years 1993-94 and 1994-95 the assessing authority did not dwell in the matter in detail but mentioned that the claim is in respect of commission earned for the services rendered outside India as in the past. Thus it cannot be said that the petitioner had not made full and true disclosure of all material facts in the assessment years 1992-93 1993-94 and 1994-95. In the reasons recorded by the respondent for forming the belief that the petitioner was not entitled to get deduction the respondent has not found that the basis on which the deduction has been allowed viz. specialising in marketing scientific and technical knowledge and developing several database with the help of advance computers concerning various research projects activities books periodicals corporate publications technical reports patents and standards for use by its foreign clients was false. In this view of the matter the principles laid down in the case of Parikh Petrol Chemical Agencies P. Ltd. v. Asst. CIT 2003 (2) TMI 14 - BOMBAY HIGH COURT is squarely applicable and therefore the notices dated October 25 2000 issued u/s 148 in respect of the assessment years 1992-93 to 1994-95 appear to have been issued only on the basis of mere change of opinion and are wholly illegal and without jurisdiction. The principles laid down by the apex court in the case of Phool Chand Bajrang Lal 1993 (7) TMI 1 - SUPREME COURT would therefore not apply in the present case as there is no information on record to show that the claim made by the petitioner was false. So far as the notice dated September 4 2000 issued under section 148 of the Act for the assessment year 1997-98 is concerned it is within four years from the end of the relevant assessment year. In this case the assessment has not been made u/s 143(3) of the Act and only an intimation u/s 143(1)(a) of the Act has been sent to the petitioner. The claim of deduction u/s 80-O of the Act had only been processed without there being any application of mind. The reasons recorded by the respondent insofar as the assessment year 1997-98 is concerned cannot be said to be based on mere change of opinion. The principles laid down by this court in the case of Pradeep Kumar Har Saran Lal 1997 (3) TMI 62 - ALLAHABAD HIGH COURT is squarely applicable in the present case. They are based on relevant consideration and therefore it cannot be said that the notice dated September 4 2000 is without jurisdiction. Thus the writ petition succeeds and is 4 allowed in part. The notices dated October 25 2000 issued u/s 148 of the Act and consequential proceedings taken in pursuance thereof in respect of the assessment years 1992-93 to 1994-95 are hereby quashed. However the notice dated September 4 2000 issued for the assessment year 1997-98 is upheld.

Summary

Issues Involved:
1. Validity of notices issued under section 147/148 of the Income-tax Act for the assessment years 1992-93, 1993-94, 1994-95, and 1997-98.
2. Entitlement of the petitioner to deductions under section 80-O of the Income-tax Act.
3. Whether the initiation of proceedings under section 147 constitutes a mere change of opinion.
4. Whether the notices issued were barred by limitation.

Issue-wise Detailed Analysis:

1. Validity of Notices Issued Under Section 147/148:
The petitioner challenged the notices dated October 25, 2000, and September 4, 2000, issued under section 147/148 of the Income-tax Act for the assessment years 1992-93, 1993-94, 1994-95, and 1997-98. The petitioner argued that the jurisdictional foundation for initiating proceedings under section 147 was absent, as it was merely a change of opinion by the subsequent assessing authority. The respondent argued that the petitioner was not entitled to deductions under section 80-O, and the wrongful claims resulted in escaped assessments.

2. Entitlement to Deductions Under Section 80-O:
The petitioner claimed deductions under section 80-O for commissions received from foreign enterprises for services rendered outside India. The assessing authority initially allowed these deductions after considering the petitioner's claims and supporting documents. However, the respondent later argued that the petitioner was merely an agent of foreign publishers and not entitled to such deductions.

3. Change of Opinion:
The court examined whether the initiation of proceedings under section 147 was based on a mere change of opinion. It was noted that the assessing authority had previously allowed the deductions after full scrutiny. The court referred to various judgments, including Jindal Photo Films Ltd. v. Deputy CIT, CIT v. Kelvinator of India Ltd., and CIT v. Foramer France, which held that reassessment proceedings could not be initiated on a mere change of opinion. The court found that the initiation of proceedings for the assessment years 1992-93, 1993-94, and 1994-95 was based on a mere change of opinion and was, therefore, invalid.

4. Notices Barred by Limitation:
The court noted that the notices for the assessment years 1992-93, 1993-94, and 1994-95 were issued after the expiry of four years from the end of the relevant assessment years. The court held that these notices were barred by limitation as there was no failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. However, the notice for the assessment year 1997-98 was issued within four years, and the court upheld its validity as it was based on relevant considerations and not a mere change of opinion.

Conclusion:
The court quashed the notices dated October 25, 2000, for the assessment years 1992-93, 1993-94, and 1994-95, as they were based on a mere change of opinion and barred by limitation. However, the notice dated September 4, 2000, for the assessment year 1997-98 was upheld. The parties were left to bear their own costs.