TMI Blog2012 (12) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment under Section 147 of the Act, only if there is 'tangible material' to show that income has escaped assessment. The Assessing Officer shall not be allowed to arbitrarily re-open assessment. The mere fact that a transfer pricing order had led to a partially adverse order, or that in the subsequent year, the amount claimed was disallowed, does not constitute a valid basis for issuance of the notice. On the contrary, the materials on record disclose a detailed inquiry into the nature and character of the royalty, which had been dealt with by the AO in the first instance. Therefore, that the impugned notice, to the extent it was based on the report and opinion of the audit report, is indefensible. In favour of assessee - WP (C) 8990/2011 & CM APPL.20252/2011 - - - Dated:- 6-9-2012 - MR. S. RAVINDRA BHAT AND MR.R.V. EASWAR JJ. Petitioners: Mr. Ajay Vohra with Ms. Kavita Jha, Mr. Somnath Shukla and Mr. Aashish Gupta, Advocates. Respondents: Mr. N.P. Sahni, Sr. Standing Counsel. MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT) Facts of the Case: 1. Petitioner No. 1 (herein referred to as 'Petitioner') is a company engaged, inter alia, in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.10.2005 subject to variations in the taxable income on account of final outcome of appeals against the assessment order may be considered to be the return filed in response to the notice under section 148. The second respondent furnished a copy of the reasons recorded for initiating reassessment proceedings u/s 147. On receipt of the reasons recorded, the Petitioner filed objections to validity of jurisdiction assumed by the Respondent under section 147 read with section 148 of the Act. These objections were dismissed by the second respondent by order dated 30.11.2011. 4. The primary contention of the Petitioner is that the second Respondent dismissed the objections filed by him regarding assumption of jurisdiction by the Respondent without giving an opportunity to be heard. It was held by the Supreme Court in G.K.N. Driveshafts (India) Ltd v. ITO Ors. 259 ITR 19, that the tax authorities should give, to the assessee, an opportunity to be heard in respect of notices under Section 148, and any order in contravention of the principle of natural justice is to be set aside. It was further held that the Assessing Officer is bound to dispose of the assessee's objection relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd quash and set aside orders of assessment passed in the four petitions. In as much as the assessment orders are set aside, the appeals filed by the Petitioners no longer require to be prosecuted. The same will stand disposed of." 5. Thus, it has been argued by the Petitioner that the plea regarding jurisdiction made in the objections was dismissed without disposing of that objection and without according an opportunity to the Petitioner to be heard which is contrary to the principles of natural justice. 6. The second contention of the Petitioner is that the reassessment proceedings were initiated after the expiry of 4 years from the end of the relevant assessment year, and that there is no failure on the part of the assessee, whatsoever, to disclose fully and truly all material facts necessary for assessment, the bar in proviso to Section 147 of the Act would apply. Section 147 reads as follows: " 147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso or to truly and fully disclosed the material facts necessary for the assessment. Whenever a notice is issued by the Assessing officer beyond a period of four years from the end of the relevant assessment year., such notice being issued without recording the reasons for his belief that income escaped assessment, it cannot be presumed in law that there is also a failure on the part of the assessee to file the returns referred to in the proviso or a failure to fully and truly disclose the material facts. The reasons referred to in the main paragraph of section 147 would, in cases where the proviso is attracted, include reasons referred to in the proviso and it is necessary for the Assessing Officer to record that nay one or all the circumstances referred to in the proviso existed before the issue for notice under section 147. After an assessment has been made, in the normal circumstances, there would be no reason for anyone to doubt that the assessment has been made on the basis of all relevant facts. If the assessing officer chooses to entertain the belief that the assessment has been made in the background of the assessee's failure to disclose truly and fully all materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer, it is stated, had failed to draw correct legal inferences at the time of original assessment from the said primary facts. This is not an error or omission on the part of the Respondent-assessee. It is not alleged that the assessee has suppressed, misrepresented or falsified the record/facts. It is not alleged that there was any subsequent factual information on the basis of which it was found that the assessee had not fully disclosed the primary facts or had falsified or disclosed incorrect primary facts." 11. The Petitioner has stressed, relying on the judgment of Oriental Carpet Mfrs. (India) Ltd. v. ITO: (1978) 168 ITR 296 (P H), that "material facts" mentioned the proviso to Section 147 of the Act refer only to the primary facts disclosed by the assessee showing sale, purchase and profit supported by the account books. As such, in the absence of any case of suppression, misrepresentation or falsification of documents, it cannot be said that the provisions of section 147 of the Act are attracted. The Petitioner argued that due to the absence of specific charge in the reasons recorded for reassessment regarding failure of the assessee to disclose fully and truly all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings as per section 147(c) of the Act. Reliance is placed on the judgment of the Supreme Court in ITO v. Sarabhai M. Lakhani, (2000) 243 ITR 1 that if any income that has escaped assessment can be reassessed even after the expiry of 4 years if the escaped income is inferable with reference to any fresh information. Thus, the Respondent is of the view that even if the income has not escaped income due to the fault of the Assessee, any fresh information in this regard renders reassessment under section 147 read with section 148 of the Act, good in law. Further, reliance has been placed on the judgment of Syal Leasing Ltd. v. Asst. CIT (2004) 266 ITR 639 (P H), wherein it was held that where the business loss was not acceptable at face value in a subsequent assessment, the information from such assessment may be treated as information for the purpose of issue of notice u/s 148 of the Act. The respondents argue that in this case, their move to re-open the assessment is justified, and the reasons to believe legally tenable, on account of the reassessment notice being issued further to the audit objections issued. Reliance is placed on ACIT v. Rajesh Jhaveri Stock Brokers P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I, therefore, have reason to believe that the income of Rs.196.998 crores has escaped assessment within the meaning of Section 147 of the IT Act, 1961 due to omission on the part of the assessee to include this sum into its income for the relevant previous year. (emphasis supplied) .. 16. It is evident from a facial reading of the notice itself, that the claim for deduction on account of royalty paid was the specific matter of investigation by the AO for the concerned assessment year. It was also the subject matter of the transfer pricing exercise undertaken by the TPO. In the assessment, which was made under Section 143 (3) the claim was granted. However the royalty amount was adjusted partially, and was loaded to the ALP determined by the TPO. The matter travelled to this court, and later, the Supreme Court directed a fresh transfer pricing exercise. In this background, for the succeeding assessment year (2006-07) the royalty claim was disallowed. On these facts, there appears to have been an adverse comment in the Audit report in relation to the royalty amount for the assessment year which is the subject matter of the present case. That triggered the notice under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent view taken by him afterwards on the application of those provisions would amount to a change of opinion of material already considered by him. It is therefore, held that the impugned notice, to the extent it was based on the report and opinion of the audit report, is indefensible. 19. As far as the question whether in the present case, the notice can be sustained as a valid one is concerned, the decision of the Supreme Court in CIT v. Kelvinator of India Ltd., reported in (2010) 2 SCC723 = (2010) 320 ITR 561 held that the Assessing Officer can re-open an assessment under Section 147 of the Act, only if there is 'tangible material' to show that income has escaped assessment. The Assessing Officer shall not be allowed to arbitrarily re-open assessment. In the facts of the present case, neither the notice recites, nor does the order of reassessment (which deals with the objections of the petitioner) indicate what were the materials, which led the AO to form the opinion that the assessee s suppression of income or facts, led to escape of income. The mere fact that a transfer pricing order had led to a partially adverse order, or that in the subsequent year, the amount claime ..... X X X X Extracts X X X X X X X X Extracts X X X X
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