2012 (12) TMI 257 - HC - Income Tax

Reassessment Proceedings - Fee for Technical Services u/s 44D r.w.s. 115A - reason - change of opinion. AY 2004-05 and 2004-06 - held that - Assessing Officer in the original proceedings had examined and was aware of the two agreements. He was also aware that Quest had received payments from NHAI and that these were not included in the taxable income or receipts of the income. He was also aware that the petitioner s income was taxed on the gross receipt basis under Section 115J. There was no lapse or fault on the part of the assessee. Full facts were on record and the Assessing Officer accepted the returns. If at all, there was a lapse on the part of the Assessing Officer to understand the legal position. At best, the case of the Revenue can be that the Assessing Officer had wrongly applied, and did not appreciate the legal position. This cannot be a ground to reopen finalised regular assessments for the said years. - Reassessment proceedings for the assessment years 2004-05 and 2005-06 quashed. AY 2002-03 and 2003-04 - held that - For the assessment years 2002-03 and 2003-04, the agreement between the petitioner-assessee and Quest is not in the assessment records. - the petitioner had denied any contract or business relationship between them and Quest. This is in spite of the fact that they had an agreement, and it is an accepted and admitted position that they had entered into an agreement with Quest dated 1st February, 2001. The aforesaid fact was clearly concealed, and incorrect factual information was circulated to the Assessing Officer. - Reassessment proceedings for the assessment years 2002-03 and 2003-04 sustained.

Summary

Issues Involved:
1. Validity of reassessment proceedings for the assessment years 2002-03 and 2003-04.
2. Validity of reassessment proceedings for the assessment years 2004-05 and 2005-06.
3. Whether payments made to Quest International Consultants should be included in the taxable income of the petitioner under Section 44D read with Section 115A of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reassessment Proceedings for the Assessment Years 2002-03 and 2003-04:
The court examined whether the reassessment proceedings for the assessment years 2002-03 and 2003-04 were validly initiated. The petitioner argued that the reassessment was based on a change of opinion and that all relevant facts were disclosed during the original assessment. However, the court found that the agreement between the petitioner and Quest International Consultants was not on record for these years. The petitioner had also misleadingly stated that they had no business relationship with Quest. The court concluded that there was a failure to fully and truly disclose material facts necessary for assessment, thus justifying the reassessment proceedings. Consequently, the writ petitions for these years were dismissed.

2. Validity of Reassessment Proceedings for the Assessment Years 2004-05 and 2005-06:
For these years, the court found that the reassessment proceedings were based on a change of opinion. The agreements between the petitioner and NHAI, and the petitioner and Quest, were available on record. The Assessing Officer was aware of the payments made to Quest by NHAI and had examined this issue during the original assessment. The court held that there was no lapse or fault on the part of the assessee, and the reassessment was not justified. Thus, the reassessment proceedings for these years were quashed, and the writ petitions were allowed.

3. Inclusion of Payments to Quest International Consultants in Taxable Income:
The court examined whether the payments made to Quest International Consultants should be included in the taxable income of the petitioner under Section 44D read with Section 115A. The Assessing Officer had formed a prima facie opinion that these payments should be taxed in the hands of the petitioner. The court noted that the agreement between NHAI and the petitioner, and the agreement between the petitioner and Quest, indicated that the petitioner was responsible for the entire contract, including the work subcontracted to Quest. The court found that the payments to Quest were part of the gross receipts of the petitioner and should be taxed accordingly. However, this issue was primarily relevant to the reassessment proceedings, and the court's decision on the validity of these proceedings determined the outcome for each assessment year.

Conclusion:
The reassessment proceedings for the assessment years 2002-03 and 2003-04 were upheld due to the failure of the petitioner to fully and truly disclose material facts. The reassessment proceedings for the assessment years 2004-05 and 2005-06 were quashed as they were based on a change of opinion. The court's analysis emphasized the importance of full disclosure and the distinction between a change of opinion and new factual information in the context of reassessment proceedings.