9911796707
TMI Blog2021 (9) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Private Limited and filed the present writ petition. 3. The petitioner company filed its return of income for the Assessment Year 2007-08 on 30.10.2007, declaring a total income of Rs. 6,58,26,875/-. The deduction was claimed. Tax payable on book profit under Section 115 JB was computed at Rs. 16,60,48,488 and tax payable under normal provisions of the Act was computed at Rs. 2,75,28,799/-. The petitioner claimed a refund in its return of income on the basis of TDS credits and advance tax payments. 4. The petitioner states that they have furnished true and adequate disclosure of the income of the petitioner, was filed along with the audited financial statements, Tax Audit Report as required under Section 44AB of the Act, Audit reports in Form 3CD regarding tax audit, Form 3 CEB concerning transfer pricing Audit and Form I OBB in respect of claim of 80IB deduction under the Act. The return of income was processed under Section 143(1) of the Act. The case of the petitioner was selected for scrutiny. The petitioner answered the queries raised by the Assessing authority. The Arm's length price was determined by the Transfer Pricing Officer. After completing all the procedures, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 132 ITR 707. This judgment has been rendered on a Writ Petition filed by the petitioner, wherein their Lordships of the High Court of Delhi held at Page.710 as under: "The words "if the Income-tax Officer has reason to believe" used in s. 147(a) suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act under this section on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The powers under this section are not plenary. They are subject to judicial review. The ITO in his affidavit has merely stated his belief but has not set out any material on the basis of which he formed such belief. there is nothing in the affidavit to suggest that the ITO had any material before him that would warrant a belief that a part of the income of the petitioner had escaped assessment by reason of his failure to make a true and full disclosure of the material facts. (See ITO v. Madnani Engineering Works Ltd. [1979] 118 ITR 1 SC.) The words "reason to believe" appear in most modern statutes. Words such as "reasonable cause to believe" or "has reason to believe" are commonly found when a Legislature or law-m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far- fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment. The fact that the words "definite information" which were there in section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in section 147 of the Act of 1961 would not lead to the conclusion that action cannot be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that such " under assessment " has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under s. 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or re-assessment beyond the period of four years but within the period of eight years, from the end of the year in question.(Emphasis supplied)" (f) It is the submission of the petitioner that if the aforesaid tests as laid down by the Hon'ble Supreme Court (which holds good till date) when is applied, would show that the assumption of jurisdiction by the respondent to issue the notice and initiate the proceedings is outside the scope of the provisions of Section 147 of the Act. It had been held as above that before assuming jurisdiction both the conditions are to be satisfied namely:(i) there had to be omission or failure to disclose fully and truly all material facts; and (ii) that the AO is having a reason to believe. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances alleged, that no failure to disclose facts was being complained of. On the facts as stated by the Income-tax Officer, it is clear that there had been a failure to disclose the fact that the Respondent was a dealer in shares and what the Income-tax Officer meant by the language used by him was that the Respondent had not disclosed that the sale of shares had been of the nature of a trading sale, made in pursuance of an intention to make a business profit, and not of the nature of a change of investment, made in pursuance of an intention to put certain capital assets into another form. If that be so, it is equally clear that the Income-tax Officer who, by the way, was a successor to the officers who had made the original assessments, was not merely changing his opinion as to facts previously known, but was taking notice of a new fact." (Emphasis supplied) The petitioner submitted that Section 34 of Income Tax Act, 1922, which is pari-materia to section 147 of the Income Tax Act only provides special jurisdiction. In the Income Tax Act, there is no concept of any other assessment other than the assessment or reassessment and that too on specified pre-requisite of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease state how the bank loan has been utilized. Reference is also invited to the terms of bank guarantee fee. As per the terms, "Plc shall invoice CEIPL before 25th day of April succeeding the last month of the Financial year (March) in respect of the Fee for the entire financial year or as mutually agreed. Payment of the undisputed portion of invoices submitted by Plc in accordance herewith shall be made by CEIPL to Plc within 30 days of the receipt of the invoice by CEIPL" With reference to the above and the payment details as per Annexure 10 to your reply, please further elaborate, (i) Whether there as any disputed portion (ii) Satisfaction of 'accrual principle in respect of the claim of the expenditure' In this notice, query was also raised regarding the TDS compliance." (j) In response to the aforesaid query, the petitioner filed its reply on 07.12.2010, wherein it was submitted as under: "The Company has accrued guarantee fee amount in books of accounts amounting to INR 149,173,063 based on the agreement entered into with its parent company Cairn Enerty Plc. The same has also been claimed as allowable expenditure under the provisions of Section 37(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act (with effect from 1-4-1989), they are given a go-by and only one condition has remained viz. that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1-4-1989, power to reopen is much wider. 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 reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power 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 precondition 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, after 1-4- 1989, the assessing officer has power to reopen, provided the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself. We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of Prayer (a) and quash and set aside the notice dated 27-3-2006 directing reopening of the assessment for the year 1999-2000. It thus held as under: "Leave granted. We have heard learned counsel on both sides. The assessee had disclosed full details in the return of income in the matter of its dealing in stocks and shares. According to the assessee, the loss incurred was a business loss, whereas, according to the Revenue, the loss incurred was a speculative loss. Rejection of the objections of the assessee to the re-opening of the assessment by the assessing officer vide his order dated 23-6-2006, is clearly a change of opinion. In the circumstances, we are of the view that the order re-opening the assessment was not maintainable." (Emphasis supplied) (p) It is submitted that it is settled law that if an order of the assessment has been framed and AO during the assessment proceedings issued questionnaire/queries and same was replied by the assessee though the same was not explicitly recorded in the order of the assessment, reopening of the assessment will amount to change of opinion: 1.CIT vs. Eicher Ltd., 294 ITR 310 HC Del 2. Satnam Overseas Limited and A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Constitution of India. (s) There is no liability to deduct tax on loan guarantee fee as such, section 40(a)(i) is inapplicable: It is to be submitted that the Respondent in the purported reasons to believe has alleged that payment of guarantee fees is in the nature of fees for technical services and accordingly, the same is subject to tax in India under the Income-tax Act. However, such assumption of the respondent is legally unsustainable, since respondent has failed to appreciate that Article 13 of the India-UK DTAA, which categorically includes a 'make available' clause i.e., to say that the definition of Fees for Technical Services as given in the treaty brings to tax an amount as FTS only if the consideration received is for making available a service. Relevant extract of the Article 13(4) is reproduced below: "For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term "fees for technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., Vs. ITO, reported in 259 ITR 19 has been scrupulously followed and therefore, the petitioner / assessee has to participate in the process of reopening of proceedings in order to defend their case. 11. Though the learned Senior counsel for the petitioner elaborately argued and submitted umpteen number of judgments, the principles laid down by the Hon'ble Supreme Court in those cases are not disputed by the respondents. The learned Senior Standing counsel also emphasized that there is no dispute on the principles submitted on behalf of the petitioners. However, the application of the principles with reference to the facts and circumstances of the case is important for the purpose testing the validity of reopening proceedings initiated under Section 147 of the Income Tax Act. The relevant portion of the reasons recorded for reopening of assessment in proceedings dated 08.10.2012, reads as under: "In the Guarantee fees agreement enclosed to the return that the assessee had entered into Loan facility agreement on 20th January 2004 with M/s.The Royal Bank of Scotland, PLC. The assessee's share of facility was 48000000 US Dollars for which M/s.Cairn Energy, PLC, a company incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource, the loan guarantee fee/interest of Rs. 14,91,73,063/- paid to M/s.Cairn Energy PLC, Scotland needs to be disallowed under section 40(a) in computing the business income of the assessee." 12. The reasons would reveal that for the payment effected in Foreign currency towards loan guarantee interest, no tax was deducted by the assessee at source. Based on such material, which is tangible, the reopening of assessment is made in the present case. The order, disposing of the objections would reveal that the objections raised in this regard by the petitioners are considered and the following findings are made: "4.3 Section 147 of the Income Tax Act requires that there is reason to believe that the income has escaped assessment. There is no question of sufficient or insufficient reason to believe but only the existence of reason to believe that income has escaped assessment as per facts on record and as per provisions of IT Act 1961. The belief can be verified, ascertained and confirmed only after verifying various details/factors during the assessment proceedings. 4.4 As regards the change of opinion, it is submitted that the change of opinion arises when the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in this regard. It is for the assessee to establish his case during the course of reassessment proceedings. The writ petition is filed, challenging the reopening proceedings. Thus, objective satisfaction would be sufficient for the purpose of allowing the Assessing authority to proceed with the reopening proceedings. Once, the materials are available and such materials were not taken into consideration by the original assessing authority, or any findings are given in the assessment order, which would be sufficient for the purpose of reopening of assessment and once such reopening is made based on tangible materials, then the assessee has to defend his case by furnishing further particulars or explanations or documents during the course of reopening proceedings. High Court cannot form any opinion in respect of such findings to be made. Only endeavour of the High Court is to ensure that, whether the conditions stipulated and the process adopted for the purpose of reopening of assessment in consonance with the provisions of the Act and in accordance with the Directives of the Hon'ble Supreme Court of India in the case of GKN Driveshafts (cited supra) are not. If the conditions are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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