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TMI Blog2022 (9) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... ery much evident, the assessment has been reopened merely on reason to suspect rather than reason to belief. Thus, in our view, the reopening of assessment made by the AO on irrelevant facts and on a mere reason to suspect cannot survive. We hold that the reopening of assessment for the impugned assessment year is invalid. Hence, the subsequent action taken by the Assessing Officer in pursuance thereof resulting in the impugned assessment order is also invalid. Accordingly, we quash the assessment order for the impugned assessment year. Therefore, the impugned order of learned Commissioner (Appeals) having no leg to stand, is hereby set aside. Reasons recorded nor anywhere else the Assessing Officer in specific terms has stated that the alleged escapement of income is on account of failure of the assessee to disclose the particulars of his income truly and correctly - AY: 1998-99 AND AY: 1999-00 - As due to non-fulfillment of the conditions prescribed under the first proviso to section 147 of the Act, the reopening of assessment is invalid. Consequently, the assessment orders passed under section 143(3) read with section 147 of the Act for both the assessment years, bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the assessee, it is necessary to discuss the relevant facts. The assessee is a non-resident corporate entity incorporated in the Unites States of America (USA) and is stated to be one of the largest independent software company in the world. The assessee has a wholly owned subsidiary in India known as Oracle India Pvt. Ltd. (OIPL) which was incorporated in India in the year 1993 and started its operation by setting up a facility at Bangalore. As stated, the Indian subsidiary carries on business in two segments, i.e., software development support services and software duplication and distribution segment. For the assessment year 1997-98, the assessee had filed its return of income on 24.04.1997 declaring income of Rs.17,30,01,448/-. The return of income filed by the assessee was processed under section 143(1) of the Act and there was no scrutiny assessment under section 143(3) of the Act. Subsequently, in course of assessment proceeding for assessment year 2001-02, the Assessing Officer observed that while completing assessment under section 143(3) of the Act for assessment years 1998-99, 1999-2000 and 2000-01, the issue of royalty on software sales was discussed only on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational Taxation, a copy of which is placed at page 91 of the paper-book, learned counsel submitted, while granting approval for scrutiny assessment of assessment year 2001-02, the DIT had specifically mentioned that reassessment proceeding for earlier assessment years should be initiated only if there is concrete information about escapement of income in those years. However, he submitted, the Assessing Officer, in complete disregard of the directions of the DIT, initiated reassessment proceeding for assessment years 1997-98 to 2000-01. 6. Proceeding further, he submitted, the Assessing Officer has initiated reassessment proceeding without independent application of mind by simply adopting his reasoning in the assessment order passed for assessment years 2000-01 and 2001- 02. Drawing our attention to the reasons recorded for reopening of assessment for the impugned assessment year, learned counsel submitted, the reasons recorded are factually incorrect about existence of Hyderabad unit of OIPL as the said unit was set up in the previous year relating to assessment year 1999-2000. Further, he submitted, the allegation of the Assessing Officer that OIPL carried on core reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, he relied upon the following decisions: 1. Precilion Holdings Ltd. Vs. DCIT, W.P. No. 3342 of 2018, judgment dated 25th February, 2019 (Bombay High Court) 2. CIT Vs. Orient Craft Ltd., [2013] 29 taxmann.com 392 (Delhi) 3. E-Funds IT Solution Inc., [2017] 399 ITR 34 (SC). 8. He submitted, the reasons recorded must have a live link with the material/information resulting in reassessment. He submitted, the expression reason to believe postulates belief and existence of reasons for that belief must be held in good faith and cannot be pretended. In this context, he relied upon the decision of the Hon ble Supreme Court in the case of Calcutta Discount Company Ltd. Vs. ITO, 41 ITR 191 (SC). He submitted, the reasons recorded are not reasons to belief in real sense of the term but are reasons to suspect. Therefore, he submitted, reopening of assessment should be declared invalid. 9. Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). He submitted, before reopening the assessment, the Assessing Officer has duly recorded his reason to believe that income has escaped assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier assessment years should be done only after concrete information about escapement of income for those years are available with the department. In fact, in the reasons recorded for reopening of assessment for the impugned assessment year, the Assessing Officer himself admitted that based on the facts involved in assessment years 2000-01 and 2001-02, the assessments for the impugned assessment year was reopened. A careful perusal of the reasons recorded would reveal that the formation of belief regarding the escapement of income is on account of profit from royalty received from sale of software, which allegedly is attributable to the PE of the assessee, being the Hyderabad unit of OIPL. The Assessing Officer has alleged that all the core activities related to software development were undertaken in India on behalf of the assessee, hence, the Hyderabad unit of OIPL for all intent and purposes constitutes the PE of the assessee in India and even in respect of global deals. The royalty earned by the assessee would be attributable to the PE. 12. However, the material on record establish that the Hyderabad unit of OIPL was approved by the Software Technology Park of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer which could have establish escapement of income for the impugned assessment year. Thus, it is very much evident, the assessment has been reopened merely on reason to suspect rather than reason to belief. Thus, in our view, the reopening of assessment made by the Assessing Officer on irrelevant facts and on a mere reason to suspect cannot survive. Therefore, we hold that the reopening of assessment for the impugned assessment year is invalid. Hence, the subsequent action taken by the Assessing Officer in pursuance thereof resulting in the impugned assessment order is also invalid. Accordingly, we quash the assessment order for the impugned assessment year. Therefore, the impugned order of learned Commissioner (Appeals) having no leg to stand, is hereby set aside. Since, we have decided the appeal on the legal issue, the grounds raised by the assessee on merits, having become academic, do not require adjudication at this stage. 15. In the result, the appeal is allowed, as indicated above. ITA No.1830/Del/2009 (AY: 1998-99) ITA No.1831/Del/2009 (AY: 1999-00) 16. We have heard the parties and perused the materials on record. The decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, reopening of assessment under section 147 of the Act, which is the subject matter of challenge in these appeals was initiated after expiry of four years from the end of the relevant assessment years. Therefore, the proviso to section 147 of the Act clearly applies. On a reading of proviso to section 147 of the Act, it is very much clear that in case of a particular assessee, where assessments have already been made, either under section 143(3) or section 147 of the Act for any assessment year, no action for reopening of assessment can be taken after expiry of four years from the end of the relevant assessment year, unless, the following conditions are fulfilled: (i) The assessee has failed to make a return under section 139 or in response to notice issued under section 142(1) or section 148. (ii) The assessee has failed to disclose fully and truly all material facts necessary for his assessment for that assessment year. 18. In the present case, first condition does not apply as there is no allegation of failure on the part of the assessee in filing return of income under section 139 or in response to notice issued under section 142(1) or section 148 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this court in Haryana Acrylic Manufacturing Co. Vs. CIT (2009) 308 ITR (Delhi). In that case, this court had observed as under: In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, it is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that due to non-fulfillment of the conditions prescribed under the first proviso to section 147 of the Act, the reopening of assessment is invalid. Consequently, the assessment orders passed under section 143(3) read with section 147 of the Act for both the assessment years, being invalid, are quashed. As a natural corollary the impugned orders of learned Commissioner (Appeals) are hereby set aside. Since, we have decided the appeals on legal issue, the grounds raised by the assessee on merits having become academic are not adjudicated at this stage. 21. In the result, both the appeals are allowed. ITA No.1832/Del/2009 (AY: 2000-01) 22. Insofar as this assessment year is concerned, learned counsel appearing for the assessee, while challenging the validity of reopening of assessment under section 147 of the Act submitted, the only reason for which the Assessing Officer reopened the assessment is, the notice under section 143(2) of the Act could not be issued on time. He submitted, merely because the notice under section 143(2) of the Act could not be issued within the time limit, cannot lead to reopening of assessment under section 147 of the Act. He submitted, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he notice under Section 143(2) of the Act ought to have been issued within six months prescribed period (which in this case ended on 30.09.2013), however, that notice was issued on 09.01.2014. This aspect was highlighted not in the petition but in the course of the proceedings in the rejoinder filed by the assessee sometime in July, 2016. It sought to follow this up through an amendment application (CM No.27598/2018). In the light of these events, which are both subsequent to the initiation of the reassessment proceedings, the entire purpose for re-assessment, assuming that there was any, can no longer be achieved. The judgment of this Court in Pr. Commissioner of Income Tax vs. Silver Line (2016) 383 ITR 455 and the other subsequent decisions have ruled that omission to issue notice under Section 143(2) of the Act within the time stipulated in respect of any assessment is fatal. As a result of the above discussion, the reassessment notice dated 15.02.2013 and all consequent proceedings emanating from it are hereby quashed . 25. The other decisions cited by learned counsel for the assessee also express similar view. Thus, respectfully following the ratio laid down b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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