2012 (8) TMI 461 - HC - Income Tax

Validity of reopening of assessment u/s 148 beyond a period of 4 years - offshore supply contracts and offshore service contracts - Russian company - tax on offshore service contracts paid applying S44BBB however assessee contended that offshore supply contracts were not chargeable to tax in India - assessment reopened on ground that Section 44BBB refers to turnkey project and hence offshore supply contracts are subject to tax - AY 04-05 - Held that - In the present case, the reasons recorded for reopening of the assessment by the notice dated 28/3/2011 itself records that the receipts on account of the four offshore supply contracts was treated as exempt in the assessment proceedings. Further, though the reasons record that the petitioner had not disclosed proper income in his return of income, it does not allege that there was any failure on the part of the petitioner to fully and truly disclose all material facts necessary for the assessment. This is particularly so as the four offshore supply contracts were the subject matter of consideration and were duly considered while passing the order dated 31/12/2008 under Section 143 r.w.s. 147. Therefore, the impugned notice u/s 148 is merely on account of change of opinion as no fresh tangible material was available with the AO to issue the impugned notice - Decided in favor of assessee

Issues Involved:
1. Assumption of jurisdiction under Sections 147 to 151 of the Income Tax Act, 1961.
2. Validity of the notice issued under Section 148 for reopening the assessment.
3. Examination of offshore supply contracts and their taxability.
4. Alleged failure to disclose material facts fully and truly.
5. Change of opinion as a basis for reassessment.

Detailed Analysis:

1. Assumption of Jurisdiction under Sections 147 to 151 of the Income Tax Act, 1961:
The petitioner challenged the assumption of jurisdiction by the Deputy Director of Income Tax (International Taxation) under Sections 147 to 151 of the Income Tax Act, 1961. The Assessing Officer issued a notice dated 28/3/2011 under Section 148 seeking to reassess the petitioner's income for the assessment year 2004-05. The petitioner contended that the conditions precedent for assuming jurisdiction were not met, particularly the requirement of a failure to fully and truly disclose all material facts necessary for assessment.

2. Validity of the Notice Issued under Section 148 for Reopening the Assessment:
The petitioner argued that the notice under Section 148 was issued without jurisdiction as it was based on a change of opinion rather than new tangible material. The Assessing Officer had previously examined the offshore supply contracts during reassessment proceedings and had not brought them to tax. The petitioner asserted that the reopening of the assessment was merely due to a change of opinion, which is not a valid ground for reassessment.

3. Examination of Offshore Supply Contracts and Their Taxability:
The petitioner, a joint stock company incorporated under the laws of the Russian Federation, entered into various offshore service and supply contracts with the Nuclear Power Corporation of India Limited (NPCIL). The petitioner did not offer the amounts received from offshore supply contracts for tax, arguing that the transfer of title and consideration occurred outside India. The Assessing Officer initially accepted this position but later sought to include these amounts under Section 44BBB of the Act, treating the entire project as a turnkey project.

4. Alleged Failure to Disclose Material Facts Fully and Truly:
The petitioner contended that there was no failure to disclose material facts fully and truly. The reasons recorded for reopening the assessment did not allege any such failure. The reassessment order dated 31/12/2008 had considered all relevant facts, including the offshore supply contracts. The court noted that the reasons for reopening did not allege any failure on the part of the petitioner to disclose material facts, which is a necessary condition for reopening an assessment after four years.

5. Change of Opinion as a Basis for Reassessment:
The court held that the reassessment was based on a change of opinion, which is not permissible. The Supreme Court in CIT v. Kelvinator India Limited emphasized that reassessment must be based on tangible material and not merely a change of opinion. The court found that all material facts were considered during the previous reassessment, and there was no new tangible material to justify reopening the assessment.

Conclusion:
The court quashed the notice dated 28/3/2011 and the order dated 20/10/2011, holding that the reassessment was based on a change of opinion and not on new tangible material. The conditions for reopening the assessment after four years were not met, as there was no failure to disclose material facts fully and truly. The writ petition was disposed of with no order as to costs.

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