CWP No.23887 of 2011 -1- IN PUNJAB AND HARYANA HIGH COURT AT CHANDIGARH CWP No.23887 of 2011 Date of Decision: 10.03.2015 Mitsubishi Electric Automotive India Pvt. Ltd. ..Petitioner Vs. Union of India and others ..Respondents. CORAM: HON'BLE MR.JUSTICE S.J.VAZIFDAR, ACTING CHIEF JUSTICE HON'BLE MR.JUSTICE G.S.SANDHAWALIA Present : Mr. Rohit Jain, Advocate for petitioner. Mr. Tajinder Joshi, Advocate for respondents. **** S.J.VAZIFDAR, ACTING CHIEF JUSTICE (Oral) Rule. Rule returnable forthwith and heard finally. 2. petitioner has challenged notice issued under Section 148 of Income Tax Act, 1961 (for short `the Act') dated 23.3.2011 (Annexure P-1) issued by respondent No.2-Assistant Commissioner of Income Tax stating that respondent No.2 had reason to believe that petitioner's income for assessment year 2006-07 had escaped assessment within meaning of Section 147 of Act. subsequent order dated 9/12.12.2011 (Annexure P-2) dismissing Objections is also under challenge. 3. At petitioner's request reasons for initiating proceedings under Section 147 were furnished. relevant reasons read as under: case was finalised under section 143(3) of Income Tax Act, 1961 vide order dated 20.11.2009 at income of Rs.172794009/-. It is noticed from P & L Account that assessee is making payment of MEENU KUMARI 2015.03.16 13:29 I attest to accuracy and authenticity of this document High Court, Chandigarh CWP No.23887 of 2011 -2- royalty at Rs.8741302/- for technology transfer and patent license. assessee has claimed entire payment as revenue expenditure. In view of judgment of Hon'ble Supreme Court in case of M/s Southern Switch Gears (232 ITR 359) either full amount or part of royalty amount is to be treated as capital expenditure. This has resulted in under assessment of income to extent of `8741302/- which will be treated as capital expenditure. assessee has submitted details of sundry creditors as on 31.03.2006. One of items of sundry creditors is 'accrued exchange profit' which has been shown as negative amount at Rs.1145902/-. No explanation of assessee is available on record with regard to nature of this credit amount. Prima facie it appears to be under assessment of income as assessee company itself is mentioning it as exchange profit. 4. This is clear case of notice having been issued only on change of opinion or rather difference of opinion. entire facts pertaining to issue had been disclosed on each and every stage of proceedings. Indeed material in this regard was sought by Transfer Pricing Officer (TPO) as well as by Assessing Officer (AO). relevant material was furnished by petitioner. assessment order was clearly passed after taking same into consideration. following facts establish same. 5. petitioner filed its return of income on 2.11.2006. Alongwith return of income petitioner filed its financial statement and assessment was made on 20.11.2009. Appended to financial statements were Schedules. Schedule 13 expressly referred to Royalty of sum of `87,41,302/- for financial year 31.3.2006. Schedule 14 enumerated significant Accounting Policies and notes to Accounts. relevant part thereof reads as under: Royalty Payment of technical know-how in form of Royalty for manufacturing of ECUs and Distributors is being accounted for on accrual basis as per Technology Transfer and Patent License Agreement with Mitsubishi Electric Corporation, Japan. MEENU KUMARI 2015.03.16 13:29 I attest to accuracy and authenticity of this document High Court, Chandigarh CWP No.23887 of 2011 -3- Schedule 14 also referred to expenditure in foreign currency. Royalty was referred to as Expenditure in foreign currency. Item 13 of Schedule 14 referred to related party disclosures. balance outstanding at year end included Royalty stocks expenditure payable. 6. Thus, return of income expressly disclosed payment of Royalty as well as balance Royalty to be paid. 7. reference was made to Transfer Pricing Officer under Chapter X. petitioner filed Form No.3CEB under Rule 10E. said Form referred to particulars in respect of transactions in intangible property as per Appendix E thereto which in turn referred to Royalty payments to Mitsubishi Electric Corporation, Japan of sum of `87,41,302/-. petitioner also forwarded to Assessing Officer and Transfer Pricing Officer tax audit report for year 31.3.2006 which referred to payment for Royalty and technical fees to Mitsubishi Electric Corporation, Japan. 8. Details were furnished in Enclosure VI thereto which referred to payment of Royalty and technical fees to Mitsubishi Electric Corporation, Japan. payment of Royalty and Technical Assistance Fees was also referred to in detail in Enclosure 13. This Enclosure was filed before Assessing Officer and before Transfer Pricing Officer. 9. Thus, information regarding payments and technical fees was expressly referred to in all documents filed before Assessing Officer and before Transfer Pricing Officer. What is more important, however, is fact that Transfer Pricing Officer by his order dated 31.8.2009 (Annexure P-9) referred to fact that Reference has been received by him from Assessing Officer to determine arm's length price in respect of international transactions. One of transactions related to Royalty payment at 5% sales in sum of `81 lacs. Thus, even order of TPO expressly referred to MEENU KUMARI 2015.03.16 13:29 I attest to accuracy and authenticity of this document High Court, Chandigarh CWP No.23887 of 2011 -4- Royalty payment. It cannot, therefore, be said that TPO was not aware of and had not taken into consideration Royalty payments. 10. Added to this is fact that questionnaire dated 30.10.2009 (Anneuxre P-14) had been served by Assessing Officer prior to assessment order. Items 20 and 24 of questionnaire read as under: 20. Details with documentary proof of royalty paid alongwith copy of technology Transfer and Patent License agreement with Mitsubishi Corporation Japan. 24. Give details of TDS deducted by you during year and file copies of TDS/TCS return, Reconcile with TDS deducted expenditure wise. 11. queries were replied to by petitioner's letter dated 16.11.2009. relevant part thereof reads as under: 20. Detail of royalty paid alongwith copy of Technology transfer agreement is enclosed herewith for your reference & verification.(page 148- 173) 24. Detail of month-wise TDS deducted and deposited alongwith copy of TDS/TCS returns. (page 179-200). 12. It is established, therefore, that Assessing Officer and Transfer Pricing Officer were not only aware of payment of Royalty but had taken same into consideration at every stage. Assessing Officer infact expressly called for said information. It cannot be held, therefore, that Assessing Officer was not aware of Royalty and had not taken same into consideration before passing assessment order under Section 143 of Act. It is also important to note that proceedings had been initiated under Section 154 of Act by issuance of notice dated 24.3.2011. However, same were dropped holding that it was debatable issue which would be apparent from affidavit filed by D.C.I.T. Dated 20.11.2014 in present case. 13. impugned notice under Sections 147 and 148, therefore, are MEENU KUMARI 2015.03.16 13:29 I attest to accuracy and authenticity of this document High Court, Chandigarh CWP No.23887 of 2011 -5- clearly based only on change of opinion which is not permissible. 14. It is sufficient to refer to judgment of Supreme Court in Commissioner of Income Tax Vs. Kelvinator of India Ltd.(2010) 320 ITR 561 (SC). Supreme Court held as under: On going through changes, quoted above, made to section 147 of Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of said conditions alone conferred jurisdiction on Assessing Officer to make back assessment, but in section 147 of Act (with effect from Ist April, 1989), they are given go-by and only one condition has remained, viz. that where Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen assessment. Therefore, post-Ist April, 1989 power to reopen is much wider. However, one needs to give schematic interpretation to words reason to believe failing which, we are afraid, section 147 would give arbitrary powers to Assessing Officer to reopen assessments on basis of mere change of opinion , which cannot be per se reason to reopen. We must also keep in mind conceptual difference between power to review and power to reassess. Assessing Officer has no power to review; he has power to reassess. But assessment has to be based on fulfillment of certain preconditions and if concept of change of opinion is removed, as contended on behalf of Department, then, in garb of reopening assessment, review would take place. One must treat concept of change of opinion as inbuilt test to check abuse of power by Assessing Officer. Hence, after Ist April, 1989, Assessing Officer has power to reopen, provided there is tangible material to come to conclusion that there is escapement of income from assessment. Reasons must have live link with formation of belief. Our view gets support from changes made to section 147 of Act, as quoted hereinabove. Under Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted words reason to believe but also inserted word opinion in section 147 of Act. However, on receipt of representations from companies against omission of words reason to believe , Parliament reintroduced said expression and deleted word opinion on ground that it MEENU KUMARI 2015.03.16 13:29 I attest to accuracy and authenticity of this document High Court, Chandigarh CWP No.23887 of 2011 -6- would vest arbitrary powers in Assessing Officer. We quote hereinbelow relevant portion of Circular No.549 dated October 31, 1989 (1990 182 ITR (St.) 1, 29), which reads as follows: 7.2 Amendment made by Amending Act, 1989 to reintroduce expression 'reason to believe' in section 147.-- number of representations were received against omission of words 'reason to believe' from Section 147 and their substitution by `opinion' of Assessing Officer. It was pointed out that meaning of expression, 'reason to believe' had been explained in number of court rulings in past and was well settled and its omission from section 147 would give arbitrary powers to Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, Amending Act, 1989, has again amended section 147 to reintroduce expression 'has reason to believe' in place of words 'for reasons to be recorded by him in writing, is of opinion'. Other provisions of new section 147, however, remain same. 15. learned counsel appearing on behalf of respondents relied upon judgment of Division Bench of this Court dated 2.4.2013 in Trident Limited Vs. Union of India and others CWP No.22119 of 2011 to contend that as aspect had not been referred to in assessment order, it cannot be said that relevant facts were taken into consideration by Assessing Officer. 16. judgment is clearly distinguishable. In that case learned Judges found that it could not be held at that stage that assessment order had disclosed all facts and that Assessment Officer was satisfied with explanation submitted. decision, therefore, was based on facts of that case. Division Bench noticed for instance that opinion was submitted by Assessing Officer on same day on which assessment order was finalised and that there was no discussion in entire order pertaining to issue. judgment is not authority for proposition that merely because assessment order does not refer to particular aspect it necessarily follows that Assessing Officer had not considered case while passing assessment order. In case MEENU KUMARI 2015.03.16 13:29 I attest to accuracy and authenticity of this document High Court, Chandigarh CWP No.23887 of 2011 -7- before us it is established beyond doubt that relevant facts were not only disclosed but had been sought and considered at every stage by Transfer Pricing Officer and by Assessing Officer. 17. In circumstances, writ petition is allowed and Rule is made absolute in terms of prayer `a'. notice dated 23/24.3.2011 (Annexure P- 1) and order dated 9/12.12.2011 (Annexure P-2) are quashed. In view thereof, it is not necessary to grant other reliefs. There shall be no order as to costs. (S.J.VAZIFDAR) ACTING CHIEF JUSTICE (G.S.SANDHAWALIA) 10.03.2015 JUDGE Meenu MEENU KUMARI 2015.03.16 13:29 I attest to accuracy and authenticity of this document High Court, Chandigarh Mitsubishi Electric Automotive India Pvt. Ltd. v. Union of India and other