2011 (8) TMI 477 - HC - Income Tax

Reassessment u/s 147/148 - Amount received on account of providing services and facilities in connection with the exploration and extraction of and production of mineral oil - The petitioner offered the revenues received from these Companies for taxation u/s 44BB of the Act - The contention of the revenue is that the services contemplated u/s 44BB are services other than those coming within the purview of Explanation 2 to section 9(1)(vii) of the Act. The services extended by the petitioner falls under Explanation 2. Consequently the income by way of fees for technical services chargeable under section 9(1)(vii) has to be computed under section 44DA of the Act - Held that - As the Explanatory Note to the Finance Bill 2010 clearly indicates that the amendments proposed in section 44BB and 44DA of the Act would take effect from 1st April 2011 and would apply in relation to the assessment year 2011-12 and subsequent years - The amendment is prospective in nature and would not apply to the cases in hand which is of the earlier assessment years - Therefore the explanatory note does not mean that there was failure on the part of the assessee as envisaged by the provisions of section 147 or in any manner the assessee suppressed the material facts or failed to disclose fully and truly all material facts necessary for the assessment - accordingly the notice issued by the respondent under sections 147 and 148 of the Act are quashed - Hence The writ petitions are allowed.

Issues Involved:
1. Validity of notices issued under section 148 of the Income-tax Act, 1961.
2. Jurisdiction of the Assessing Officer to reopen assessments.
3. Interpretation of "reasons to believe" and "change of opinion."
4. Applicability of section 44BB versus sections 44DA, 115A, and Explanation 2 to section 9(1)(vii) of the Act.
5. Limitation period for issuing reassessment notices.

Detailed Analysis:

Issue 1: Validity of Notices Issued Under Section 148 of the Income-tax Act, 1961

The court examined the validity of the notices issued under section 148 of the Act, which proposed reassessment on the grounds that income had escaped assessment. The petitioner argued that the notices were issued without jurisdiction and based on a mere change of opinion, which is impermissible, especially when all material facts were fully and truly disclosed.

Issue 2: Jurisdiction of the Assessing Officer to Reopen Assessments

The court noted that the Assessing Officer has wide powers to reopen assessments if he has "reasons to believe" that income has escaped assessment. However, this power is circumscribed and does not extend to reopening completed assessments based on a mere change of opinion. The court emphasized that "reasons to believe" must be genuine and based on tangible material, not merely a different interpretation of the same facts.

Issue 3: Interpretation of "Reasons to Believe" and "Change of Opinion"

The court reiterated that the "reasons to believe" must be based on some material facts that were not previously considered. It cited several precedents to underline that a mere change of opinion does not constitute valid grounds for reopening an assessment. The court found that the reasons recorded by the Assessing Officer in this case amounted to a change of opinion, as they were based on the same material facts that were already on record.

Issue 4: Applicability of Section 44BB Versus Sections 44DA, 115A, and Explanation 2 to Section 9(1)(vii) of the Act

The court analyzed the provisions of sections 44BB, 44DA, 115A, and Explanation 2 to section 9(1)(vii). It noted that section 44BB applies to non-residents providing services in connection with the exploration of mineral oils, while sections 44DA and 115A pertain to fees for technical services. The court found that the Assessing Officer had initially assessed the petitioner's income under section 44BB after due consideration of the facts and contracts. The subsequent attempt to reassess under sections 44DA and 115A was seen as a change of opinion.

Issue 5: Limitation Period for Issuing Reassessment Notices

The court highlighted that the proviso to section 147 stipulates that no action can be taken after four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to disclose fully and truly all material facts. The court found that the petitioner had disclosed all primary facts, and the reassessment notices were issued after the four-year limitation period, making them time-barred.

Conclusion:

The court concluded that the reassessment notices issued under sections 147 and 148 were invalid as they were based on a mere change of opinion and issued beyond the permissible limitation period. The court quashed the notices and all proceedings initiated pursuant to them, allowing the writ petitions and directing parties to bear their own costs.

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