2021 (9) TMI 774 - HC - Income Tax

Reopening of the assessment u/s 147 and issuance of notice u/s 148 - eligible reason to believe as mandated u/s 147 - reopening of beyond the period of four years and within a period of six years - TDS u/s 195 - HELD THAT - Reasons stated in the said proceedings dated 11.04.2014 reveals that no TDS has been made on the Business Development Commission and the same needs to be disallowed as per Section 40(a)(ia). The objections submitted by the writ petitioner on 29.04.2014 in detail was also disposed of by the respondents in vide proceedings dated 07.10.2014. In the said proceedings, the respondents have clearly stated that the matter of non-deduction of tax on business development commission paid to a non-resident was not looked into. This matter was not discussed in the Assessment Order. Further, relying on Section 9(1), the respondents have stated that necessary tax has not deducted on the business development commission paid to non-resident. Business development commission is in the nature of technical services fees paid to the parent entity. The non-deduction of tax in the above payment, raised the liability to tax, which is escaped to assessment . This Court is of the opinion that the reasons furnished for reopening of the assessment cannot be gone into disputed facts and circumstances in the writ petition. Sufficiency of reasons cannot be gone into by the High Court. If there is a reason to believe and such reason to believe is sensible, then it is sufficient to invoke the provisions of Section 147 of the Income Tax Act and the High Court cannot go into 'sufficiency' of the reasons provided for reopening of such assessment. Sufficiency of the reasons deserves complete adjudication of the disputed facts, which cannot be gone into - this Court has no hesitation in arriving a conclusion that the Revenue has to establish the reason to believe for reopening of assessment and it is for the petitioner to establish that such reasons are insufficient for reopening or he has already disclosed truly and fully all materials facts necessary for assessment or under the provisions of the Act, he has got enough defence to rebut the reasons furnished for reopening of the assessment. The writ petitioner is at liberty to avail the opportunities to be provided under the provisions of the Income Tax Act, to do so. This Court do not find any acceptable reason for the purpose of interfering with the initiation of proceedings under Section 147 of the Act for reopening of assessment and accordingly, the respondents are empowered to proceed with the process of assessment and conclude the same as expeditiously as possible. WP dismissed.

Summary

Issues Involved:
1. Legality of reopening assessment under Section 147 of the Income Tax Act.
2. Validity of notice issued under Section 148 of the Income Tax Act.
3. Requirement of "reason to believe" for reopening assessment.
4. Compliance with the proviso to Section 147 regarding full and true disclosure.
5. Consideration of Circulars issued by the CBDT.
6. Jurisdiction and scope of High Court's interference under Article 226.

Detailed Analysis:

1. Legality of Reopening Assessment under Section 147:
The petitioner challenged the reopening of the assessment for the year 2007-08, arguing that it was based on a change of opinion and lacked the "reason to believe" as mandated by Section 147. The petitioner contended that the Business Development Commission issue had already been adjudicated in the original assessment order dated 15.12.2010 and by the Income Tax Appellate Tribunal. The court examined the statutory mandate of "reason to believe" and concluded that it must be based on new material or evidence, not mere suspicion. The court emphasized that the Assessing Officer must have a reasonable belief based on certain materials or information to invoke Section 147.

2. Validity of Notice Issued under Section 148:
The petitioner argued that the notice under Section 148 and the subsequent order did not mention "full and true disclosure," which is mandatory under the proviso to Section 147. The court held that mere non-mentioning of the term "full and true disclosure" does not vitiate the proceedings. It emphasized that the sufficiency of reasons for reopening cannot be adjudicated in writ proceedings and must be examined by the Assessing Officer.

3. Requirement of "Reason to Believe":
The court analyzed the term "reason to believe" and concluded that it must be based on reasonable and sensible belief, supported by materials or information. The court noted that the Assessing Officer had reasons to believe that income had escaped assessment, as stated in the proceedings dated 11.04.2014. The court held that the belief must be reasonable and result from using the faculty of reason.

4. Compliance with the Proviso to Section 147 Regarding Full and True Disclosure:
The petitioner argued that the case fell beyond four years and within six years, requiring clear terms that the assessee had not made full and true disclosure. The court held that the proviso to Section 147 allows reopening beyond four years if the assessee failed to disclose fully and truly all material facts necessary for assessment. The court found that the reasons for reopening, including non-deduction of tax on the Business Development Commission, were sufficient to invoke Section 147.

5. Consideration of Circulars Issued by the CBDT:
The petitioner relied on CBDT Circulars dated 23.07.1969 and 07.02.2000, arguing that the respondents failed to consider them. The court noted that circulars are binding on the Income Tax Department but must be followed in consonance with the provisions of the Income Tax Act. The court found that the circulars and judgments cited by the petitioner did not invalidate the reopening proceedings.

6. Jurisdiction and Scope of High Court's Interference under Article 226:
The court emphasized that its power under Article 226 is limited to scrutinizing the process, not the decision itself. It held that interference is permissible only if there is no jurisdiction or prima facie case for reopening. The court found that the reasons for reopening were sensible and based on new materials, thus allowing the Assessing Officer to proceed with the assessment.

Conclusion:
The writ petition was dismissed, allowing the respondents to proceed with the reopening of the assessment. The court held that the petitioner could defend its case during the reassessment process, and the High Court's interference at the initiation stage was not warranted. The connected miscellaneous petition was also closed.