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TMI Blog2012 (3) TMI 244X X X X Extracts X X X X X X X X Extracts X X X X ..... s cannot be supplemented or improved upon subsequently. In present case, attention of A.O. was drawn to the fact that assessee is not FII and it would be evident that the A.O. has not acted within his jurisdiction in purporting to reopen the assessment. Also A.O. was not entitled, when he disposed of the objections to travel beyond the ambit of the reasons which were disclosed to the assessee. See CIT v. Kelvinator of India Ltd (2010 - TMI - 35201 - Supreme Court Of India) – Decided in favor of assessee. - WRIT PETITION NO. 315 OF 2012 - - - Dated:- 13-3-2012 - DR. D.Y. CHANDRACHUD, M.S. SANKLECHA, JJ. JUDGMENT Dr. D.Y. Chandrachud, J. Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal. 2. By a notice dated 16 March 2011, the Assessing Officer has sought to reopen an assessment under Section 148 of the Income Tax Act, 1961 for Assessment Year 2006-07. The objections which were submitted by the assessee to the reopening of the assessment have been rejected by an order dated 20 December 2011. Both the notice reopening the assessment and the order disposing of the objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned income of Rs. 1317020173/- during the previous year relevant to assessment year 2006-07. The assessee claimed that the profits earned from the transactions in Indian securities are not liable to tax in India in view of article 7 of India - Singapore tax treaty. As per article 7 of the India - Singapore treaty business income is taxable only in Singapore, unless resident carries on business in India through a permanent establishment situated in India. In simple terms that the assessee company treated the income earned on investment activities as business income and accordingly not taxable in India as the assessee company did not have any permanent establishment in India. In this connection following remarks are offered: (1) No foreign companies are allowed to invest through stock exchange in India unless it is approved as FII by the regulatory authorities viz. RBI, SEBI etc. (2) In case, the assessee company is a registered FII or sub account of any registered FII, which is not permitted to buy and sell securities without taking delivery. Accordingly any gain earned on investment as FII is liable to be taxed u/s. 115AD of the Income Tax Act. Therefore the possibil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be liable to be taxed as short term capital gains and the possibility of escapement cannot be ruled out. According to the Assessing Officer, the transactions in securities were subject to stringent regulation covering investments by foreign companies in India and what was permitted was only investment and not a business venture. According to the Assessing Officer what had arisen to the Petitioner was capital gains and not business income. 5. Counsel appearing on behalf of the Petitioner submitted that - ( i ) There was no tangible material on the basis of which the Assessing Officer could have formed a reason to believe that income had escaped assessment. A reason to believe, it was urged, cannot be based on a mere suspicion. In the present case the Assessing Officer has based his opinion merely on the possibility of escapement without the formation of a reason to believe; ( ii ) Once the reasons have been formulated in pursuance of a notice under Section 148, no improvement on those reasons is permissible at the behest of a succeeding Assessing Officer who disposed of the objections raised by the assessee to the reopening of the assessment; ( iii ) In the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th such other particulars as may be prescribed. The Central Board of Direct Taxes initially issued a circular on 10 October 2006 notifying forms for the filing of returns for Assessment Year 2006-07. Form No.1 was prescribed as the form for filing a return of income and of fringe benefits for companies other than those claiming exemption under Section 11. The circular stated that these return forms were designed to make them amenable for electronic filing. Where a tax payer did not use a digital signature, a two step procedure was envisaged. In the first step the assessee would transmit details of the return and the schedules thereto electronically, without digital signature to the designated website and would thereafter file a 'paper' return. The date of electronic transmission and acknowledgment would be filled in as part of the paper return. All corporate tax payers were necessarily required to furnish the return for Assessment Year 2006-07 electronically after 24 July 2006. For other classes of tax payers it was made optional to furnish a return. The circular clarified that the forms should not be accompanied by any attachment or annexure. Consequently tax payers were directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with another country. The Petitioner disclosed that it had income in the amount of Rs. 7.78 Crores which was not to be included in the total income being exempt income. The return contained a statement that the beneficial owner of the shareholding of the Petitioner was a corporation of the Government of Singapore which held the entire beneficial ownership. The Petitioner further stated in the course of the return that it was claiming relief under Sections 90/91 in the amount of Rs. 131.70 Crores. The Petitioner annexed to the return of income several notes to the following effect : "1. Indivest Pte Ltd ('Indivest' or 'the Company') is a private limited company incorporated on the Republic of Singapore on October 20, 1995. The principal business of the Company is to, inter alia, invest in Indian securities. 2. Section 90(2) of the Income Tax Act, 1961 ('Act') provides that where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax or for avoidance of double taxation, then, in relation to assessees to whom such agreement applies, the provisions of the Act shall apply only to the extent they are more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed under Section 115AD of the Income Tax Act, 1961. On this ground it has been stated that the possibility of an escapement of income taxable as short term capital gain may not be ruled out. The Assessing Officer has stated that there was a reason to believe that income chargeable to tax computed at 11.22% of Rs. 131.70 Crores has escaped assessment within the meaning of Section 147. In the objections which were raised by the Petitioner to the reopening of the assessment, the Petitioner clarified that it is not either an FII or a sub account of an FII. Consequently the provisions of Section 115AD, it was clarified, are not applicable to the Petitioner. The Petitioner further clarified that there was no question of any short term capital gain since factually all the investments were held for a period in excess of twelve months prior to sale. The entire basis of the reopening in the present case is founded on the two grounds to which a reference has been made earlier. The Assessing Officer sought to reopen the assessment on the basis that the Petitioner is an FII to which the provisions of Section 115AD would be attracted and as a result of which short term capital gains would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment, the power cannot be exercised on the basis of a mere change of opinion nor is it in the nature of a review. The Supreme Court has laid down the test of whether there is tangible material on the basis of which the Assessing Officer has come to the conclusion that there is an escapement of income. The Supreme Court held thus : However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the reasons which are disclosed to the assessee. Those reasons constitute the foundation of the action initiated by the Assessing Officer of reopening the assessment. Those reasons cannot be supplemented or improved upon subsequently. While disposing of the objections of the assessee, the Assessing Officer has purported to state that the assessee had filed only sketchy details in its return filed in the electronic form. As we have noted earlier, the relevant provisions expressly make it clear that no document or report can be filed with the return of income in the electronic form. The assessee has an opportunity to do so during the course of the assessment proceedings if a notice is issued under Section 143(2). The Assessing Officer was, in our view, not entitled, when he disposed of the objections to travel beyond the ambit of the reasons which were disclosed to the assessee. For all these reasons, we are of the view that the exercise of the jurisdiction under Section 147 and Section 148 in the present case is without any tangible material. The notice of reopening does not meet the requirements as elucidated in the judgment of the Supreme Court in Kelvinator of India Ltd. For th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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