2012 (8) TMI 383 - HC - Income Tax

Reopening of assessment income escaped assessment - Assessee, a non-resident, was operating in India through its liaison office and project office - it was found that assessee did not include sales to DMRC effected through project office which amount represented milestone payments received abroad in foreign currency and same was not offered to tax in India as income of project office Held that - Even if the materials/evidence was not enclosed with the return, full and true details/material was disclosed during the course of the original proceedings - project office was a permanent establishment - conclusion drawn by the Assessing Officer cannot be attributed to the failure of the petitioner to disclose fully and truly all the material facts. No new material fact or particulars have come to the notice/knowledge of the Assessing Officer - re-assessment order quashed

Summary

Issues Involved:
1. Change of opinion.
2. Full and true disclosure of material facts.
3. Specific recording of failure to disclose material particulars.
4. Escapement of income.
5. Approval under Section 151 of the Income Tax Act.
6. Agreed assessment and its reopening.

Issue-wise Detailed Analysis:

1. Change of Opinion:
The petitioner argued that the initiation of re-assessment proceedings under Section 147 of the Income Tax Act, 1961, was a case of change of opinion, as the Assessing Officer had already examined the income earned by the project office from sales made to Delhi Metro Rail Corporation (DMRC) during the original assessment proceedings. The court agreed, noting that the Assessing Officer had indeed gone into all aspects now mentioned in the reasons to believe for re-assessment during the original assessment. The Supreme Court's ruling in CIT v. Kelvinator of India Ltd. was cited, emphasizing that the Assessing Officer cannot reopen a concluded assessment on the basis of a mere change of opinion.

2. Full and True Disclosure of Material Facts:
The petitioner contended that they had made a full and true disclosure of all material facts, invoking the bar stipulated in the proviso to Section 147 of the Act. The court found this contention valid, noting that the petitioner had disclosed all material facts at the time of the original assessment, including turnover, expenses, and the existence of a project office as a permanent establishment. The court concluded that no new material facts had come to the Assessing Officer's notice, and thus, the petitioner had indeed made a full and true disclosure.

3. Specific Recording of Failure to Disclose Material Particulars:
This issue was considered part of the second contention. The court observed that the reasons recorded for reopening the assessment did not specifically mention that the petitioner had failed to disclose full and true material particulars. This omission further supported the petitioner's case against the re-assessment proceedings.

4. Escapement of Income:
The petitioner argued that there was no escapement of income. The court was not impressed by this contention, noting that re-assessment can be initiated if the conditions mentioned in Section 147 are satisfied, even if the first/original assessment was on agreed terms. The court emphasized that at the stage of issuing a notice, only a prima facie or tentative view is required.

5. Approval under Section 151 of the Income Tax Act:
The petitioner claimed that the approval granted under Section 151 by the Director of Income Tax (International Taxation) was backdated and not taken on or before 31st March 2009. The court rejected this contention, noting that affidavits filed by the then assessing officer confirmed that the approval was granted on 31st March 2009. The court found no basis to support the petitioner's claim.

6. Agreed Assessment and Its Reopening:
The petitioner argued that the original assessment order under Section 143(3) was an agreed assessment and should not be reopened. The court dismissed this contention, stating that a wrong or incorrect assessment can result in under-assessment or escapement of tax, and re-assessment can be initiated if the conditions under Section 147 are met, regardless of whether the original assessment was agreed upon.

Conclusion:
The court allowed the writ petition, quashing the impugned notice dated 31.3.2009, the order dated 26.11.2009, and the draft re-assessment order. The court clarified that it had not expressed any opinion on the merits of the case, such as the appropriate GP rate or the percentage of income attributable to the Indian office. The only issue examined was the jurisdictional pre-condition for initiating the re-assessment proceedings. The writ petition was allowed with no order as to costs.