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TMI Blog2021 (9) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... ax has not deducted on the business development commission paid to non-resident. Business development commission is in the nature of technical services fees paid to the parent entity. The non-deduction of tax in the above payment, raised the liability to tax, which is escaped to assessment . This Court is of the opinion that the reasons furnished for reopening of the assessment cannot be gone into disputed facts and circumstances in the writ petition. Sufficiency of reasons cannot be gone into by the High Court. If there is a reason to believe and such reason to believe is sensible, then it is sufficient to invoke the provisions of Section 147 of the Income Tax Act and the High Court cannot go into 'sufficiency' of the reasons provided for reopening of such assessment. Sufficiency of the reasons deserves complete adjudication of the disputed facts, which cannot be gone into - this Court has no hesitation in arriving a conclusion that the Revenue has to establish the reason to believe for reopening of assessment and it is for the petitioner to establish that such reasons are insufficient for reopening or he has already disclosed truly and fully all materials facts necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments provided with reference to the Business Development Commission which is raised as grounds for reopening assessment were adjudicated in depth by the Assessing Officer and a finding was also given. Thus, there is no reason to believe for invoking Section 147 of the Act and it is nothing but change of opinion. The petitioner contended that with reference to the assessment year 2007-08, the assessment order dated 15.12.2010 passed under Section 143(3) read with 92CA(4) of the Income Tax Act, 1961 elaborately provides answer and the Business Development Commission was also considered. This apart, even in the appeal filed by the petitioner/Company, the Income Tax Appellate Tribunal, Chennai made a reference with regard to the Business Development Commission and with reference to the assessment year 2012-13. A specific finding was also given in this regard by the Income Tax Appellate Tribunal holding that therefore the question of deduction of tax at source does not arise u/s 195. I find, in this regard, that the AO has not succeeded to lawfully declare the business development commission under discussion as taxable in the hands of the recipient . Relying on the findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and true and full disclosure as contemplated under proviso to Section 147 of the Act. Thus, the order impugned is void as the mandatory conditions stipulated for invoking Section 147 remain absent. Thus, the writ petition is to be allowed. 7. The learned counsel appearing for the petitioner further relied on the circular issued by the CBDT dated 23.07.1969. It is contended that nonresidents- Income accruing or arising through or from business connection in India-Liability to tax-Section 9 of the Income-Tax Act, 1961 was clarified in the said circular . Even the contentions and the directions issued in the said circular have not been followed by the respondents while invoking powers under Section 147 of the Act. Paragraph No.3 of the circular contains the clarifications with reference to Section 9. The specific situations are also narrated and the case of the petitioner is falling under the said circular and the Competent Authority has failed to consider even the circular and the Hon'ble Apex Court as well as the High Court have repeatedly held that the circulars issued by the CBDT are binding on all the Authorities of the Income Tax Department and the same is to be impl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence or new materials not considered earlier. However, if all such materials, informations, documents are identified for initiation of proceedings by reopening the assessment, it is for the Assessee to submit his returns explaining the stand taken and to defend his case by availing the opportunities to be provided. Contrarily, at the initiation stage itself, the assessee cannot expect that the entire discussions are to be made. If the entire adjudication made by the assessee prior to issuance of notice, the same would violate the principles of natural justice. Therefore, the Section contemplates that if there is any reason to believe, then the reopening is permissible and after reopening, the opportunities are to be provided to the assessee and by availing the opportunity, the assessee is at liberty to defend his case by producing documents, evidence and statements etc., This being the scope of the provisions, the contentions raised regarding the merits, more specifically, Business Development Commission etc., are to be adjudicated by the Assessing Officer and those documents, information, and materials are not made available before this Court for an adjudication and such an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission payable to non-resident agents rendering services abroad was considered and a clarification was issued in detail by the CBDT. The learned counsel appearing for the petitioner in this regard relied on the judgment of the Hon'ble Supreme Court of India in the case of Commissioner of Income Tax vs. Toshoku Limited [1980] 125 ITR 525(SC). The said judgment was followed by the Hon'ble Division Bench of this Court. The Hon'ble Supreme Court of India held that amount of commission was later remitted to non-resident agents- Whether, since non-resident assessees did not carry on any business operations in India, amounts earned for services rendered outside India could not be deemed to be incomes which had either accrued or arisen in India,-held yes . It is held that the assessee could not be charged to tax on basis of receipt of income, actual or constructive, in taxable on basis of receipt of income, actual or constructive, in taxable territories during relevant accounting period as they neither received nor could be deemed to have received sums in question when their accounts with Indian exporter were credited-Held yes . Relying on the said judgment, the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 17. The spirit of Section 147 would reveal that the reason to believe is a wider term so as to cover the circumstances which would provide some materials or informations for the Authorities to invoke Section 147 of the Act. The word reason would indicate that the reason must be based on certain information, materials or evidences etc. Such reason must result in a belief and only in such eventuality, the Authority Competent would invoke Section 147 of the Act. 18. The dictionary meaning of the word belief is that a state of mind that regards the existence or truth of something as likely or relatively certain; conviction about the truth of something. 19. With reference to the phrases adopted under Section 147 of the Act, belief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the truth with reference to certain informations, documents, evidences, which were either provided by the assessee or not provided by the assessee or not considered during the original assessment. Various complex circumstances prevailing can be fit in with the provision, in view of the wider concept contemplated under Section 147 of the Act. 23. Let us now consider the proviso to Section 147 of the Income Tax Act which contemplates 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 relevant assessment year . Thus, four years time is granted for initiation of reopening proceedings under proviso to Section 147 of the Act. However, the proviso further contemplates that if 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 a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire proceedings. Thus, it is to be established whether there is a true and full disclosure of all materials by the assessee or not. Such an adjudication cannot be done in entirety in a writ proceedings under Article 226 of the Constitution of India. The power of the High Court is to scrutinize the process through which a decision is taken by the Authorities Competent in consonance with the Statute and not the decision itself. Thus, how to test the component of true and full disclosure. Thus, if such non-disclosure of true and full income by the assessee provide a reason to believe to the Assessing Officer, then it is to be construed that the provision of Section 147 is satisfied and thereafter, the Assessing Officer is empowered to issue notice under Section 148. 27. It is pertinent to note that Section 147 is only initiation of proceedings for reopening of assessment. Reopening of assessment can be questioned, but on certain limited grounds. Mere reopening would not provide a cause for adjudication of all material facts. If any reopening of the assessment is made without jurisdiction or no prima facie material available for such reopening, then alone, the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng clause are also to be taken into consideration, while dealing with the cases for reopening of assessment. 30. Therefore, an assessee cannot come forward by stating that the materials, which are all forming part and parcel of reopening of assessment are already adjudicated in the original assessment. Therefore, the reopening of assessment is impermissible. Such a ground cannot be entertained per se, in view of the fact that from and out of any such materials already produced by the assessee during the original assessment, the Assessing Officer is able to cull out some new materials or fresh informations, then also, it is to be construed that the Assessing Officer has reason to believe that the income chargeable to the tax has escaped assessment, which may result in initiation of proceedings under Section 147 of the Act. 31. Plain reading of the provision would throw light on the legislative intention. Importantly, various amendments are introduced under the provisions of the Act one after another and periodically, in view of the reasons that Income Tax Department and its authority experienced practical difficulties in dealing with the cases, where large scale evasions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are to be completed by following the principles laid down in the case cited supra and in compliance with the mandatory requirements of the provision of the Act. 34. Considering the scope of Sections 147 and 148 of the Act, it is to be borne in mind that interference by the High Court at the initiation stage without any strong and acceptable ground, would create a situation, wherein the Income Tax Department would be deprived of exercise of their rightful powers to deal with certain facts and circumstances, which were not adjudicated during the original assessment and with reference to the non-disclosure of true and full disclosure of income by the assessees. The purpose and object of Section 147 providing wider powers to the authorities competent is to cull out the truth and deal with suppression, evasion, under assessment etc., in the matter of payment of Income tax. Thus, the High Courts are expected to be cautious, while exercising the powers under Article 226 of the Constitution of India, more specifically, for interfering in such matters at the initiation stage. At the initiation stage, the entire facts and circumstances, may not be made available even before the High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Department for the purpose of reopening of assessment. In the event of establishing a prima facie case that some materials are made available on record for reopening of the assessment, then High Court must allow the authority to go on with such materials by following the procedures as contemplated and the assessee will get an opportunity to defend his case and establish his innocence or otherwise. Thus, only on exceptional circumstances, where the authorities have exercised jurisdiction erroneously or there is no material on record, which would provide cause for reason to believe the question of entertainability of the writ petition would arise. 37. As far as the writ on hand is concerned, Section 148 notice received by the assessee was responded by an application seeking reason for reopening. The respondents furnished reasons for reopening, wherein they have clearly stated that there is reason to believe that the income chargeable to tax has escaped assessment within the meaning of Section 147 of the Act, which would reveal that the case falls under beyond four years. This apart, the reasons stated in the said proceedings dated 11.04.2014 reveals that no TDS has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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