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TMI Blog2022 (1) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer subsequently, may not furnish a justifable ground to hold that there was non-disclosure of primary facts. Undoubtedly, as pointed out by Shri Sharma, the issue has not been specifically dealt with in the assessment order. However, the said consideration is not decisive. As laid down in the case of Aroni Commercials Ltd. [ 2014 (2) TMI 659 - BOMBAY HIGH COURT] once a query is raised during the assessment proceedings and the assessee has furnished a reply thereto, it implies that the query so raised was a subject matter of consideration of the Assessing Authority. It is not an immutable rule that an assessment order should contain reference and/or discussion on such query. For the foregoing reasons, we are satisfied that, in the peculiar facts of the case, the impugned notice under section 148, of the Act, 1961 can be said to be based on a mere change of opinion. In view of the settled legal position that mere change of opinion does not furnish a justification for formation of reason to believe that income chargeable to tax has escaped assessment, we find the impugned action legally unsustainable. Respondent attempted to salvage the position by canvassing a submission that fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in two business segments : (i) Products and (ii) Services. Under the product business, the petitioner markets its package application software and derives revenue from license fee, customization fee and annual maintenance charges. Under the Service business, the petitioner provides services to customers which include IT solutions and consulting and professional services according to customer's requirements and standards. (b) For the said business, the petitioner has subsidiaries in different countries. The installation and implementation of the product at the location of the overseas customers requires the presence and supervision of technical personnel. These personnel are temporarily seconded by petitioner on employment basis to the overseas subsidiaries to perform such functions. During the period of secondment, the personnel are kept on employment and payroll of the overseas subsidiaries. Their salary and related expenses are subsequently reimbursed by the petitioner to the said subsidiaries, on a cost to cost basis. (c) For the assessment year 2014-2015, the petitioner filed its return of income on 2,th November 2014. The petitioner's case was selected for scrut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reasons for the proposed reopening of the assessment. It was, inter-alia, recorded that from note 30, (expenditure in foreign currency) of the financial statement for the assessment year 2014-15, the petitioner had debited an amount of ₹ 728.793 Crore as 'Employee Cost'. However, in Assessment Year 2015-16, under same head of 'Employee Cost', a sum of ₹ 626.416 Crore had been disallowed under section 40(a)(i) of the Act, 1961, for non-deduction of TDS under section 195 of the Act, 1961. On parity of reasoning, for assessment year 2014-15, a sum of ₹ 658.318, (which constituted 90.33% of total employee cost of ₹ 728.793 Crore) was liable to be disallowed on pro-rata basis in Assessment Year 2014-15, being reimbursement of employee salary and related expenses. It was further noted that the said aspect was neither discussed nor considered and examined during the course of assessment for the Assessment Year 2014-15. Hence, it was necessary to reopen the assessment. (i) The petitioner filed the objections against the reasons for reopening recorded by Assessing Officer. By an order dated 1,th October 2019, the Assessing Officer disposed of all the objections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not adverted to and considered by the Assessing Officer, during the course of assessment for the Assessment Year 2014-15, is against the weight of the material on record. Laying emphasis on the queries raised during the course of assessment and the response of the petitioner thereto, Shri Shrivastava strenuously submitted that the impugned action is nothing but an endeavour of taking a different view of the matter on the same set of facts without there being an iota of tangible material. Thus, it cannot be said that there was tangible material to form a reason to believe that income chargeable to tax had escaped assessment for the assessment year 2014-15. 9. In opposition to this, Shri Sharma, the learned counsel for respondent Nos.1 and 2 supported the impugned action. It was urged that the Assessing Officer was well within his rights in issuing the notice under section 148, of the Act, 1961 as an identical claim under head "Employees Cost" was disallowed by the Assessing Officer in succeeding assessment years. In the backdrop of the material on record, according to Shri Sharma, it cannot be said that there was no tangible material to reopen the assessment. Shri Sharma would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Commissioner of Income-Tax Vs. Kelvinator of India Ltd. & Anr. [2010] 320 ITR 561 (SC), wherein the test of "tangible material" to save the power under section 147 from the vice of arbitrariness, was enunciated. The observations of the Supreme Court in paragraph 6 are instructive and thus extracted below : "6……………….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 reassessment has to be based on fulfillment of certain precondition 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion would not be reason to believe that income chargeable to tax has escaped assessment. Besides the power to reassess is not a power to review. Further reopening must be on the basis of tangible material. 12. Therefore the power to reassess cannot be exercised on the basis of mere change of opinion i.e. if all facts are available on record and a particular opinion is formed, then merely because there is change of opinion on the part of the Assessing Officer notice under Section 147/148, of the Act is not permissible. The powers under Section-147/148, of the Act cannot be exercised to correct errors/mistakes on the part of the Assessing Officer while passing the original order of assessment. There is a sanctity bestowed on an order of assessment and the same can be disturbed by exercise of powers under Sections 147/148, of the Act only on satisfaction of the jurisdictional requirements. Further, the reasons for reopening an assessment has to be tested/examined only on the basis of the reasons recorded at the time of issuing a notice under Section 148, of the Act seeking to reopen an assessment. These reasons cannot be improved upon and/or supplemented much less substituted by aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment are fully and truly disclosed and the Assessing Officer takes a conclusive view thereon, it is not permissible to reopen the assessment based on the very same material on the premise that it is susceptible to a different opinion favourable to the revenue. 16. On the aforesaid touchstone, reverting to the facts of the case, it may be apposite to note the reasons for reopening the assessment communicated vide communication dated 18th February 2019. The relevant part reads as under : "2 It is found from Note 30 (expenditure in foreign currency) of the Financial Statements for A.Y.2014-15 of the assessee company that the assessee has debited an amount of ₹ 728.793 Crore as 'Employee Costs' 3 It is pertinent to mention here that in A.Y. 2015-16, an amount of ₹ 693.406 Crore is debited as employee cost. Out of the total employee cost of ₹ 693.406 Crore, a sum of ₹ 626.416 Crore (90.33% of 693.406) has been disallowed u/s.40(a)(i) of the Act and as per various Double Taxation Avoidance Agreement (DTAAs) for non-deduction of TDS u/s.195 of the Act in assessment order u/s.143(3) of the Act. This amount of ₹ 626.416 Crore is termed as 'reimb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above provision is not applicable as the case is being reopened within 4 years from the end of the relevant assessment year." 17. Shri Shrivastava, the learned counsel for the petitioner submitted that the assertion of the Assessing Officer, in the aforesaid reasons, especially in paragraph 6 extracted above, that the issue in question was neither discussed nor considered and examined by any questionnaire, order-sheet, noting and assessee's submission, during the original assessment proceedings, and consequently the Assessing Officer had no opportunity to consider the issue in the assessment order for assessment year 2014-15 is plainly against the weight of the material on record. This factually incorrect premise vitiates the impugned action as the said exercise clearly falls within the ambit of "mere change of opinion" on the same set of material facts. 18. Shri Shrivastava, the learned counsel for the petitioner would urge that aspect of expenses under the head 'Employee Cost' was not only considered by the Assessing Officer during the course of assessment year 2014-15, but the said issue was also considered by the TPO. In fact, the assessment order refers to the observations o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017, inter-alia, recorded as under : "5.6.6 It is further evident that the Assessee pays huge reimbursement cost to the AEson account of salary reimbursement cost of its employees every year. During the year, the Assessee made reimbursement of ₹ 7,30,36,09,522/-. This reimbursement charges payment to the AE's indicates that the Assessee routinely send its employees for onsite work to various countries, where the AEs actually concluded the deal on behalf of the Assessee. Accordingly, it is clear that the salary of the employee paid by the AE is reimbursed by the Assessee to AE. This clearly shows that the entire business activity has been carried out only by the Assessee in those countries and the AEs are mere conduit for the Assessee to carry out its operation in those countries." 24. It is imperative to note that the Assessing Officer in the assessment order dated 6th February 2018, adverted to the aforesaid order passed by the TPO, in paragraph 4.1.3. The aforesaid material would thus indicate that the petitioner was called upon by the Assessing Officer, by raising a query, to furnish explanation as regards the foreign remittances, to which petitioner had submitted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r law-he would draw from the primary facts. (11) If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ? (12) It may be pointed out that the Explanation to the sub- section has nothing to do with " inferences " and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the Income-tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose " inferences "-to draw the proper inferences being the duty imposed on the Income-fax Officer. (13-14) We have therefore come to the Conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this." (emphasis supplied) 28. Undoubtedly, as pointed out by Shri Sharm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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