2013 (3) TMI 9 - HC - Income Tax

Reassessment - disclouser of information - Nature of expenditure - Payment of specified persons u/s 40A(2)(b) - Conversion of legal firm into Company - transfer of goodwill through a gift deed - payment of 25% of amount of the bills raised to as licence fee to the previous owner - held that - We are unable to appreciate why there cannot be any direct evidence of the licence agreement having been filed before the respondent in the course of the original assessment proceedings. - in the absence of any evidence adduced before us to show that the copy of the licence agreement was filed before the AO on 10.10.2007 we are unable to accept the claim as proved. It remains a mere claim. A parrot-like repetition of the statutory language without any substance would certainly not amount to satisfying the jurisdictional conditions but if the language used coupled with the context is sufficiently capable of conveying the fact that there was failure on the part of the assessee to furnish primary facts fully and truly at the time of original assessment that should be sufficient compliance with the requirements of section 148(2) of the Act. In this view of the matter we are unable to accept the contention of the petitioner that the failure to refer to the omission of the petitioner specifically to file the licence agreement (in the reasons recorded) is fatal to the validity of the reassessment proceedings. It is difficult to attribute any knowledge to the assessing officer while he is dealing with a return for a particular year under section 143(1) as to what he had done in the case of the same assessee in the earlier assessment years. Therefore we are not able to accept the argument that the assessing officer consciously allowed the license fee payment as a deduction when he accepted the return under Section 143(1). All we have to see is whether there was reason to believe within the meaning of Section 147. The fact that the petitioner did not place the primary facts relating to the claim of the license fee by filing the license agreement dated 05.06.2001 along with the return of income filed for the assessment year 2006-07 would itself constitute reason to believe that primary facts have not been furnished by the petitioner. -Decided against the assessee.

Issues Involved:
1. Validity of notices issued under section 148 of the Income Tax Act, 1961.
2. Alleged failure to disclose primary facts by the petitioner.
3. Reopening of assessments based on change of opinion.
4. Applicability of section 147 and its proviso.

Issue-wise Detailed Analysis:

1. Validity of Notices Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the validity of the notices issued under section 148, seeking reopening of assessments for the years 2003-04 to 2006-07. The petitioner argued that there was full and true disclosure of all primary facts at the time of the original assessments, and no new information or material was brought on record after the completion of the original assessments. The court noted that the reasons recorded by the respondent for reopening the assessments stated that the petitioner had not disclosed all material facts correctly and fully. The court concluded that the failure to file the licence agreement constituted a failure to disclose primary facts, justifying the reopening of assessments.

2. Alleged Failure to Disclose Primary Facts by the Petitioner:
The petitioner contended that all primary facts were disclosed during the original assessments, including the profit and loss account, tax audit report, month-wise summary of expenses, and the deed of partnership. However, the court found that the primary document, the licence agreement dated 05.06.2001, was not furnished during the original assessment proceedings. The court held that the licence agreement was a primary fact necessary for adjudicating the allowability of the licence fee payment as business expenditure. The failure to provide this document amounted to non-disclosure of primary facts.

3. Reopening of Assessments Based on Change of Opinion:
The petitioner argued that the reopening of assessments was based on a mere change of opinion, which is not permissible. The court acknowledged that the genesis of the issue was the scrutiny assessment for the assessment year 2007-08, where the licence agreement was examined, and the claim for deduction was disallowed. However, the court emphasized that the reopening was justified due to the failure to disclose the primary fact, i.e., the licence agreement, during the original assessments. Therefore, the reopening was not merely based on a change of opinion but on the non-disclosure of primary facts.

4. Applicability of Section 147 and Its Proviso:
The court examined the applicability of section 147 and its proviso, which allows reopening of assessments if there is reason to believe that income chargeable to tax has escaped assessment due to the failure of the assessee to disclose fully and truly all material facts. The court referred to Explanation 1 to section 147, which states that the production of account books or other evidence before the Assessing Officer does not necessarily amount to disclosure. The court concluded that the failure to furnish the licence agreement constituted a failure to disclose primary facts, justifying the reopening of assessments under section 147.

Conclusion:
The court dismissed the writ petitions, upholding the validity of the notices issued under section 148 and the consequent reopening of assessments. The court found that the petitioner failed to disclose the primary fact, i.e., the licence agreement, during the original assessments, justifying the reopening of assessments. The court emphasized that the reopening was not based on a mere change of opinion but on the non-disclosure of primary facts necessary for the assessment. All interim orders were vacated, and no order as to costs was made.

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