Reopening based on change of opinion is not permissible under law

Advocate Akhilesh Kumar Sah

Motorola Inc, USA Vs DDIT (ITAT Delhi)

Motorola Inc, USA appeal before Delhi ITAT: When no intangible material came to the notice of the AO to form the opinion that the income of the assessee company has escaped assessment and all the facts and figures have been brought on record by the assessee company during assessment proceedings and same had been explained: The reassessment proceedings were not sustainable, having been made after a period of 4 years from the relevant assessment years

In Motorola Inc, USA vs. DDIT [ITA No. 5679 /Del/2010 (A.Y.: 2002-03) & ITA No. 5680 /Del/2010 (A.Y.: 2003-04), decided on 04.07.2018], the Appellant, Motorola Inc 1303, Algonquin Road Schaumburg, Illinois, USA, (hereinafter referred to as ‘the Assessee’) by filing the appeals, sought to set aside the orders dated 20.09.2010 qua A.Y.s 2002-03 & 2003-04, respectively passed by Dispute Resolution Panel-II, New Delhi, on the identical grounds.
Based on the facts and circumstances of the case, briefly, Motorola Inc (hereinafter referred to as ‘the Appellant’), respectfully submitted in respect of the order passed by the learned Deputy Director of Income -tax, Circle 3(2), New Delhi under section 144C(13)/147 of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’) the following grounds, amongst others, pleading that  reassessment proceedings were bad in law:

• On the facts and in the circumstances of the case and in law, the learned Assessing Officer (‘AO’) has erred and the Hon’ble Dispute Resolution Panel (‘DRP’) has further erred in confirming the AO’s action of reopening the assessment proceedings under section 147 of the Act by issuance of notice under section 148 of the Act dated 03 October 2008, after the expiry of four years from the end of the relevant assessment year. Thus, the impugned order passed under section 144C read with section 147 of the Act is without jurisdiction, bad in law and liable to be quashed;
• On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon’ble DRP has further erred in confirming the AO’s action of reopening the assessment proceedings under section 147 of the Act, after the expiry of four years even when there was no failure on the part of the appellant to fully and truly furnish all the material facts necessary for assessment;
• On the facts and in the circumstances of the case and in law, the learned AO has erred and the Hon’ble DRP has further erred in confirming the AO’s action of reopening the concluded assessment merely on the basis of change of opinion on facts already present at the time of original assessment proceedings u/s 143(3) of the Act;
• On the facts and in the circumstances of the case and in law, the learned AO has erred in not considering the detailed submissions made by the appellant during the reassessment proceedings and completely disregarding the judicial precedents relied upon by the appellant to meet the ends of revenue and the Hon’ble DRP has further erred in confirming the above action of the learned AO.
• That the impugned reassessment order as passed by the learned AO u/s 144C read with section 147 of the Act concluding the reassessment proceedings as confirmed by the Hon’ble DRP u/s 144C(13) read with section 147 of the Act is, therefore, bad in law and requires to be annulled.

The assessee carried the matter before the Ld. Dispute Resolution Panel (DRP) by filing the objections on merit as well as legal grounds which had been disposed off. Feeling aggrieved, the assessee came up before the ITAT, Delhi.
The learned Members of the ITAT, Delhi observed that bare perusal of the reasons recorded for the purpose of reopening shows that the facts recorded in the reasons have been picked up by the AO from the Assessment Order completed u/s 143(3) of the Act, whereby that the dispute as to the rate of tax has been raised by the AO by holding that the assessee company has a permanent establishment in India and the agreement leading to the payment of such fees was made after 31.05.1997 and as such the receipt should have been taxed at 20% u/s 115A read with Section 44D of the Act instead of 15% which was applied in the Assessment order, which resulted in escapement of income leading to the loss of tax of Rs. 54.16 lacs in A.Y. 2002-03 and 2.69 crores in A.Y. 2003-04. In view of the law laid down by Hon’ble Delhi High Court in the Judgment of Oracle Systems Corporation vs. ADIT (International Taxation) [2016] 380 ITR 232 and Tracetebel Industry Engg vs. ADIT 198 taxman 408(Del), we are of the considered view that when no intangible material come to the notice of the AO to form the opinion that the income of the assessee company has escaped assessment rather all the facts and figures have been brought on record by the assessee company during assessment proceedings and same have been got explained by the AO by way of issuance of detailed questionnaire and the proceeding were completed u/s 143 (3) of the Act, the reopening in these cases have apparently been made on the basis of “change of opinion” which is not permissible under law.

The learned Members of the ITAT, Delhi held that the reopening in these cases is itself not sustainable, having been made after a period of 4 years from the relevant assessment years as the assessee company has brought on record all the material facts fully and truly necessary for assessment. So, order passed by the AO/DRP u/s 144/147 of the Act is not sustainable in the eyes of law, hence ordered to be quashed.