TMI Blog2021 (7) TMI 1384X X X X Extracts X X X X X X X X Extracts X X X X ..... ly clarifies that on receipt of the order passed by the TPO, the Assessing Officer shall proceed to compute the total income of the assessee and in confirmity with the Arm's length price. Therefore, the Assessing Officer is empowered to pass draft assessment order with reference to section 144C by taking into consideration the report of the TPO and the other aspects of the matter. In other words, the draft assessment order is not confined actually to the report of the TPO and therefore, there is a scope for reassessment. As far as determination of Arm's Length Price or consideration of other disallowance, etc. in the draft assessment order are to be considered at the time of adjudication of reopening proceedings and the assessee is at liberty to raise any further ground in respect of those aspects which all are relatable to the merits and with reference to the documents and evidences to be scrutinized. Mere consideration of Arm's Length Price and other disallowance in the draft assessment order would not preclude the Assessing Authority for reopening of assessment under section 147/148 of the Act as the spirit of the above provisions are providing wider scope to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/- towards international transactions vide his report dated 31.10.2016. Upon receipt of the said report, the Assessing Officer issued a draft assessment order under Section 144C dated 21.12.2016. The said draft assessment order was served on the petitioner on 03.01.2017. 4. The petitioner had not chosen to file any objection against the said draft assessment order neither before the Dispute Resolution Panel [DRP] on or before 02.03.2017 being 30 days limit prescribed for filing objections nor before the Assessing Officer. Since the petitioner did not object within 30 days on receipt of draft assessment order, the Assessing Officer ought to have passed a final assessment order confirming the draft assessment order on or before 31.03.2017 being the end of one month from the end of the month in which the period for filing of objections under section 144C(2) of the Act expires. However, the respondent failed to pass a final order within the limitation provided and long thereafter, the respondent issued a notice under section 148 of the Act on 28.03.2018. In response to the said notice, the petitioner filed a return of income electronically on 19.04.2018. 5. The petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer passed the draft assessment order on 30.12.2016 under section 143(3) r/w. Section 92CA of the Act. It is contended that beyond the report of the Transfer Pricing Officer, the Assessing Authority considered the disallowance under section 40(a)(ia) and made additions and thereafter the Assessing Officer considered the claim of the assessee regarding the expenditure and other aspects of the matter. In paragraph 6 of the draft assessment order, total taxable income is computed. Relying on the said draft assessment order, the petitioner states that once the draft assessment order is passed by the Assessing Officer then under section 144C, he has to pass the final assessment order within a period of 30 days from the end of the month. Section 144C stipulates reference to Dispute Resolution Panel. Sub-clause (4) enumerates the Assessing Officer shall notwithstanding anything contained in section 153 or section 153B pass the assessment order under sub-section (3) within one month from the end of the month in which; (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires. Relying on the said provisions, it is contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... language is adopted such income and when that income which is the reason for reopening was adjudicated by the Transfer Pricing Officer and a draft assessment order is passed, there cannot be any power under section 147 of the Act for reopening of assessment and issue notice under Section 148 of the act . Thus, in the absence of any scope for reopening, the Assessing Authority cannot further stretch the provisions for the purpose of reopening of assessment, which is illegal and without jurisdiction. The learned counsel for the petitioner reiterated that section 153 of the Act prescribes time limit for completion of assessment, re-assessment and re-computation. Therefore, in the present case, none of these procedures contemplated are followed by the Assessing Authority and for all these reasons, the writ petition is to be allowed. 12. The learned counsel for the petitioner in support of his contentions relied on the judgment of the Hon'ble Supreme Court and various High Courts. (i)In the case of KLM Royal Dutch Airlines vs. Assistant Director of Income Tax [(2007) 292 ITR 0049], the High Court of Delhi made an observation as extracted hereunder: 15.Applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning of Section 139 of the I.T. Act, 1961, the ITO cannot ignore or disregard the same for the purpose of issuing a notice under Section 148 of the Act, unless the return can be regarded as not a return in the eye of law as in the case of the two illustrations given above. In the instant case, the ITO acted on the returns filed by the appellant, issued notices under Section 143(2) and heard the appellant for the assessment years in question under Section 143 (3), but without completing the assessments he took recourse to reopen the assessments under Section 147 by issuing the impugned notices under Section 148 of the Act. In our view, the ITO has acted without jurisdiction in issuing the impugned notices. (iii) In the case of T.Manavedan Tirumalpad and another vs. Commissioner of Income Tax [(1955) 28 ITR 0615], the High Court of Madras made an observation as extracted hereunder: 5.........We have come almost to the end of the financial year and it is necessary that the assessment should be completed early. I therefore complete the assessment tentatively now leaving the question of assessment of the income from forests on lands assessed to land revenue to be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material facts before him when he made the original assessment. He cannot now take recourse to Section 147(a) to remedy the error resulting from his own oversight. (v) In the case of Vijay Television (P) Ltd. Dispute Resolution Panel and others [(2014) 369 ITR 0113(Mad)], the High Court of Madras made the following observations: 23.It is evident from the above decision of the Honourable Supreme Court that if an order is passed beyond the statutory period prescribed, such order is a nullity and has no force of law. In that case before the Honourable Supreme Court, the period for assessment proceedings expired and thereafter, fresh assessment orders have been issued by anti-dating it. In those circumstances, it was held that the High Court ought not to have remanded the matter back to the assessment officer and by doing so, the statutory period prescribed for completion of assessment has been extended by conferring jurisdiction upon the Assessing Officer, which he otherwise lacked on the expiry of the said period. In that case, the Honourable Supreme Court also held that there is a distinction between an order which is a nullity and an order which is irregular and il ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on a provision such as the present one regulating period of limitation must receive strict construction. Law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant for indefinite period on future unforeseen events. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality. The amendment to sub-section (1) of Section 150 is not expressed to be retrospective and, therefore, has to be held as only prospective. The amendment made to sub-section (1) of Section 150 which intends to lift embargo of period of limitation under Section 149 to enable Authorities to reopen assessments not only on the basis of Orders passed in proceedings under the IT Act but also on Order of a Court in any proceedings under any law has to be applied prospectively on or after 1.4.1989 when the said amendment was introduced to sub-section (1). The provision in sub-section (1) therefore can have only prosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not consider it necessary or expedient to do so, the inference being that the Return of Income filed in order. It is this opinion that cannot be arbitrarily changed by the assessing officer, to re-assess income on the basis of stale material, already on record. If we thus keep in the mind the above fundamental requirement of section 147, it would be apparent that the exercise undertaken by the Revenue in this case is not one of reassessment, but of review. The reasons make it abundantly clear that the re-assessment is sought to be initiated on the basis of the return of income and the enclosures which were available with the assessing officer since 2.11.1998 and which ought to have prompted him to issue a notice under section 143(2) of the Act to conduct the proceedings under scrutiny. What is sought to be done by the re-assessment ought to have been achieved by scrutiny assessment proceedings. Having missed the bus earlier, the Department cannot be permitted to avail of the extended time limit in the absence of any new or tangible material, when the time for scrutiny assessment has elapsed on 31.3.2001, prior to issue of notice u/s 148. The notice under section 148 dated 9.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question against the assessee and in favour of the Revenue. No costs. 13. Relying on the above judgments, the learned counsel for the petitioner reiterated that the Courts have consistently held that the scope of section 147 cannot be extended in such circumstances where the TPO determined the Arm's length price and the Assessing Authority passed a draft assessment order considering the materials as well as the report of the TPO and additions are also made. It is not only beyond the scope of jurisdiction it is not within the time limit prescribed. Some of the judgments are cited to elaborate the importance of the limitation prescribed under the Income Tax Act which is mandatory. The other judgments are cited for the purpose of understanding the procedures to be followed for reopening of assessment. Certain judgments are for the purpose of contending that reopening of assessment in certain circumstances are impermissible. Broadly these contentions are raised in support of the case of the petitioner and it is contended that in the present case, the respondent has not followed any of the principles settled by the Courts across the Country and the Apex Court of India. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order has been passed and therefore, the respondent is vested with power to invoke section 147 of the Act and issue notice under section 148 of the Act. 16. The learned standing counsel referred section 149 of the Act which stipulates time limit for notice. Relying on subclause (1)(b) which states that if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year . In the present case admittedly the reopening of assessment is made within four year, therefore, there is no irregularity or infirmity as such. The Assessing officer has not passed any final assessment order under section 144C(4) of the Act, therefore, he is well within his power to invoke section 147 and issue notice under section 148 which states that such notice can be issued before making any assessment, re-assessment or re-computation. Therefore, the circumstances as narrated would establish that the notice under section 148 was issued by following the procedures as contemplated under sections 147 and 148 of the Act and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment year concerned. 21. In the present case, reopening of assessment is made within a period of four years. Therefore, the proviso clause may not have any application. Perusal of Section 147 of the Act and its scope undoubtedly is wider enough to cover numerous circumstances, wherein the Assessing Authority can invoke if he has reason to believe that any income chargeable to tax has escaped assessment. Many other circumstances are also elaborated in explanation (1) and explanation (2) to Section 147 of the Act. As far as the reopening of assessment is concerned, if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. As far as the reopening of assessment is concerned, if the Assessing Officer has reason to believe that any income chargeable to tax escaped assessment for any assessment year. Therefore irrespective of the assessment order and within the period of limitation contemplated under the proviso clause the Assessing Officer is empowered to reopen the assessment by following the procedures contemplated. 22. There is no other condition stipulated under Section 147 of the Act with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iling in the case of the petitioner also. There is no restriction to assess or re-assess any income chargeable to tax has escaped assessment except the restrictions imposed under the proviso clause with reference to the time limit prescribed as well as the additional conditions for invoking the provision beyond the period of four years. Admittedly, in the present case reopening is within the period of four years and therefore, the assessment and re-assessment shall be made if the Assessing Officer has reason to believe. 25. As far as the ground taken regarding the reason to believe is concerned, this Court has to consider the reasons for reopening of assessment. The reasons for reopening of assessment states as follows: The above additions and disallowances are recorded in the order sheet and are duly vouched by the authorized representative of the assessee company. The draft order was served on the assessee on 31.01.2017. Thereafter, it is transpired that the assessee company would be filing its objections before the learned Dispute Resolution Panel against the said order. However, when a copy of the objections before the learned DRP was called for from the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s into this comprehensive definition, as 'the process of giving concrete application of the provisions of the Act resulting in a specified amount of money becoming due and payable as the proper tax' has not been completed due to the reason that the demand notice u/s.156 along with the regular assessment order has not been served on the assessee company within the statutory period. This means that no assessment has been made in the instant case and the provisions of section 147 of the Income Tax Act 1961 read with its explanation 2(b) are squarely applicable to this case. With regard to the assessee's reference to various other case laws stating that reassessment has to be based on 'fresh material' and reopening based on reappraisal of existing material is in valid, attention is drawn to the decision of the honourable Supreme Court of India in the case of M/s.Krishna Developers and Co. versus Dy. Commissioner of Income Tax, Special Leave to Appeal (C)No(s).23760/2017 dated 08.02.2018 where the honourable Apex Court has held that 'the A.O can reopen the case on the same basis as was there in the original assessment which was quashed for technical reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, however, the principle is that the reasons as well as the findings would be sufficient to form an opinion that the Assessing Officer has reason to believe. If the reasons furnished passed the test, then the assessee is bound to cooperate for the re-assessment proceedings. Therefore, the High Court cannot go into the adjudication of the reasons furnished with reference to certain materials. If the reasons furnished are prima facie satisfied with reference to the ingredients contemplated under section 147 of the Act, then the authority must be allowed to continue the proceedings. The assessee is getting further opportunity to submit their documents or explain the nature of transaction, etc before passing the final order of assessment/re-assessment. Thus the intervention after initiation and before completion must be expected to be cautious and only on certain grounds wherein the assessee could able to establish that the authority reopened has no jurisdiction or directly in violation of the provisions of the Act. 30. As far as the lack of jurisdiction is concerned, numerous writ petitions are filed on the facts and circumstances. Such jurisdictional ground is popularly ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e through the return of income filed and only when the discrepancy or income escaped assessment is identified, the procedures are set in motion for further action under Chapter XIV of the Act. Thus there cannot be any other opinion that the re-assessment provisions are for the benefit of revenue and the revenue being the backbone of the economy of the Nation, such provisions are necessary to protect the interest and welfare of the Nation in consonance with the Constitutional principles. 34. As far as the other contentions raised that once the draft assessment order is passed and the assessee has not raised any objections with reference to the draft assessment order, the Assessing Officer has to necessarily pass the final assessment order. Undoubtedly, in the present case the assessee has not raised any objection, however, the same would not preclude the Assessing Authority as there is a scope for reopening of assessment if he has reason to believe that the income chargeable to tax escaped assessment. Therefore, in cases, where no assessment orders are passed under sub-clause (4) to section 144C, the Assessing Officer is empowered to invoke section 147 of the Act if he has rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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