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TMI Blog2019 (1) TMI 1072X X X X Extracts X X X X X X X X Extracts X X X X ..... and language, facts and figures in the ‘reasons to believe’ are similar, if not identical. Writ petition has to be allowed as the jurisdictional pre-conditions in the form of proviso to Section 147 is not satisfied in the facts of the present case. Explanation 1 would not apply as all primary facts were disclosed, stated and were known and in knowledge of the Assessing Officer. Further, this would be a case of ‘ change of opinion’ as the assessee had disclosed and had brought on record all facts relating to transfer of passive infrastructure, its book value, fair market value as was mentioned in the SOA as also that the transferred passive assets to become property of M/s. Indus Infrastructure Ltd. including the dates of transfer and the factum that one-step subsidiary Bharti Infratel Ventures Ltd. was created for the said purpose. These facts were within the knowledge of the Assessing Officer when he had passed the original assessment order for the Assessment Year 2008-09 on 20th December, 2010. Notice for reopning quashed - Decided in favour of assessee. - WRIT PETITION (CIVIL) No. 2036/2016 - - - Dated:- 15-1-2019 - MR. SANJIV KHANNA AND MR. CHANDER SHEKHAR JJ. Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled objections to reopening both on facts and law vide reply/objections dated 5th May, 2015 which, inter alia, had challenged assumption of jurisdiction under Section 147/148 of the Act. 7. The objections have been rejected by the first respondent by the impugned order dated 23rd February, 2016, resulting in filing of the present writ petition impugning the said order as well as notice dated 31st March, 2015 initiating re-assessment proceedings under Section 147/148 of the Act. 8. The relevant portion of the reasons to believe recorded by the Assessing Officer for re-opening of assessment read as under :- During proceedings u/s 143(3) read with Section 263 of Income-tax Act, 1961 in case of M/s Bharti Airtel Ltd. for A.Y. 2008-09, it has been observed that M/s Bharti Airtel Ltd. (hereinafter referred to as transferor ) had transferred its telecom infrastructure assets worth ₹ 5739.60 crores to its subsidiary company M/s Bharti Infratel Ltd. (hereinafter referred to as transferee ) on 31.01.2008 for Nil value under the Scheme of Arrangement approved by Hon ble Delhi High court. Further, as per scheme, the transferee company had revalued the said assets to &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble High Court. In the SOA, it was mentioned that the passive infrastructure of BAL is being transferred to wholly owned subsidiary and as there is no movement of assets to any company outside the group, neither any shares are to be issued, nor any consideration is to be paid to the shareholders for transfer of the assets. However, within less than 15 days of approval of SOA by the Hon ble High Court, and even before the transfer of assets by BAL to BIL, a shareholder agreement dated 08.12.2007 is entered into. In fact, as per the Shareholder s Agreement, the passive infrastructure transferred by transferor company, before the effective date and after the effective date (Effective date as mentioned in Indefeasible Right to Use Agreement IRU) is to be managed and operated by Indus Tower Limited only and not even for single day to be handled by Bharti Infratel Limited as submitted before the Hon ble High Court through the SOA filed. From the entire scheme, it is seen that the assets which can be directly transferred from BAL to ITL were routed through BIL and BIVL for the purpose of evasion of tax because the assets, WDV of which in the books of BAL on the date of transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment proceedings for AY 2008-09 of BAL by the Assessing Officer in the light of SOA approved by the Delhi High Court and that- during examination of the scheme it was seen from the relevant portion of Share Holders Agreement dated 8.12.2007, annual report for the petitioner company for Financial Year 2007-08 and 2008-09, annual report of Bharti Airtel Limited and agreement made in the entire process that neither BIL nor BAL disclosed full and true intention in the SOA approved by the Hon ble High Court . SOA had mentioned transfer of passive infrastructure of BAL to BIL, a wholly owned subsidiary, and that there was no transfer of assets to a company outside the group . It was stipulated that shares were not to be issued and no consideration was to be paid to the shareholders for transfer of assets. Contrary to the SOA approved by the High Court, within fifteen days of the approval of SOA, a shareholder s agreement on 8th December, 2007 was entered into by BIL whereby the passive infrastructure was transferred by it to a third party, namely, M/s Indus Tower Limited. This transfer was made before the effective date, which was the date by which BIL would have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in by reproducing relevant portion of Section 147 of the Act, which reads as under:- Income escaping assessment . 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment for that year. Emphasis on the third part of proviso is on the assessee s failure to fully and truly disclose all material facts necessary for assessment. Therefore, when the proviso applies, the Assessing Officer must satisfy himself and state that there has been failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment or another jurisdictional preconditions. In absence of failure or lapse to disclose fully and truly all material facts or one of the other pre-conditions, re-opening is impermissible and barred under the statute. In such cases, it does not matter whether the Assessing Officer has applied his mind to the material facts stated, but had failed to draw legal or other factual inferences. Pertinently, the words used in the first Explanation are material evidence and not legal and factual inferences and conclusion predicated on the evidence/material on record. Explanation 1 has limited operation and would apply to cases where the assessee has produced account books or other evidence before the Assessing Officer, but the Assessing Officer had failed to discover material evidence that was available or was infera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 23. The said observations do not mean that even if the Assessing Officer did not examine a particular subject matter, entry or claim/deduction and therefore had not formed any opinion, it must be presumed that he must have formed an opinion. This is not what was argued by the assessee or held and decided. There cannot be deemed formation of opinion even when the particular subject matter, entry or claim/deduction is not examined. 24. Distinction between disclosure/declaration of material facts made by the assessee and the effect thereof and the principle of change of opinion is apparent and recognized. Failure to make full and true disclosure of material facts is a precondition which should be satisfied if the reopening is after four years of the end of the assessment year. The explanation stipulates that mere production of books of accounts and other documents, from which the Assessing Officer could have with due diligence inferred facts does not amount to full and true disclosure. Thus in cases of reopening after 4 years as per the proviso, conduct of the assessee and disclosures made by him are relevant. However, when the proviso is not applicable, the said precondit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or claim or entry was explained and the principle of better beware applies. When a subject matter, entry, claim or deduction remains hidden or unexamined by the Assessing Officer, be it for any reason, it is not a case of change of opinion. 16. Supreme Court in State of Uttar Pradesh and Others versus Aryaverth Chawal Udyog and Others, (2015) 17 SCC 324 had referred to the principle of change of opinion and legal requirement for valid reopening of tax assessment under U.P. Trade Tax Act, 1948. Reference was made to Supreme Court decisions in Kelvinator of India Limited (supra), Aslam Mohammad Merchant versus Competent Authority, (2008) 14 SCC 186, Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers (P) Limited, (2008) 14 SCC 208, S. Narayanappa versus CIT, (1967) 1 SCR 590 and other cases , to hold:- 28. This Court has consistently held that such material on which the assessing authority bases its opinion must not be arbitrary, irrational, vague, distant or irrelevant. It must bring home the appropriate rationale of action taken by the assessing authority in pursuance of such belief. In case of absence of such material, this Court in clear terms has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chandra H. Shah, (1972) 3 SCC 231] ; CIT v. Nawab Mir Barkat Ali Khan Bahadur[CIT v. Nawab Mir Barkat Ali Khan Bahadur, (1975) 4 SCC 360 : 1975 SCC (Tax) 316] ). 17. Majority decision of the Full Bench of this Court in Usha International Limited (supra) had also drawn distinction between erroneous application/interpretation/understanding of law and cases where a fresh or new factual information comes to the knowledge of the Assessing Officer, after passing of the assessment order, in the following words:- 16. Here we must draw a distinction between erroneous application/interpretation/understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of change of opinion will not apply. The reason is that opinion is formed on facts. Opinion formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of change of opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147 confers the power to reassess and not the power to review. 16. To check whether it is a case of change of opinion or not one has to see its meaning in literal as well as legal terms. The words change of opinion imply formulation of opinion and then a change thereof. In terms of assessment proceedings, it means formulation of belief by an assessing officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. 19. Having examined the legal position, we would turn to the factual matrix in question and would reproduce the averments made in the writ petition with reference to the queries raised and issues examined in the original assessment as well as primary or material facts disclosed in the return, documents and papers filed during the original assessment. The former would be relevant when we examine whether it is a case of change of opinion and the latter aspect would be relevant when we examine the question of applicability of the proviso and the first Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (Cal.) -Peico Electronics and Electricals Ltd. vs. DCIT : 210 ITR 991 (Cal.) -Kaira District Cooperative Milk Producers Union Ltd. vs. ACIT : 216 ITR 371 (Guj.) -Garden Silk Mills Ltd. vs. DCIT: 222 ITR 27 (Guj.) -CIT vs. Veer Overseas Ltd. ITA No. 510 of 2009 (P and H). 41. In the case of Calcutta Discount Co. Ltd vs. ITO: (1961) 41 ITR 191 , the Hon ble apex Court, held that (1) it is the assessee s duty to disclose primary facts, including particular entries in account books, particular portions of documents and other evidence disclosed; (ii) once all primary facts are before the assessing authority, the assessing officer requires no further assistance by way of disclosure, (iii) it is for the assessing officer to decide what inferences of fact can be reasonably drawn and what legal inferences have ultimately to be drawn and (iv) it is not for the assessee to tell the assessing authority what inferences, whether of fact or law, should be drawn. 42. To the same effect are the following precedents: -CIT vs. Bhanji Lavji: 79 ITR 582 (SC) -CIT vs. Burlop Dealers Ltd.: 79 ITR 609 (SC) -ITO v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission of the Petitioner that all material facts were fully and truly disclosed during the course of assessment proceedings under Section 143(3) of the Act, both in relation to (i) receipt of telecom infrastructure assets through a scheme of arrangement without consideration as also (ii) the factum of entering into Shareholder/JV agreement dated 08.12.2007 with other telecom companies. The Petitioner had made full disclosure of the SOA, accounting treatment thereof in the books, tax treatment thereof in the return of income, entering into shareholder/JV agreement dated 08.12.2007, at several places in the audited financial statements, i.e., auditors report/Director s report, notes to accounts, etc., notes to computation of income appended with return of income, relevant clauses of tax audit report under Section 44AB of the Act, and accountant s report under Section 115JB of the Act, in the following manner: (A) In the audited financial statements of the Petitioner for year ending 31.03.2008, relevant to assessment year 2008-09, the Petitioner has made the following disclosures: a) In the Director s Report dated 24.04.2008, complete disclosure regarding the SOA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) to Schedule 16: Notes to the Financial Statements. The relevant portion of the aforesaid disclosures are reproduced hereunder for ready reference: The Scheme of Arrangement ( the Scheme ) under section 391 to 394 of the Companies Act, 1956, between Bharti Airtel Limited (BAL) and BIL for transfer of telecom infrastructure undertaking from BAL to BIL was approved by the Hon ble High Court of Delhi vide order dated November 26, 2007 and filed with the Registrar of Companies, Delhi and Gurgaon on January 31, 2008 i.e the Effective date of the Scheme. Pursuant to the scheme, the telecom infrastructure undertaking were transferred to and vested in the Company with effect from January 31, 2008, the Effective Date, accordingly, the Scheme has been given effect to in these financial statements. Pursuant to the terms of the Scheme, the Telecom Infrastructure undertaking, comprising of wireless and broadcast towers, all right, titles, deposits, interest over the land on which such towers have been or are proposed to be constructed or erected or installed, current assets and current liabilities (including liabilities) relating to the towers and related telecom assets/liabilitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent joint venture agreement dated 08.12.2007 entered into between VEL, Idea and the Petitioner, resulting in formation of Indus and proposed transfer of PI assets in 16 telecom circles across India, out of assets in 23 circles received from BAL, has been appended as Note 1(b) to Schedule 16: Notes to the Financial Statements. The relevant portion of the aforesaid disclosures are reproduced hereunder for ready reference: The Company has entered into a joint venture agreement on December 8, 2007 with Vodafone Essar Limited and Idea Cellular Limited to form an independent tower company ( Indus Tower Limited ) to provide passive infrastructure service in 16 circles of India. The Company and Vodafone Essar Limited will hold approximately 42% each in the Indus Tower Limited and the balance 16% will be held by Idea Cellular Limited. For this purpose Bharti Infratel Ventures Limited has been incorporated as a wholly owned subsidiary of Bharti Infratel Ltd wherein the relevant assets are to be transferred for ultimate merger in the Indus Towers Limited. Pursuant to the aforesaid agreement, the Company has acquired 50,000 equity shares of ₹ 10 each on December 17, 2007 for an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. Copies of the questionnaire dated 10.02.2010 and reply dated 21.04.2010 are annexed hereto and marked as Annexure M and Annexure N respectively. 48. Further, the Petitioner was also specifically directed to provide details of depreciation claimed on assets transferred from BAL as well as documents in support of written down value of assets received which was duly replied by the Petitioner vide letter dated 15.11.2010, also enclosing copy of the SOA. Copy of the reply dated 15.11.2010 is annexed hereto and marked as Annexure O . 49. Further, the assessing officer, during the course of assessment proceedings had raised specific query qua the basis of transfer of assets from BAL under the SOA, which was also replied to by the Petitioner wherein it was clearly stated that assets were acquired without any consideration and the Petitioner was not required to issue any shares or pay any consideration to BAL. Copy of the aforesaid reply is annexed hereto and marked as Annexure P . 50. In addition to the exhaustive documentary evidence submitted by the Petitioner during the course of proceedings under Section 143(3) of the Act, it is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including increase in share-capital. On the contrary, the corresponding increase in general reserves was made only because assets were received without consideration, which was fully and properly explained in the accounts, through notes at several places. In any case, the SOA specifically stated that the transfer of PI assets by BAL to the Petitioner was without consideration. That apart, in the reply filed before the assessing officer during the course of assessment proceedings, too, it was specifically pointed out that assets had been received by the Petitioner from BAL, without any consideration. In that view of the matter, the allegation made in the impugned order disposing objections, are factually incorrect and made on surmises and conjectures, simply to justify the action of initiating reassessment proceedings under Section 147 of the Act. 54. There can thus, be no basis for any conclusion, howsoever remote, that the Petitioner had failed to fully and truly disclose its material facts, calling for exercise of jurisdiction under Section 147 beyond a period of four years from the end of relevant assessment year. 55. Reliance in this regard is also placed on the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thus the limitation u/s 147 is upto the expiry of four year from the end the end of the relevant Assessment year. However, production before the Assessing Officer of the account books or other evidence from which material evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure with the meaning of the foregoing proviso. In view of the above legal position it is held by the AO that the assessee had not made true and full disclosure during the assessment proceedings u/s 143(3). 25. The contents of para 47, 48, 49 50 are denied. In these paras the Petitioner has referred to its various submissions made during the assessment proceedings u/s 143(3). However, it may be noted that nowhere in these submissions the Petitioner had given any information regarding the subsequent transfer of PI to any company outside the group controlled by the transferor company. 26. The contents of para 51 are denied. It is submitted that that the proceedings for sanction of transfer of scheme of transfer of PI from petitioner to BIVL before this Hon ble Court and the assessment proceedings u/s 143( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on accounts. Secondly, no specific query with regard to tax on valuation of assets and subsequent transfer to M/s Indus Tower Limited was made in the notice issued to the assessee under Section 143(2) of the Act. Thirdly, the facts with respect to taxability and transfer of assets worth ₹ 5739.60 crores to the Petitioner Assessee at nil value were never disclosed in specific terms and hence the same could not be examined. Neither the Director s report nor the notes on accounts nor the affidavit contained the fact of valuation of assets at ₹ 5739.60 crores. Thus, the petitioner/BIL had not disclosed fully and truly all material facts and reliance is placed on Explanation 1 to Section 147. Reference is made to the order under Section 263 of the Act dated 30th March, 2014 passed by the Commissioner of Income Tax in the case of BAL, to plead that fact of transfer of assets of ₹ 5739.60 crores at nil valuation and re-valuation of the same came to notice only from careful due diligence of this order. Lastly, reference is made to the order passed by the High Court dated 26th November, 2007 approving the SOA between BAL and BIL for re-structuring of the group companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssive infrastructure was not handled by BIL for a single day and was transferred to Indus JV. BIL could claim proportional depreciation was stated. Similarity between the factual assertions made in the affidavit of Mr. Raghuveer Singh Dagur and the factual narration in the reasons to believe are apparent. What was stated in this affidavit of Mr. Raghuveer Singh Dagur sworn on 12th February, 2010 was known to him on 20th December, 2010 when he had passed the original assessment order. 25. The formation of Bharti Infratel Ventures Limited and transfer of infrastructure assets in 12 circles to that company with the object that this newly formed company would specifically transfer these assets to M/s. Indus Towers Limited by way of amalgamation was something that was hidden and/or concealed. It was openly and clearly stated and known. It was a fact duly informed and within the knowledge of the then Assessing Officer, Mr. Raghuveer Singh Dagur, who had referred to the transfer made to Indus JV. Further, during the course of the original assessment proceedings Mr. Raghuveer Singh Dagur had issued questionnaire dated 10th February, 2010 to provide a brief note on the business activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rit petition which states and refers to the Scheme of Demerger of tower business from BAL to BIL on the scheme being sanctioned and accordingly the petitioner had acquired 52000 towers infrastructure. BIL had subsequently entered into joint venture with Vodafone Essar Limited and Idea Cellular Limited to maintain and operate tower infrastructure business with the equity structure of 42:42:16 respectively. (b) Point 3 in the auditor s report had specifically stated that the passive infrastructure acquired from BAL had been recorded in the books of accounts at fair market value and the equivalent amount was transferred to the general reserve in accordance with the SOA. The notes refer to Accounting Standard-14 for amalgamation and stated that the fair market value of ₹ 8235.96 crores was credited to the general reserve. The capital reserve has been reduced by ₹ 8235.96 crores and the general reserve was increased by ₹ 8197.14 crores after depreciation of ₹ 388.20 crores. (c) Details of SOA as well as the accounting treatment given to the transferred assets in the books of accounts were also noted in Note 1(a) to Schedule 16 of the financial statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x audit report in Annexure-2 to clause 14 again gave complete details regarding written down value of the assets transferred by BAL having aggregate of ₹ 5371.67 crores comprising of written down value of ₹ 5229.32 crores and additional depreciation of ₹ 142.36 crores claimed by BIL. (g) Note 3 of the notes of return of income reads as under: - 3) The company had entered in to a scheme of arrangement for transfer of the Telecom Infrastructure undertaking from Bharti Airtel Limited ( BAL ), which has been approved by the Hon ble High Court of Delhi vide order dated November 26, 2007 and filed with the Registrar of Companies, Delhi Gurgaon on January 31, 2008 i.e. the Effective Date of the Scheme. Pursuant to the scheme, the telecom infrastructure undertaking were transferred to and vested in the Company with that date. The depreciation on assets transferred from BAL have been computed in accordance with the fifth proviso to section 32 of the Act, since assets have been used by both the legal entities during the year. Hence the depreciation on such assets for the assessment year 2008-09 has been apportioned between the two Companies in the ratio o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 30th November, 2006 with the object of, inter alia, setting up, operating and maintaining wireless communication towers, provide network development facilities and to engage in video and voice data and internet transmission business in and out of India. SOA between BIL and BAL, the orders passed by the Court, the details of the terms of the scheme, general reserve, assets and liabilities (based upon independent fair valuation report) are elucidated and stated. With regard to fair market value, etc. details in form of fixed assets, liabilities etc. were given. Under heading (b), reference is made to the Joint Venture Agreement dated 8th December, 2007 with M/s Vodafone Essar Limited and M/s Idea Cellular Limited to form an independent tower company, namely, M/s Indus Towers Limited, which was to provide passive infrastructure services in 16 circles and BIL and M/s Vodafone Essar Limited would hold approximately 42% each in M/s Indus Towers Limited and the remaining 16% would be owned by M/s Idea Cellular Limited. For this purpose M/s Bharati Infratel Ventures Limited was incorporated as a wholly owned subsidiary of BIL, wherein relevant assets were transferred for subsequent pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration as mentioned in the SOA duly approved by the High Court, was furnished to the Assessing Officer by producing and filing on record both SOA s and the orders passed by the High Court, which was taken note of and considered. 31. In the aforesaid factual background and the legal position elucidated, it has to be held that BIL had made full and true disclosure of material facts i.e. all primary facts which are mentioned and stated in the reasons to believe . Nothing was concealed, withheld and nothing was left to be factually discovered in the form of material mentioned in detail in accounts and other evidence, that was not disclosed/stated but could have been discovered by due diligence. In fact as noted above, reading of the reasons to believe i.e. evidence and material in form of facts and figures were duly stated and mentioned in the affidavit sworn by Mr. Raghuveer Singh Dagur on 12th February, 2010, opposing the second scheme of demerger and transfer of infrastructure assets in 12 circles by BIL to M/s Bharti Infratel Ventures Ltd. and language, facts and figures in the reasons to believe are similar, if not identical. 32. In view of the aforesaid discus ..... 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