2019 (2) TMI 1078 - HC - Income Tax

Reopening of an assessment - Reopening after four years from the end of the relevant Assessment Year - taxability of the expenditure - HELD THAT - It is not the case of the Assessing Officer that after completion of the original scrutiny assessment, he came upon some additional or alien material which had an effect on taxability of the expenditure in question. AO in his reply has admitted that the assessee had filed Form 3 CEB, in which, the expenditure in question was duly reflected. In fact, as pointed out by the Counsel for the Petitioner, such expenditure also came up for scrutiny during the enquiry in relation to the transfer pricing. In absence of lack of full and true disclosure on the part of the assessee, AO could not have reopened the assessment by issuing impugned notice, which was done after four years from the end of the relevant Assessment Year. It is not necessary to examine the Petitioner s second contention of no income chargeable to tax, having escaped assessment, which would require us to take into account various contentions such as whether the order of Commissioner (Appeals) has achieved finality and whether after notionally adding the expenditure referred to in the reasons recorded, the Petitioner-Company would still continue to be governed by the MAT provisions. We do not accept the third and forth contentions of the Counsel for the Petitioner. Firstly, admittedly, the present issue was not examined by the Assessing Officer during original scrutiny assessment and, therefore, he had not formed any opinion at this stage. Secondly, the communication of reasons contained in paragraph 7 refers to the sanction order of the Principal Commissioner which was granted on 9th March, 2018. This communication is dated 16th March, 2018 which does not mean that the reasons were recorded on 16th March, 2018. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice for reopening assessment beyond four years.
2. Alleged failure to disclose fully and truly all material facts.
3. Impact of proposed additions on tax liability under MAT provisions.
4. Allegation of reopening based on change of opinion.
5. Validity of sanction by the Principal Commissioner.

Issue-wise Analysis:

1. Validity of Notice for Reopening Assessment Beyond Four Years:
The petitioner challenged the notice dated 16th March 2018 for reopening the assessment for the Assessment Year 2011-12, issued beyond the four-year period. The petitioner contended there was no failure on their part to disclose all material facts fully and truly, rendering the notice invalid. The court analyzed the reasons recorded by the Assessing Officer (AO), who claimed that the petitioner had not deducted tax at source on payments made to HSBC Holdings Plc., UK, as required under Section 195 of the Income Tax Act. The AO believed this led to an income escapement of ?65.67 crores. However, the court found that the petitioner had disclosed all primary facts, including filing the annual report and audited financial statements, thus fulfilling their disclosure obligations. The court concluded that the AO's belief of lack of full and true disclosure was unsustainable, as the facts were already on record, and the AO had not discovered any new material post the original assessment.

2. Alleged Failure to Disclose Fully and Truly All Material Facts:
The AO asserted that the petitioner failed to disclose fully and truly all material facts necessary for the assessment, justifying the reopening of the assessment. The court, however, noted that the petitioner had provided full details, including the annual report and audited accounts, where the payments in question were reflected. The court emphasized that the petitioner’s responsibility was to disclose primary facts, and any further inquiry or inference was within the AO's jurisdiction. The court found that the AO's expectation for the petitioner to disallow the expenditure on their own was unreasonable and did not constitute a failure to disclose material facts.

3. Impact of Proposed Additions on Tax Liability Under MAT Provisions:
The petitioner argued that even if the proposed additions were made, the company would still be governed by the Minimum Alternate Tax (MAT) provisions under Section 115JB of the Act, implying no income chargeable to tax had escaped assessment. The court did not find it necessary to delve into this contention, as it had already concluded that the reopening of the assessment was invalid due to the lack of failure to disclose material facts.

4. Allegation of Reopening Based on Change of Opinion:
The petitioner contended that the reopening was based on a change of opinion, as the expenditure in question had been subjected to transfer pricing scrutiny during the original assessment. The court rejected this contention, noting that the issue raised by the AO was not examined during the original scrutiny assessment, and thus, there was no formation of opinion at that stage.

5. Validity of Sanction by the Principal Commissioner:
The petitioner argued that the sanction by the Principal Commissioner was granted on 9th March 2018, whereas the reasons for reopening appeared to have been recorded on 16th March 2018, nullifying the sanction. The court clarified that the communication dated 16th March 2018 referred to the sanction order dated 9th March 2018, and this did not imply the reasons were recorded on 16th March 2018. The court found no merit in this contention.

Conclusion:
The court allowed the petition, setting aside the impugned notice for reopening the assessment. The court held that the petitioner had disclosed all primary facts necessary for the assessment, and there was no failure on their part to disclose material facts fully and truly. Consequently, the reopening of the assessment beyond the four-year period was invalid.