HEWLETT-PACKARD (INDIA) SOFTWARE OPERATION PRIVATE LIMITED ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-(1)(1) , BANGALORE

3.3 Thereafter, after considering the submission against the various notices issued by the AO during the reassessment proceedings and considering the requisite clarification and Hewlett-Packard (India) Software Operation Pvt. Ltd., Bangalore Page 7 of 19 explanation, the AO/NFAC passed an order dated 25.3.2022 served on 29.3.2022 u/s 147 r.w.s. 144B of the Act reassessing the income of the assessee to the extent of above mentioned 3 items making a total addition of Rs.5,03,98,413/-.

3.4 Aggrieved by the reassessment completed u/s 147 of the Act dated 25.3.2022, the assessee preferred an appeal before the ld. CIT(A)/NFAC questioning the legal validity of the reassessment order dated 25.3.2022.

3.5 The ld. CIT(A) dismissed the appeal of the assessee on legal grounds as well as on merits raised during the appellate proceedings. The main contention of the ld. CIT(A) in not agreeing with the contention of the assessee was based on the proposition laid down by the Hon’ble Supreme Court in the case of Union of India Vs. Ashish Agrawal (2022) 444 ITR 1 (SC) in which it is held that the notices were issued under the old law for reopening the assessment are revived and are deemed to be notices under new law. The court further held that the notices issued under the old provisions were to be considered as show cause notices u/s 148A(b) of the Act. Therefore relying on the decision of Hon’ble Supreme Court it is held by the ld. CIT(A)/NFAC that the notice issued u/s 148 of the Act on 31.3.2021 are valid and are not vitiated on the account that it was received on 1.4.2021. Further, with regard to the argument of the assessee that reopening is invalid since the assessment was earlier completed u/s 143(3) of the Act and a detailed order was passed after examination of the issues by the AO, the reopening of the assessment after 4 years is bad in law. The assessee’s main contention was the satisfaction of the AO and is reason to believe was based on change of opinion and hence not valid. The ld. CIT(A) held that because the assessee had filed the audit report and the financial statements which included the information regarding the reversal of provisions, Hewlett-Packard (India) Software Operation Pvt. Ltd., Bangalore Page 8 of 19 it does not amount to full and true disclosure of all material facts. It needs to be seen whether the AO at the time apply his mind to the issue of the reversal of the provisions and then arrived at a reason known that the action of the assessee were in order. Further, with regard to merit of the case, the ld. CIT(A) held that the amount of both the provisions i.e. Rs.1,19,34,089/- for provision of interest of PF and Rs.1,06,75,227/- for provision for doubtful advances cannot be claimed as deduction in the computation of total income and the similar treatment with regard to amount of Rs.2,77,89,097/- on account of reversal of provisions towards expenses also cannot be allowed and accordingly additions/disallowances of Rs.5,03,98,413/- made by the AO in the reassessment order was confirmed by the ld. CIT(A)/NFAC. Aggrieved by the disallowances confirmed by ld. CIT(A)/NFAC, the assessee has filed the present appeal before this Tribunal. The assessee has filed a paper book comprising 336 pages. Further, the assessee has also submitted the case law compendium as well as compendium of additional documents and case law. Before us, ld. A.R. of the assessee vehemently submitted that during the course of assessment proceedings, the assessee has submitted the audited statement on accounts including all the information regarding reversal of provision and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Further, the ld. A.R. of the assessee submitted that the reassessment proceedings are merely based on the perusal of the records already available with the tax department and the reassessment seems to be based on mere change of opinion, which is not permissible under the law.

3.6 The ld. D.R. on the other hand supported the orders of the authorities below and submitted that the claim of provision for doubtful advances was more than the amount disallowed in earlier Hewlett-Packard (India) Software Operation Pvt. Ltd., Bangalore Page 9 of 19 year. Further, with regard to amounts disallowed u/s 40(a)(i) of the Act, TDS has not been deducted on amount of Rs.2,77,89,097/- and therefore, the onus of proving that the amount of provision actually disallowed in an earlier year now credited back to the P&L account as reversal of that provision are the same and that nature, item and quantum at both places are matching.

4.1 Further, in response to the said notice, the assessee has also filed reply dated 18.10.2016 stating therein the note on movement of provisions, which is reproduced below for ease of reference and record:

4.2 Further, in reply dated 16.12.2017, the assessee has also produced details of disallowances made u/s 40(a) of the Act in assessment year 2013-14 along with details of reversals of provision placed in pages 167 to 179 of the paper book. Further, during the assessment proceedings, the assessee has also produced the audited financial statements along with notes to accounts, copy of tax audit report in form 3CA & 3CD and after taking into consideration all the relevant material, the AO has taken a judicious view and passed the assessment order u/s 143(3) r.w.s. 144C of the Act dated 29.10.2018. We are of the considered opinion that during the course of assessment proceedings, the assessee filed all the requisite information/details and has disclosed fully and truly all the material facts required for completion of the assessment. On perusing the order of reassessment passed u/s 147 of the Act, we find that nowhere AO has observed that assessee has not disclosed fully and truly all the material facts, which were required for completion of original assessment. But in fact reopened the assessment by stating that the claim of the assessee is not in line with provision of the Act.

4.3 With respect to the reopening of assessment, the assessee submits as follows:

1. 1. The reopening of assessment is with an intention to review the assessment order. The AO has not demonstrated what new tangible material came before the AO after passing the final assessment order.

2. There is change of opinion on the part of the AO without any new information being found.

3. There is not even a whisper about the fact that assessee has not disclosed fully and truly all material facts required for completion of the assessment.

Hewlett-Packard (India) Software Operation Pvt. Ltd., Bangalore Page 17 of 19 4.4 It is undisputed fact that AO has passed reassessment order after the expiry of 4 years from the end of the relevant assessment year 2014-15 which in our opinion is contrary to first proviso to section 147 of the Act. The assessee has made full and true disclosures during the course of original assessment proceedings. The AO has also not alleged that there is non-disclosure by the assessee of any material facts. The reasons recorded also do not make any such claim. Further, the assessee also submits that if the reasons recorded do not demonstrate that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, then the reassessment is bad in law. Reliance is placed on the decision of Hon’ble Karnataka High Court in the case of (Hewlett-Packard Digital Global Soft Ltd. ITA No.406/2007). We are of the opinion that there is no new/fresh tangible material in the possession of the AO on the basis of which AO could have reason to believe that the income chargeable to tax had escaped assessment or had been not assessed. In our opinion, the AO has also not demonstrated what new tangible material came before him after passing the original assessment order which has reason him to believe that the income has escaped assessment. In our view, this is nothing but an attempt to review of his own order passed u/s 143(3) r.w.s. 144C of the Act based on change of opinion.

4.5 Reliance is placed on the judgement of Hon’ble Supreme Court in the case of ITO Vs. Nawab Mir Barkhat Ali Khan Bahadur (1974) 97 ITR 239(SC) in which it is held that having second thoughts on the same material and omission to draw the correct legal presumption during the original assessment do not warrant the initiation of proceeding u/s 147 of the Act. Further, Hon’ble Supreme Court in the case of CIT Vs. Bhanji Lavji (1971) 79 ITR 582(SC) held that when the primary facts necessary for the assessment are fully and truly disclosed, the AO will not be entitled on change of opinion Hewlett-Packard (India) Software Operation Pvt. Ltd., Bangalore Page 18 of 19 to commence proceedings for reassessment. Similarly, if he has raised a long legal inference from the facts disclosed, he will not on that account be competent to commence reassessment proceedings. In the original assessment proceedings, the assessee filed all the details including the details of break up of disallowance made u/s 40(a) of the Act in assessment year 2013-14 as well as details of reversals of provision along with the audited financial statements, audit report and not on movement of provisions as required by AO. The AO took the judicious view not to disallow the same in the original assessment proceedings. Thus, the AO formed an opinion on that claim based on the material available before him. Subsequently, reopening the assessment on the same issue constitutes a review of his own order, which is not permitted under the law. It is well settled law that non rejection of explanation in the assessment order would amount to AO accepting the view of the assessee. We are of the view that there was no failure on the part of the assessee to disclose fully and truly all material facts and there seems to be mere change of opinion on the part of the AO and therefore, notice u/s 148 of the Act is unwarranted as the same may be held to be unconstitutional. Further, in the present case, undisputedly the AO has passed a reassessment order after the expiry of 4 years from the end of assessment year 2014-15 i.e. after 31.3.2019 and therefore we are of the opinion that the same is contrary to first proviso of section 147 of the Act and is accordingly barred by time.

4.6 Further, we completely disagree with the view of the ld. CIT (A)/NFAC that It is need to be seen whether the AO at the time apply his mind to the issue of the reversal of the provisions and then arrived at a reason known that the action of the assessee were in order. In our view once the primary facts necessary for the assessment are fully and truly disclosed, omission to draw the correct legal Hewlett-Packard (India) Software Operation Pvt. Ltd., Bangalore Page 19 of 19 presumption during the original assessment do not warrant the initiation of proceeding u/s 147 of the Act.

4.7 In view of the above, we annul the entire reassessment proceedings initiated u/s 148 of the Act on this legal ground being barred by time.