Court directs AO to reconsider objection under Section 92CA(2C) in reopening case

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Case Name:

Amore Jewels Pvt. Ltd. Vs Principal Commissioner of Income Tax (High Court of Bombay)

Writ Petition No. 800 of 2016

Date: 13th July 2016

Key Takeaways:

1. The court is giving the AO a chance to consider an important objection that wasn’t initially raised by the company.
2. There’s a focus on ensuring tax authorities follow proper procedures, especially when it comes to reopening old assessments.
3. The court is balancing the rights of the taxpayer with the duties of the tax department.

Issue:

The main question here is: Does the Income Tax Department have the jurisdiction to reopen the assessment for the 2008-09 tax year, considering the limitations set by Section 92CA(2C) of the Income Tax Act?

Facts:

• The Income Tax Department issued a notice on March 31, 2015, to reopen the assessment for the 2008-09 tax year.
• The original assessment for 2008-09 was completed on October 18, 2010.
• The reopening was based on transfer pricing adjustments.
• The petitioner (the company) received the notice and filed objections.
• There was a bit of a mix-up where the AO sent another notice despite a court stay, but they apologized for that.

Arguments:

The company argued:

1. The notice was issued without proper jurisdiction.
2. There were issues with the date of the notice and the sanction from the Commissioner.
3. Section 92CA(2C) of the Income Tax Act prevents reopening assessments completed before July 1, 2012, for transfer pricing issues.

The tax department argued:

1. The notice was properly issued on March 31, 2015.
2. Any errors in the notice were typographical and didn’t affect its validity.

Key Legal Precedents:

1. Asian Paints Ltd. v. Dy. CIT [2008] 296 ITR 90 - This case directs the AO not to start reassessment proceedings for four weeks after disposing of objections.

Judgement:

The court didn’t completely side with either party. Instead, it:

1. Directed the AO to consider the company’s objection regarding Section 92CA(2C) within four weeks if filed within one week.
2. Stayed the reopening notice for ten weeks to allow the company to challenge the AO’s decision if needed.
3. Didn’t entertain other objections raised by the company.

FAQs:

Q: Why didn’t the court just cancel the reopening notice?

A: The court wanted to give the AO a chance to consider a potentially crucial objection that wasn’t initially raised.

Q: What’s the significance of Section 92CA(2C)?

A: It prevents reopening assessments completed before July 1, 2012, for transfer pricing issues, which could make the notice invalid in this case.

Q: Can the company still challenge the reopening if the AO rejects their objection?

A: Yes, that’s why the court gave a 10-week stay on the notice.

Q: What happens after the AO considers the new objection?

A: The AO will make a decision, and then the company has four weeks to challenge it if they disagree, as per the Asian Paints Ltd. case.

Q: Does this decision apply to all tax reopening cases?

A: Not necessarily. This decision is specific to this case, but it shows the court’s willingness to ensure proper procedure is followed in tax matters.

1. At the request of the counsel, this petition is being disposed of finally at the stage of admission.

2. This petition under Article 226 of the Constitution of India challenges a notice dated 31st March, 2015 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961 (the 'Act'). The impugned notice seeks to re-open the Assessment for Assessment year 2008-09.

3. We had by our order dated 22nd June, 2016 directed the Assessing Officer to explain his conduct in having issued a notice dated 17th June, 2016 under Section 142(1) of the Act to the petitioner, in the face of the order dated 15th June, 2016 of this Court staying the impugned notice. Mr.Prathamesh Lawand, the Assessing Officer has filed an affidavit dated 24th June, 2016 pointing out that the notice dated 17th June, 2016 was sent by mistake and withdrawn by communication dated 21st June, 2016. The affidavit states that it was a genuine mistake and he tenders an unconditional apology for the same. We accept the same in the present facts. However, the officers of Revenue must be careful and ensure that the orders of this Court are followed in letter and spirit.

4. The petitioner has raised various contentions challenging the jurisdiction of the Assessing Officer, who issued the impugned notice including the date when impugned notice was issued and also with regard to sanction of the Commissioner of Income Tax. From the record we find that the impugned notice has been issued on 31st March, 2015 as is evidenced from the acknowledgment received by the Revenue from the postal authorities. The affidavit of the Revenue also annexes the postal acknowledgment card evidencing the dispatch on 31st March, 2015 and receipt of the impugned notice by the petitioner. Further, the petitioner themselves have admitted receipt of impugned notice on 31st March, 2015 at 7.39 p.m. We are satisfied that the impugned notice was issued on 31st March, 2016. The other objection urged is that the sanction from the Commissioner of Income Tax was obtained by DCIT-12(1)(2) and not by the Assessing Officer i.e. DCIT-12(1)(1). Thus it is submitted that the impugned notice is not issued on satisfaction of the Assessing Officer but at the instance of some other officer. We find that reasons in support of the impugned notice is signed by the Assessing Officer DCIT-12(1(1). The affidavit in reply points out that the mention of DCIT-12(1)(2) instead of DCIT-12(1)(1) was a typographical error. It does appear to be so. Therefore, both the above contentions urged by the petitioner would not result in the impugned notice being without jurisdiction.

5. However, the petitioner invited our attention to Section 92CA (2C) of the Act which read as under :

“92CA. Reference to Transfer Pricing Officer. —

(2C) Nothing contained in sub-section (2B) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the liability of the assessee under Section 154, for any assessment year, proceedings for which have been completed before the 1st day of July,2012.

6. In this case the petitioner points out that for the assessment year 2008-09 the regular Assessment under Section 143(3) of the Act was completed on 18th October, 2010. The sanction for the impugned notice is obtained on the transfer pricing adjustment as recorded in the reasons as follows :

“4. In view of the above I have reason to believe that issue of Rs.1,80,00,000/- and transfer pricing adjustment has escaped assessment within the meaning of Section 147 of the Act. Therefore, a fit case to re-open being issue of notice under section 148 of the Income Tax Act, 1961”.

Prima facie the sanction for re-opening the assessment of the Commissioner of Income Tax was also in respect of International transaction, which was a subject matter of assessment completed much prior to 1st day of July, 2012. Therefore, the impugned notice is hit by Sub-Section (2B) of Section 92CA of the Act. However, Mr.Pinto submits that this issue has not been canvassed by the assessee before the Assessing Officer while filing its objections. Therefore, they cannot raise this now but in the peculiar facts he does not oppose the issue of Section 92CA (2C) of the Act being agitated before the Assessing Officer.

7. As this objection goes to the root of matter, it would be appropriate that this objection of the petitioner be considered by the Assessing Officer and disposed of expeditiously. It is true that normally we would not let an assessee challenge a reopening notice before us on a ground not taken in the objections made to the Assessing Officer. However, on the face of it, it appears that the impugned notice is without jurisdiction. However, rather then admitting the petition and staying the notice in the peculiar facts, the Assessing Officer should have a chance to deal with it. In the above view at this stage, we are not disturbing the impugned notice or the order disposing of the objection and only directing the Assessing Officer to consider the petitioner's objections in respect of Section 92CA (2C) of the Act.

8. It is made clear that in case the petitioner files its objections/representation with regard to Section 92CA (2C) of the Act within one week from today, the Assessing Officer will dispose of the same within a period of four weeks from the date the petitioner file its objections/representation only on the issue of Section 92CA (2C) of the Act. It is made clear that with regard to the other objections contended by the petitioner we are not inclined to entertain this petition.

9. However, in the peculiar facts of this case, we direct a stay of the impugned notice for further period of ten weeks from today. This would enable the petitioner to challenge the order disposing of the objection in respect of Section 92CA of the Act raised by the petitioner. This period of ten weeks has been provided taking into account decision of this Court in case of Asian Paints 296 ITR 90 which directs the Assessing Officer not to commence reassessment proceedings for a period of four weeks from the disposal of the objections.

10. Petition disposed of in above terms. No order as to costs.

(A.K. MENON,J.) (M. S. SANKLECHA,J.)