2019 (6) TMI 1261 - HC - Income Tax

Reassessment u/s 147 r.w.s 148 - deduction u/s 10A - original assessment u/s 143(3) - reason to believe that the income chargeable to tax has escaped assessment - full and true disclosure of the material facts at the time of original assessment - alleged that Master Service Agreements, Work Orders, Scope of Works and invoices were not placed before the AO at the time of the original assessment - borrowed satisfaction HELD THAT It is held that Note on Software development projects and the various stages of software development placed by the assessee before the AO discloses the stages wherein the petitioner assessee was required to carry out the project at the customer s site/onsite and the same are reflected in the Annual Reports. Considering these materials, deduction u/s 10A was allowed in the order passed u/s 143(3). In such circumstances, it is presumed that AO has examined the entitlement of deduction u/s 10A by the assessee in all angles. Withdrawal of the deduction allowed u/s 10A based on the assessment order relating to the assessment year 2007-08 is without application of mind and nothing but change of opinion, which tantamounts to review and the same is not permissible to initiate the proceedings u/s 147/148 of the Act. This Court is of the opinion that there was no material on record before the Assessing Authority to establish failure on the part of the assessee to disclose truly and fully the relevant material while passing the original assessment order u/s 143(3) and as such the respondent authority had no jurisdiction to invoke Section 147 and 148 of the Act for the assessment years in question. - Writ petitions are allowed.

Issues Involved:
1. Jurisdiction of proceedings under Section 147/148 of the Income Tax Act.
2. Limitation period for issuing reassessment notices.
3. Independent application of mind by the Assessing Officer.
4. Pending appeals and their impact on reassessment proceedings.

Issue-wise Detailed Analysis:

1. Jurisdiction of proceedings under Section 147/148 of the Income Tax Act:
The petitioner contended that the initiation of reassessment proceedings under Section 147/148 was without jurisdiction. The court emphasized that "reason to believe" is an essential prerequisite for exercising powers under Section 147. This belief cannot be formed on mere suspicion, surmises, or conjectures. The court noted that the reasons recorded by the Assessing Officer indicated a borrowed satisfaction based on the assessment order of the year 2007-2008, which does not confer jurisdiction to initiate reassessment proceedings. The court concluded that the Assessing Officer did not have independent satisfaction, and the reasons to believe were based on the assessment of a different year, thus lacking jurisdiction.

2. Limitation period for issuing reassessment notices:
The petitioner argued that the reassessment notices were barred by limitation as they were issued after the expiry of the extended period of six years. The court highlighted that the twin conditions to reopen the assessment beyond four years are: (i) the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, and (ii) there was no full and true disclosure of material facts by the assessee. The court found that the reasons recorded for issuing the notice under Section 148 were furnished after the expiry of the extended period of six years, making the reassessment proceedings time-barred.

3. Independent application of mind by the Assessing Officer:
The petitioner contended that the reasons recorded by the Assessing Officer indicated no independent application of mind but were based on the assessment order of the year 2007-2008. The court referenced several judgments to assert that the prerequisite condition for reassessment is the Assessing Officer's "reason to believe" that income chargeable to tax has escaped assessment. The court found that the reassessment proceedings were initiated based on borrowed satisfaction and not on the Assessing Officer's independent application of mind. The court cited the case of Commissioner of Income Tax Vs. Shree Rajasthan Syntex Limited, where it was held that reassessment based on another officer's opinion is not permissible.

4. Pending appeals and their impact on reassessment proceedings:
The petitioner argued that the reassessment proceedings were initiated while the issue of deduction under Section 10-A was pending before the Appellate Forum, contrary to the third proviso to Section 147. The court noted that the third proviso to Section 147 states that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject of any appeal, reference, or revision. The court found that the reassessment proceedings were initiated while the appeals were pending, which is against the provisions of Section 147. The court concluded that the reassessment proceedings were without jurisdiction and time-barred.

Conclusion:
The court allowed the writ petitions, quashing the impugned notices issued under Section 148 read with Section 147 of the Act and the orders passed by the respondent rejecting the preliminary objection as to his jurisdiction. The court held that there was no material on record to establish the failure on the part of the assessee to disclose truly and fully the relevant material while passing the original assessment order. Consequently, the respondent authority had no jurisdiction to invoke Section 147 and 148 of the Act for the assessment years in question.

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