2019 (10) TMI 923 - AT - Income Tax

Reopening of assessment u/s 147 - assessee had returned a loss in the original return, which has been converted into positive income by virtue of the income, computed during the assessment completed u/s 147- HELD THAT - Reasons for being satisfied about the escapement of income but need not record a finding that there is escapement of income. By issuance of a notice u/s 148, the AO has only got the jurisdiction to verify the claim of the assessee with regard to the evidence filed and the allowability of such a claim and the AO can give a finding about the escapement of income only after the verification of facts. In the final assessment order u/s 147, there may or may not be addition to the returned income but that would not invalidate the proceedings u/s 147. In a catena of decisions, the Hon'ble High Courts and the Hon'ble Supreme Court have held that at the time of issuance of notice u/s 148, the AO has only to be prima facie satisfied about the escapement of income. As rightly pointed out by the learned DR, the assessee had returned a loss in the original return, which has been converted into positive income by virtue of the income, computed during the assessment completed u/s 147. This would definitely have an impact on the MAT credit to be given to the assessee in the subsequent A.Ys. But, as far as the relevant A.Y is concerned, there is no change in the assessed income and no prejudice is caused to the assessee as far as its taxable income for the relevant A.Y is concerned. Therefore, the additional ground of appeal No. 1.6 is also rejected. As regards the decision of the Hon'ble Delhi High Court in the case of Nalwa Investment Ltd 2010 (8) TMI 40 - DELHI HIGH COURT we find that it is a case of penalty u/s 271(1)(c) and therefore, it is not applicable mutatis mutandis to the case before us.

Issues Involved:
1. Validity of Re-assessment Proceedings.
2. Transfer Pricing (TP) Matters - Corporate Guarantee Fee.
3. Corporate Tax Matters.
4. Other Grounds.

Detailed Analysis:

1. Validity of Re-assessment Proceedings:
The assessee argued that the re-assessment proceedings initiated by the AO were invalid as there was no escapement of income and the reopening was based merely on audit objections. The Tribunal found that the AO had properly recorded reasons for reopening the assessment within four years from the end of the relevant assessment year. The Tribunal rejected the assessee's argument that the reopening was solely based on audit objections, stating that the AO must apply his mind and be satisfied about the escapement of income, and audit objections can be one of the sources for such satisfaction.

The Tribunal also addressed the assessee's claim that no reasons were recorded prior to issuing the notice u/s 148. It found no evidence to support this claim and noted that the reasons were communicated to the assessee. The Tribunal emphasized that the AO must be prima facie satisfied about the escapement of income, and the assessee's objections were disposed of in the draft assessment order, which did not prejudice the assessee's right to challenge the order.

Regarding the assessee's argument that the reopening was based on the same material available during the original assessment, the Tribunal found that the assessee had not provided details justifying its claim u/s 10B during the original assessment. Therefore, the reopening was not based on the same material.

The Tribunal also considered the assessee's argument that the AO did not follow the procedure laid down by the Supreme Court in GKN Driveshafts (India) Ltd. It found that the objections were disposed of in the draft assessment order, and the assessee had the opportunity to challenge the order before the DRP and the High Court. The Tribunal concluded that no prejudice was caused to the assessee.

Finally, the Tribunal addressed the assessee's argument that there was no additional tax liability under the provisions of Minimum Alternative Tax (MAT). It found that the reopening of the assessment was valid as long as the AO was prima facie satisfied about the escapement of income. The Tribunal noted that the positive income computed during the assessment would impact the MAT credit available to the assessee in subsequent years.

2. Transfer Pricing (TP) Matters - Corporate Guarantee Fee:
The assessee challenged the TP adjustment made by the TPO on the shareholder corporate guarantee provided to the bank. The Tribunal did not provide a detailed analysis of this issue in the provided text but indicated that it would be addressed in a subsequent hearing on the merits of the issues.

3. Corporate Tax Matters:
The assessee raised several grounds related to corporate tax matters, including the eligibility of foreign fluctuations for deduction u/s 10B, the treatment of other incomes (insurance claim, interest on fixed deposits, miscellaneous income), and the allocation of interest expenditure incurred for the acquisition of RCC in the USA. The Tribunal did not provide a detailed analysis of these issues in the provided text but indicated that they would be addressed in a subsequent hearing on the merits of the issues.

4. Other Grounds:
The assessee raised additional grounds related to the inadvertent consideration of relief provided by the DRP on corporate guarantee fees, short deduction u/s 10B, short credit of TDS, and errors in computing interest u/s 234B and 234C. The Tribunal did not provide a detailed analysis of these issues in the provided text but indicated that they would be addressed in a subsequent hearing on the merits of the issues.

Conclusion:
The Tribunal admitted the additional grounds raised by the assessee but rejected the arguments related to the validity of the re-assessment proceedings. The Tribunal directed that the appeal be fixed for a fresh hearing on the merits of the issues. The appeal was partly allowed, and the order was pronounced in the Open Court on 18th October 2019.

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