The income tax returns filed by any assessee are subject to the processing by Income Tax Department. There are different provisions for assessment and scrutiny in the Income Tax Act. Now, in this article our scope of discussion will be powers/jurisdiction of Assessing Authorities for Reassessment u/s 147. As per Section-147, an assessing officer has power to assess or reassess the income in cases where he believes that income has escaped assessment. Today we will discuss a case law in which Madras High Court has laid down the facts clearly in this regard.
Table of Content
To understand the details of the case first of all we should know the gist of legal provisions mentioned in the judgment. Now, we will discuss the provisions to the extent relevant to the case. So, let us start-
What is Income Escaping Assessment?
- If assessing officer is of the opinion that any income has escaped assessment, than he can reassess the income. The rules regarding the same are available in Sec.147 of the Income Tax Act, 1961.
- According to section, if the income is already assessed under Scrutiny Assessment than in such cases assessing authorities cannot re-open the case after 4 years of end of the relevant assessment year.
Two of the Exceptions to the above rule are
- Where such income has escaped because of any failure on part of the assessee.
- Where the income relates to any international asset located outside India.
- There may be cases where assesse has produced all the records. It can be possible that all the details regarding income that is claimed to have escaped assessment were available in those records. However, still the assesee cannot escape the provisions of this section.
Relevant provisions from Transfer Pricing
To understand the case law, let us understand the relevant legal provisions first-
- Further, Sec. 92 CA (2C) overrides subsection 2B and says that reference as per section 2B (i.e. deemed reference by TPO) cannot be used to increase income or reduce refund in case of reassessment u/s147, if an initial assessment was completed before 01.07.2012.
- Any person who has entered into any international taxation or specified domestic transaction should obtain a report from a chartered accountant and furnish the same as per Sec.92E.
Facts of the case
- The Assessee, Aban Offshore Limited, was engaged in providing oil field services to various oil companies for offshore exploration in India and abroad. The company is a regular Assessee in terms of the provisions of the Indian Income Tax Act, 1961.
- Assessee filed return of income for AY 2007-08. The assesse gave all the documentation related to the international transactions during relevant FY i.e.2006-07.
- The assessing officer referred the computation of arm’s length price to the TPO as per Section-92CA (1). The income of assesse was increased as per TPO’s order. The final order was passed on 25.02.2011.
- The appeal against the above order was pending at ITAT. Meanwhile the proceedings for reassessment for AY 2007-2008 were initiated u/s147.
- TPO sent a notice to assessee on 02.04.2013 along with a questionnaire to furnish certain documents and evidences. TPO sent this notice on basis of reference from Assessing Officer.
- As already one assessment was over, assessee objected to this order.
- Assessee challenged the powers and jurisdiction of Assessing Authorities for Reassessment under section 147. Assessee filed 2 writ petitions in front of High Court.
Issue before High Court:
- Assessee contended that the order of TPO, are beyond the limitation as per the provisions of Section-92 CA (2C). Also the assesse has already furnished the required reports as per Se.92E for the relevant assessment year.
- Revenue stated that there is no denial to the fact that report as per Section-92E is furnished by the assessee. However, the notice dated 02.04.2013 was not based on that. It was solely based on a reference from AO and was not issued suomotu by the TPO. Therefore the sec-92CA (2B) as well as Sec.92 CA (2C) are not applicable in this regard.
- Also these sections cannot be read alone and should be read along with main section 92CA.
Remarks by High Court
- This was not a case of deemed reference to TPO. Assessing Officer referred the computation of ALP to TPO. The reference from AO was basis of order.
- Also the plot of the order was Income Escaping Assessment.
- TPO sent a letter to assessee to get required information. To reply to the reference made by AO the information was needed. On the basis of information TPO passed the order.
- HC also emphasized on the fact that powers given to TPO under section 92 CA (2B) and (2C) and power given to AO to reopen any assessment as per the provisions of the Sec-147 are two different provisions altogether.
- The provisions of section 147 uses the words “reason to believe” and the same gives wide scope to AO to consider situations to re-open assessment as per sec147. Also definition of word “Assessment” as per provisions of the act includes reassessment. Even in case of reassessment, AO has full power to seek any type of clarity from TPO.
- The premise and scope of original assessment and re-assessment is entirely different . Re-assessment is all about to cull out the truth about income that escaped assessment in initial scrutiny.
- Therefore, according to High Court wrong interpretation of law cannot reduce the powers and jurisdiction of assessing authorities.
- The HC held up the order of TPO and held that order of TPO on the basis of reference from AO was valid as per law.
- Assessing Authorities had issued proper notices and questionnaires. The reassessment was on the basis of relevant facts and not change of opinion.
Basis of re-assessment and Final Ruling-
Court observed that submitting audit report as per Sec.92-E is not a conflict at all. As TPO has also acknowledged the fact. At the same time AO had reopened the case not because of change of opinion, but on the basis of certain facts and evidences. As he had reasonable cause to believe that certain income has escaped assessment.
- Assessee claimed a tax credit for taxes deducted in a foreign country on an interest income.
- The borrower of the money lent to the foreign company was assesse himself. Also he claimed interest expense therefore nullifying the income.
- This wrong claim of credit and the usage of loan thereby nullifying the income was basis of reopening the case u/s147.
So, HC ruled that both the orders made by TPO and the opening of assessment are valid as per legal provisions and powers and jurisdiction of assessing authorities. The HC hence dismissed both the writ petitions of the assessee.
To conclude we can say, that main premise of the section is that assessing officer should have a reason to believe that certain income has escaped assessment. Wrong interpretation of law cannot reduce the Powers and Jurisdiction of Assessing authorities .If we read the judgment in correlation with provisions of the law briefed above we can understand intent of the law. The judiciary always upholds the objectives of the law so as to ensure correct implementation of the legal provisions.