2025 (3) TMI 813 - HC - Income Tax

Reopening of assessment - initiation of reassessment action in the second round - reason to believe - AO in the first round had sought to invoke Section 148 relying upon the order of DRP to hold that the funds received by NNPLC which was a wholly owned subsidiary of the petitioner were actually the funds of the writ petitioner itself - A Special Bench of the Tribunal which had come to be constituted to examine that issue ultimately came to conclude that the petitioner could not be said to have extended a corporate guarantee to support the activities undertaken by NNPLC. HELD THAT - As we view the disclosures which are made in the reasons to believe we find that the AO has yet again relied upon and confirmed the formation of belief basis the view that had been expressed by the DRP of NNPLC being in abuse of organisation and legal form and allegedly set up without a reasonable business purpose. It has thus reiterated its earlier position that the money and funds which were held in NNPLC were in fact unaccounted income of the assessee and thus the provisions of Section 68 of the Act being attracted. We are undoubtedly confronted by a clear and categorical finding rendered in the first round of litigation and where the Supreme Court had in unequivocal terms held that the material on the basis of which the AO formed an opinion to reopen was sufficient. We are thus of the firm opinion that sufficient material existed before the AO and which would have justified the power to reassess being exercised. Whether entire action is based on a wholly incorrect reading of the DRP s order ? - As his submission that the said order has been misconstrued and misinterpreted and thus the impugned action liable to be set aside on this score. We find ourselves unable to sustain this submission bearing in mind the undisputed fact that this was not a contention raised urged or canvassed either before this Court or for that matter before the Supreme Court 2020 (4) TMI 133 - SUPREME COURT In fact the Supreme Court had answered question (i) in the affirmative upon noticing the reliance which was placed by the AO on the order of the DRP. The petitioner does not appear to have even argued that the conclusion drawn by the AO basis the order of the DRP was incorrect or arbitrary. It now essentially requires us to review and revisit the findings rendered in this context in the first round of litigation. We consequently find no justification to tread down this path. We find no merit in the challenge which stands raised to the reassessment action.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

(i) Whether the revenue had a valid reason to believe that undisclosed income had escaped assessment.

(ii) Whether the assessee failed to disclose fully and truly all material facts during the original assessment, leading to undisclosed income escaping detection.

(iii) Whether the notice dated 31.03.2015, along with reasons communicated on 04.08.2015, could be considered a notice invoking the provisions of the second proviso to Section 147 of the Income Tax Act, 1961.

ISSUE-WISE DETAILED ANALYSIS

Issue (i): Valid Reason to Believe Income Escaped Assessment

The relevant legal framework involves Section 147 of the Income Tax Act, 1961, which allows reassessment if the Assessing Officer (AO) has reason to believe that income chargeable to tax has escaped assessment. The Court examined whether the AO had sufficient material to form a prima facie view that income had escaped assessment.

The Court noted that subsequent facts, such as the DRP's findings for AY 2009-10, raised doubts about the corporate structure of the assessee and its subsidiaries. The AO relied on these findings to form the belief that income had escaped assessment. The Supreme Court had previously held that information from subsequent assessment years can form tangible material for reassessment under Section 147.

The Court concluded that there were sufficient reasons to believe that income had escaped assessment, answering Question No. 1 in the affirmative.

Issue (ii): Full and True Disclosure by the Assessee

The Court examined whether the assessee disclosed all primary facts necessary for assessment. The Supreme Court had previously found that the assessee had disclosed all primary facts, and the revenue could not take advantage of the extended limitation period due to non-disclosure of facts.

The Court noted that the revenue's reliance on non-disclosure was not permissible, as the assessee had fully disclosed all material facts necessary for assessment. Therefore, the revenue could not benefit from the extended limitation period of six years.

The Court answered Question No. 2 in favor of the assessee, affirming that there was full and true disclosure.

Issue (iii): Invocation of the Second Proviso to Section 147

The second proviso to Section 147 allows reassessment even if the assessee made a full and true disclosure, in cases where income related to any asset located outside India has escaped assessment.

The Supreme Court had previously observed that the assessee should have been informed if the revenue relied on the second proviso. The Court emphasized the need for the assessee to be aware of all provisions relied upon by the revenue.

The Court noted that the revenue failed to inform the assessee of the reliance on the second proviso, leading to the quashing of the notice issued after four years. However, the Supreme Court allowed the revenue to issue a fresh notice, taking benefit of the second proviso if permissible under law.

The Court found that the AO had relied on the DRP's findings and reiterated the position that the funds in NNPLC were unaccounted income of the assessee. The AO attempted to base the case on the second proviso to Section 147.

The Court rejected the argument that the second proviso could not be invoked, as the allegations suggested an asset located outside India. The Court found sufficient material for the AO to exercise the power to reassess.

SIGNIFICANT HOLDINGS

The Court upheld the reassessment action, dismissing the writ petition. The Court emphasized that the Supreme Court's findings in the previous round of litigation bound the parties. The decision to reopen was based on the Supreme Court's liberty granted to the revenue, which required informing the assessee of the intent to invoke the second proviso.

The Court concluded that sufficient material existed to justify the reassessment, and the challenge to the reassessment action lacked merit. The writ petition was dismissed.