2013 (9) TMI 571 - HC - Income Tax

Reassessment u/s 147 - Notice u/s 148 after the expiry of four years - failure to respond to a notice u/s 142(1) - According to the petitioner, this alleged reason to believe is based upon the order of Assessment for the Assessment Year 2008-09 where the TPO had made adjustment of about Rs.9.9 Crores on account of the arms length price with regard to the International Transactions with Associated Enterprises. - Held that - the policy of law is that there must be a finality to all legal proceedings including assessments and therefore, completed assessment can only be reopened if all the conditions prescribed by the Act for reopening of assessment are satisfied. The Supreme Court in the matter of CIT v/s. Kelvinator of India 2010 (1) TMI 11 - SUPREME COURT OF INDIA has held that there is a conceptual difference between the power to review and the power to reassess. The Act gives no power to the Assessing Officer to review an assessment but only a power to reassess. However, this power can only be exercised subject to certain pre conditions as provided in the Act being satisfied. The argument that failure to respond to a notice under Section 142(1) of the Act calling upon the assessee to produce a document will lead to satisfaction of the proviso to Section 147 of the Act, to enable the Assessing Officer to take action to reassess after the expiry of four years from the end of the relevant assessment year is not acceptable. No Form 3 CEB as required under Section 92E of the Act had been filed by the petitioner with the Assessing Officer in respect of the Assessment Year 2006-07 prior to issue of penalty notice under Section 271AB of the Act - Moreover, it was clear that Section 92E of the Act mandates making disclosure by filing of Form 3 CEB - Therefore, there was a failure to disclose all material facts on the part of the petitioner for the Assessment Year 2006-07. Relying upon Siemens Information Systems Ltd. v/s. CIT 2012 (2) TMI 281 - Bombay High Court - Assessment Order passed in a subsequent Assessment Year could well form the basis for obtaining tangible material to reach the belief that income chargeable to tax had escaped assessment - keeping in mind the fact that the petitioner had failed to disclose material facts necessary to be disclosed in terms of Section 92E of the Act, it must follow that there was reasonable belief that income chargeable to tax had escaped assessment in view of the fact that in a subsequent Assessment Year, the TPO had made adjustment to arm s length price - Therefore, we find that there was reason to believe that income liable to tax had escaped assessment for the Assessment Year 2006-07. Observations of the Assessing Officer speaks volume about the conduct of the petitioner and its desire to avoid furnishing Form 3 CEB as required under Section 92E of the Act before the Assessing Officer for the Assessment Year 2006-07 - there was no reason to entertain the present petition challenging the notice dated 3 May 2012 under Section 148 of the Act and the order dated 25 July 2012 dismissing the petitioner s objections while seeking to reassess the petitioner for the AY 2006-07 Decided against Assessee.

Summary

Issues Involved:
1. Validity of the notice dated 3 May 2012 issued under Section 148 of the Income Tax Act, 1961.
2. Failure to disclose material facts and filing of Form 3CEB.
3. Reason to believe that income has escaped assessment.
4. Alleged change of opinion by the Assessing Officer.

Detailed Analysis:

1. Validity of the notice dated 3 May 2012 issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 3 May 2012 for reassessment under Section 148 of the Act, arguing it was issued beyond the four-year limitation period from the end of the Assessment Year 2006-07. The court clarified that reopening an assessment after four years requires fulfilling specific conditions under Section 147, including the failure of the assessee to disclose fully and truly all material facts necessary for the assessment. The court found that the petitioner failed to file Form 3CEB as required under Section 92E, which constituted a failure to disclose material facts, thus justifying the reopening of the assessment.

2. Failure to disclose material facts and filing of Form 3CEB:
The petitioner claimed that Form 3CEB was filed with the Income Tax Office Ward 1(1)(1) on 30 November 2006, but the court noted that the Income Tax Office denied receiving such a form. The court highlighted that the petitioner did not produce the form during reassessment proceedings despite being asked to do so. The court concluded that the failure to file Form 3CEB constituted a failure to disclose all material facts necessary for the assessment, thus justifying the reassessment notice.

3. Reason to believe that income has escaped assessment:
The petitioner argued that the reason to believe that income had escaped assessment was based on an adjustment made by the TPO for the Assessment Year 2008-09, which was not sufficient to form a belief for the Assessment Year 2006-07. The court held that an assessment order for a subsequent year could form the basis of tangible material leading to a reasonable belief that income had escaped assessment. The court found that the TPO's adjustment for the subsequent year provided a reasonable basis for the Assessing Officer to believe that income had escaped assessment for the Assessment Year 2006-07.

4. Alleged change of opinion by the Assessing Officer:
The petitioner contended that the reassessment notice was based on a change of opinion, as the Assessing Officer had previously decided not to refer the international transactions to the TPO. The court clarified that an opinion could only be formed when necessary particulars were available before the Assessing Officer. Since the petitioner had not filed Form 3CEB, the Assessing Officer could not have formed an opinion on the arm's length price of the international transactions. Therefore, the court concluded that there was no change of opinion and the reassessment notice was valid.

Conclusion:
The court dismissed the petition, upholding the validity of the notice dated 3 May 2012 under Section 148 of the Act and the order dated 25 July 2012 dismissing the petitioner's objections. The court found that the petitioner failed to disclose all material facts necessary for the assessment and that there was a reasonable belief that income had escaped assessment, justifying the reassessment notice.