2012 (9) TMI 94 - HC - Income Tax

Reopening of assessment u/s 147 - non disclosure of existence of the permanent establishment and business connection in India - assessee contested against second occasion on which a notice u/s 148 has been issued - Held that - As it is evident that the question of the petitioner having a permanent establishment in India had been gone into in the first round as apparent from the reasons dated 29.03.2007 read with the objections dated 14.09.2007 and the order dated 30.11.2007 and ultimately the assessment order dated 31.12.2007, wherein the lower rate of tax of 15% was employed - as throughout the proceedings in the earlier round, one of the questions that had been raised was with regard to the petitioner having a permanent establishment in India, once that aspect of the matter had been gone into in the earlier round, it was not open to the AO to reagitate it in the second round without any other / fresh material - the condition stipulated in the proviso to Section 147 is not satisfied and, therefore, the notice dated 30.03.2010, being admittedly beyond four years from the end of the relevant assessment year (i.e., 2003- 04), is barred by limitation - in favour of assessee.

Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act, 1961.
2. Allegation of non-disclosure of material facts by the petitioner.
3. Limitation period for issuing notice under Section 148.
4. Whether the re-opening of assessment constitutes a change of opinion.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 148 of the Income Tax Act, 1961:
The petitioner sought the quashing of the notice dated 30.03.2010 issued under Section 148. This was the second notice issued for the assessment year 2003-04, beyond the four-year limitation period. The court noted that the notice was based on the allegation that the petitioner did not fully disclose its permanent establishment (PE) in India, which would subject it to a higher tax rate of 20% on royalties. However, the petitioner contended that it did not have a PE in India and was only liable for a 15% tax rate. The court found that the issue of the petitioner having a PE in India had already been examined in the first round of assessment proceedings, and no new material was presented to justify the second notice.

2. Allegation of Non-Disclosure of Material Facts by the Petitioner:
The revenue alleged that the petitioner did not fully and truly disclose all material facts necessary for assessment, particularly regarding the existence of a PE in India. The court examined the sequence of events and found that the petitioner had provided all necessary information during the first round of assessment, which culminated in the order dated 31.12.2007. The court concluded that the revenue failed to indicate how the petitioner had not disclosed all material facts, and the allegation of non-disclosure was unfounded.

3. Limitation Period for Issuing Notice under Section 148:
The petitioner argued that the notice dated 30.03.2010 was barred by limitation as it was issued beyond four years from the end of the assessment year 2003-04. The court agreed, stating that the conditions stipulated in the proviso to Section 147 were not fulfilled. Specifically, there was no failure on the part of the petitioner to fully and truly disclose all material facts necessary for assessment. The court emphasized that the re-opening of assessment beyond the four-year period is only permissible if this condition is met, which was not the case here.

4. Whether the Re-opening of Assessment Constitutes a Change of Opinion:
The court observed that the issue of the petitioner having a PE in India had already been addressed in the first round of assessment, and the re-opening of the assessment was based on the same set of facts. The court held that re-opening the assessment on the same grounds without any new material constitutes a change of opinion, which is not permissible under the law. The court reiterated that re-opening of assessments cannot be done merely on the basis of a change of opinion.

Conclusion:
The court concluded that the notice dated 30.03.2010 and the order dated 27.10.2010 could not be sustained in law. The court quashed the notice and all proceedings pursuant to it, allowing the writ petition. The court emphasized that the re-opening of assessment was barred by limitation and based on a change of opinion, with no new material facts presented.

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