2013 (7) TMI 1034 - HC - Income Tax

Reopening of assessment - allocation of R particularly emphasizing on SPS which never existed and when all other angles otherwise are examined sufficiently and elaborately this appears to be an attempt pure and simple to review its own order alongwith other materials found in relation to the first issue. Therefore the notice for re-opening on this count shall need to fail.

Summary

Issues Involved:
1. Jurisdiction and legality of the notice issued under Section 148 of the Income-tax Act, 1961.
2. Alleged diversion of profit by transfer of technology to Caraco, USA.
3. Allocation of Research & Development (R&D) expenses.

Detailed Analysis:

1. Jurisdiction and Legality of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 30th March 2012 issued under Section 148 of the Income-tax Act, 1961, arguing it was contrary to law and without jurisdiction. The petitioner contended that the grounds for reopening had already been considered in the scrutiny assessment, and no new material or failure to disclose material facts justified the reopening. The court emphasized that for issuing a notice under Section 148 beyond four years, it must be shown that the income escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for assessment.

2. Alleged Diversion of Profit by Transfer of Technology to Caraco, USA:
The notice for reopening was issued on two counts: firstly, the diversion of profit by transferring technology by Sun BVI to Caraco, USA, and secondly, the allocation of R&D expenses. The court noted that the Assessing Officer formed a belief based on materials collected during a survey operation conducted on 8th November 2011, which indicated that the petitioner had adopted dubious devices to evade tax. The court found that the material unearthed during the survey, including statements from senior officers, provided sufficient grounds for the Assessing Officer to believe that income had escaped assessment due to the petitioner's failure to disclose fully and truly all material facts.

3. Allocation of Research & Development (R&D) Expenses:
The second ground for reopening concerned the allocation of R&D expenses. The court observed that the issue of R&D expenses had been extensively scrutinized during the original assessment and was also addressed by the Commissioner of Income-tax (Appeals) [CIT(A)]. The CIT(A) had directed the allocation of 12.5% of all R&D expenses to formulations. The court concluded that reopening on this ground was an attempt to review the earlier decision, which is not permissible. The court held that this ground for reopening must fail on jurisdictional grounds as it was an attempt to review its own order without any new material evidence.

Conclusion:
The court partly allowed the petition, sustaining the notice of reopening on the first ground of diversion of profit by transfer of technology but not on the second ground of allocation of R&D expenses. The Assessing Officer was permitted to proceed with the reassessment proceedings on the first ground without being influenced by the court's observations on the second ground. The interim relief granted in favor of the assessee concerning the second ground was confirmed.