2015 (4) TMI 942 - HC - Income Tax

Reopening of assessment - deferred revenue concealed - notice issued under section 148 challenged on the ground of jurisdictional error - Held that - In the instant case, the deferred revenue for the assessment year 2009-10 according to the Assessing Officer ought to have been admitted or included by the assessee in the assessment year 2010-11 and on account of same having not been offered, has given rise for reopening of the assessment. Nothing prevented the petitioner to place such material to establish that such deferred revenue totaling ₹ 216,89,00,773/- has been actually included as its income in the subsequent assessment year/s and if so, the details thereof with the break up, which the Assessing Officer had called for at the first instance. In that view of the matter, it cannot be held that the reasons assigned by the Assessing Officer by communication dated 25.04.2014 vide Annexure-M for reopening the assessment for the year 2009-10 suffers from any jurisdictional error. It has also been specifically made clear thereunder by 1st respondent that deferment of revenue has not been accepted even by the DRP and what has been stated in the said communication is that reply submitted by petitioner does not demonstrate or establish that total amount of ₹ 216,89,00,773/- had been offered to tax in the assessment year 2010-11. The issue involved is the escapement of income to tax for the assessment year 2009-10. As such, the burden is on the assessee to demonstrate that said deferred revenue totaling to ₹ 216,89,00,773/- has been offered to tax in the assessment year 2010-2011 or in any subsequent year/s. In that view of the matter, do not find any jurisdictional error having been committed by the Assessing Officer to reopen the assessment for the assessment year 2009-10 by issue of impugned notice and also over-ruling of objections raised by the petitioner assessee to such notice. - As decided in WHIRLPOOL CORPORATION VS. REGISTRAR TRADE MARKS, MUMBAI AND OTHERS 1998 (10) TMI 510 - SUPREME COURT & T.T. PVT. LTD. Vs. INCOME TAX OFFICER, COMPANY CIRCLE-III, BANGALORE reported in (1978 (9) TMI 23 - KARNATAKA High Court) has held that availability of alternate remedy under the Act would not be a bar for this Court to examine the notice issued under section 148 of the Income Tax Act, 1961, if it is challenged on the ground of jurisdictional error. - Decided against assessee.

Summary

Issues Involved:
1. Jurisdictional error in issuing notice under Section 148 of the Income Tax Act, 1961.
2. Validity of reasons assigned for reopening the assessment under Section 147 of the Act.

Issue-wise Detailed Analysis:

1. Jurisdictional Error in Issuing Notice under Section 148:

The petitioner challenged the notice issued by the Joint Commissioner of Income Tax under Section 148 for reassessment of the income for the Assessment Year 2009-10, arguing that it was based on a mere change of opinion and lacked new material evidence. The petitioner contended that the Assessing Officer (AO) must have a "reason to believe" that income has escaped assessment, which requires material evidence and not just suspicion or change of opinion. The petitioner cited several judgments, including the Supreme Court's decision in Commissioner of Income Tax Vs Kelvinator of India Ltd., which emphasized that post-1989, the power to reopen assessments is broad but must be based on tangible material indicating income escapement.

The court noted that the AO's jurisdiction to issue a notice under Section 148 hinges on having a "reason to believe" that income chargeable to tax has escaped assessment. This belief must be based on relevant material and not merely a change of opinion. The court referenced the Supreme Court's ruling in Assistant Commissioner of Income Tax Vs Rajesh Jhaveri Stock Brokers (P) Ltd., which clarified that at the stage of issuing notice, the AO needs to have a cause or justification to believe that income has escaped assessment, not conclusive evidence.

In this case, the AO had reason to believe that deferred revenue amounting to Rs. 216,89,00,773/- had not been offered to tax in the subsequent assessment year 2010-11, thus justifying the reopening of the assessment. The court found no jurisdictional error in the issuance of the notice under Section 148.

2. Validity of Reasons Assigned for Reopening the Assessment:

The AO's reasons for reopening the assessment included the observation that the petitioner had deferred revenue totaling Rs. 216,89,00,773/- in the assessment year 2009-10, which was not offered to tax in the subsequent year. The petitioner argued that this deferred revenue related to warranty services, which are recognized over the period of the service contract and offered to tax in subsequent years when the obligation to render services arises. The petitioner maintained that this accounting policy was consistently followed and accepted by the AO in the original assessment for 2009-10.

However, the court noted that the AO had requested details to verify if the deferred revenue was offered to tax in subsequent years, which the petitioner failed to provide convincingly. The court emphasized that the AO's belief that income had escaped assessment was based on the absence of evidence showing that the deferred revenue was included in the income for the subsequent assessment year. The court held that the AO's reasons for reopening the assessment were valid and satisfied the criteria under Section 147 of the Act.

The court concluded that the AO had the jurisdiction to issue the notice under Section 148 and that the reasons provided for reopening the assessment were justified. The writ petition was dismissed, and the court upheld the notice and the reasons for reopening the assessment.