TMI Blog2021 (9) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 147 of the Act. As pointed out in the reasons, the petitioner has represented that there is no item of expenditure falling under Section 40A of the Income Tax Act. However, the respondent subsequently found that the payment effected in Foreign Currency / interest, no tax was deducted by the assessee at source. This failure on the part of the petitioner was considered for reopening of assessment and the finding is given that the assessee company has misleading the assessing authorities by furnishing incorrect particulars. However, this Court cannot arrive a finding in this regard. 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the assessment order was passed on 24.02.2011 under Section 143(3) of the Act. Admittedly, the case of the petitioner is reopened under Section 147 of the Act within a period of four years. After completion of the assessment proceedings, the respondents issued notice under Section 148 of the Act for reopening of assessment on the ground that the Assessing Officer has reason to believe that income chargeable to tax for the Assessment Year 2007-08 has escaped assessment within the meaning of Section 147 of the Act. The petitioner requested to furnish reasons. The reasons furnished reasons in proceedings dated 08.10.2012. Thereafter, the petitioner submitted their objections in detail and the said objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-making authority confers powers on a minister or official. As Lord Radcliffe said [1980] 2 WLR 1, 22 (HL) : However read, they must be intended to serve in some sense as a condition limiting the exercise of an otherwise arbitrary power. (Nakkuda Ali v. Jayaratne [1951] AC 66, 77 (PC) . These words do not make conclusive the officer's own honest opinion that he had reasonable cause for the prescribed belief. The grounds on which the officer acted must be sufficient to induce in a reasonable person the required belief before he can validly reopen a completed assessment under s. 147(a). In England, the majority in Liversidge v. Anderson [1942] AC 206 (HL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery 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 formation of the belief must be held in good faith and should not be a mere pretence. (Emphasis supplied ) In the long line of decisions of the Apex Court, it has been held that the power u/s 147 of the Act are not plenary and are subject to the judicial review. (d) The petitioner thus prays that if the reasons recorded are perused for the sake of convenience which are extracted hereinabove, it would be seen that; (i) The petitioner has disclosed the complete facts in the return of income/books of account/assessment proceedings and there is no allegation that the petitioner had failed to disclose fully an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the instant case both the conditions are not satisfied. Indeed even the reasons had not been recorded and also there had been no failure to disclose fully and truly all material facts. Without prejudice, even the reasons recorded and supplied to the petitioner shows that such reasons are merely based on change of opinion. The petitioner further submitted that in the said judgment of Calcutta Discount Co., Ltd., (Supra) at Pg.202-203, the Hon'ble Apex Court has held as under: The only nondisclosure mentioned in the report is that the company had failed to discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Section 147 of the Act. (g) Change of opinion: It is submitted that in the case of the petitioner, a notice u/s 148 of the Act has been issued by the respondent on reviewing the assessment record on account of reason that petitioner had debited a sum of ₹ 14,91,73,063/- towards the payment of loan guarantee fee and on the said sum, no tax had been deducted at source and thus, he was of the view that provisions of Section 40(a) of the Act, the said guarantee fees was not allowable. It is submitted that the issue of allowability of the loan guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 the Act. TOP has considered this to be at arm's length in his order dated October 25 2010 (Annexure-2). As per section 92CA (4), Assessing officer has to compute the total income in conformity with the arm's length price determined by TPO On receipt of the order under Sub-Section (3), the assessing officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92 in conformity with the arm's length price as so determined by the Transfer P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. (Emphasis supplied) (n) The petitioner submitted that recently the Apex Court in the case of ITO Vs. Techspan India Pvt limited, reported in 404 ITR 10, in para 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss 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 Anr.Vs. ACIT 329 ITR 237 HC Del 3. Munjal Showa Ltd., Vs. DCIT W.P.(C).4753/2011 HC Del 14 May 2012 4.Tulsi Developers Vs. DCIT 246 CTR 106 HC Guj 5. Mrs.Parveen P.Bharucha Vs. The Deputy Commissioner of Income Tax (W.P.No.10437 of 2011) HC Bom 27th June 2012 6. General Motors India Pvt., Ltd.Vs. DCIT (Special Civil Application No.1773 of 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 incorporated under the laws of Scotland has extended guarantee. According to the guarantee fee agreement for such guarantee provided, the assessee was required to pay PLC 1.5% of the amount of Loan facility guaranteed for each fiscal year. On this score, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 forms an opinion that decides not to make an addition and holds that the assessee is correct. The reassessment proceedings under section 147 is pending and the issue c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fulfilled, then it is for the assessee to defend their case in the manner known to law. 16. As discussed in the aforementioned paragraphs, the rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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