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 Singh
For the Respondent : Mr Balbir Singh with Mr Abhishek Singh Baghel and
Mr Arjun Harkauli
CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
JUDGMENT
BADAR DURREZ AHMED, J
Relief Sought:-
1. This writ petition is directed against the notice dated 13.10.2011 under
section 148 of the Income Tax Act, 1961 (hereinafter referred to as `the said
Act') in respect of assessment year 2008-09. It is also directed against the
proceedings pursuant to the said notice culminating in the order dated
19.07.2012 passed by the assessing officer rejecting the objections raised by
the petitioner to the initiation of re-assessment proceedings.
WP(C) 7417/12 Page 1 of 26
Rival Contentions in brief:
2. The re-assessment proceedings have been objected to by the petitioner
on two counts--(1) change of opinion and (2) no new material or additional
facts had come to the knowledge of the assessing officer. The alleged
escapement of income from tax is founded on the premise that the transfer of
the unexpired value of contracts by the petitioner to its 100% subsidiary
(Lahmeyer International Consulting Engineers Gmbh) (`LICEG') in lieu of
shares of LICEG in August 2007 would be exigible to capital gains tax at the
hands of the petitioner. According to the petitioner, the said transfer of
business was a part of a restructuring exercise and was well within the the
knowledge of the assessing officer and the Dispute Resolution Panel (`DRP')
in the course of the original assessment proceedings. Therefore, the fact that
no such addition was made was, in itself, an indication that the assessing
officer and the DRP had formed an opinion that the transaction was not
taxable. Consequently, it was submitted on behalf of the petitioner, the
attempt to re-open the assessment was clearly based upon a change of
opinion, which was not permissible in law. It was also urged that no new
material had surfaced after the assessment order and, therefore, the assessing
officer could not invoke section 147 of the said Act.
WP(C) 7417/12 Page 2 of 26
3. The revenue, on the other hand, took the stand that there was no
change of opinion because, according to them, no opinion as such had been
formed during the original assessment proceeding with regard to the
taxability of the said transaction. It was also submitted that the assessing
officer had not considered the said transaction in his draft order and the DRP
had also no occasion to consider it as no variation on this aspect had been
proposed by the assessing officer. It was further contended that the
transaction came to light as a result of the queries raised by the DRP with
regard to the business restructuring arrangement of the petitioner. Since the
DRP had not given any directions with regard to the taxability of the
transaction, the assessing officer could not include it, on his own, in the
assessment order. It was submitted that, therefore, the assessing officer was
well 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 foreign
company, was formerly Lahmeyer International Gmbh. On 16.08.2007, the
petitioner (while it was known as Lahmeyer International Gmbh), transferred
WP(C) 7417/12 Page 3 of 26
the unexpired value of its contracts in India to its 100% subsidiary
Lahmeyer International Consulting Engineers Gmbh [`LICEG'] in
exchange for the additional shares of LICEG. In other words, the petitioner
continued to hold 100% of the shares of LICEG though the number of shares
held increased because of additional share capital. Furthermore, the
unexpired value of its (petitioner's) contracts in India stood transferred to
LICEG. Subsequently, the petitioner gave up its earlier name Lahmeyer
International Gmbh and adopted its current name LHG. And, LICEG
then changed its name to Lahmeyer International Gmbh (`LIG').
5. The assessing officer passed a draft assessment order dated
08.012.2010 under section 144C of the said Act proposing to make
variations in the income returned by the petitioner in respect of the
assessment year 2008-09. In the draft assessment order it is specifically
recorded that:-
"... During the subject year, Lahmeyer has earned revenue from
execution of contracts with Jammu & Kashmir State Power
Development Corporation Baglihar Construction services
(`JKSPDC') Jaypee Karcham Hydro Corporation Limited
(`JKHCL') AND Jaypee Venture Private Ltd. (`JVPL'). The
receipts earned from 1st April 2007 to 31st July has been offered
to taxation in the hands of the assessee. Receipts earned from 1st
August 2007 till 31st March 2007 in India has been offered to tax
WP(C) 7417/12 Page 4 of 26
in the hands of M/s. Lahmeyer International GmbH (`LIG')
which is a Company incorporated in Germany on July 20th 2007."
6. The petitioner filed objections to the draft order on 07.01.2011. The
variations proposed by the Assessing Officer and the objections filed by the
petitioner did not relate to the question of the transfer of the unexpired value
of the contracts by the petitioner to LICEG (Now `LIG') in exchange of
shares of the latter. However, from the directions under Section 144C (5) of
the said Act given by the DRP on 28.09.2011, it is evident that during the
DRP proceedings, a clarification had been sought from the petitioner with
regard to the restricting undertaken by the applicant during the relevant
assessment year. The same had been replied to by the petitioner through its
letter of 23.09.2011. The observations of the DRP with regard to the
business transfer from the petitioner to LICEG (Now `LIG') are extracted
hereinbelow:-
"5. Observations of the DRP
Regarding business transfer from Lahmeyer Holding GmbH to
Lahmeyer International GmbH
The DRP during proceedings before it had sought clarification
regarding the business restructuring undertaken by the applicant
during the relevant assessment year. The applicant vide its letter
dated 23rd September, 2011 has furnished the following reply:
WP(C) 7417/12 Page 5 of 26
As submitted earlier, Lahmeyer International GmbH (now known
as LHG) transferred its entire business (on a going concern basis) to
LICG (now known as LIG) with a view to increase its capital
contribution in LICG. English translation of the audited financial
statement of LIG (now known as LHG), alongwith a certificate
from notary public, duly evidencing the said fact, have been
enclosed as Annexure 1. Also English translation of the audited
financial statements of LICG (now known as 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 as
LHG). Accordingly, consideration receivable in respect of
following Indian contracts, as relevant for the subject AY, upto July
2007 was accrued and duly offered tax in the hands of LIG (now
known as LGH):
Jammu and Kashmir State Power Development Corporation
Balihar Construction Services
Jaypee Karcham Hydro Corporation Limited
Jaypee Ventures Limited
Thereafter, with effect from August 2007, LICG (now known as
LIG) executed the above contracts and therefore, all revenues
accrued under such contracts (being contracts relevant for subject
AY) have been accrued by LICG and offered to taxation in the
hands of LICG (now known as LIG).
Further, it is clarified that while Indian customers were
updated on the global restructuring, given that the name
of the legal entity executing the Indian contracts
remained the same, no addendum was executed with the
Indian customers.
We request you to take the above on record. In case your Honors
required any further information / clarification in this regard, an
opportunity to represent / furnish may be granted to the assessee for
the same."
WP(C) 7417/12 Page 6 of 26
Certified Translation German English
Financial Figures 2007 Explanatory Note
To Whom It May Concern
For the purpose of presentation to authorities and institutions, I, the
undersigned notary public, herewith certify that on August 16, 2007 an
agreement relating to contribution of capital, my legal document role of
deeds No. M 319/2007, was concluded between Lahmeyer International
GmbH, registered with the Commercial Register of the Municipal Court
Frankfurt / Main HRB 72343 and Lahmeyer International Consulting
Engineers GmbH, registered with the Commercial Register of the
Municipal Court Frankfurt / Main HRB 80852, about the transfer of the
sum total of business activities of Lahmeyer International GmbH to
Lahmeyer International consulting Engineers GmbH.
The above mentioned transfer of the sum total of business activities of
Lahmeyer International GmbH to Lahmeyer International Consulting
Engineers GmbH was effected to satisfy Lahmeyer International GmbH's
obligation to contribute to the capital increase as agreed upon by the
extraordinary shareholders' meeting of Lahmeyer International
Consulting Engineers GmbH on August 16, 2007, by legal document role
of deeds No. M 318/2007. The capital increase was registered in the
Commercial Register of the Municipal Court Frankfurt / Main on October
31, 2007 under the above mentioned HRB No. 80852.
Berlin, November 7, 2007
Seal:
Illegible signature
Dr. Johannes Meinel
Coat of arms of Berlin
Notary public in Berlin
What emerges from an examination of the aforesaid reply is that as
part of its business restructuring
The applicant has transferred all pending contracts to its 100%
subsidiary Lahmeyer International Consulting Engineers (LICE)
whose name was subsequently changed to Lahmeyer
International which has in lieu thereof allotted applicant shares.
WP(C) 7417/12 Page 7 of 26
Although, the contracts were all allotted to applicant but no
addendum was executed with the Indian customers pursuant to
business restructuring since the name changed ensures that
continuity of name even though the entity executing the
contracts has changed from applicant to its 100% subsidiary.
The structure post the restructuring exercise and allotment of
shares remains that of holding company and 100% subsidiary as
the diagram below will show.
Pre restructuring Post restructuring
Lahmeyer International (LI) Lahmeyer Holding
Name
Changed
Allotment of Transferred of
Share business 16.08.07
100% 100% Subsidiary
Lahmeyer International Lahmeyer International
Consulting Engineers (LICG) Name
date of incorporation 20 th July Changed
2007
(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.
WP(C) 7417/12 Page 8 of 26
8. Thereafter, the Assessing Officer passed the assessment order under
Section 143(3) read with Section 144C of the said Act on 04.10.2011. In the
said assessment order, it has once again been recorded that the receipts
earned by the petitioner from 01.04.2007 to 31.07.2007 had been offered to
taxation in the hands of the petitioner and that the receipts earned from
01.08.2007 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 of
shares.
9. Shortly thereafter, on 13.10.2011, the Assessing Officer issued the
impugned notice under Section 148 of the Act indicating that he had reason
to believe that income of the petitioner chargeable to tax for the assessment
year 2008-09 had escaped assessment and that he proposed to re-assess the
income. By a letter dated 03.11.2011, the petitioner requested the Assessing
Officer to provide the copy of the reasons, if any, recorded for initiating the
present proceedings under Section 147 of the said Act. The purported
reasons were supplied thereafter and the same read as under:-
"1. The Draft order u/s 144C was passed on 08th December, 2011.
The assessee went to DRP and direction of the DRP u/s 144C
(5) was received on 28th September, 2011.
WP(C) 7417/12 Page 9 of 26
2. Regarding the business transfer from Lahmeyer Holding GmbH
to Lahmeyer International GmbH the DRP has given the
following observation.
"The DRP during proceeding before it had sought
clarification regarding the business restructuring
undertaken by the applicant during the relevant
assessment year. The applicant vide its letter dated 23rd
September, 2011 has furnished the following reply:
"As submitted earlier, Lahmeyer International
GmbH (now known as LHG) transferred its entire
business (on a going concern basis) to LICG (now
known as LIG) with a view to increase its capital
contribution in LICG, English translation of the
audited financial statement of LIG (now known as
LHG), alongwith a certificate form notary public,
duly evidencing the said fact, have been enclosed
as Annexure 1. Also English translation of the
audited financial statements of LICG (now known
as 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 as
LHG). Accordingly, consideration receivable in respect of
following Indian contracts, as relevant for the subject AY, upto
July, 2007 was accrued and duly offered tax in the hands of LIG
(now known as LGH):
Jammu and Kashmir State Power Development
Corporation
Balihar Construction Services
Jaypee Karcham Hydro Corporation Limited
Japyee Ventures Limited
Thereafter, with effect from August 2007, LICG (now kwon as
LIG) executed the above contracts and, therefore, all revenues
WP(C) 7417/12 Page 10 of 26
accrued under such contracts (being contracts relevant for
subject AY) have been accrued by LICG and offered to taxation
in the hands of LICG (now known as LIG).
Further, it is clarified that while Indian customers were
updated of the global restructuring, given that the name of
the legal entity executing the Indian contracts remained
the same, no addendum was executed with the Indian
customers.
We request you to take the above on record. In case your Honour
required any further information / clarification in this regard, an
opportunity to represent / furnish may be granted to the assessee
for the same.
Certified Translation German English
Financial Figures 2007 explanatory Note
To Whom it May Concern
For the purpose of presentation to authorities and institutions, I, the
undersigned notary public, herewith certify that on August 16, 2007
an agreement relating to contribution of capital, my legal document
role of deeds No. M 319/2007, was concluded between Lahmeyer
International GmbH, registered with the commercial Register of the
Municipal Court Frankfurt / Main HRB 72343 and Lahmeyer
International Consulting Engineers GmbH, registered with the
Commercial Register of the Municipal Court Frankfurt / Main HRB
80852, about the transfer of the sum total of business activities of
Lahmeyer International GmbH to Lahmeyer International Consulting
Engineers GmbH.
The above mentioned transfer of the sum total of business activities
of Lahmeyer International GmbH to Lahmeyer International
Consulting Engineers GmbH was effected to satisfy Lahmeyer
GmbH's obligations to contribute to the capital increase as agreed
upon by the extraordinary shareholders' meeting of Lahmeyer
International Consulting Engineers GmbH on August 16, 2007 my
legal document role of deed No. 318/2007. The capital increase was
registered in the Commercial Register of the Municipal Court
WP(C) 7417/12 Page 11 of 26
Frankfurt / Main on October 31, 2007 under the above mentioned
HRB No 80852. Berlin, November 7, 2007.
Seal:
Illegible
Dr. Johannes Meinel
Coat of arms of Berlin
Norary Public In Berlin
"
3. The following points emerge from an examination of the
reply read with the certificate from the notary public during
DRP Proceedings is that, as part of its business
restructuring.
The applicant has transferred all pending contracts to its
100% subsidiary Lahmeyer International Consulting
Engineers (LICE) whose name was subsequently
changed to Lahmeyer International which has in lieu
thereof allotted applicant shares.
Although, the contracts were all allotted to applicant, no
addendum was executed with the Indian customers
pursuant to business restructuring.
The structures post the restructuring exercise and
allotment of shares remains that of holding company
(Lahmeyer Holding) and 100% subsidiary (Lahmeyer
International).
4. That above information regarding business restructuring
and transfer of business in lieu shares was not placed
before the Assessing Officer during the time of assessment
proceedings.
5. Further, based on the facts and discussion made in the
aforesaid paragraphs, it is concluded that transfer of
unexpired value of contracts in lieu of shares is chargeable
to capital gain tax as per Article 13 of DTAA as well as
provisions of the Income tax act.
WP(C) 7417/12 Page 12 of 26
6. As the assessee has not offered any income on this
account, I have reason to believe that the capital gain
chargeable 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 its
objections to the initiation of the re-assessment proceedings. Those
objections were rejected by the Assessing Officer by virtue of the impugned
order dated 19.07.2012. And, it was held that the notice issued under
Section 148 of the said Act was not without jurisdiction and was valid as per
the provisions of the said Act.
11. Being aggrieved by the issuance of the notice under Section 148 of the
said Act and the rejection of the objections by virtue of the order dated
19.07.2012, the present writ petition has been filed.
Analysis and Discussion:
12. As pointed out above, the petitioner has raised two specific issues with
regard to the challenge to the initiation of the re-assessment proceedings.
The first one pertains to the question of `change of opinion' and the second
that there was `no new material' or additional fact which had come to the
WP(C) 7417/12 Page 13 of 26
knowledge of the Assessing Officer after the passing of the original
assessment 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 the
issue of restructuring of the petitioner company and the transaction of
transfer of unexpired value of the contracts by the petitioner to its 100%
subsidiary in exchange of the shares of the 100% subsidiary was examined
both by the Assessing Officer in his draft assessment order as well as by the
DRP in the course of the DRP proceedings. Despite the Assessing Officer
and the DRP having examined the transaction, they did not make any
addition in this regard. It was, therefore, the case of the petitioner that the
Assessing Officer and the DRP had formed an opinion that the transaction
was not exigible to Capital Gains Tax and the proposal in the re-assessment
proceedings that it was taxable amounted to a change of opinion.
14. On the other hand, the learned counsel for the revenue had contended
that there was no question of any change of opinion as, according to him, no
opinion as such had been formed during the original assessment proceedings.
It was submitted that the Assessing Officer had not considered the said
WP(C) 7417/12 Page 14 of 26
transaction in his draft assessment order and the DRP also had no occasion to
consider it as no variation on this aspect had been proposed by the Assessing
Officer. It was further the case of the revenue that the transaction came to
light only as a result of the queries raised by the DRP with regard to the
business restructuring arrangement of the petitioner. But, as the DRP had
not given any directions with regard to the taxability of the transaction, the
Assessing Officer could not include it on his own in the assessment order.
Consequently, it was submitted that when this "new" material was available
with 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 this
court in CIT V. Usha International Limited: 2012 (348) ITR 485. In the
said 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 case
return of income is processed under section 143(1) and no scrutiny
assessment is undertaken. In such cases there is no change of
opinion.
(2) Reassessment proceedings will be invalid in case the
assessment order itself records that the issue was raised and, is
decided in favour of the assessee. Reassessment proceedings in the
said cases will be hit by the principle of "change of opinion".
WP(C) 7417/12 Page 15 of 26
(3) Reassessment proceedings will be invalid in case an issue or
query is raised and answered by the assessee in original
assessment proceedings but thereafter the Assessing Officer does
not make any addition in the assessment order. In such situations it
should be accepted that the issue was examined but the Assessing
Officer did not find any ground or reason to make addition or
reject the stand of the assessee. He forms an opinion. The
reassessment will be invalid because the Assessing Officer had
formed an opinion in the original assessment, though he had not
recorded his reasons.
In the second and third situation, the Revenue is not without
remedy. In case the assessment order is erroneous and 'prejudicial
to the interest of the Revenue, they are entitled to and can invoke
power under section 263 of the Act. This aspect and position has
been highlighted in CIT v. DLF Power Ltd. I. T. A. No. 973 of
2011 decided on November 29, 2011-since reported in [2012] 345
ITR 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 been
observed (page 135):
"The Revenue had the option, but did not take recourse
to section 263 of the Act, in spite of audit objection.
Supervisory and revisionary power under section 263
of the Act is available, if an order passed by the
Assessing Officer is erroneous and prejudicial to the
interest of the Revenue. An erroneous order contrary to
law that has caused prejudice can be corrected, when
jurisdiction under section 263 is invoked."
Thus, where an Assessing Officer incorrectly or erroneously
applies law or comes to a wrong conclusion and income
chargeable to tax has escaped assessment, resort to section 263 of
the Act is available and should be resorted to. But initiation of
reassessment proceedings will be invalid on the ground of change
of opinion. Here we must draw a distinction between erroneous
application/interpretation/understanding of law and cases where
WP(C) 7417/12 Page 16 of 26
fresh or new factual information comes to the knowledge of the
Assessing Officer subsequent to the passing of the assessment
order. If new facts, material or information comes to the
knowledge of the Assessing Officer, which was not on record and
available at the time of the assessment order, the principle of
"change of opinion" will not apply. The reason is that "opinion" is
formed on facts. "Opinion" formed or based on wrong and
incorrect facts or which are belied and untrue do not get protection
and cover under the principle of "change of opinion". Factual
information or material which was incorrect or was not available
with the Assessing Officer at the time of original assessment
would justify initiation of reassessment proceedings. The
requirement in such cases is that the information or material
available should relate to material facts. The expression "material
facts" means those facts which if taken into account would have
an adverse effect on the assessee by a higher assessment of
income than the one actually made. They should be proximate and
not have remote bearing on the assessment. The omission to
disclose may be deliberate or inadvertent. The question of
concealment is not relevant and is not a precondition which
confers juris-diction to reopen the assessment."
(underlining added)
Specifically, the learned counsel for the revenue placed reliance on the
following observations in Usha Internaional (supra):-
"Thus, if a subject-matter, entry or claim / deduction is not
examined by an Assessing Officer, it cannot be presumed that he
must have examined the claim / deduction or the entry, and,
therefore, it is the case of "change of opinion". When at the first
instance, in the original assessment proceedings, no opinion is
formed, the principle of "change of opinion" cannot and does not
apply. There is a difference between change of opinion and failure
or omission of the Assessing Officer to form an opinion on a
subject-matter, entry, claim, deduction. When the Assessing
WP(C) 7417/12 Page 17 of 26
Officer fails to examine a subject-matter, entry, claim or
deduction, he forms no opinion. It is a case of no opinion."
(underlining added)
16. The above extracts from Usha International (supra), make it clear
that if a particular aspect is not examined by an Assessing Officer, it cannot
be presumed that he must have examined the same. It is also clear that if, in
the first instance, in the original assessment proceedings, no opinion is
formed, the principle of `change of opinion' would not apply. However, it is
also evident from the decision in Usha International (supra) that re-
assessment proceedings would be invalid in case an issue or query is raised
and answered by the assessee in the original assessment proceedings. But,
thereafter the Assessing Officer does not make any addition in the
assessment order. In such situations, it would have to be accepted that the
issue had been examined, but the Assessing Officer did not find any ground
or 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 forms
an opinion. And, re-assessment would be invalid because the Assessing
Officer had formed an opinion in the original assessment, though he had not
recorded his reasons for the same.
WP(C) 7417/12 Page 18 of 26
17. Another decision which was referred to and, more particularly by the
learned counsel for the petitioner, was the Supreme Court decision in CIT 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 the
words "reason to believe" failing which, we are afraid, section 147
would give arbitrary powers to the Assessing Officer to reopen
assessments on the basis of "mere change of opinion", which
cannot be per se reason to reopen. We must also keep in mind the
conceptual difference between power to review and power to
reassess. The Assessing Officer has no power to review; he has the
power to reassess. But reassessment has to be based on fulfilment
of certain pre-conditions and if the concept of "change of opinion"
is removed, as contended on behalf of the Department, then, in the
garb of reopening 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 the Assessing Officer. Hence, after 1st
April, 1989, the Assessing Officer has power to reopen, provided
there is "tangible material" to come to the conclusion that there is
escapement of income from assessment. Reasons must have a live
link 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 Court
clearly observed that the Assessing Officer has no power to review, although
he 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
WP(C) 7417/12 Page 19 of 26
in-built test to check the abuse of power by the Assessing Officer. The
Assessing Officer, in the garb of re-opening of an assessment under Section
147 of the said Act cannot be permitted to review the assessment.
19. Applying the principles of Kelvinator India Limited (supra) and Usha
International (supra), we are of the view that in the present case, the
Assessing Officer and the DRP had examined the issue of business
restructuring. Even the fact that receipts upto and including July 2007 were
offered for taxation in the hands of the petitioner and thereafter, that is, from
August, 2007 to 31.03.2008, the revenues were to be raised in the hands of
the petitioner's 100% subsidiary, namely, LIG, were clearly, noticed and
recorded not only in the final assessment order, but also in the draft
assessment order and the proceedings before the DRP. Therefore, we cannot
agree with the learned counsel for the revenue that the transaction in
question had not been examined by the Assessing Officer or the DRP in the
course of the original assessment proceedings. The fact that despite such
examination, no addition was made in respect of the said transaction, would
lead us to the conclusion that in the original assessment proceedings, an
opinion 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.
WP(C) 7417/12 Page 20 of 26
Having formed such an opinion, the subsequent initiation of the re-
assessment proceedings, taking a contrary view that the transaction was
exigible to capital gains tax in India, would be nothing but a case of "change
of opinion". In other words, the Assessing Officer is attempting to review
the earlier assessment order which is not permissible in law.
20. It was contended, as noted above, that the Assessing Officer himself
had no occasion to examine the said transaction and that the queries with
regard to restructuring of the petitioner company had been raised by the DRP
and not by the Assessing Officer. Furthermore, it was submitted that
because the directions of the DRP are to be followed, the Assessing Officer
had no discretion left in the matter and, therefore, the Assessing Officer had
not formed any opinion with regard to the said transaction. This argument
cannot be accepted for two reasons. First of all, the Assessing Officer
himself in the draft assessment order had noticed the restructuring and had
specifically recorded that receipts upto and including July 2007 were being
taxed in the hands of the petitioner and for the balance period from August
2007 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 entire
transaction. Secondly, and, in any event, the DRP in the course of the
WP(C) 7417/12 Page 21 of 26
proceedings before it, made specific queries with regard to the business
restructuring of the petitioner and the transaction in question. The petitioner
gave a detailed reply and the same has been noted in the observations of the
DRP which we have extracted in the earlier part of the judgment. The DRP,
after examining the entire business restructuring arrangement and the
transaction in question, did not make any addition. The Assessing Officer in
his final assessment order also did not make any addition on account of the
subject transaction. It must be noted that the DRP procedure is part of the
assessment proceedings. Queries raised and answered during the DRP
proceedings would stand on the same footing as queries raised and answered
in the course of an assessment proceedings before an Assessing Officer
where the DRP procedure is not applicable. Therefore, on both counts, it
cannot be said that an opinion had not been formed in respect of the
transaction in question during the assessment proceedings. The fact that no
addition was made in respect of the said transaction, would clearly raise the
presumption that after having examined the said transaction, it was opined
that it was not exigible to tax. The subsequent view being taken, as indicated
in the purported reasons for initiating the proceedings under Section 147 of
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the said Act, would be nothing but a `change of opinion' which is not
permissible in law.
No new Material:
21. We are also in agreement with the learned counsel for the petitioner
that no new facts or material had come to the knowledge of the Assessing
Officer to enable him to initiate re-assessment proceedings. All the material
facts on which the Assessing Officer had based his purported reasons were
available on record at the time when the original assessment order was
passed.
22. In Usha International (supra), it has been observed that if new facts,
material or information comes to the knowledge of the Assessing Officer
which 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, we
have already observed that all the relevant material was on record and
available at the time of original assessment proceedings. Therefore, the re-
assessment proceedings on the basis of the same material would be contrary
to law.
WP(C) 7417/12 Page 23 of 26
Section 144C(8)
23. One more aspect which needs some discussion is with regard to the
submission that the DRP had no occasion to consider the issue of taxability
of the transaction involving the transfer of the expired value of the contract
in exchange of shares as no variation had been suggested by the Assessing
Officer on this aspect of the matter in his draft assessment order. It was
submitted by the learned counsel for the revenue that the jurisdiction of the
DRP in terms of Section 144C(8) was that it could confirm, reduce or
enhance the variations proposed in the draft order, but it could not introduce
a new element of tax or variation. In response to this, the learned counsel for
the petitioner drew our attention to the Explanation added after Section 144
C(8). It was submitted by the learned counsel for the petitioner that by virtue
of the said Explanation, the DRP always had the power to consider any
matter 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, reduce
or enhance the variations proposed in the draft order so,
however, that it shall not set aside any proposed variation or
issue any direction under sub-section (5) for further enquiry and
passing of the assessment order.
WP(C) 7417/12 Page 24 of 26
Explanation. For the removal of doubts, it is hereby
declared that the power of the Dispute Resolution Panel to
enhance the variation shall include and shall be deemed always
to have included the power to consider any matter arising out of
the assessment proceedings relating to the draft order,
notwithstanding that such matter was raised or not by the
eligible 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 Dispute
Resolution Panel's directions were issued after the Explanation had come
into operation. In any event, the Explanation is clarificatiory. Reading the
Explanation with sub-section 144C(8), it is evident that the Dispute
Resolution Panel could examine the issues arising out of the assessment
proceedings even though such issues were not part of the subject matter of
the variations suggested by the Assessing Officer. In this light, it is
significant that though the draft order had not proposed any addition with
regard to the restructuring and the said transaction, yet, the DRP had asked
for details of the restructuring and had examined the matter. After such
examination, 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 not
exigible to capital gains tax and, to contend otherwise, in the purported
WP(C) 7417/12 Page 25 of 26
reasons for re-opening of the assessment, would be nothing but a `change of
opinion' which is not permissible in law.
Conclusion:
25. For the reasons set out above, the writ petition is allowed. The notice
dated 13.10.2011 issued by the Assessing Officer under Section 148 of the
said Act in respect of the assessment year 2008-09 is quashed. All
proceedings pursuant thereto, including the order dated 19.07.2012, rejecting
the objections, also stand quashed. There shall be no order as to costs.
BADAR DURREZ AHMED, J
SIDDHARTH MRIDUL, J
MAY 19, 2015
dutt
WP(C) 7417/12 Page 26 of 26
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