2015 (4) TMI 376 - HC - Income Tax

Reopening of assessment - expenses under the head management fees undisclosed - Held that - There was no failure to disclose material facts and failure to place a version favourable to the Revenue cannot be a reason to reopen the assessment. The conclusion that the Assessing Officer never applied his mind on this issue and therefore change of opinion is not the basis on which the assessment is sought to be reopened cannot be sustained. In the light of the undisputed factual material and referred by us extensively, it is apparent that the reopening was fully impermissible in law. Rather we do not find any reference to the specific stand taken by the Petitioner while objecting to the notice under section 148 of the IT Act. The Petitioner pointed out as to how the assessment was finalized. Reference has been made to the letter dated 16th July, 2009 from the Assessing Officer and the response thereto on 5th August, 2009. There is no denial of the fact that the Assessing Officer has applied his mind to the expenditure debited to the profit and loss account and not disallowed it. The facts and which are taken from the director's report itself would indicate that the Assessee had disclosed what was relevant and necessary for the purpose of making assessment. The Assessee did not hold back any document nor failed to supply any information in addition to the explanation given by it in writing concerning the said management fees expenses. In the circumstances, this is a clear case of change of opinion and based on which, the reassessment is proposed. That being impermissible in law, the Writ Petition must succeed - Decided in favour of assessee.

Issues Involved:
1. Legality and validity of the notice dated 30th March, 2014, and the order dated 26th February, 2015.
2. Reopening of assessment under section 147 of the Income Tax Act, 1961.
3. Alleged failure to disclose fully and truly all material facts necessary for the assessment.
4. Change of opinion as a ground for reassessment.
5. Procedural compliance and jurisdictional validity of the reopening notice.

Detailed Analysis:

1. Legality and Validity of the Notice and Order:
The Petitioner, a public limited company, challenged the notice dated 30th March, 2014, and the order dated 26th February, 2015, issued by the Deputy Commissioner of Income Tax and the officer who rejected the objections to the reopening of the assessment for the assessment year 2007-08. The Petitioner sought to quash these documents after scrutiny and verification of their legality and validity.

2. Reopening of Assessment Under Section 147:
The Petitioner filed a return of income electronically on 31st October, 2007, declaring a loss of Rs. 13,13,16,597/-. The case was selected for scrutiny, and the assessment was completed on 24th August, 2009. Subsequently, a departmental audit party raised queries on payments made to TRX Inc., leading to the issuance of a notice under section 154 on 19th June, 2012. Despite the Petitioner's detailed replies, a notice under section 148 was issued on 30th March, 2014, alleging that the management fees were capital in nature and not disclosed fully and truly.

3. Alleged Failure to Disclose Fully and Truly All Material Facts:
The Petitioner argued that all material facts were disclosed during the original assessment, including the nature of the management fees and the acquisition of US contact centers. The reasons for reopening did not specify which facts were not disclosed. The court noted that the Petitioner had provided detailed notes, balance sheets, profit and loss accounts, and other relevant documents during the original assessment.

4. Change of Opinion as a Ground for Reassessment:
The Petitioner contended that the reopening was based on a mere change of opinion, which is impermissible in law. The court agreed, emphasizing that the original assessment had already considered the management fees and the acquisition details. The court cited previous judgments, including those in the cases of Bombay Stock Exchange Ltd. and Commissioner of Income Tax vs. Kelvinator of India Limited, to support the argument that reassessment based on a change of opinion is not allowed.

5. Procedural Compliance and Jurisdictional Validity:
The court examined the procedural aspects and found that the reasons for reopening were recorded and supplied to the Petitioner. However, the court criticized the standard format of the notice and the lack of clarity in indicating why section 147 was invoked. The court emphasized that the reasons must clearly state the failure to disclose material facts, which was not evident in this case.

Conclusion:
The court concluded that there was no failure to disclose material facts by the Petitioner. The reopening of the assessment was based on a change of opinion, which is not permissible. The court allowed the Writ Petition, quashing the notice dated 30th March, 2014, and the order dated 26th February, 2015, making the rule absolute in terms of the Petitioner's prayer clauses (a) and (b), with no costs.

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