Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 1/17 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 6.9.2019 CORAM HON'BLE DR.JUSTICE VINEET KOTHARI AND HON'BLE MR.JUSTICE C.SARAVANAN Tax Case (Appeal) No.1441 of 2010 Commissioner of Income Tax-LTU Chennai 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 Income Tax Act, 1961 against order of Income Tax Appellate Tribunal, 'B' Bench, Chennai, dated 23.7.2010 made in ITA No.704/Mds/2010. For Appellant : Mr.T.Ravikumar Senior Standing Counsel For Respondent : Mr.Vikram Vijayaraghavan for M/s.Subbaraya Aiyar Padmanabhan JUDGMENT (Delivered by DR.VINEET KOTHARI,J) Revenue has filed this Tax Case (Appeal) under Section 260- of Income Tax Act aggrieved by order dated 23rd July 2010 http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 2/17 passed by learned Income Tax Appellate Tribunal dismissing Revenue's Appeal for Assessment Year 2003-2004. 2. Appeal was admitted by co-ordinate Bench of this court on 31.1.2011, on following purported substantial question of law for consideration:- "Whether on facts and in circumstances of case, Income Tax Appellate Tribunal was right in confirming order of Commissioner of Income Tax (Appeals) holding that reopening of assessment under Section 147 was not valid on ground that assessee had disclosed all particulars at stage of original assessment and reopening was only due to change of opinion, without appreciating that Assessing Officer had not formed any opinion at all on issue in question at time of original assessment and assessment had been reopened within period of four years?" 3. Learned Senior Standing Counsel for Appellant/Revenue Mr.T.Ravikumar submitted that in original Assessment Order under Section 143(3) of Act for Assessment Year 2003-2004 dated 17.3.2006 issue regarding payment of Technical Know-How http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 3/17 Fees of Rs.9,63,81,500/- was not discussed by Assessing Authority and merely because Assessee had produced relevant Books of Accounts before Assessing Authority in course of Assessment under Section 143(3) of Act, it cannot be said to be case of re- assessment on mere change of opinion under Section 147/148 of Act and therefore, learned Tribunal has erred in holding that re- opening of Assessment is not valid, by its impugned order. He relied upon following decisions in support of his contention:- i) Dr.Amin's Pathology Laboratory v. JCIT and others (252 ITR 673 (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. relevant portion of decision in Dr.Amin's Pathology case (supra) is quoted below for ready reference:- "A reading of assessment order clearly shows that AO failed to notice important item, viz., amount of Rs.6,70,758 which represented unpaid purchases. assessee-firm had claimed expenses in respect of all purchases. However, amount of Rs.6,70,758 represented unpaid purchases. It is for http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 4/17 this reason that AO has come to conclusion for issuance of notice under s.148 that assessee- firm had suppressed income to extent of Rs.6,70,758. Under Expln.1 to proviso, mere production of account books from which material evidence could have been discovered by AO will not necessarily amount to disclosure within meaning of proviso. Therefore, mere production of balance sheet P&L a/c or account books will not necessarily amount to disclosure within meaning of proviso. In present case, facts show that AO overlooked aforestated item. That, he noticed it subsequently. That, at time of passing original order of assessment, he could not be said to have opined on above item. Therefore, there was no change of opinion. Therefore, in present case, impugned notice is sustained." 5. On other hand, learned counsel for Assessee Mr.Vikram Vijayaraghavan submitted that it is wrong to contend that on behalf of Revenue issue regarding payment of Technical http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 5/17 Know-How Fee was not considered by Assessing Authority in Scrutiny Assessment under Section 143(3) of Act. He submitted that for said Assessment Year, matter was referred to Transfer Pricing Officer by said Assessing Authority on 6.6.2005 and learned Transfer Pricing Officer, vide order dated 9th March 2006, has not only considered said payment of Technical Know- How Fee of Rs.9,63,81,500/- while analysing various such payments for international transactions on basis of Transactional Net Margin Method (TNMM) under Rule 10B of Income Tax Rules, but, he had assessed amount of T.P. adjustments to extent of Rs.18,34,295/- vide aforesaid order dated 9th March 2006 which has been included in assessed income separately by Assessing Authority in Assessment Order under Section 143(3) of Act, vide para 3 thereof. Therefore, once conscious consideration of said payment of Technical Know-How Fee has already been made by Assessing Authority in earlier Scrutiny Assessment under Section 143(3) of Act therefore, re-assessment on mere change of opinion to treat it as part of capital asset and allow only depreciation thereon was not permissible and therefore, learned Tribunal was justified in setting aside re-assessment order. 6. learned counsel for Assessee further drew our http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 6/17 attention to reasons recorded by Assessing Authority under Section 148 of Act for Assessment Year 2003-2004 in which learned Assessing Authority has clearly taken note of order passed by Transfer Pricing Officer on 9th March 2006 regarding Technical Know How-Fee of Rs.9,63,81,500/- in said reasons recorded. Therefore, even while issuing such reassessment notice, learned Assessing Authority was aware of previous consideration of said payment of Technical Know-How Fees made by Assessee. He, therefore, submitted that learned Tribunal was justified in quashing re-opening of Assessment under Section 147/148 of Act in present facts and circumstances. 7. We have heard learned counsels at length and perused materials available on record. 8. learned Tribunal, in its order dated 23rd July 2010, has assigned following reasons for setting aside re-assessment proceedings for Assessment Year 2003-2004 which has been done within time limit of four years without invoking proviso to Section 147 of Act. relevant portion of order passed by Tribunal is quoted below for ready reference:- "5. We have considered rival submissions. perusal of assessment order clearly shows that http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 7/17 original assessment had been completed u/s 143(3) of Income Tax Act, 1961 on 17.3.2006. It is also noticed that assessee has challenged reopening. It is further noticed that AO has overruled assessee's objection regarding validity of reopening on ground that issue of payment of royalty and technical know fees being treated as capital expenditure had not been dealt with in original assessment order and reopening had been done within 4 years and consequently proviso to section 147 was not applicable. perusal of order of learned CIT(A) clearly shows that details pertaining to lump sum payment of technical know fees, copy of agreement etc. were already submitted in course of original assessment proceedings on 26.12.2005. fact that AO in course of original assessment has called for said details and has examined them and has accepted claim of assessee in course of original http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 8/17 assessment shows that there is no default on part of assessee. Obviously, assessee is not expected to advise AO as to course of action he has take in assessment. AO calls for details and explanations from assessee. assessee is expected to give details and explanation called for. AO has to consider explanation and then make assessment. Just because he has not discussed anything regarding explanations called for from assessee in assessment order does not mean that issue has not been considered by AO or that he has not formed opinion on issue. Obviously, AO would discuss issues in assessment order on which there are disputes between AO and assessee. Where AO accepts explanation of assessee normally such issues would not be discussed in assessment order. fact that AO has called for details in course of original assessment proceedings is not disputed. Once details are called for and they http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 9/17 are submitted it is presumed that AO has applied his mind to issues for which details have been called for. fact that no discussions or additions or disallowances have been made in course of assessment order passed originally would show that AO has found claim of assessee to be reasonable and acceptable. Thus AO has already formed opinion on basis of evidences filed in course of original assessment proceedings. By re-examining same and drawing different inference it would only mean that there is change of opinion. This is not permissible for reopening. This view is supported by decision of Hon'ble Supreme Court in CIT v. Kelvinator of India Ltd. reported in 320 ITR 561. In circumstances, we are of view that reopening of assessment as done by AO is bad in law. It is also noticed that learned CIT(A) has followed decision of Hon'ble Supreme Court in case of Kelvinator India Ltd., referred to supra, to hold that AO has no power to review and has http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 10/17 power only to do reassessment and that reopening done in present case is on change of opinion. In circumstances, finding of learned CIT(A) on this issue stands confirmed. 6. In result, appeal of Revenue is dismissed." 9. We are of clear opinion that in present facts and circumstances of case, judgments relied upon by learned Senior Standing Counsel for Revenue are not applicable. It is not case of Assessee of mere production of Books of Accounts and relevant information to Assessing Authority, but, they have been given active and conscious consideration by Assessing Authority. As far as amount of payment of Technical Know-How Fee of Rs.9,63,81,500/- is concerned, it is clear from records that said issue was considered not only by Assessing Authority but, by Transfer Pricing Officer also alongwith other expenditure incurred by Assessee and it was found that it falls within domain of international transactions as found by Transfer Pricing Officer and T.P. Adjustment of sum of Rs.18,34,295/- was arrived by Transfer Pricing Officer which was included by Assessing Authority while passing Assessment Order under Section 143(3) of Act. http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 11/17 10. Therefore, reassessment proceedings undertaken by Assessing Authority to disallow said expenditure fully by holding it to be only adding as intangible asset falling falling within domain of Section 32(1)(ii) of Act and allowing only 25% depreciation thereon is nothing but mere change of opinion by Assessing Authority. It is well settled legal position that reassessment under provisions of Sections 147 and 148 of Income Tax Act is not permissible on mere change of opinion. Assessing Authority, in order to invoke reassessment proceedings under Section 147/148 of Act, has to record "reasons to believe" about escapement of income in hands of Assessee. parameters of powers under Section 147/148 of Act have been discussed by Apex Court and various High Courts in large number of decisions and latest in series being in case of CIT v. Kelvinator of India Ltd. (320 ITR 561 (SC)) which has been relied upon by learned Tribunal to quash reassessment in present case. 11. relevant portion of decision of Hon'ble Supreme Court in case of Commissioner of Income Tax v. Kelvinator of India Ltd. (320 ITR 561 (SC)) is extracted below for ready reference:- "On going through changes, quoted above, made http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 12/17 to Section 147 of Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfilment of said conditions alone conferred jurisdiction on Assessing Officer to make back assessment, but in section 147 of Act [with effect from 1st 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-1st April, 1989, power to re-open 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 re-open 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 http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 13/17 reassess. But reassessment has to be based on fulfilment of certain pre-condition and if concept of "change of opinion" is removed, as contended on behalf of Department, then, in garb of re- opening assessment, review would take place. One must treat concept of "change of opinion" as in-built test to check abuse of power by Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, 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 re-introduced said http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 14/17 expression and deleted word "opinion" on ground that it would vest arbitrary powers in Assessing Officer. We quote hereinbelow relevant portion of Circular No.549 dated 31st October, 1989 ((1990) 82 CTR (St) 1), which reads as follows: "7.2 Amendment made by Amending Act, 1989, to reintroduce expression `reason to believe' in Section 147.--A 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 http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 15/17 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." 5. For afore-stated reasons, we see no merit in these civil appeals filed by Department, hence, dismissed with no order as to costs." 12. Therefore, we are satisfied that learned Tribunal, in present case, was perfectly justified in taking aforesaid view that reassessment in circumstances of case was done merely based on change of opinion at subsequent stage and it was not permissible and set aside same. present Appeal filed by Revenue is devoid of merit and is liable to be dismissed and same is, accordingly, dismissed. substantial question of law framed is answered in favour of Assessee and against Revenue. No order as to costs. (V.K.,J.) (C.S.N.,J.) 6.9.2019 Index : Yes Internet : Yes ssk. http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 16/17 To 1. Commissioner of Income Tax-LTU Chennai 2. M/s.Hyundai Motor India Ltd., Plot No.H-1 SIPCOT Industrial Park, Irungattukottai, Sriperumpudur Taluk, Kancheepuram District PIN: 602 105. http://www.judis.nic.in Judgt. dt. 6.9.19 in T.C.A.1441/2010 CIT-LTU v. Hyundai Motor India Ltd 17/17 DR.VINEET KOTHARI, J. and C.SARAVANAN, J. ssk. TC(A) No.1441 of 2010 6.9.2019. http://www.judis.nic.in Commissioner of Income-tax-LTU, Chennai v. Hyundai Motor India Ltd