2021 (6) TMI 915 - HC - Income Tax

Reopening of assessment u/s 147 - TP Adjustment - order impugned passed by the Transfer Pricing Officer with regard to the reference made by the Assessing Officer regarding certain international transactions or otherwise - suo-motu powers conferred to the Transfer Pricing Officer under Sub-Section 2B of Section 92 CA - Whether re-opening of assessment proceedings would not fall under Sub-Section 2B or Sub-Section 2C of Section 92 CA of the Act.? - HELD THAT - When the assessment includes reassessment, the Assessing Officer while conducting the reassessment proceedings, is undoubtedly empowered to seek further informations or details to cull out the truth and the very purpose and object of reassessment contemplated under Section 147 of the Act is to ensure that the assessee pay the tax as applicable. The original assessment is made pursuant to the return of income filed by the assessee. The scope of scrutiny or enquiry at the time of original assessment is entirely different. Thus, in the event of re-opening of assessment and during re-assessment, the authorities competent necessarily have to cull out more details and informations from the authorities concerned for the purpose of ascertaining the truth regarding the tax escaped assessment - the purpose of Section 147 for reopening of assessment cannot be restricted nor the power of reassessment of the Assessing officer for collecting the evidences or materials or informations from the authorities concerned cannot be crippled down by wrongly interpreting the other provisions of the Income Tax Act. Constructive interpretation is imminent in such circumstances in order to ensure that the purpose and object of the Act is met with in its letter and spirit. The impugned order is not a suo-motu proceedings initiated by the Transfer Pricing Officer under Sub-Section 2B of Section 92CA of the Act and therefore, Sub-Section 2C of Section 92CA of the Act would not be applicable. The circumstances contemplated under Sub-Section 2B of Section 92 CA is not applicable in the present case, in view of the fact that the petitioner admittedly submitted the Audit Report under Section 92-E of the Act. This Court is of the considered opinion that there is no infirmity or perversity as such in respect of the order impugned passed by the Transfer Pricing Officer with regard to the reference made by the Assessing Officer regarding certain international transactions or otherwise. Thus, the petitioner has not established any acceptable ground for the purpose of considering the relief as such sought for in the present writ petition. Reopening of assessment for credit for withholding tax paid in Singapore cannot be allowed as TDS - HELD THAT - As apparent that the amount lent to the Singapore company was actually borrowed by the assessee company and interest expenditure on money borrowed has also been claimed resulting in no real interest income on netting. Hence, in the absence of real interest income offered in India, relief under Section 90 of the Income Tax Act, 1961 on the tax withheld at Singapore may also be not available. Thus, the Assessing Officer has reason to believe that the income has escaped assessment. Such a finding is relevant for the purpose of constituting a Prima-facie case for re-opening of assessment by invoking Section 147 of the Act. The petitioner has to defend his case by availing the opportunities to be provided by the Department in this regard. As during the process of re-opening, the Assessing Officer requested details and informations from the Transfer Pricing Officer and the report in this regard furnished by the Transfer Pricing Officer is also to be considered and a final order of assessment is to be passed as expeditiously as possible by following the procedures contemplated and by affording opportunity to the petitioner / assessee.

Issues Involved:
1. Jurisdiction of the Transfer Pricing Officer under Section 92CA(3) of the Income Tax Act, 1961.
2. Validity of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
3. Interpretation of Sub-Sections 2B and 2C of Section 92CA of the Income Tax Act, 1961.
4. Whether the reassessment proceedings were based on a change of opinion.

Detailed Analysis:

1. Jurisdiction of the Transfer Pricing Officer under Section 92CA(3):
The petitioner challenged the order dated 29.01.2014 issued by the Transfer Pricing Officer (TPO) under Section 92CA(3) of the Income Tax Act, 1961. The petitioner argued that the determination of the Arms Length Price (ALP) had already been completed by the TPO on 29.10.2010 and incorporated into the final assessment order dated 25.02.2011. The petitioner contended that the re-issuance of the notice under Section 92CA was beyond the limitation period prescribed under Sub-Section 2C of Section 92CA. The court, however, found that the TPO's actions were not suo-motu but were based on a reference made by the Assessing Officer (AO) during reassessment proceedings under Section 147. Therefore, the limitation under Sub-Section 2C of Section 92CA did not apply.

2. Validity of Reassessment Proceedings under Section 147:
The petitioner argued that the reassessment proceedings initiated under Section 147 were based on a change of opinion and lacked new or tangible material. The court noted that the AO had reason to believe that income chargeable to tax had escaped assessment, particularly concerning the credit for withholding tax paid in Singapore. The court emphasized that the AO is empowered to seek further clarifications and information during reassessment proceedings to ensure that the tax liability is accurately determined. The court found that the AO had followed the procedures under Section 147 and had a prima facie case for reopening the assessment.

3. Interpretation of Sub-Sections 2B and 2C of Section 92CA:
The court explained that Sub-Section 2B of Section 92CA allows the TPO to initiate suo-motu proceedings if an international transaction not reported by the assessee comes to the TPO's notice during proceedings. Sub-Section 2C specifies that such suo-motu actions cannot lead to reassessment under Section 147 for assessment years completed before 1st July 2012. The court clarified that in the present case, the TPO's actions were based on a reference from the AO during reassessment proceedings and not on suo-motu initiation under Sub-Section 2B. Therefore, the limitation under Sub-Section 2C did not apply.

4. Reassessment Proceedings Based on Change of Opinion:
The petitioner argued that the reassessment proceedings were merely a change of opinion since the original assessment had already considered the issues raised. The court found that the AO had identified specific reasons to believe that income had escaped assessment, particularly concerning the credit for withholding tax paid in Singapore. The court emphasized that the AO is entitled to reassess based on new information or inferences that suggest income has been under-assessed. The court concluded that the reassessment proceedings were not based on a mere change of opinion but on valid grounds identified by the AO.

Conclusion:
The court dismissed both writ petitions, finding no infirmity or perversity in the actions of the TPO and AO. The court held that the reassessment proceedings were valid and based on legitimate reasons to believe that income had escaped assessment. The court emphasized the importance of constructive interpretation of the Income Tax Act to ensure that tax liabilities are accurately determined and upheld the validity of the reassessment proceedings and the TPO's actions.

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