Commissioner Of Income Tax-Ltuchennai v. M/S.hyundai Motor India Ltd.,Plot No.h-1 Sipcot Industrial Park,Irungattukottai, Sriperumpudur Taluk,Kancheepuram District Pin: 602 105

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 6.9.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE C.SARAVANAN Tax Case (Appeal) No.1441 of 2010 Commissioner of Income Tax-LTUChennai ...Appellant Vs. M/s.Hyundai Motor India Ltd.,Plot No.H-1 SIPCOT Industrial Park,Irungattukottai, Sriperumpudur Taluk,Kancheepuram District PIN: 602 105. ...Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, 'B' Bench, Chennai, dated 23.7.2010 made in ITANo.704/Mds/2010 as against the Order of the Commissioner ofIncome Tax (Appeals) LTU, Chennai -34, in appeal No.ITANo73/08-09/LTU(A),dated 26.02.10 against the Order of the Addl.Commissioner of Income Tax LTU, Chennai, dated 24.12.08 for theAssessment Year 2003-04. For Appellant : Mr.T.Ravikumar Senior Standing Counsel For Respondent : Mr.Vikram Vijayaraghavan for M/s.Subbaraya Aiyar Padmanabhan J U D G M E N T (Delivered by DR.VINEET KOTHARI,J) The Revenue has filed this Tax Case (Appeal) under Section260-A of the Income Tax Act aggrieved by the order dated 23rdJuly 2010 passed by the learned Income Tax Appellate Tribunaldismissing the Revenue's Appeal for the Assessment Year 2003-2004. 2. The Appeal was admitted by a co-ordinate Bench of thiscourt on 31.1.2011, on the following purported substantialquestion of law for consideration:-"Whether on the facts and in the circumstances of https://hcservices.ecourts.gov.in/hcservices/ the case, the Income Tax Appellate Tribunal wasright in confirming the order of the Commissionerof Income Tax (Appeals) holding that the reopeningof the assessment under Section 147 was not validon the ground that the assessee had disclosed allparticulars at the stage of original assessment andthe reopening was only due to change of opinion,without appreciating that the Assessing Officer hadnot formed any opinion at all on the issue inquestion at the time of the original assessment andthe assessment had been reopened within the periodof four years?" 3.LearnedSeniorStandingCounselfortheAppellant/Revenue Mr.T.Ravikumar submitted that in the originalAssessment Order under Section 143(3) of the Act for theAssessment Year 2003-2004 dated 17.3.2006 the issue regardingthe payment of Technical Know-How Fees of Rs.9,63,81,500/- wasnot discussed by the Assessing Authority and merely because theAssessee had produced relevant Books of Accounts before theAssessing Authority in the course of Assessment under Section143(3) of the Act, it cannot be said to be a case of re-assessment on a mere change of opinion under Section 147/148 ofthe Act and therefore, the learned Tribunal has erred inholding that re-opening of the Assessment is not valid, by itsimpugned order. He relied upon the following decisions insupport of his contention:-i) Dr.Amin's Pathology Laboratory v. JCIT and others (252 ITR673 (Bom))ii) Consolidated Photo & Finvest Ltd. v. ACIT (281 ITR 394(Del))iii) EMA India Ltd. v. ACIT (226 CTR 659(All))iv) Sri Krishna (P) Ltd. v. ITO (221 ITR 538 (SC))4. The relevant portion of the decision in Dr.Amin'sPathology case (supra) is quoted below for ready reference:-"A reading of the assessment order clearly showsthat the AO failed to notice an important item,viz., an amount of Rs.6,70,758 which representedunpaid purchases. The assessee-firm had claimedexpenses in respect of all purchases. However,an amount of Rs.6,70,758 represented unpaidpurchases. It is for this reason that the AO hascome to the conclusion for issuance of noticeunder s.148 that the assessee-firm had suppressedan income to the extent of Rs.6,70,758. UnderExpln.1 to the proviso, mere production of accountbooks from which material evidence could have beendiscovered by the AO will not necessarily amountto disclosure within the meaning of the proviso.Therefore, mere production of the balance sheet P&L a/c or account books will not necessarilyamount to disclosure within the meaning of theproviso. In the present case, the facts show thatthe AO overlooked the aforestated item. That, henoticed it subsequently. That, at the time ofpassing the original order of assessment, he couldnot be said to have opined on the above item.Therefore, there was no change of opinion.Therefore, in the present case, the impugnednotice is sustained." 5. On the other hand, the learned counsel for the AssesseeMr.Vikram Vijayaraghavan submitted that it is wrong to contendthat on behalf of the Revenue the issue regarding payment ofTechnical Know-How Fee was not considered by the AssessingAuthority in the Scrutiny Assessment under Section 143(3) of theAct. He submitted that for the said Assessment Year, the matterwas referred to the Transfer Pricing Officer by the saidAssessing Authority on 6.6.2005 and the learned Transfer PricingOfficer, vide order dated 9th March 2006, has not onlyconsidered the said payment of Technical Know-How Fee ofRs.9,63,81,500/- while analysing the various such payments forinternational transactions on the basis of Transactional NetMargin Method (TNMM) under Rule 10B of the Income Tax Rules,but, he had assessed amount of T.P. adjustments to the extent ofRs.18,34,295/- vide the aforesaid order dated 9th March 2006which has been included in the assessed income separately by theAssessing Authority in the Assessment Order under Section 143(3) of the Act, vide para 3 thereof. Therefore, once theconscious consideration of the said payment of Technical Know-How Fee has already been made by the Assessing Authority in theearlier Scrutiny Assessment under Section 143(3) of the Acttherefore, the re-assessment on a mere change of opinion totreat it as part of capital asset and allow only depreciationthereon was not permissible and therefore, the learned Tribunalwas justified in setting aside the re-assessment order. 6. The learned counsel for the Assessee further drew ourattention to the reasons recorded by the Assessing Authorityunder Section 148 of the Act for the Assessment Year 2003-2004in which the learned Assessing Authority has clearly taken noteof the order passed by the Transfer Pricing Officer on 9th March2006 regarding the Technical Know How-Fee of Rs.9,63,81,500/-in the said reasons recorded. Therefore, even while issuingsuch reassessment notice, the learned Assessing Authority wasaware of the previous consideration of the said payment ofTechnical Know-How Fees made by the Assessee. He, therefore,submitted that the learned Tribunal was justified in quashingthe re-opening of the Assessment under Section 147/148 of theAct in the present facts and circumstances. 7. We have heard the learned counsels at length and perusedthe materials available on record. 8. The learned Tribunal, in its order dated 23rd July 2010,has assigned the following reasons for setting aside the re-assessment proceedings for the Assessment Year 2003-2004 whichhas been done within the time limit of four years withoutinvoking the proviso to Section 147 of the Act. The relevantportion of the order passed by the Tribunal is quoted below forready reference:- 7. We have heard the learned counsels at length and perusedthe materials available on record. 8. The learned Tribunal, in its order dated 23rd July 2010,has assigned the following reasons for setting aside the re-assessment proceedings for the Assessment Year 2003-2004 whichhas been done within the time limit of four years withoutinvoking the proviso to Section 147 of the Act. The relevantportion of the order passed by the Tribunal is quoted below forready reference:- "5. We have considered the rival submissions. Aperusal of the assessment order clearly shows thatthe original assessment had been completed u/s 143(3) of the Income Tax Act, 1961 on 17.3.2006. Itis also noticed that the assessee has challengedthe reopening. It is further noticed that the AOhas overruled the assessee's objection regardingthe validity of the reopening on the ground thatthe issue of the payment of royalty and technicalknow fees being treated as a capital expenditurehad not been dealt with in the original assessmentorder and the reopening had been done within 4years and consequently the proviso to section 147was not applicable. A perusal of the order of thelearned CIT(A) clearly shows that the detailspertaining to the lump sum payment of technicalknow fees, the copy of the agreement etc. werealready submitted in the course of the originalassessment proceedings on 26.12.2005. The factthat the AO in the course of the originalassessment has called for the said details and hasexamined them and has accepted the claim of theassessee in the course of the original assessmentshows that there is no default on the part of theassessee. Obviously, the assessee is not expectedto advise the AO as to the course of action hehas take in the assessment. The AO calls for thedetails and explanations from the assessee. Theassessee is expected to give the details and theexplanation called for. The AO has to considerthe explanation and then make the assessment.Just because he has not discussed anythingregarding the explanations called for from theassessee in the assessment order does not meanthat the issue has not been considered by the AOor that he has not formed an opinion on the issue.Obviously, the AO would discuss issues in theassessment order on which there are disputesbetween the AO and the assessee. Where the AO accepts the explanation of the assessee normallysuch issues would not be discussed in theassessment order. The fact that the AO has calledfor the details in the course of originalassessment proceedings is not disputed. Once thedetails are called for and they are submitted itis presumed that the AO has applied his mind tothe issues for which the details have been calledfor. The fact that no discussions or additions ordisallowances have been made in the course of theassessment order passed originally would show thatthe AO has found the claim of the assessee to bereasonable and acceptable. Thus the AO hasalready formed an opinion on the basis of theevidences filed in the course of the originalassessment proceedings. By re-examining the sameand drawing a different inference it would onlymean that there is a change of opinion. This isnot permissible for reopening. This view issupported by the decision of the Hon'ble SupremeCourt in CIT v. Kelvinator of India Ltd. reportedin 320 ITR 561. In the circumstances, we are ofthe view that the reopening of the assessment asdone by the AO is bad in law. It is also noticedthat the learned CIT(A) has followed the decisionof the Hon'ble Supreme Court in the case ofKelvinator India Ltd., referred to supra, to holdthat the AO has no power to review and has thepower only to do reassessment and that thereopening done in the present case is on a changeof opinion. In the circumstances, the finding ofthe learned CIT(A) on this issue stands confirmed.6. In the result, the appeal of the Revenue isdismissed." 9. We are of the clear opinion that in the present factsand circumstances of the case, the judgments relied upon by thelearned Senior Standing Counsel for the Revenue are notapplicable. It is not the case of the Assessee of mereproduction of Books of Accounts and relevant information tothe Assessing Authority, but, they have been given active andconscious consideration by the Assessing Authority. As far asthe amount of payment of Technical Know-How Fee ofRs.9,63,81,500/- is concerned, it is clear from the records thatthe said issue was considered not only by the AssessingAuthority but, by the Transfer Pricing Officer also alongwithother expenditure incurred by the Assessee and it was found thatit falls within the domain of international transactions asfound by the Transfer Pricing Officer and the T.P. Adjustment ofa sum of Rs.18,34,295/- was arrived by the Transfer Pricing Officer which was included by the Assessing Authority whilepassing the Assessment Order under Section 143(3) of the Act. 10. Therefore, the reassessment proceedings undertaken bythe Assessing Authority to disallow the said expenditure fullyby holding it to be only adding as intangible asset fallingfalling within the domain of Section 32(1)(ii) of the Act andallowing only 25% depreciation thereon is nothing but a merechange of opinion by the Assessing Authority. It is wellsettled legal position that the reassessment under theprovisions of Sections 147 and 148 of the Income Tax Act is notpermissible on a mere change of opinion. The AssessingAuthority, in order to invoke the reassessment proceedings underSection 147/148 of the Act, has to record "reasons to believe"about escapement of income in the hands of the Assessee. Theparameters of powers under Section 147/148 of the Act have beendiscussed by the Apex Court and various High Courts in a largenumber of decisions and the latest in the series being in thecase of CIT v. Kelvinator of India Ltd. (320 ITR 561 (SC)) whichhas been relied upon by the learned Tribunal to quash thereassessment in the present case. 11. The relevant portion of the decision of the Hon'bleSupreme Court in the case of Commissioner of Income Tax v.Kelvinator of India Ltd. (320 ITR 561 (SC)) is extracted belowfor ready reference:- "On going through the changes, quoted above, madeto Section 147 of the Act, we find that, prior toDirect Tax Laws (Amendment) Act, 1987, re-openingcould be done under above two conditions andfulfilment of the said conditions alone conferredjurisdiction on the Assessing Officer to make aback assessment, but in section 147 of the Act[with effect from 1st April, 1989], they are givena go-by and only one condition has remained, viz.,that where the Assessing Officer has reason tobelieve that income has escaped assessment,confers jurisdiction to reopen the assessment.Therefore, post-1st April, 1989, power to re-openis much wider. However, one needs to give aschematic interpretation to the words "reason tobelieve" failing which, we are afraid, Section 147would give arbitrary powers to the AssessingOfficer to re-open assessments on the basis of"mere change of opinion", which cannot be per sereason to reopen. We must also keep in mind theconceptual difference between power to review andpower to reassess. The Assessing Officer has nopower to review; he has the power to reassess. Butreassessment has to be based on fulfilment of certain pre-condition and if the concept of"change of opinion" is removed, as contended onbehalf 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 theAssessing Officer. Hence, after 1st April, 1989,Assessing Officer has power to re-open, providedthere is "tangible material" to come to theconclusion that there is escapement of income fromassessment. Reasons must have a live link with theformation of the belief. Our view gets supportfrom the changes made to Section 147 of the Act,as quoted hereinabove. Under the Direct Tax Laws(Amendment) Act, 1987, Parliament not only deletedthe words "reason to believe" but also insertedthe word "opinion" in Section 147 of the Act.However, on receipt of representations from theCompanies against omission of the words "reason tobelieve", Parliament re-introduced the saidexpression and deleted the word "opinion" on theground that it would vest arbitrary powers in theAssessing Officer. We quote hereinbelow therelevant portion of Circular No.549 dated 31stOctober, 1989 ((1990) 82 CTR (St) 1), which readsas follows: "7.2 Amendment made by the Amending Act,1989, to reintroduce the expression `reasonto believe' in Section 147.--A number ofrepresentations were received against theomission of the words `reason to believe'from Section 147 and their substitution bythe `opinion' of the Assessing Officer. Itwas pointed out that the meaning of theexpression, `reason to believe' had beenexplained in a number of court rulings inthe past and was well settled and itsomission from section 147 would givearbitrary powers to the Assessing Officer toreopen past assessments on mere change ofopinion. To allay these fears, the AmendingAct, 1989, has again amended section 147 toreintroduce the expression `has reason tobelieve' in place of the words `for reasonsto be recorded by him in writing, is of theopinion'. Other provisions of the newsection 147, however, remain the same." 5. For the afore-stated reasons, we see no meritin these civil appeals filed by the Department,hence, dismissed with no order as to costs." 12. Therefore, we are satisfied that the learned Tribunal,in the present case, was perfectly justified in taking theaforesaid view that reassessment in the circumstances of thecase was done merely based on a change of opinion at asubsequent stage and it was not permissible and set aside thesame. The present Appeal filed by the Revenue is devoid ofmerit and is liable to be dismissed and the same is,accordingly, dismissed. The substantial question of law framedis answered in favour of the Assessee and against the Revenue.No order as to costs. ssk Sd/-Assistant Registrar //True Copy// Sub Assistant RegistrarTo1. The Commissioner of Income Tax, Chennai.2. The Additional Commissioner of Income Tax-LTU Chennai 3. The Registrar, Income Tax Appellate Tribunal 'B' Bench, Chennai.+1cc to Mr.T.Ravikumar, Advocate, SR.No.77088+1cc to Mr.Subbaraya Aiyar, Advocate, SR.No.77650TC(A) No.1441 of 2010Kak(23/10/2019)