By TIOL News Service

NAINITAL, NOV 23, 2017: THE issue - Whether after amendment of 1989 AO is empowered to reopen assessment when order is reasoned and assessee is free to challenge it. YES is the answer.

Facts of the case

The Assessee-a global company was engaged in the business of providing services and facilities in connection with exploration and extraction and production of mineral oils. The Assessee had filed its return for the relevant AY. In the course of the assessment proceeding, the AO after considering all the findings, completed the assessment u/s 143(3). Later, the AO noted that the Assessee's income had escaped assessment and therefore, issued a notice u/s 148 to reassess the income and directed to submit its revised return within 30 days in the prescribed format. However, the Assessee filed objections to the reasons for such reopening but, the same was rejected by the AO. During the reassessment proceeding, the AO held that the Assessee failed in bifurcating the receipts into outside India and inside India. It was also noted that the Assessee had conducted its business in India with ONGC and thereby failed to tax the entire receipts in India as business income at maximum marginal rate as per the Act. It was also noticed that the AO computed the Assessee's income from outside India at a lower rate.

In Writ, the High Court held that,

++ there was also failure on the part of the AO in computing the income from outside India at a low rate. In the relevant AY, whether the receipts were taxed as business income, was never discussed by the AO. For the relevant AY, the issue for taxation of entire revenue in India was not taken up by the AO. Thus, according to the reasons assigned, there was tangible material for formation of belief by the AO to reopen the assessment;

++ the Apex Court in the matter of Kelvinator of India Ltd. has held that after amendment of 1989, the AO can reopen assessment provided he has 'reason to believe' that income has escaped assessment based on tangible material. It was further held that mere 'change of opinion' does not empower the AO to review assessment in the garb of reassessment;

++ similarly, the Division Bench of Delhi High Court in the matter of Consolidated Photo & Finvest Ltd. has held that the Proviso to Section 147 envisages action in the ordinary course within a period of 4 years from the end of the relevant AY. That limitation does not, however, apply to cases where income chargeable to tax has escaped assessment on account, inter alia, of the failure of the assessed to disclose fully and truly all material facts. The argument that production of the account books and other documentary evidence relevant for assessment must imply a full and true disclosure of all material facts must be rejected out of hand in the light of the provisions of Explanation (1). The Division Bench further held that the there may be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment was silent, all possible angles and aspects of a controversy had been examined and determined by the AO. The principle that a mere change of opinion cannot be a basis for reopening computed assessments would be applicable only to situations where the AO has applied his mind and taken a conscious decision on a particular matter in issue. It would have no application where the order of assessment does not address itself to the aspect which was the basis for reopening of the assessment;

++ it is thus, not the change of opinion but the reassessment has been ordered on the basis of the tangible material placed on record necessitating the reassessment. Sufficient reasons have been assigned for reopening of the assessment. The order dated 19.12.2011 passed by the AO is detailed and reasoned and in conformity with the law.

(See 2017-TIOL-2449-HC-UKHAND-IT)