2013 (5) TMI 413 - HC - Income Tax

Reopening of assessment - business support charges, guarantee fees paid to the holding company are not for business expediency & these payments are also being a subject matter of TP not verified in the transfer pricing proceedings by the TPO - Held that - Reopening of the assessment is within a period of four years. In view of the position in law as laid down by the Supreme Court Kalyanji Mavji And Co. Versus Commissioner of Income-Tax, West Bengal II (1975 (12) TMI 2 - SUPREME Court) no hesitation in coming to the conclusion that the Assessing Officer was acting within jurisdiction in reopening the assessment for A.Y. 2006-07 on the basis of the assessment proceedings for A.Y. 2007-08. The mere fact that the income has been assessed in the hands of the parent company of the assessee would not be demonstrative of the allowability of the expenditure under Section 37(1). Similarly, the considerations which weigh in the passing of an order under Section 195(2) would clearly not be dispositive of the jurisdiction of the Assessing Officer to reopen an assessment under Section 148. For these reasons, no reason or justification to interdict the exercise of the jurisdiction of the Assessing Officer to reopen an assessment under Section 148. The reopening within a period of four years in the present case is based on tangible material. against assessee.

Issues Involved:
1. Legitimacy of reopening the assessment under Section 148 of the Income Tax Act, 1961.
2. Whether the reopening is based on a mere change of opinion.
3. Applicability of judgments from previous cases.
4. Impact of parent company's assessment and tax deductions under Section 195(2).

Detailed Analysis:

1. Legitimacy of Reopening the Assessment:
The Petitioner challenged the reopening of the assessment for Assessment Year (AY) 2006-07 under Section 148 of the Income Tax Act, 1961. The reopening notice was issued within four years of the end of the relevant AY. The reasons for reopening included the payment of business support charges, guarantee fees, and other service charges to its holding company, which were not verified in the transfer pricing proceedings by the Transfer Pricing Officer (TPO). The court emphasized that the reopening within four years requires the presence of tangible material, as established by the Supreme Court in Commissioner of Income Tax v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC). The court found that the assessment for AY 2006-07 could be legitimately reopened based on the material that emerged during the assessment proceedings for AY 2007-08.

2. Mere Change of Opinion:
The Petitioner argued that the reopening was based on a mere change of opinion since the TPO and the Assessing Officer had already applied their minds during the original assessment. However, the court noted that the original assessment order for AY 2006-07 contained no evaluation or consideration of the issues on which the reopening was based. The court referred to several Supreme Court judgments, including Kalyanji Mavji & Co. v. Commissioner of Income Tax (1976) 102 ITR 287, which upheld the reopening of assessments based on information obtained during subsequent assessment years. The court concluded that the reopening was not a mere change of opinion but was based on tangible material.

3. Applicability of Judgments from Previous Cases:
The Petitioner cited a previous judgment of the Division Bench dated 9 July 2012, which quashed the reopening of assessments for AYs 2004-05 and 2005-06. The court distinguished the present case by noting that the earlier reopening was beyond four years and required a failure by the assessee to disclose material facts. In contrast, the present reopening was within four years and required only tangible material. The court reiterated that the reopening within four years was permissible based on the material from the subsequent assessment year.

4. Impact of Parent Company's Assessment and Tax Deductions:
The Petitioner argued that the parent company had been assessed on the same income and that tax was deducted at source under Section 195(2). The court held that these factors were not conclusive for the allowability of the expenditure under Section 37(1) of the Income Tax Act, 1961. The court also stated that the considerations for passing an order under Section 195(2) were not dispositive of the jurisdiction to reopen an assessment under Section 148.

Conclusion:
The court dismissed the Petition, holding that the reopening of the assessment for AY 2006-07 was based on tangible material and was within the jurisdiction of the Assessing Officer. The reopening was not a mere change of opinion, and the previous judgments cited by the Petitioner were distinguishable. The court found no reason to interdict the exercise of jurisdiction by the Assessing Officer to reopen the assessment under Section 148. There was no order as to costs.

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