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M/S LAHMEYER HOLDING GMBH Vs. DEPUTY DIRECTOR OF INCOME TAX, CIRCLE 3(2)
June, 23rd 2015
         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




WP(C) 7417/12                                                        Page 22 of 26
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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