2022 (1) TMI 543 - HC - Income Tax

Reopening of assessments u/s 147 - change of opinion - eligibility of reasons to believe - payment made on account of reimbursement of payroll expenses to subsidiaries incurred outside India and paid to Oracle Financial Services Software INC on behalf of petitioner - HELD THAT - The documents expressly mention that since the payment is to be made on account of reimbursement only, no tax is required to be deducted. Therefore, a query has been raised and it has been answered. An order under section 92CA(3) of the Act was passed by TPO. Shri Sharma submitted that the order under section 92CA(3) is only concerning whether the amount paid to the companies outside India was correct. Of course, Shri Sharma is correct but what is relevant to note is that this subject has also been discussed by the TPO in his order dated 20th September 2016 (internal page 8). TPO s order finds a mention and reference in the impugned order dated 27th February 2017 at paragraph 4.1.2 and paragraph 4.1.3. Therefore, entire issue regarding petitioner paying huge reimbursement cost on account of salary reimbursement cost of its employee every year was in the active consideration before the Assessing Officer. Shri Sharma was right in stating that this issue has not been discussed specifically in assessment order. But it is settled, law as held in Aroni Commercials Ltd. 2014 (2) TMI 659 - BOMBAY HIGH COURT once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. We are satisfied that it is nothing but a change of opinion on the part of the new AO, who issued the notice u/s 148 of the Act. Change of opinion does not constitute justification and/or reasons to believe income chargeable to tax has escaped assessment. - Decided in favour of assessee.

Summary

Issues Involved:

1. Error in affidavit-in-reply.
2. Reopening of assessment under section 148 of the Income Tax Act, 1961.
3. Validity of the reasons for reopening the assessment.
4. Application of the proviso to section 147 of the Income Tax Act, 1961.
5. Change of opinion by the Assessing Officer.

Detailed Analysis:

1. Error in Affidavit-in-Reply:

At the outset, it was pointed out by Shri Sharma that there was an error in paragraph 4 of the affidavit-in-reply filed by Ashok Charan, affirmed on 20th March 2020. It was erroneously mentioned that the assessment was opened within a period of four years from the relevant assessment year. Shri Sharma clarified that the error was due to confusion with another matter of the same petitioner for a different assessment year. The court accepted this statement and ordered the deletion of paragraph 4.

2. Reopening of Assessment under Section 148:

The petitioner challenged a notice dated 6th March 2019 issued under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2013-14. The petitioner also contested the order dated 18th October 2019, which disposed of the objections raised by the petitioner against the reopening.

3. Validity of the Reasons for Reopening the Assessment:

The reasons provided for reopening the assessment included the debiting of ?655.277 Crores as 'Employees Costs' in the financial statements for A.Y. 2013-14. It was noted that a similar amount was disallowed in A.Y. 2015-16 under section 40(a)(i) for non-deduction of TDS under section 195. The respondents argued that the issue was neither discussed nor examined during the original assessment proceedings, and hence, the reopening did not involve a change of opinion.

4. Application of the Proviso to Section 147:

Since the reopening was proposed more than four years after the relevant assessment year and a scrutiny assessment under section 143(3) had been completed, the proviso to section 147 applied. The onus was on the respondents to show a failure on the part of the petitioner to fully and truly disclose material facts. The respondents based their reopening on the grounds that the petitioner’s contentions in A.Y. 2015-16 were rejected and that the issue was not considered in the original assessment for A.Y. 2013-14.

5. Change of Opinion by the Assessing Officer:

The court agreed with the petitioner that the issue of foreign remittances and reimbursement of expenses was raised and answered during the original assessment proceedings. The court noted that the TPO had discussed this subject in his order dated 20th September 2016, and it was also referenced in the assessment order dated 27th February 2017. It was settled law that once a query is raised and answered during assessment proceedings, it is considered to be part of the Assessing Officer’s consideration, even if not explicitly mentioned in the assessment order (Aroni Commercials Ltd. Vs. Deputy Commissioner of Income-Tax-2(1) [2014] 44 taxmann.com 304 (Bombay)).

The court concluded that the reopening was based on a change of opinion, which does not justify the reopening of the assessment. The court also dismissed the argument that a different opinion in a later year could imply non-disclosure of material facts in an earlier year.

Conclusion:

The court allowed the petition, quashing the notice dated 6th March 2019 issued under section 148 of the Income Tax Act, 1961, and the order dated 18th October 2019 that disposed of the petitioner’s objections. The petition was disposed of accordingly.