2021 (2) TMI 641 - AT - Income Tax

Reopening of assessment u/s 147 - reopening of beyond four years from the end of the concerned assessment year - TP Adjustment - HELD THAT - AO/TPO after applying his mind and considering the submissions of the assessee, had accepted the arms length price on reimbursement of expenses without making any TP adjustment towards the same. Thus, it is clear that the assessee had disclosed all the material facts during the regular assessment proceedings. Reopening of assessment proceedings has been initiated on the basis of ITAT s order pertaining to assessee s own case for assessment years 2005-2006 and 2006-2007. The reasons recorded for reopening the assessment for the relevant assessment year clearly spells that the reopening of assessment has been initiated only on the basis of the earlier Tribunal order in assessee s own case for assessment years 2005-2006 and 2006-2007. Therefore, it cannot be alleged that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Hon ble Apex Court in the case of New Delhi Television v. DCIT 2020 (4) TMI 133 - SUPREME COURT had held that reopening of the assessment beyond four years is bad in law when the tax payer has disclosed the facts at the time of original assessment proceedings and the A.O. did not draw any adverse inference regarding the same. Hon ble Supreme Court in the case of L T Limited. 2020 (1) TMI 518 - SUPREME COURT observed that there was no element of lack of true and full disclosure on the part of the assessee, which resulted into any income chargeable to tax escaping assessment. The reasons clearly reveal that the Assessing Officer was proceeding on the material which was already on record. In the absence of the statutory requirement of income chargeable to tax have been escaped assessment due to the failure on the part of the assessee to disclose truly and fully all material facts been satisfied, the Tribunal correctly held that the notice of reopening of assessment was invalid . Hon ble Karnataka High Court in the case of CIT v. Karnataka Bank 2015 (7) TMI 535 - KARNATAKA HIGH COURT had held that when there is no case of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and further, where the Assessing Authority applied its mind and being satisfied with the claim, allowed the case of the assessee, the Assessing Authority could not have initiated proceedings u/s 147 of the Act, after the end of 4 years.We hold that the reassessment proceedings is bad in law and we quash the same - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reassessment.
2. Justification of Transfer Pricing (TP) adjustment pertaining to reimbursement of expenses.

Detailed Analysis:

1. Validity of Reassessment:
The primary issue revolves around whether the reassessment initiated by the Assessing Officer (AO) after the expiry of four years from the end of the relevant assessment year was valid. The appellant argued that the AO reopened the assessment without indicating any failure on the part of the assessee to disclose all material facts necessary for assessment. The appellant cited several judicial precedents, including *Sesagoa Ltd. Vs JCIT* and *Shri Shakti Textiles Ltd. Vs. JCIT*, to support the claim that reopening based on a change of opinion or subsequent Tribunal decisions is not permissible.

The Tribunal noted that the original assessment for the year 2008-2009 was completed under section 143(3) r.w.s. 144C of the I.T. Act, and all relevant details regarding reimbursement of expenses were disclosed by the assessee during these proceedings. The AO had accepted the arm's length nature of these transactions at that time. The reopening was based on a Tribunal order for earlier years (2005-2006 and 2006-2007), which was deemed a change of opinion.

The Tribunal referenced the Supreme Court's ruling in *Kelvinator India Ltd.* and other cases, emphasizing that reopening after four years requires a failure to disclose material facts by the assessee, which was not evident here. The Tribunal concluded that the reassessment was invalid as it was based on previously considered material and did not meet the statutory requirements for reopening.

2. Justification of TP Adjustment:
Given the Tribunal's decision to quash the reassessment proceedings, the issue of whether the authorities were justified in making the TP adjustment pertaining to reimbursement of expenses was not adjudicated on merits. The Tribunal refrained from addressing this issue since the reassessment itself was deemed invalid.

Conclusion:
The Tribunal quashed the reassessment proceedings as they were initiated beyond the permissible period without any failure on the part of the assessee to disclose all material facts. Consequently, the appeal was partly allowed, and the need to address the merits of the TP adjustment was rendered moot. The order was pronounced on February 15, 2021.