M/S Lahmeyer Holding Gmbh v. Deputy Director Of Income Tax, Circle 3(2)…

IN THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 19.05.2015 +W.P.(C) 7417/2012 & CM No.18979/2012 M/s LAHMEYER HOLDING GMBH …Petitioner versus DEPUTY DIRECTOR OF INCOME TAX, CIRCLE 3(2)… Respondent Advocates who appeared in this case:-For the Petitioner: Mr M.S. Syali, Sr Advocate with Ms Husnal Syali,Mr Mayank Nagi and Mr Tarun SinghFor the Respondent: Mr Balbir Singh with Mr Abhishek Singh Baghel andMr Arjun Harkauli CORAM:HON'BLE MR JUSTICE BADAR DURREZ AHMEDHON'BLE MR JUSTICE SIDDHARTH MRIDUL J U D G M E N T BADAR DURREZ AHMED, J Relief Sought:- 1.This writ petition is directed against the notice dated 13.10.2011 undersection 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the saidAct’) in respect of assessment year 2008-09. It is also directed against theproceedings pursuant to the said notice culminating in the order dated19.07.2012 passed by the assessing officer rejecting the objections raised bythe petitioner to the initiation of re-assessment proceedings. Rival Contentions in brief: 2.The re-assessment proceedings have been objected to by the petitioneron two counts—(1) change of opinion and (2) no new material or additionalfacts had come to the knowledge of the assessing officer.The allegedescapement of income from tax is founded on the premise that the transfer ofthe unexpired value of contracts by the petitioner to its 100% subsidiary(Lahmeyer International Consulting Engineers Gmbh) (‘LICEG’) in lieu ofshares of LICEG in August 2007 would be exigible to capital gains tax at thehands of the petitioner.According to the petitioner, the said transfer ofbusiness was a part of a restructuring exercise and was well within the theknowledge of the assessing officer and the Dispute Resolution Panel (‘DRP’)in the course of the original assessment proceedings. Therefore, the fact thatno such addition was made was, in itself, an indication that the assessingofficer and the DRP had formed an opinion that the transaction was nottaxable.Consequently, it was submitted on behalf of the petitioner, theattempt to re-open the assessment was clearly based upon a change ofopinion, which was not permissible in law. It was also urged that no newmaterial had surfaced after the assessment order and, therefore, the assessingofficer could not invoke section 147 of the said Act. 3.The revenue, on the other hand, took the stand that there was nochange of opinion because, according to them, no opinion as such had beenformed during the original assessment proceeding with regard to thetaxability of the said transaction. It was also submitted that the assessingofficer had not considered the said transaction in his draft order and the DRPhad also no occasion to consider it as no variation on this aspect had beenproposed by the assessing officer.It was further contended that thetransaction came to light as a result of the queries raised by the DRP withregard to the business restructuring arrangement of the petitioner. Since theDRP had not given any directions with regard to the taxability of thetransaction, the assessing officer could not include it, on his own, in theassessment order. It was submitted that, therefore, the assessing officer waswell within his rights to construe the material placed before the DRP as“new” material so as to invoke jurisdiction under section 147 of the said Act. Facts: 4.The petitioner (Lahmeyer Holding Gmbh) (‘LHG’), which is a foreigncompany, was formerly Lahmeyer International Gmbh. On 16.08.2007, thepetitioner (while it was known as Lahmeyer International Gmbh), transferred Facts: 4.The petitioner (Lahmeyer Holding Gmbh) (‘LHG’), which is a foreigncompany, was formerly Lahmeyer International Gmbh. On 16.08.2007, thepetitioner (while it was known as Lahmeyer International Gmbh), transferred the unexpired value of its contracts in India to its 100% subsidiary –Lahmeyer International Consulting Engineers Gmbh [‘LICEG’] – inexchange for the additional shares of LICEG. In other words, the petitionercontinued to hold 100% of the shares of LICEG though the number of sharesheld increased because of additional share capital.Furthermore, theunexpired value of its (petitioner’s) contracts in India stood transferred toLICEG. Subsequently, the petitioner gave up its earlier name – LahmeyerInternational Gmbh – and adopted its current name – LHG. And, LICEGthen changed its name to Lahmeyer International Gmbh (‘LIG’). 5.Theassessingofficerpassedadraftassessmentorderdated08.012.2010 under section 144C of the said Act proposing to makevariations in the income returned by the petitioner in respect of theassessment year 2008-09. In the draft assessment order it is specificallyrecorded that:- “… During the subject year, Lahmeyer has earned revenue fromexecution of contracts with Jammu & Kashmir State PowerDevelopment Corporation – Baglihar Construction services(‘JKSPDC’)JaypeeKarchamHydroCorporationLimited(‘JKHCL’) AND Jaypee Venture Private Ltd. (‘JVPL’).Thereceipts earned from 1[st]April 2007 to 31[st]July has been offeredto taxation in the hands of the assessee. Receipts earned from 1[st]August 2007 till 31[st]March 2007 in India has been offered to tax in the hands of M/s. Lahmeyer International GmbH (‘LIG’)which is a Company incorporated in Germany on July 20[th]2007.” 6.The petitioner filed objections to the draft order on 07.01.2011. Thevariations proposed by the Assessing Officer and the objections filed by thepetitioner did not relate to the question of the transfer of the unexpired valueof the contracts by the petitioner to LICEG (Now ‘LIG’) in exchange ofshares of the latter. However, from the directions under Section 144C (5) ofthe said Act given by the DRP on 28.09.2011, it is evident that during theDRP proceedings, a clarification had been sought from the petitioner withregard to the restricting undertaken by the applicant during the relevantassessment year. The same had been replied to by the petitioner through itsletter of 23.09.2011.The observations of the DRP with regard to thebusiness transfer from the petitioner to LICEG (Now ‘LIG’) are extractedhereinbelow:- “5.Observations of the DRPRegarding business transfer from Lahmeyer Holding GmbH toLahmeyer International GmbH The DRP during proceedings before it had sought clarificationregarding the business restructuring undertaken by the applicantduring the relevant assessment year. The applicant vide its letterdated 23[rd]September, 2011 has furnished the following reply: As submitted earlier, Lahmeyer International GmbH (now knownas LHG) transferred its entire business (on a going concern basis) toLICG (now known as LIG) with a view to increase its capitalcontribution in LICG. English translation of the audited financialstatement of LIG (now known as LHG), alongwith a certificatefrom notary public, duly evidencing the said fact, have beenenclosed as Annexure 1. Also English translation of the auditedfinancial statements of LICG (now known as LIG) is enclosed asAnnexure 2. It is submitted that prior to the business transfer on August 16,2007, all Indian contracts were executed by LIG (now known asLHG).Accordingly, consideration receivable in respect offollowing Indian contracts, as relevant for the subject AY, upto July2007 was accrued and duly offered tax in the hands of LIG (nowknown as LGH): Jammu and Kashmir State Power Development Corporation–Balihar Construction ServicesJammu and Kashmir State Power Development Corporation–Balihar Construction Services Jaypee Karcham Hydro Corporation LimitedJaypee Karcham Hydro Corporation Limited Jaypee Ventures LimitedJaypee Ventures Limited It is submitted that prior to the business transfer on August 16,2007, all Indian contracts were executed by LIG (now known asLHG).Accordingly, consideration receivable in respect offollowing Indian contracts, as relevant for the subject AY, upto July2007 was accrued and duly offered tax in the hands of LIG (nowknown as LGH): Jammu and Kashmir State Power Development Corporation–Balihar Construction ServicesJammu and Kashmir State Power Development Corporation–Balihar Construction Services Jaypee Karcham Hydro Corporation LimitedJaypee Karcham Hydro Corporation Limited Jaypee Ventures LimitedJaypee Ventures Limited Thereafter, with effect from August 2007, LICG (now known asLIG) executed the above contracts and therefore, all revenuesaccrued under such contracts (being contracts relevant for subjectAY) have been accrued by LICG and offered to taxation in thehands of LICG (now known as LIG). Further, it is clarified that while Indian customers wereupdated on the global restructuring, given that the nameofthelegalentity executingtheIndiancontractsremained the same, no addendum was executed with theIndian customers.Further, it is clarified that while Indian customers wereupdated on the global restructuring, given that the nameofthelegalentity executingtheIndiancontractsremained the same, no addendum was executed with theIndian customers. We request you to take the above on record.In case your Honorsrequired any further information / clarification in this regard, anopportunity to represent / furnish may be granted to the assessee forthe same.” Certified Translation German – EnglishFinancial Figures 2007 – ExplanatoryNoteTo Whom It May Concern For the purpose of presentation to authorities and institutions, I, theundersigned notary public, herewith certify that on August 16, 2007 anagreement relating to contribution of capital, my legal document role ofdeeds No. M 319/2007, was concluded between Lahmeyer InternationalGmbH, registered with the Commercial Register of the Municipal CourtFrankfurt / Main HRB 72343 and Lahmeyer International ConsultingEngineers GmbH, registered with the Commercial Register of theMunicipal Court Frankfurt / Main HRB 80852, about the transfer of thesum total of business activities of Lahmeyer International GmbH toLahmeyer International consulting Engineers GmbH. The above mentioned transfer of the sum total of business activities ofLahmeyer International GmbH to Lahmeyer International ConsultingEngineers GmbH was effected to satisfy Lahmeyer International GmbH'sobligation to contribute to the capital increase as agreed upon by theextraordinaryshareholders'meetingofLahmeyerInternationalConsulting Engineers GmbH on August 16, 2007, by legal document roleof deeds No. M 318/2007.The capital increase was registered in theCommercial Register of the Municipal Court Frankfurt / Main on October31, 2007 under the above mentioned HRB No. 80852. Berlin, November 7, 2007 Seal:Dr. Johannes MeinelCoat of arms of BerlinNotarypublic in Berlin Illegible signature What emerges from an examination of the aforesaid reply is that aspart of its business restructuring The applicant has transferred all pending contracts to its 100%subsidiary Lahmeyer International Consulting Engineers (LICE)whosenamewassubsequentlychangedtoLahmeyerInternational which has in lieu thereof allotted applicant shares. Although, the contracts were all allotted to applicant but noaddendum wasexecuted with the Indian customers pursuant tobusiness restructuring since the name changed ensures thatcontinuity of name even though the entity executing thecontracts has changed from applicant to its 100% subsidiary.Although, the contracts were all allotted to applicant but noaddendum wasexecuted with the Indian customers pursuant tobusiness restructuring since the name changed ensures thatcontinuity of name even though the entity executing thecontracts has changed from applicant to its 100% subsidiary. Although, the contracts were all allotted to applicant but noaddendum wasexecuted with the Indian customers pursuant tobusiness restructuring since the name changed ensures thatcontinuity of name even though the entity executing thecontracts has changed from applicant to its 100% subsidiary.Although, the contracts were all allotted to applicant but noaddendum wasexecuted with the Indian customers pursuant tobusiness restructuring since the name changed ensures thatcontinuity of name even though the entity executing thecontracts has changed from applicant to its 100% subsidiary. The structure post the restructuring exercise and allotment ofshares remains that of holding company and 100% subsidiary asthe diagram below will show.The structure post the restructuring exercise and allotment ofshares remains that of holding company and 100% subsidiary asthe diagram below will show. Pre restructuringPost restructuringLahmeyer International (LI)Lahmeyer HoldingNameChangedAllotment ofTransferred ofSharebusiness 16.08.07100%100% SubsidiaryLahmeyer InternationalLahmeyer InternationalConsulting Engineers (LICG)Namedate of incorporation 20[th]JulyChanged2007 (underlining added) 7.By virtue of the said directions under Section 144C (5) of the said Act, the DRP required the Assessing Officer to complete the assessment as directed by it. 8.Thereafter, the Assessing Officer passed the assessment order underSection 143(3) read with Section 144C of the said Act on 04.10.2011. In thesaid assessment order, it has once again been recorded that the receiptsearned by the petitioner from 01.04.2007 to 31.07.2007 had been offered totaxation in the hands of the petitioner and that the receipts earned from01.08.2007 to 31.03.2008 in India had been offered to tax in the hands of ‘LIG’.No addition was made in respect of the transaction in question,namely, the transfer of the unexpired value of the contracts in exchange ofshares. 9.Shortly thereafter, on 13.10.2011, the Assessing Officer issued theimpugned notice under Section 148 of the Act indicating that he had reasonto believe that income of the petitioner chargeable to tax for the assessmentyear 2008-09 had escaped assessment and that he proposed to re-assess theincome. By a letter dated 03.11.2011, the petitioner requested the AssessingOfficer to provide the copy of the reasons, if any, recorded for initiating thepresent proceedings under Section 147 of the said Act.The purportedreasons were supplied thereafter and the same read as under:- “1.The Draft order u/s 144C was passed on 08[th]December, 2011.The assessee went to DRP and direction of the DRP u/s 144C(5) was received on 28[th]September, 2011.The assessee went to DRP and direction of the DRP u/s 144C(5) was received on 28[th]September, 2011. 2.Regarding the business transfer from Lahmeyer Holding GmbHto Lahmeyer International GmbH the DRP has given thefollowing observation. “The DRP during proceeding before it had soughtclarificationregardingthebusinessrestructuringundertakenbytheapplicantduringtherelevantassessment year.The applicant vide its letter dated 23[rd]September, 2011 has furnished the following reply: “As submitted earlier, Lahmeyer InternationalGmbH (now known as LHG) transferred its entirebusiness (on a going concern basis) to LICG (nowknown as LIG) with a view to increase its capitalcontribution in LICG, English translation of theaudited financial statement of LIG (now known asLHG), alongwith a certificate form notary public,duly evidencing the said fact, have been enclosedas Annexure 1.Also English translation of theaudited financial statements of LICG (now knownas LIG) is enclosed as Annexure 2. It is submitted that prior to the business transfer on August 16,2007, all Indian contracts were executed by LIG (now known asLHG).Accordingly, consideration receivable in respect offollowing Indian contracts, as relevant for the subject AY, uptoJuly, 2007 was accrued and duly offered tax in the hands of LIG(now known as LGH): It is submitted that prior to the business transfer on August 16,2007, all Indian contracts were executed by LIG (now known asLHG).Accordingly, consideration receivable in respect offollowing Indian contracts, as relevant for the subject AY, uptoJuly, 2007 was accrued and duly offered tax in the hands of LIG(now known as LGH): Jammu and Kashmir State Power DevelopmentCorporationJammu and Kashmir State Power DevelopmentCorporation Balihar Construction Services Jaypee Karcham Hydro Corporation LimitedJaypee Karcham Hydro Corporation Limited Japyee Ventures LimitedJapyee Ventures Limited Thereafter, with effect from August 2007, LICG (now kwon asLIG) executed the above contracts and, therefore, all revenues accrued under such contracts (being contracts relevant forsubject AY) have been accrued by LICG and offered to taxationin the hands of LICG (now known as LIG). Further, it is clarified that while Indian customers wereupdated of the global restructuring, given that the name ofthe legal entity executing the Indian contracts remainedthe same, no addendum was executed with the Indiancustomers.Further, it is clarified that while Indian customers wereupdated of the global restructuring, given that the name ofthe legal entity executing the Indian contracts remainedthe same, no addendum was executed with the Indiancustomers. We request you to take the above on record. In case your Honourrequired any further information / clarification in this regard, anopportunity to represent / furnish may be granted to the assesseefor the same. Certified Translation German – EnglishFinancial Figures 2007 – explanatory Note To Whom it May Concern For the purpose of presentation to authorities and institutions, I, theundersigned notary public, herewith certify that on August 16, 2007an agreement relating to contribution of capital, my legal documentrole of deeds No. M 319/2007, was concluded between LahmeyerInternational GmbH, registered with the commercial Register of theMunicipal Court Frankfurt / Main HRB 72343 and LahmeyerInternational Consulting Engineers GmbH, registered with theCommercial Register of the Municipal Court Frankfurt / Main HRB80852, about the transfer of the sum total of business activities ofLahmeyer International GmbH to Lahmeyer International ConsultingEngineers GmbH. The above mentioned transfer of the sum total of business activitiesofLahmeyerInternationalGmbHtoLahmeyerInternationalConsulting Engineers GmbH was effected to satisfy LahmeyerGmbH’s obligations to contribute to the capital increase as agreedupon by the extraordinary shareholders’ meeting of LahmeyerInternational Consulting Engineers GmbH on August 16, 2007 mylegal document role of deed No. 318/2007. The capital increase wasregistered in the Commercial Register of the Municipal Court Frankfurt / Main on October 31, 2007 under the above mentionedHRB No 80852. Berlin, November 7, 2007.Seal: IllegibleDr. Johannes MeinelCoat of arms of BerlinNorary Public In Berlin 3. The following points emerge from an examination of thereply read with the certificate from the notary public duringDRPProceedingsisthat,aspartofitsbusinessrestructuring.The applicant has transferred all pending contracts to its100% subsidiary Lahmeyer International ConsultingEngineers(LICE)whosenamewassubsequentlychanged to Lahmeyer International which has in lieuthereof allotted applicant shares.reply read with the certificate from the notary public duringDRPProceedingsisthat,aspartofitsbusinessrestructuring.The applicant has transferred all pending contracts to its100% subsidiary Lahmeyer International ConsultingEngineers(LICE)whosenamewassubsequentlychanged to Lahmeyer International which has in lieuthereof allotted applicant shares. Although, the contracts were all allotted to applicant, noaddendum was executed with the Indian customerspursuant to business restructuring.Although, the contracts were all allotted to applicant, noaddendum was executed with the Indian customerspursuant to business restructuring. Although, the contracts were all allotted to applicant, noaddendum was executed with the Indian customerspursuant to business restructuring.Although, the contracts were all allotted to applicant, noaddendum was executed with the Indian customerspursuant to business restructuring. The structures post the restructuring exercise andallotment of shares remains that of holding company(Lahmeyer Holding) and 100% subsidiary (LahmeyerInternational).The structures post the restructuring exercise andallotment of shares remains that of holding company(Lahmeyer Holding) and 100% subsidiary (LahmeyerInternational). 4.That above information regarding business restructuringand transfer of business in lieu shares was not placedbefore the Assessing Officer during the time of assessmentproceedings.and transfer of business in lieu shares was not placedbefore the Assessing Officer during the time of assessmentproceedings. 5.Further, based on the facts and discussion made in theaforesaid paragraphs, it is concluded that transfer ofunexpired value of contracts in lieu of shares is chargeableto capital gain tax as per Article 13 of DTAA as well asprovisions of the Income tax act.aforesaid paragraphs, it is concluded that transfer ofunexpired value of contracts in lieu of shares is chargeableto capital gain tax as per Article 13 of DTAA as well asprovisions of the Income tax act. ” 6.As the assessee has not offered any income on thisaccount, I have reason to believe that the capital gainchargeable to tax has escaped assessment in AY 2008-09.This is a fit case for initiating proceedings is u/s 148.”account, I have reason to believe that the capital gainchargeable to tax has escaped assessment in AY 2008-09.This is a fit case for initiating proceedings is u/s 148.” (underlining added) 10.Thereafter, by a letter dated 27.04.2012, the petitioner submitted itsobjections to the initiation of the re-assessment proceedings.Thoseobjections were rejected by the Assessing Officer by virtue of the impugnedorder dated 19.07.2012.And, it was held that the notice issued underSection 148 of the said Act was not without jurisdiction and was valid as perthe provisions of the said Act. 11.Being aggrieved by the issuance of the notice under Section 148 of thesaid Act and the rejection of the objections by virtue of the order dated19.07.2012, the present writ petition has been filed. Analysis and Discussion: 12.As pointed out above, the petitioner has raised two specific issues withregard to the challenge to the initiation of the re-assessment proceedings.The first one pertains to the question of ‘change of opinion’ and the secondthat there was ‘no new material’ or additional fact which had come to the knowledge of the Assessing Officer after the passing of the originalassessment order under Section 143(3) of the said Act. Change of opinion: 13.On the aspect of ‘change of opinion’, it had been contended that theissue of restructuring of the petitioner company and the transaction oftransfer of unexpired value of the contracts by the petitioner to its 100%subsidiary in exchange of the shares of the 100% subsidiary was examinedboth by the Assessing Officer in his draft assessment order as well as by theDRP in the course of the DRP proceedings. Despite the Assessing Officerand the DRP having examined the transaction, they did not make anyaddition in this regard. It was, therefore, the case of the petitioner that theAssessing Officer and the DRP had formed an opinion that the transactionwas not exigible to Capital Gains Tax and the proposal in the re-assessmentproceedings that it was taxable amounted to a change of opinion. 14.On the other hand, the learned counsel for the revenue had contendedthat there was no question of any change of opinion as, according to him, noopinion as such had been formed during the original assessment proceedings.It was submitted that the Assessing Officer had not considered the said 14.On the other hand, the learned counsel for the revenue had contendedthat there was no question of any change of opinion as, according to him, noopinion as such had been formed during the original assessment proceedings.It was submitted that the Assessing Officer had not considered the said transaction in his draft assessment order and the DRP also had no occasion toconsider it as no variation on this aspect had been proposed by the AssessingOfficer. It was further the case of the revenue that the transaction came tolight only as a result of the queries raised by the DRP with regard to thebusiness restructuring arrangement of the petitioner. But, as the DRP hadnot given any directions with regard to the taxability of the transaction, theAssessing Officer could not include it on his own in the assessment order.Consequently, it was submitted that when this “new” material was availablewith the Assessing Officer, he was well within his rights to initiate re-assessment proceedings. 15.The counsel for the parties referred to a Full Bench decision of thiscourt inCIT V. Usha International Limited: 2012 (348) ITR 485. In thesaid decision, it was, inter alia, observed as under:- “It is, therefore, clear from the aforesaid position that:-(1) Reassessment proceedings can be validly initiated in casereturn of income is processed under section 143(1) and no scrutinyassessment is undertaken. In such cases there is no change ofopinion. (2) Reassessment proceedings will be invalid in case theassessment order itself records that the issue was raised and, isdecided in favour of the assessee. Reassessment proceedings in thesaid cases will be hit by the principle of "change of opinion”. (3)Reassessment proceedings will be invalid in case an issue orquery is raised and answered by the assessee in originalassessment proceedings but thereafter the Assessing Officer doesnot make any addition in the assessment order. In such situations itshould be accepted that the issue was examined but the AssessingOfficer did not find any ground or reason to make addition orreject the stand of the assessee. He forms an opinion.Thereassessment will be invalid because the Assessing Officer hadformed an opinion in the original assessment, though he had notrecorded his reasons. In the second and third situation, the Revenue is not withoutremedy. In case the assessment order is erroneous and 'prejudicialto the interest of the Revenue, they are entitled to and can invokepower under section 263 of the Act. This aspect and position hasbeen highlighted in CIT v. DLF Power Ltd. I. T. A. No. 973 of2011 decided on November 29, 2011-since reported in [2012] 345ITR 446 (Delhi) and BLB Ltd. v. Asst. CIT Writ Peti-tion (Civil)No. 6884 of 2010 decided on December 1, 20 11-since reported in[2012] 343 ITR 129 (Delhi). In the last decision it has beenobserved (page 135): "The Revenue had the option, but did not take recourseto section 263 of the Act, in spite of audit objection.Supervisory and revisionary power under section 263of the Act is available, if an order passed by theAssessing Officer is erroneous and prejudicial to theinterest of the Revenue. An erroneous order contrary tolaw that has caused prejudice can be corrected, whenjurisdiction under section 263 is invoked." Thus, where an Assessing Officer incorrectly or erroneouslyapplies law or comes to a wrong conclusion and incomechargeable to tax has escaped assessment, resort to section 263 ofthe Act is available and should be resorted to. But initiation ofreassessment proceedings will be invalid on the ground of changeof opinion. Here we must draw a distinction between erroneousapplication/interpretation/understanding of law and cases where Thus, where an Assessing Officer incorrectly or erroneouslyapplies law or comes to a wrong conclusion and incomechargeable to tax has escaped assessment, resort to section 263 ofthe Act is available and should be resorted to. But initiation ofreassessment proceedings will be invalid on the ground of changeof opinion. Here we must draw a distinction between erroneousapplication/interpretation/understanding of law and cases where fresh or new factual information comes to the knowledge of theAssessing Officer subsequent to the passing of the assessmentorder. If new facts, material or information comes to theknowledge of the Assessing Officer, which was not on record andavailable at the time of the assessment order, the principle of"change of opinion" will not apply. The reason is that "opinion" isformed on facts. "Opinion" formed or based on wrong andincorrect facts or which are belied and untrue do not get protectionand cover under the principle of "change of opinion".Factualinformation or material which was incorrect or was not availablewith the Assessing Officer at the time of original assessmentwouldjustifyinitiationofreassessmentproceedings.Therequirement in such cases is that the information or materialavailable should relate to material facts. The expression "materialfacts" means those facts which if taken into account would havean adverse effect on the assessee by a higher assessment ofincome than the one actually made. They should be proximate andnot have remote bearing on the assessment. The omission todisclose may be deliberate or inadvertent. The question ofconcealment is not relevant and is not a precondition whichconfers juris-diction to reopen the assessment.” (underlining added) Specifically, the learned counsel for the revenue placed reliance on thefollowing observations in Usha Internaional (supra):- “Thus, if a subject-matter, entry or claim / deduction is notexamined by an Assessing Officer, it cannot be presumed that hemust have examined the claim / deduction or the entry, and,therefore, it is the case of "change of opinion". When at the firstinstance, in the original assessment proceedings, no opinion isformed, the principle of "change of opinion" cannot and does notapply. There is a difference between change of opinion and failureor omission of the Assessing Officer to form an opinion on asubject-matter, entry, claim, deduction. When the Assessing -Officer fails to examine a subjectmatter, entry, claim ordeduction, he forms no opinion. It is a case of no opinion.”(underlining added) 16.The above extracts from Usha International (supra), make it clearthat if a particular aspect is not examined by an Assessing Officer, it cannotbe presumed that he must have examined the same. It is also clear that if, inthe first instance, in the original assessment proceedings, no opinion isformed, the principle of ‘change of opinion’ would not apply. However, it isalso evident from the decision in Usha International (supra) that re-assessment proceedings would be invalid in case an issue or query is raisedand answered by the assessee in the original assessment proceedings. But,thereafter the Assessing Officer does not make any addition in theassessment order. In such situations, it would have to be accepted that theissue had been examined, but the Assessing Officer did not find any groundor reason to make any addition or to reject the stand of the assessee.Therefore, this can be regarded as a case where the Assessing Officer formsan opinion.And, re-assessment would be invalid because the AssessingOfficer had formed an opinion in the original assessment, though he had notrecorded his reasons for the same. 17.Another decision which was referred to and, more particularly by thelearned counsel for the petitioner, was the Supreme Court decision inCIT v. Kelvinator India Limited: 2010 (320) ITR 561 (SC). In the said decision, the Supreme Court, inter alia, observed as under:- 17.Another decision which was referred to and, more particularly by thelearned counsel for the petitioner, was the Supreme Court decision inCIT v. Kelvinator India Limited: 2010 (320) ITR 561 (SC). In the said decision, the Supreme Court, inter alia, observed as under:- “Therefore, post-1st April, 1989, power to reopen is much wider.However, one needs to give a schematic interpretation to thewords "reason to believe" failing which, we are afraid, section 147would give arbitrary powers to the Assessing Officer to reopenassessments on the basis of "mere change of opinion", whichcannot be per se reason to reopen. We must also keep in mind theconceptual difference between power to review and power toreassess. The Assessing Officer has no power to review; he has thepower to reassess. But reassessment has to be based on fulfilment""-of certain preconditions and if the concept of change of opinionis removed, as contended on behalf of the Department, then, in thegarb of reopening the assessment, review would take place. One""must treat the concept of change of opinion as an in-built test tocheck abuse of power by the Assessing Officer.Hence, after 1stApril, 1989, the Assessing Officer has power to reopen, providedthere is "tangible material" to come to the conclusion that there isescapement of income from assessment. Reasons must have a livelink with the formation of the belief.” (underlining added) 18.From the above decision, it is evident that a distinction has to be made between the power to review and the power to re-assess. The Supreme Courtclearly observed that the Assessing Officer has no power to review, althoughhe has been given the power to re-assess subject to fulfillment of certain pre-conditions. It is also made clear that the concept of ‘change of opinion’ is an in-built test to check the abuse of power by the Assessing Officer.TheAssessing Officer, in the garb of re-opening of an assessment under Section147 of the said Act cannot be permitted to review the assessment. 19.Applying the principles of Kelvinator India Limited (supra) and UshaInternational (supra), we are of the view that in the present case, theAssessing Officer and the DRP had examined the issue of businessrestructuring. Even the fact that receipts upto and including July 2007 wereoffered for taxation in the hands of the petitioner and thereafter, that is, fromAugust, 2007 to 31.03.2008, the revenues were to be raised in the hands ofthe petitioner’s 100% subsidiary, namely, LIG, were clearly, noticed andrecorded not only in the final assessment order, but also in the draftassessment order and the proceedings before the DRP. Therefore, we cannotagree with the learned counsel for the revenue that the transaction inquestion had not been examined by the Assessing Officer or the DRP in thecourse of the original assessment proceedings.The fact that despite suchexamination, no addition was made in respect of the said transaction, wouldlead us to the conclusion that in the original assessment proceedings, anopinion had been formed that the said transaction was not exigible to tax,though no reasons for the same were explicitly given in the assessment order. Having formed such an opinion, the subsequent initiation of the re-assessment proceedings, taking a contrary view that the transaction wasexigible to capital gains tax in India, would be nothing but a case of “changeof opinion”. In other words, the Assessing Officer is attempting to reviewthe earlier assessment order which is not permissible in law. Having formed such an opinion, the subsequent initiation of the re-assessment proceedings, taking a contrary view that the transaction wasexigible to capital gains tax in India, would be nothing but a case of “changeof opinion”. In other words, the Assessing Officer is attempting to reviewthe earlier assessment order which is not permissible in law. 20.It was contended, as noted above, that the Assessing Officer himselfhad no occasion to examine the said transaction and that the queries withregard to restructuring of the petitioner company had been raised by the DRPand not by the Assessing Officer.Furthermore, it was submitted thatbecause the directions of the DRP are to be followed, the Assessing Officerhad no discretion left in the matter and, therefore, the Assessing Officer hadnot formed any opinion with regard to the said transaction. This argumentcannot be accepted for two reasons.First of all, the Assessing Officerhimself in the draft assessment order had noticed the restructuring and hadspecifically recorded that receipts upto and including July 2007 were beingtaxed in the hands of the petitioner and for the balance period from August2007 to March 2008 were to be taxed in the hands of the petitioner’s 100%subsidiary ‘LIG’. The Assessing Officer was, therefore, aware of the entiretransaction.Secondly, and, in any event, the DRP in the course of the proceedings before it, made specific queries with regard to the businessrestructuring of the petitioner and the transaction in question. The petitionergave a detailed reply and the same has been noted in the observations of theDRP which we have extracted in the earlier part of the judgment. The DRP,after examining the entire business restructuring arrangement and thetransaction in question, did not make any addition. The Assessing Officer inhis final assessment order also did not make any addition on account of thesubject transaction. It must be noted that the DRP procedure is part of theassessment proceedings.Queries raised and answered during the DRPproceedings would stand on the same footing as queries raised and answeredin the course of an assessment proceedings before an Assessing Officerwhere the DRP procedure is not applicable. Therefore, on both counts, itcannot be said that an opinion had not been formed in respect of thetransaction in question during the assessment proceedings. The fact that noaddition was made in respect of the said transaction, would clearly raise thepresumption that after having examined the said transaction, it was opinedthat it was not exigible to tax. The subsequent view being taken, as indicatedin the purported reasons for initiating the proceedings under Section 147 of the said Act, would be nothing but a ‘change of opinion’ which is notpermissible in law. No new Material: 21.We are also in agreement with the learned counsel for the petitionerthat no new facts or material had come to the knowledge of the AssessingOfficer to enable him to initiate re-assessment proceedings. All the material facts on which the Assessing Officer had based his purported reasons wereavailable on record at the time when the original assessment order waspassed. 22.In Usha International (supra), it has been observed that if new facts,material or information comes to the knowledge of the Assessing Officerwhich was not on record and available at the time of the assessment order,the principle of ‘change of opinion’ would not apply. In the present case, wehave already observed that all the relevant material was on record andavailable at the time of original assessment proceedings. Therefore, the re-assessment proceedings on the basis of the same material would be contraryto law. Section 144C(8) facts on which the Assessing Officer had based his purported reasons wereavailable on record at the time when the original assessment order waspassed. 22.In Usha International (supra), it has been observed that if new facts,material or information comes to the knowledge of the Assessing Officerwhich was not on record and available at the time of the assessment order,the principle of ‘change of opinion’ would not apply. In the present case, wehave already observed that all the relevant material was on record andavailable at the time of original assessment proceedings. Therefore, the re-assessment proceedings on the basis of the same material would be contraryto law. Section 144C(8) 23.One more aspect which needs some discussion is with regard to thesubmission that the DRP had no occasion to consider the issue of taxabilityof the transaction involving the transfer of the expired value of the contractin exchange of shares as no variation had been suggested by the AssessingOfficer on this aspect of the matter in his draft assessment order.It wassubmitted by the learned counsel for the revenue that the jurisdiction of theDRP in terms of Section 144C(8) was that it could confirm, reduce orenhance the variations proposed in the draft order, but it could not introducea new element of tax or variation. In response to this, the learned counsel forthe petitioner drew our attention to the Explanation added after Section 144C(8). It was submitted by the learned counsel for the petitioner that by virtueof the said Explanation, the DRP always had the power to consider anymatter arising out of the assessment proceedings relating to the draft order,notwithstanding that such matter was raised or not by the eligible assessee.Section 144 C(8) and the Explanation appended thereto reads as under:- “144C (8)The Dispute Resolution Panel may confirm, reduceor enhance the variations proposed in the draft order so,however, that it shall not set aside any proposed variation orissue any direction under sub-section (5) for further enquiry andpassing of the assessment order.or enhance the variations proposed in the draft order so,however, that it shall not set aside any proposed variation orissue any direction under sub-section (5) for further enquiry andpassing of the assessment order. Explanation. – For the removal of doubts, it is herebydeclared that the power of the Dispute Resolution Panel toenhance the variation shall include and shall be deemed alwaysto have included the power to consider any matter arising out oftheassessmentproceedingsrelatingtothedraftorder,notwithstanding that such matter was raised or not by theeligible assessee.” 24.The said explanation was introduced through the Finance Act of 2012.But, it was to take effect retrospectively from 01.04.2009.The DisputeResolution Panel’s directions were issued after the Explanation had comeinto operation. In any event, the Explanation is clarificatiory. Reading theExplanation with sub-section 144C(8), it is evident that the DisputeResolution Panel could examine the issues arising out of the assessmentproceedings even though such issues were not part of the subject matter ofthe variations suggested by the Assessing Officer.In this light, it issignificant that though the draft order had not proposed any addition withregard to the restructuring and the said transaction, yet, the DRP had askedfor details of the restructuring and had examined the matter.After suchexamination, the DRP did not direct any addition to be made in this regard.It is evident that the DRP formed an opinion that the transaction was notexigible to capital gains tax and, to contend otherwise, in the purported reasons for re-opening of the assessment, would be nothing but a ‘change ofopinion’ which is not permissible in law. Conclusion: reasons for re-opening of the assessment, would be nothing but a ‘change ofopinion’ which is not permissible in law. Conclusion: 25.For the reasons set out above, the writ petition is allowed. The noticedated 13.10.2011 issued by the Assessing Officer under Section 148 of thesaid Act in respect of the assessment year 2008-09 is quashed.Allproceedings pursuant thereto, including the order dated 19.07.2012, rejectingthe objections, also stand quashed. There shall be no order as to costs. BADAR DURREZ AHMED, J MAY 19, 2015dutt SIDDHARTH MRIDUL, J