2019 (9) TMI 1085 - HC - Income Tax

Reopening of assessment u/s 147 - validity of reasons to believe - change of opinion - payment of Technical Know-How Fee - HELD THAT - Payment of Technical Know-How Fee is concerned, it is clear from the records that the said issue was considered not only by the Assessing Authority but, by the Transfer Pricing Officer also alongwith other expenditure incurred by the Assessee and it was found that it falls within the domain of international transactions as found by the Transfer Pricing Officer and the T.P. Adjustment was arrived by the Transfer Pricing Officer which was included by the Assessing Authority while passing the Assessment Order under Section 143(3) of the Act. Reassessment proceedings undertaken by the Assessing Authority to disallow the said expenditure fully by holding it to be only adding as intangible asset falling falling within the domain of Section 32(1)(ii) of the Act and allowing only 25% depreciation thereon is nothing but a mere change of opinion by the Assessing Authority. Reassessment under the provisions of Sections 147 and 148 is not permissible on a mere change of opinion. The Assessing Authority, in order to invoke the reassessment proceedings under Section 147/148, has to record reasons to believe about escapement of income in the hands of the Assessee. The parameters of powers under Section 147/148 have been discussed by the Apex Court and various High Courts in a large number of decisions and the latest in the series being in the case of CIT v. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT which has been relied upon by the learned Tribunal to quash the reassessment in the present case - reassessment in the circumstances of the case was done merely based on a change of opinion at a subsequent stage and it was not permissible and set aside the same - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act.
2. Whether the reassessment was based on a mere change of opinion.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:

The Revenue filed an appeal under Section 260-A of the Income Tax Act against the Income Tax Appellate Tribunal's order dismissing the Revenue's appeal for the Assessment Year 2003-2004. The appeal was admitted on the question of whether the Tribunal was right in confirming the Commissioner of Income Tax (Appeals) order, which held that the reopening of the assessment under Section 147 was invalid because the assessee had disclosed all particulars at the original assessment stage, and the reopening was due to a change of opinion.

The Revenue argued that the original assessment order under Section 143(3) did not discuss the payment of Technical Know-How Fees of ?9,63,81,500/-. They contended that the reassessment was not based on a mere change of opinion but was within the permissible period of four years. They cited various judgments to support their contention, including Dr. Amin's Pathology Laboratory v. JCIT, which emphasized that mere production of account books does not amount to disclosure within the meaning of the proviso.

On the other hand, the Assessee argued that the issue of Technical Know-How Fee was considered by the Assessing Authority and the Transfer Pricing Officer during the original assessment. The Transfer Pricing Officer had assessed the payment and included it in the assessed income, indicating that the matter was consciously considered. Therefore, the reassessment was not permissible as it was based on a mere change of opinion.

2. Whether the Reassessment was Based on a Mere Change of Opinion:

The Tribunal, in its order, noted that the original assessment was completed under Section 143(3) and that the details pertaining to the Technical Know-How Fees were submitted during the original assessment proceedings. The Tribunal found that the Assessing Officer had called for and examined these details, indicating that the issue was considered. The Tribunal held that just because the Assessing Officer did not discuss the issue in the assessment order, it did not mean that the issue was not considered or that no opinion was formed. Re-examining the same issue and drawing a different inference would amount to a change of opinion, which is not permissible for reopening the assessment.

The Tribunal's view was supported by the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which held that reassessment based on a mere change of opinion is not permissible. The Tribunal concluded that the reassessment was invalid as it was based on a change of opinion.

The High Court agreed with the Tribunal's reasoning and held that the reassessment was not permissible as it was based on a mere change of opinion. The Court noted that the Assessing Authority and the Transfer Pricing Officer had already considered the Technical Know-How Fee during the original assessment. The Court emphasized that reassessment under Sections 147 and 148 requires "reasons to believe" about the escapement of income, and a mere change of opinion does not satisfy this requirement.

The High Court dismissed the Revenue's appeal, holding that the Tribunal was justified in setting aside the reassessment. The substantial question of law was answered in favor of the Assessee and against the Revenue.