2015 (5) TMI 654 - HC - Income Tax

Reopening of assessment - restructuring of the petitioner company questioned - reopening challenged on ground of change of opinion and no new material or additional facts had come to the knowledge of the assessing officer - Held that - Assessing Officer himself in the draft assessment order had noticed the restructuring and had specifically recorded that receipts upto and including July 2007 were being taxed in the hands of the petitioner and for the balance period from August 2007 to March 2008 were to be taxed in the hands of the petitioner s 100% subsidiary LIG . The Assessing Officer was, therefore, aware of the entire transaction. Secondly, and, in any event, the DRP in the course of the proceedings before it, made specific queries with regard to the business restructuring of the petitioner and the transaction in question. The petitioner gave a detailed reply and the same has been noted in the observations of the DRP which we have extracted in the earlier part of the judgment. The DRP, after examining the entire business restructuring arrangement and the transaction in question, did not make any addition. The Assessing Officer in his final assessment order also did not make any addition on account of the subject transaction. It must be noted that the DRP procedure is part of the assessment proceedings. Queries raised and answered during the DRP proceedings would stand on the same footing as queries raised and answered in the course of an assessment proceedings before an Assessing Officer where the DRP procedure is not applicable. Therefore, on both counts, it cannot be said that an opinion had not been formed in respect of the transaction in question during the assessment proceedings. The fact that no addition was made in respect of the said transaction, would clearly raise the presumption that after having examined the said transaction, it was opined that it was not exigible to tax. The subsequent view being taken, as indicated in the purported reasons for initiating the proceedings under Section 147 would be nothing but a change of opinion which is not permissible in law. We are also in agreement with the learned counsel for the petitioner that no new facts or material had come to the knowledge of the Assessing Officer to enable him to initiate re-assessment proceedings. All the material facts on which the Assessing Officer had based his purported reasons were available on record at the time when the original assessment order was passed. Reading the Explanation with sub-section 144C(8), it is evident that the Dispute Resolution Panel could examine the issues arising out of the assessment proceedings even though such issues were not part of the subject matter of the variations suggested by the Assessing Officer. In this light, it is significant that though the draft order had not proposed any addition with regard to the restructuring and the said transaction, yet, the DRP had asked for details of the restructuring and had examined the matter. After such examination, the DRP did not direct any addition to be made in this regard. It is evident that the DRP formed an opinion that the transaction was not exigible to capital gains tax and, to contend otherwise, in the purported reasons for re-opening of the assessment, would be nothing but a change of opinion which is not permissible in law. - Decided in favour of assesse.

Summary

Issues Involved:
1. Change of opinion.
2. No new material or additional facts.

Detailed Analysis:

Change of Opinion:
The petitioner contended that the re-assessment proceedings were initiated based on a change of opinion, which is not permissible in law. The petitioner argued that the transfer of unexpired value of contracts to its 100% subsidiary in exchange for shares was part of a restructuring exercise, which was already examined by the Assessing Officer (AO) and the Dispute Resolution Panel (DRP) during the original assessment proceedings. Despite this examination, no addition was made, indicating that the transaction was not considered taxable. The revenue, however, argued that no opinion had been formed during the original assessment proceedings regarding the taxability of the transaction, as the AO did not consider it in his draft order, and the DRP had no occasion to consider it due to no proposed variation by the AO on this aspect. The revenue claimed that the material placed before the DRP could be construed as "new" material, justifying the invocation of jurisdiction under Section 147 of the Income Tax Act, 1961.

The court referred to the Full Bench decision in CIT v. Usha International Limited, which clarified that reassessment proceedings would be invalid if an issue or query is raised and answered by the assessee in the original assessment proceedings, but the AO does not make any addition in the assessment order. In such cases, it should be accepted that the issue was examined, and the AO formed an opinion. The court also referred to the Supreme Court decision in CIT v. Kelvinator India Limited, which emphasized that the concept of "change of opinion" is an in-built test to check the abuse of power by the AO. The court concluded that the AO and the DRP had examined the issue of business restructuring and the transaction in question during the original assessment proceedings. The fact that no addition was made despite such examination indicated that an opinion had been formed that the transaction was not taxable. Therefore, the subsequent initiation of reassessment proceedings amounted to a change of opinion, which is not permissible in law.

No New Material:
The petitioner argued that no new facts or material had come to the knowledge of the AO to enable him to initiate re-assessment proceedings. All the material facts on which the AO based his purported reasons were available on record at the time of the original assessment order. The court agreed with the petitioner, noting that all the relevant material was on record and available during the original assessment proceedings. The court referred to Usha International, which stated that if new facts, material, or information come to the knowledge of the AO, the principle of "change of opinion" would not apply. However, in this case, no new material had surfaced, making the reassessment proceedings contrary to law.

Section 144C(8):
The revenue contended that the DRP had no occasion to consider the issue of taxability of the transaction as no variation had been suggested by the AO in his draft assessment order. The petitioner responded by highlighting the Explanation added after Section 144C(8), which clarified that the DRP could consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. The court noted that the DRP had examined the issue of business restructuring and the transaction in question during the proceedings, and after such examination, no addition was directed. This indicated that the DRP formed an opinion that the transaction was not taxable. Therefore, the subsequent view taken by the AO in the purported reasons for re-opening the assessment amounted to a change of opinion, which is not permissible in law.

Conclusion:
The court allowed the writ petition, quashing the notice dated 13.10.2011 issued by the AO under Section 148 of the Income Tax Act, 1961, in respect of the assessment year 2008-09. All proceedings pursuant to the notice, including the order dated 19.07.2012 rejecting the objections, were also quashed. There was no order as to costs.