2021 (12) TMI 318 - HC - Income Tax

Reopening of assessment u/s 147 - Change of opinion - TP Adjustment royalty paid and lump sum fees for know how paid to Skoda Auto - HELD THAT - As in this order by the Transfer Pricing Officer passed on 19th December 2006 under Section 92CA (3) of the said Act, the Transfer Pricing Officer has considered the royalty, technical know how amounts paid and passed his order. This order of the Transfer Pricing Officer has been considered by the AO while passing the original assessment order dated 29th December 2006 under Section 143 (3) of the said Act. Therefore, there can be nothing which has not been truly and fully disclosed and we cannot accept the submissions of Mr. Walve that explanation 1 to Section 147 provides that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer is no defence. Petitioner has not only filed its account books and other evidence but those have been considered by the Transfer Pricing Officer whose order also has been considered by the Assessing Officer while passing the original assessment order. In our view, the reasons recorded for reopening is nothing but a change of opinion which is not permissible in law. We find support for this view in the judgment of this Court in Ananta Landmark Private Limited 2021 (10) TMI 71 - BOMBAY HIGH COURT In the circumstances, we are satisfied that the notice dated 23rd March 2011 issued under Section 148 of the said Act has been issued after illegally assuming jurisdiction under Section 148 - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice under Section 148 of the Income Tax Act, 1961.
2. Failure to disclose material facts for assessment.
3. Application of proviso to Section 147.
4. Reopening of assessment based on change of opinion.
5. Jurisdictional validity of the notice dated 23rd March 2011.

Analysis:

1. The petitioner received a notice under Section 148 of the Income Tax Act, 1961, stating that income for Assessment Year 2004-2005 had escaped assessment. The petitioner responded with objections, but further notices were issued. The petitioner challenged all notices, including an order by the Transfer Pricing Officer. The Court granted interim relief, but assessment was completed before the next hearing, leading to the petition challenging the notice and subsequent orders.

2. The reasons provided for reopening the assessment highlighted discrepancies in the calculation of operating loss and Arm’s Length Price, leading to the conclusion that income had escaped assessment. However, the Court noted that the reasons did not specify the material facts that the petitioner failed to disclose fully and truly, as required by the proviso to Section 147. This lack of specific disclosure undermined the jurisdiction to reassess the income.

3. The proviso to Section 147 imposes the condition that income must have escaped assessment due to the assessee's failure to disclose material facts. The Court emphasized the necessity for clear indications in the reasons for reopening to establish such failure. The petitioner had disclosed details of transactions in its annual report and Form 3CEB, which were also considered by the Transfer Pricing Officer and the Assessing Officer during the original assessment.

4. The Court referenced a judgment to support the view that the reasons for reopening indicated a change of opinion rather than a valid reason for reassessment. This change of opinion was deemed impermissible in law, further strengthening the argument that the notice under Section 148 was issued without proper jurisdiction.

5. Ultimately, the Court found that the notice dated 23rd March 2011 was issued without jurisdiction under Section 148. Consequently, the petition was allowed, and a writ was issued to quash the impugned notices and orders. The Court disposed of the petition with no order as to costs, affirming the invalidity of the notice and subsequent actions based on it.