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2015 (5) TMI 654 - DELHI HIGH COURT

2015 (5) TMI 654 - DELHI HIGH COURT - [2015] 376 ITR 70 (Del) - Reopening of assessment - restructuring of the petitioner company questioned - reopening challenged on ground of change of opinion and no new material or additional facts had come to the knowledge of the assessing officer - Held that:- Assessing Officer himself in the draft assessment order had noticed the restructuring and had specifically recorded that receipts upto and including July 2007 were being taxed in the hands of the peti .....

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which we have extracted in the earlier part of the judgment. The DRP, after examining the entire business restructuring arrangement and the transaction in question, did not make any addition. The Assessing Officer in his final assessment order also did not make any addition on account of the subject transaction. It must be noted that the DRP procedure is part of the assessment proceedings.

Queries raised and answered during the DRP proceedings would stand on the same footing as quer .....

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he subsequent view being taken, as indicated in the purported reasons for initiating the proceedings under Section 147 would be nothing but a ‘change of opinion’ which is not permissible in law.

We are also in agreement with the learned counsel for the petitioner that no new facts or material had come to the knowledge of the Assessing Officer to enable him to initiate re-assessment proceedings. All the material facts on which the Assessing Officer had based his purported reasons were .....

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said transaction, yet, the DRP had asked for details of the restructuring and had examined the matter. After such examination, the DRP did not direct any addition to be made in this regard. It is evident that the DRP formed an opinion that the transaction was not exigible to capital gains tax and, to contend otherwise, in the purported reasons for re-opening of the assessment, would be nothing but a ‘change of opinion’ which is not permissible in law. - Decided in favour of assesse. - W.P.(C) 7 .....

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) in respect of assessment year 2008-09. It is also directed against the proceedings pursuant to the said notice culminating in the order dated 19.07.2012 passed by the assessing officer rejecting the objections raised by the petitioner to the initiation of re-assessment proceedings. Rival Contentions in brief: 2. The re-assessment proceedings have been objected to by the petitioner on two counts-(1) change of opinion and (2) no new material or additional facts had come to the knowledge of the a .....

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sessing officer and the Dispute Resolution Panel ( DRP ) in the course of the original assessment proceedings. Therefore, the fact that no such addition was made was, in itself, an indication that the assessing officer and the DRP had formed an opinion that the transaction was not taxable. Consequently, it was submitted on behalf of the petitioner, the attempt to re-open the assessment was clearly based upon a change of opinion, which was not permissible in law. It was also urged that no new mat .....

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also no occasion to consider it as no variation on this aspect had been proposed by the assessing officer. It was further contended that the transaction came to light as a result of the queries raised by the DRP with regard to the business restructuring arrangement of the petitioner. Since the DRP had not given any directions with regard to the taxability of the transaction, the assessing officer could not include it, on his own, in the assessment order. It was submitted that, therefore, the ass .....

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ineers Gmbh [ LICEG ] - in exchange for the additional shares of LICEG. In other words, the petitioner continued to hold 100% of the shares of LICEG though the number of shares held increased because of additional share capital. Furthermore, the unexpired value of its (petitioner s) contracts in India stood transferred to LICEG. Subsequently, the petitioner gave up its earlier name - Lahmeyer International Gmbh - and adopted its current name - LHG. And, LICEG then changed its name to Lahmeyer In .....

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JKSPDC ) Jaypee Karcham Hydro Corporation Limited ( JKHCL ) AND Jaypee Venture Private Ltd. ( JVPL ). The receipts earned from 1st April 2007 to 31st July has been offered to taxation in the hands of the assessee. Receipts earned from 1st August 2007 till 31st March 2007 in India has been offered to tax in the hands of M/s. Lahmeyer International GmbH ( LIG ) which is a Company incorporated in Germany on July 20th 2007. 6. The petitioner filed objections to the draft order on 07.01.2011. The var .....

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cant during the relevant assessment year. The same had been replied to by the petitioner through its letter of 23.09.2011. The observations of the DRP with regard to the business transfer from the petitioner to LICEG (Now LIG ) are extracted hereinbelow:- 5. Observations of the DRP Regarding business transfer from Lahmeyer Holding GmbH to Lahmeyer International GmbH The DRP during proceedings before it had sought clarification regarding the business restructuring undertaken by the applicant duri .....

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been enclosed as Annexure 1. Also English translation of the audited financial statements of LICG (now known as LIG) is enclosed as Annexure 2. It is submitted that prior to the business transfer on August 16, 2007, all Indian contracts were executed by LIG (now known as LHG). Accordingly, consideration receivable in respect of following Indian contracts, as relevant for the subject AY, upto July 2007 was accrued and duly offered tax in the hands of LIG (now known as LGH): • Jammu and Kashm .....

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pdated on the global restructuring, given that the name of the legal entity executing the Indian contracts remained the same, no addendum was executed with the Indian customers. We request you to take the above on record. In case your Honors required any further information / clarification in this regard, an opportunity to represent / furnish may be granted to the assessee for the same. Certified Translation German - English Financial Figures 2007 - Explanatory Note For the purpose of presentati .....

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the transfer of the sum total of business activities of Lahmeyer International GmbH to Lahmeyer International consulting Engineers GmbH. The above mentioned transfer of the sum total of business activities of Lahmeyer International GmbH to Lahmeyer International Consulting Engineers GmbH was effected to satisfy Lahmeyer International GmbH s obligation to contribute to the capital increase as agreed upon by the extraordinary shareholders meeting of Lahmeyer International Consulting Engineers Gmb .....

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ng contracts to its 100% subsidiary Lahmeyer International Consulting Engineers (LICE) whose name was subsequently changed to Lahmeyer International which has in lieu thereof allotted applicant shares. • Although, the contracts were all allotted to applicant but no addendum was executed with the Indian customers pursuant to business restructuring since the name changed ensures that continuity of name even though the entity executing the contracts has changed from applicant to its 100% subsi .....

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assessment order, it has once again been recorded that the receipts earned by the petitioner from 01.04.2007 to 31.07.2007 had been offered to taxation in the hands of the petitioner and that the receipts earned from 01.08.2007 to 31.03.2008 in India had been offered to tax in the hands of LIG . No addition was made in respect of the transaction in question, namely, the transfer of the unexpired value of the contracts in exchange of shares. 9. Shortly thereafter, on 13.10.2011, the Assessing Of .....

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er and the same read as under:- 1. The Draft order u/s 144C was passed on 08th December, 2011. The assessee went to DRP and direction of the DRP u/s 144C (5) was received on 28th September, 2011. 2. Regarding the business transfer from Lahmeyer Holding GmbH to Lahmeyer International GmbH the DRP has given the following observation. The DRP during proceeding before it had sought clarification regarding the business restructuring undertaken by the applicant during the relevant assessment year. The .....

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glish translation of the audited financial statements of LICG (now known as LIG) is enclosed as Annexure 2. It is submitted that prior to the business transfer on August 16, 2007, all Indian contracts were executed by LIG (now known as LHG). Accordingly, consideration receivable in respect of following Indian contracts, as relevant for the subject AY, upto July, 2007 was accrued and duly offered tax in the hands of LIG (now known as LGH): • Jammu and Kashmir State Power Development Corporat .....

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uring, given that the name of the legal entity executing the Indian contracts remained the same, no addendum was executed with the Indian customers. We request you to take the above on record. In case your Honour required any further information / clarification in this regard, an opportunity to represent / furnish may be granted to the assessee for the same. Certified Translation German - English Financial Figures 2007 - explanatory Note To Whom it May Concern For the purpose of presentation to .....

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ransfer of the sum total of business activities of Lahmeyer International GmbH to Lahmeyer International Consulting Engineers GmbH. The above mentioned transfer of the sum total of business activities of Lahmeyer International GmbH to Lahmeyer International Consulting Engineers GmbH was effected to satisfy Lahmeyer GmbH s obligations to contribute to the capital increase as agreed upon by the extraordinary shareholders meeting of Lahmeyer International Consulting Engineers GmbH on August 16, 200 .....

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g. • The applicant has transferred all pending contracts to its 100% subsidiary Lahmeyer International Consulting Engineers (LICE) whose name was subsequently changed to Lahmeyer International which has in lieu thereof allotted applicant shares. • Although, the contracts were all allotted to applicant, no addendum was executed with the Indian customers pursuant to business restructuring. • The structures post the restructuring exercise and allotment of shares remains that of holdi .....

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ons of the Income tax act. 6. As the assessee has not offered any income on this account, I have reason to believe that the capital gain chargeable to tax has escaped assessment in AY 2008-09. This is a fit case for initiating proceedings is u/s 148. (underlining added) 10. Thereafter, by a letter dated 27.04.2012, the petitioner submitted its objections to the initiation of the re-assessment proceedings. Those objections were rejected by the Assessing Officer by virtue of the impugned order dat .....

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to the initiation of the re-assessment proceedings. The first one pertains to the question of change of opinion and the second that there was no new material or additional fact which had come to the knowledge of the Assessing Officer after the passing of the original assessment order under Section 143(3) of the said Act. Change of opinion: 13. On the aspect of change of opinion , it had been contended that the issue of restructuring of the petitioner company and the transaction of transfer of un .....

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ion was not exigible to Capital Gains Tax and the proposal in the re-assessment proceedings that it was taxable amounted to a change of opinion. 14. On the other hand, the learned counsel for the revenue had contended that there was no question of any change of opinion as, according to him, no opinion as such had been formed during the original assessment proceedings. It was submitted that the Assessing Officer had not considered the said transaction in his draft assessment order and the DRP als .....

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submitted that when this new material was available with the Assessing Officer, he was well within his rights to initiate reassessment proceedings. 15. The counsel for the parties referred to a Full Bench decision of this court in CIT V. Usha International Limited: 2012 (348) ITR 485. In the said decision, it was, inter alia, observed as under:- It is, therefore, clear from the aforesaid position that:- (1) Reassessment proceedings can be validly initiated in case return of income is processed u .....

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roceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. In the second and third situation, the Reve .....

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hi). In the last decision it has been observed (page 135): "The Revenue had the option, but did not take recourse to section 263 of the Act, in spite of audit objection. Supervisory and revisionary power under section 263 of the Act is available, if an order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. An erroneous order contrary to law that has caused prejudice can be corrected, when jurisdiction under section 263 is invoked." Thus, wher .....

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Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of "change of opinion" will not apply. The reason is that "opinion" is formed on facts. "Opinion" formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of " .....

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ne actually made. They should be proximate and not have remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers juris-diction to reopen the assessment. (underlining added) Specifically, the learned counsel for the revenue placed reliance on the following observations in Usha Internaional (supra):- Thus, if a subject-matter, entry or claim / deduction is not examined by an Asse .....

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Assessing Officer fails to examine a subject-matter, entry, claim or deduction, he forms no opinion. It is a case of no opinion. (underlining added) 16. The above extracts from Usha International (supra), make it clear that if a particular aspect is not examined by an Assessing Officer, it cannot be presumed that he must have examined the same. It is also clear that if, in the first instance, in the original assessment proceedings, no opinion is formed, the principle of change of opinion would n .....

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ject the stand of the assessee. Therefore, this can be regarded as a case where the Assessing Officer forms an opinion. And, re-assessment would be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons for the same. 17. Another decision which was referred to and, more particularly by the learned counsel for the petitioner, was the Supreme Court decision in CIT v. Kelvinator India Limited: 2010 (320) ITR 561 (SC). In the sai .....

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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 fulfilment of certain pre-conditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, aft .....

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he has been given the power to re-assess subject to fulfillment of certain preconditions. It is also made clear that the concept of change of opinion is an in-built test to check the abuse of power by the Assessing Officer. The Assessing Officer, in the garb of re-opening of an assessment under Section 147 of the said Act cannot be permitted to review the assessment. 19. Applying the principles of Kelvinator India Limited (supra) and Usha International (supra), we are of the view that in the pr .....

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re the DRP. Therefore, we cannot agree with the learned counsel for the revenue that the transaction in question had not been examined by the Assessing Officer or the DRP in the course of the original assessment proceedings. The fact that despite such examination, no addition was made in respect of the said transaction, would lead us to the conclusion that in the original assessment proceedings, an opinion had been formed that the said transaction was not exigible to tax, though no reasons for t .....

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examine the said transaction and that the queries with regard to restructuring of the petitioner company had been raised by the DRP and not by the Assessing Officer. Furthermore, it was submitted that because the directions of the DRP are to be followed, the Assessing Officer had no discretion left in the matter and, therefore, the Assessing Officer had not formed any opinion with regard to the said transaction. This argument cannot be accepted for two reasons. First of all, the Assessing Office .....

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regard to the business restructuring of the petitioner and the transaction in question. The petitioner gave a detailed reply and the same has been noted in the observations of the DRP which we have extracted in the earlier part of the judgment. The DRP, after examining the entire business restructuring arrangement and the transaction in question, did not make any addition. The Assessing Officer in his final assessment order also did not make any addition on account of the subject transaction. It .....

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e in respect of the said transaction, would clearly raise the presumption that after having examined the said transaction, it was opined that it was not exigible to tax. The subsequent view being taken, as indicated in the purported reasons for initiating the proceedings under Section 147 of the said Act, would be nothing but a change of opinion which is not permissible in law. No new Material: 21. We are also in agreement with the learned counsel for the petitioner that no new facts or material .....

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principle of change of opinion would not apply. In the present case, we have already observed that all the relevant material was on record and available at the time of original assessment proceedings. Therefore, the reassessment proceedings on the basis of the same material would be contrary to law. Section 144C(8) 23. One more aspect which needs some discussion is with regard to the submission that the DRP had no occasion to consider the issue of taxability of the transaction involving the tra .....

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e petitioner drew our attention to the Explanation added after Section 144 C(8). It was submitted by the learned counsel for the petitioner that by virtue of the said Explanation, the DRP always had the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. Section 144 C(8) and the Explanation appended thereto reads as under:- 144C (8) The Dispute Resolution Panel may confirm .....

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