2015 (4) TMI 302 - HC - Income Tax

Reopening of assessment - royalty payment claimed as revenue expenditure - Held that - Assessing Officer and Transfer Pricing Officer were not only aware of the payment of Royalty but had taken the same into consideration at every stage. The Assessing Officer infact expressly called for the said information. It cannot be held, therefore, that the Assessing Officer was not aware of the Royalty and had not taken the same into consideration before passing the assessment order under Section 143 of the Act. It is also important to note that proceedings had been initiated under Section 154 of the Act by the issuance of a notice dated 24.3.2011. However, the same were dropped holding that it was a debatable issue which would be apparent from the affidavit filed by D.C.I.T. Dated 20.11.2014 in the present case. The impugned notice under Sections 147 and 148, therefore, are clearly based only on change of opinion which is not permissible. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for assessment year 2006-07 and subsequent order dismissing objections.

Analysis:
The petitioner challenged a notice issued under Section 148 of the Income Tax Act, 1961, dated 23.3.2011, stating that the income for the assessment year 2006-07 had escaped assessment. The subsequent order dismissing objections was also under challenge. The petitioner requested the reasons for initiating proceedings under Section 147, which highlighted discrepancies in the treatment of royalty payments as revenue expenditure. The notice was challenged as being based on a change of opinion, as all relevant facts were disclosed and considered throughout the assessment process.

The return of income filed by the petitioner explicitly disclosed royalty payments and related details. The Transfer Pricing Officer and Assessing Officer were made aware of these payments at every stage of the assessment process. The Assessing Officer had called for specific information regarding royalty payments before passing the assessment order. The Transfer Pricing Officer's order also explicitly referred to royalty payments, indicating that the relevant authorities were well-informed about these transactions.

The judgment referred to the Supreme Court's decision in Commissioner of Income Tax Vs. Kelvinator of India Ltd., emphasizing that reopening assessments based on a mere change of opinion is impermissible. The court highlighted the importance of tangible material and a live link between reasons and belief for reopening assessments post-April 1989. The court found that the impugned notice under Sections 147 and 148 was solely based on a change of opinion, which was not allowed under the law.

A judgment cited by the respondents was distinguished, as it was found inapplicable to the present case where all relevant facts were disclosed and considered by the authorities throughout the assessment process. The court allowed the writ petition, quashing the notice and order in question. The court found that the relevant facts were not only disclosed but also sought and considered at every stage by the Transfer Pricing Officer and Assessing Officer, leading to the decision to quash the impugned notice and order.