2012 (2) TMI 157 - HC - Income Tax

Validity of re-opening of assessment beyond a period of four years from the end of the relevant A.Y. - assessee authorized vide order issued u/s 195(2) to reimburse expenditure incurred by foreign principal company for providing support services, without TDS - reasons set out for re-opening that certificate u/s 197 is valid only for payment or credits made after the date on which a certificate had been issued assessee had credited the amount before obtaining certificate Held that - A.O. has not even indicated that there was any failure on part of assessee to disclose fully and truly all material facts. Further, certificate, as a matter of fact, was issued on an application that was filed u/s 195(2) and not under section 197. Moreover, A.O. also, made no reference at all to whether the payment which was effected to the foreign principal represented income chargeable under the provisions of the Act. Therefore, jurisdictional condition for reopening of the assessment has not been fulfilled - Decided in favor of assessee.

Issues Involved:
1. Reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Validity of the certificate issued under Section 195(2) versus Section 197.
3. Full and true disclosure of material facts by the Petitioner.
4. Jurisdictional conditions for reopening the assessment beyond four years.

Detailed Analysis:

1. Reopening of Assessment under Section 148:
The Petitioner challenged a notice issued on 22 March 2011 under Section 148 of the Income Tax Act, 1961, which sought to reopen the assessment for the Assessment Year 2004-05. The Petitioner argued that the reopening was based on a mere change of opinion and that there was no failure on their part to fully and truly disclose all material facts necessary for the assessment. The Court noted that the reasons for reopening did not even allege any failure by the Petitioner to disclose material facts.

2. Validity of the Certificate Issued under Section 195(2) versus Section 197:
The Petitioner had obtained a certificate under Section 195(2) authorizing the remittance of Rs. 1.56 crores to its U.S. principal without deducting tax at source, as it was deemed a reimbursement of expenses. The Assessing Officer, however, contended that the certificate was under Section 197 and, according to Circular 774/99, was only valid for payments or credits made after its issuance. The Court clarified that the certificate was indeed issued under Section 195(2) and not Section 197, thus invalidating the Assessing Officer's basis for reopening the assessment.

3. Full and True Disclosure of Material Facts by the Petitioner:
The Petitioner had disclosed all relevant details in their original return, including the payment made to the U.S. principal, the nature of the payment as a reimbursement, and the application under Section 195(2). The Court found that the Petitioner had made a full and true disclosure of all material facts necessary for the assessment during the original proceedings. The Assessing Officer had also made specific inquiries and received detailed explanations from the Petitioner during the assessment process.

4. Jurisdictional Conditions for Reopening the Assessment Beyond Four Years:
The Court emphasized that for reopening an assessment beyond four years, there must be a failure to disclose material facts fully and truly. The Court found no such failure on the part of the Petitioner. The reasons provided by the Assessing Officer did not indicate any belief that the payment to the U.S. principal was chargeable to tax, which is a prerequisite under Section 195. The Court concluded that the jurisdictional conditions for reopening the assessment were not met.

Conclusion:
The Court quashed the notice dated 22 March 2011 for reopening the assessment, ruling that there was no failure on the part of the Petitioner to disclose material facts fully and truly, and the jurisdictional conditions for reopening the assessment beyond four years were not satisfied. The Petition was allowed, and the rule was made absolute, with no order as to costs.

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