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-THE 2ND^ KIIT UNIVERSITY NATIONAL MOOT COURT COMPETITION, 2014-
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MEMORIAL ON BEHALF OF THE PETITIONER IN W.P. NO. _____________ OF 2014
Civil Writ Petition No. of 2014
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Memorandum Drawn And Filed By The Petitioner A
TTABABLLEE OOFF^ CCONONTTEENNTTSS
LIST OF ABBREVIATIONS ............................................................................................................................ B INDEX OF AUTHORITIES ............................................................................................................................. C STATEMENT OF JURISDICTION .................................................................................................................... I STATEMENT OF FACTS ................................................................................................................................. J ISSUES RAISED ............................................................................................................................................. L SUMMARY OF ARGUMENTS ....................................................................................................................... M ARGUMENTS ADVANCED ............................................................................................................................. 1 I. WHETHER THE WRIT PETITION IS MAINTAINABLE? .......................................................... 1 A. THAT AO HAS ASSUMED JURISDICTION ERRONEOUSLY .................................................................... 1 B. THAT EXISTENCE OF ALTERNATIVE REMEDY IS NO BAR TO FILE PETITION ..................................... 2 II. WHETHER THE REOPENING OF ASSESSMENT BY ASSESSING OFFICER BY ISSUE OF NOTICE DATED JULY 4, 2014 IS BAD IN LAW? ......................................................................... 3 A. THAT THE NOTICE SEEKING RE-OPENING OF ASSESSMENT IS BARRED BY TIME ................................. 3 B. THAT THE JURISDICTIONAL CONDITION FOR REOPENING AN ASSESSMENT BEYOND A PERIOD OF FOUR YEARS HAS NOT BEEN FULFILLED. ............................................................................................. 4 III. WHETHER THE ASSESSING OFFICER HAS „REASON TO BELIEVE‟ THAT THERE WAS ESCAPEMENT OF INCOME? ................................................................................................ 6 A. THAT THERE WAS NO TANGIBLE MATERIAL WITH THE AO TO REOPEN ASSESSMENT ...................... 6 B. THAT THERE WAS TRUE AND FULL DISCLOSURE OF MATERIAL ON THE PART OF THE ASSESSEE .... 9 C. THAT THE REOPENING OF ASSESSMENT U/S 147 OF THE IT ACT IS A MERE CHANGE OF OPINION. 10 IV. WHETER PAYMENT MADE FOR THE PURCHASE OF SHRINK WRAPPED SOFTWARE FOR THE PURPOSE OF USE OF SOFTWARE AMOUNTS TO ROYALTY? ........................ 11 A. THAT PAYMENT MADE TO USE SHRINK WRAPPED SOFTWARE DOES NOT AMOUNT TO ROYALTY. .... 12 B. THAT THE AO WILL NOT BE JUSTIFIED IN IMPORTING THE DEFINITION OF ROYALTY FROM A RETROSPECTIVELY AMENDED PROVISION IN THE PRESENT CASE. .................................................... 15 PRAYER ........................................................................................................................................................ N
Memorandum Drawn And Filed By The Petitioner C
INDEX OF AUTHORITIES
A. CASES
i. SUPREME COURT
- ALA Firm v. CIT (1991) 2 SCC 558 ................................................................................... 7
- Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 .................................................... 1, 4
- CIT v. Bhanji Lavji (1972) 4 SCC 88 .................................................................................. 9
- CIT v. Hindustan Electro Graphites Ltd. (2000) 3 SCC 595 ............................................. 15
- Coca-Cola Export Corp. v. I.T.O. (1998) 4 SCC 166 .......................................................... 2
- DCIT & Ors. v. Simplex Concrete Piles (India) Ltd (2013) 11 SCC 373 ........................... 6
- Indian & Eastern Newspaper Society v. CIT (1979) 4 SCC 248......................................... 7
- Iridium India Telecom Ltd v. Motorola Inc. (2005) 2 SCC 145: 2004 (1) Mh. L.J. 532: (2005) 270 ITR 62 ............................................................................................................. 13
- ITO v. Lakhmani Mewal Das (1976) 3 SCC 757 ................................................................ 9
- Phool Chand Bajrang Lal v. ITO (1993) 4 SCC 77: AIR 1993 SC 2390 ............................ 7
- Sri Krishna (P.) Ltd. v. I.T.O., Calcutta (1996) 9 SCC 534............................................. 2, 5
- Tata Consultancy Services v. State of A.P. (2005) 1 SCC 308:[2004] 271 ITR 401 ........ 12
- U.O.I. v. Bajaj Tempo Ltd. (1998) 9 SCC 281 .................................................................... 2
- U.O.I. v. Hindalco Industries (2003) 5 SCC 194 ................................................................. 2
- U.O.I. v. Vicco Laboratories (2007) 13 SCC 270 ............................................................... 2
- Whirlpool‟s Corp. v. Registrar Of Trade Marks [1998] 8 SCC 1........................................ 2 ii. JURISDICTIONAL HIGH COURT
- Aesteroids Trading & Investments Pvt. Ltd. v. DCIT [2009] 308 ITR 190 ...................... 10
- Ajanta Pharma Ltd. v. ACIT 2004 (186) CTR 521. ............................................................ 2
- Aventis Pharma Ltd. v. ACIT (2010) 323 ITR 570 (Bom) ............................................. 2, 7
Memorandum Drawn And Filed By The Petitioner
Memorandum Drawn And Filed By The Petitioner iv. INCOME TAX APPELLATE TRIBUNAL
- Balakrishna Hiralal Wani v. ITO (2010) 321 ITR D
- Bedmutha Industries Ltd., Nashik v. DCIT, Nashik & Anr. 2012 Indlaw MUM
- Bhor Industries Ltd. v. ACIT & Ors. 2003 (183) CTR
- Bombay Stock Exchange Ltd. v. DDIT 2014 Indlaw MUM
- Caprihans India Ltd. v. Prakash Chandra [2002] 256 ITR
- 179 Taxman157 9. Cartini India Ltd. v. ACIT & Ors [2009] 314 ITR 275: 2009 (4) Mah. L.J. 102: [2009]
- Centurion Bank of Punjab Ltd. v. Income Tax Settlement Commission & Ors. [2007]
- CIT-3 v. ICICI Bank ltd., Mumbai [2012] 349 ITR
- Debashu Services Pvt. Ltd. v. DCIT 2014 Indlaw MUM
- DIT v. Income Tax Settlement Commission 2014 Indlaw MUM
- Grindwell Norton Ltd. v. Jagdish Prasad Jangid, ACIT & Ors. [2004] 267 ITR
- Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332: 2004 (4) Bom.C.R. 691:
- (190) CTR 166: 2004 (3) Mah. L.J. 517; [2004] 137 Taxman
- Hindustan Lever Ltd. v. V.K. Pandey [2001] 251 ITR
- Indivest PTE Ltd v. ADIT (2012) 250 CTR 15 2,
- IPCA Laboratories Ltd. v. Gajanand Meena, DCIT & Ors. [2001] 251 ITR 416 2,
- Lotus Investment Limited v. G.Y. Wagh, ACIT & Ors. [2007] 288 ITR
- M/s Ajay Oxycholoride Floorings v. Iyer, ACIT & Ors. [2006] 283 ITR
- NYK Line (India) Ltd. v. DCIT [2012] 346 ITR
- OHM Stock Brokers Pvt. Ltd. v. CIT-4 & Anr. [2013] 215 Taxman 53.............................
- Purity Techtextile (P) Ltd v. ACIT & Anr. [2010] 325 ITR 459.........................................
- Sesa Goa Ltd. v. JCIT [2007] 294 ITR 101 2,
- Siemens Information Systems Ltd. v. ACIT [2007] 295 ITR 333: [2008] 168 Taxman
- Sound Casting (P) Ltd. v. DCIT 2013 (7) Bom.C.R. 709................................................ 2,
- Tanna Builders Pvt. Ltd. v. Smt. Neela Krishnan & Anr. 2005 (198) CTR E
- Voltas Ltd. v. ACIT & Anr. [2012] 349 ITR
- ACIT v. Sarvamangala Properties [2002] 257 ITR iii. OTHER HIGH COURTS
- Amrit Banaspati Company Ltd. v. ACIT 2014 Indlaw ALL
- Avadh Transformers Pvt Ltd v. UOI [2013] 215 Taxman 432............................................
- BBC World News Ltd. v. ADIT 2014 (208) DLT
- CIT v. A.R. Enterprises Pvt. Ltd. [2002] 255 ITR 121........................................................
- CIT v. Bipin Vadilal [2004] 271 ITR
- CIT v. Eicher Ltd. [2007] 163 Taxman
- CIT v. Goetze (India) Ltd. [2010] 321 ITR
- CIT v. H.P. Sharma (1980) 122 ITR
- CIT v. HP India (P) Ltd. (2009) 222 CTR
- CIT v. Shimbhaoli Sugar Mills Ltd. [2011] 333 ITR
- CIT v. Usha International Ltd. [2012] 348 ITR 485: [2012] 210 Taxman
- CIT. v. Smt. Bjnda Devi 2005 (197) CTR
- Consolidated Photo & Finvest Ltd. v. ACIT (2006) 281 ITR
- D.T. & T.D.C. Ltd. v. ACIT (2010) 324 ITR
- Dalmia Brothers Pvt. Ltd. v. CIT Delhi & Anr. 2011 Indlaw Del 3057............................
- Denish Industries Ltd v. ITO [2004] 271 ITR
- DIL Ltd. v. ACIT W.P. (Lodg.) No. 2786 of
- DIT v. Ericsson A.B. [2012] 343 ITR 470: [2012] 204 Taxman 192................................
- DIT v. Infrasoft Ltd [2014] 220 Taxman
- DIT v. M/s Nokia Networks OY (2012) 253 CTR 417 13,
- G.B. Bros. & Konda Rajgopala v. ITO 2002 (176) CTR
- Ketan. B. Mehta v. ACIT [2012] 346 ITR F
- Legato Systems (India) Pvt. Ltd. v. DCIT [2010] 187 Taxman
- Modem Fibotex India Ltd v. DCIT [1995] 212 ITR
- NTPC Ltd. v. DCIT & Ors. [2013]
- Oriental Carpet Manufacturers v. ITO [1987] 168 ITR
- Parixit Industries (P.) Ltd. v. ACIT [2012] 20 Taxmann 750............................................
- Pravin Kumar Bhogilal Shah v. ITO (2012) 66 DTR 236 (Guj)
- Pravin Kumar v. ITO (2012) 66 DTR 236 (Guj)
- Ranbaxy Laboratories Ltd. v. DCIT [2001] 247 ITR
- Sadbhav Engineering v. DCIT [2011] 333 ITR
- Techspan India (P.) Ltd. v. ITO [2006] 283 ITR 212 (Del).
- Vinayak Construction v. ITO (2012) 66 DTR 233 (Guj)
- 12 ITR (Trib.) 688.............................................................................................................. 1. ADIT v. TII Team Telecom International Private Ltd. C/o Sudit Parekh and Co. [2011]
- CIT v. M/S. K. Mohan & Co. [2011] 7 ITR (Trib.) 507......................................................
- DCIT v. Central Warehousing Corp. 2014 Indlaw ITAT
- ITO v. G.K. Properties Pvt. Ltd. 2014 Indlaw ITAT
- Motorola Inc. v. DIT [2005] 95 ITD 269...........................................................................
- Dassault Systems K. K., In Re [2010] 322 ITR 125: [2010] 188 Taxman v. AUTHORITY FOR ADVANCED RULINGS
Memorandum Drawn And Filed By The Petitioner G
B. BOOKS & TREATISES
- B.B LAL & N. VASHISHTH, DIRECT TAX, WEALTH TAX AND TAX PLANNING 550 (29th^ Ed. 2010). ................................................................................................................................... 3
- D.D BASU, INTRODUCTION TO THE CONSTITUTION OF INDIA 448 (21st^ Ed. 2013). ............... 2
- DR. GIRISH AHUJA & DR. RAVI GUPTA, PROFESSIONAL APPROACH TO DIRECT TAXES: LAW AND PRACTICE 494 (29th^ Ed. 2011) ...................................................................................... 4
- DR. VINOD K SINGHANIA & DR KAPIL SINGHANIA, DIRECT TAXES: LAW & PRACTICE 454 (45th^ Ed. 2010). .................................................................................................................... 7
- DR. VINOD K. SINGHANIA & DR. KAPIL SINGHANIA, DIRECT TAXES: LAW & PRACTICE 396 (24th^ Ed. 2011). .................................................................................................................... 5
- DR. VINOD SINGHANIA AND DR. MONICA SINGHANIA, STUDENTS‟ GUIDE TO INCOME TAX 720 – 746 (48th^ Ed. 2012) .................................................................................................... 6
- M.P. JAIN, INDIAN CONSTITUTIONAL LAW 670 (6th^ Ed. 2010). ............................................ 2
- TAXMANN‟S DIRECT TAX MANNUAL (39th^ Ed. 2009). ......................................................... 7
- V.P. GAUR AND D.B. NARANG, INCOME TAX: LAW AND PRACTICE (37th^ Ed. 2010) ........... 9
C. JOURNALS AND REPORTS
- Ajay R. Singh, Guide to the law on Reopening of Assessments undr section 147 of the Income tax Act, 1961, 1 AIFTP JOURNAL 1-22 (2012) ..................................................... 14
- Archi Agnihotri and Medha Srivastava, Interpretation of Section 147 of the Income Tax Act, 1961: Judicial Trends, 1 MANU 1 – 6 (2008) ............................................................... 4
- CA Vidhan Surana & CA Sunil Maloo, Section 147: A Treatise on the Reopening of Assessment 1 ITATONLINE.ORG 1 – 9 (2013). ...................................................................... 6
- CA Yogender Kumar Sud, Discussion on Section 147 & 148 of the Income Tax Act, 1961, DISTRICT BAR ASSCOIATION 2 – 19 (2013) ................................................................ 5
- Kishor Karia and Atul Jasani, Whether Reassessment u/s 147 is Permissible on Mere Change of Opinion, 25 BOMBAY CHARTERED ACCOUNTANTS JOURNAL 56 (2010) ............ 7
Memorandum Drawn And Filed By The Petitioner I
STATEMENT OF JURISDICTION
THE HON‟BLE HIGH COURT OF JUDICATURE AT BOMBAY EXERCISES JURISDICTION TO HEAR
AND ADJUDICATE OVER THE MATTER UNDER ARTICLE 226 (1) OF THE CONSTITUTION OF INDIA,
THE HON‟BLE COURT HAS THE AUTHORITY TO QUASH THE NOTICE ISSUED BY THE ASSESSING
OFFICER U/S 148 OF THE INCOME TAX ACT, 1961. SINCE THE MATTER IS SAME FOR ALL THE
ASSESSMENT YEARS, THE PETITIONER HAS FILED A SINGLE WRIT PETITION BEFORE THE
HON‟BLE COURT. THE PROVISION UNDER WHICH THE PEITIONER HAS APPROACHED THE
HONORABLE COURT IS READ HEREIN UNDER AS:
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Memorandum Drawn And Filed By The Petitioner J
STATEMENT OF FACTS
I.
ZEON: A MULTINATIONAL IT SECTOR COMPANY
Zeon is a private company incorporated in the Cayman Islands but carries on its software business primarily through Singapore. It is an I.T. and I.T.E.S. company. Zeon is a multi – national company having several employees across the world including India. It had presence in India through a liaison office. The Indian liaison office is primarily engaged in liaising with potential clients, and provided them with presentations that discussed the various software products that Zeon has to offer. Irrespective of the above, Zeon has not been able to obtain Singapore Tax Residency Certificate to claim Singapore tax residency for Indian tax purposes. II. NEO: A SHRINK WRAP SOFTWARE BY ZEON
Zeon, after number of years of hard work and dedication, developed software named Neo. The software was in nature of shrink wrapped software. The software could predict how well a new recruit would perform in an organization that was going to hire him/her. Moreover, the software also predicted how well the employee would blend in the organization with respect to culture, values etc. of the organization.
III. AGREEMENT BETWEEN ZEON AND CHEETAH & CHETAK PRIVATE LIMITED FOR NEO
In A.Y. 2003 – 04 Cheetah & Chetak Private Limited, an Indian private manufacturing company, having its registered office in Mumbai decided to buy this software as it was facing some issues with the employees that it was hiring. Cheetah & Chetak Private Limited entered into an agreement with Zeon for purchase of software. The price of software after negotiations was fixed at INR 35,00,000 (Indian Rupees Thirty Five Lakhs Only.) The payment for the software was on year to year basis.
Memorandum Drawn And Filed By The Petitioner L
ISSUES RAISED
I. WHETHER THE WRIT PETITION IS MAINTAINABLE?
II. WHETHER THE REOPENING OF ASSESSMENT BY ASSESSING OFFICER BY ISSUE OF NOTICE DATED JULY 4, 2014 IS BAD IN LAW?
III. WHETHER THE ASSESSING OFFICER HAS ‘ REASON TO
BELIEVE’ THAT THERE WAS ESCAPEMENT OF INCOME?
IV. WHETER PAYMENT MADE FOR THE PURCHASE OF SHRINK WRAPPED SOFTWARE FOR THE PURPOSE OF USE OF SOFTWARE AMOUNTS TO ROYALTY?
Memorandum Drawn And Filed By The Petitioner M
SUMMARY OF ARGUMENTS
I. WHETHER THE WRIT PETITION IS MAINTAINABLE?
Firstly , that the AO has assumed jurisdiction erroneously. Secondly , that existence of alternative remedy is no bar to file petition.
II. WHETHER THE REOPENING OF ASSESSMENT BY ASSESSING OFFICER BY ISSUE OF NOTICE DATED JULY 4, 2014 IS BAD IN LAW?
Firstly , the notice seeking re-opening of assessment is barred by time.
Secondly , the jurisdictional condition for reopening an assessment beyond a period of four years has not been fulfilled because there is true and full disclosure of material facts on behalf of the Petitioner and reopening beyond four years in the absence of failure of the Petitioner to disclose material facts truly and fully is bad in law.
III. WHETHER THE ASSESSING OFFICER HAS „REASON TO BELIEVE‟ THAT THERE WAS ESCAPEMENT OF INCOME?
Firstly , there was no tangible material with the AO to reopen assessment.
Secondly , there was true and full disclosure of material on the part of the assessee.
Thirdly , the reopening of assessment u/s 147 of the Act, 1961 is a mere change of opinion.
IV. WHETER PAYMENT MADE FOR THE PURCHASE OF SHRINK WRAPPED
SOFTWARE FOR THE PURPOSE OF USE OF SOFTWARE AMOUNTS TO
ROYALTY?
Firstly , payment made to use shrink wrapped software does not amount to royalty.
Secondly , the AO will not be justified in importing the definition of royalty from a retrospectively amended provision in the present case.
Memorandum Drawn And Filed By The Petitioner 2
- In the case of Avadh Tranformers Ltd. v. UOI^2 the Court held that the aforesaid conditions are in nature of jurisdictional conditions. Non-existence of these conditions affects the jurisdiction of AO to reopen assessment. Jurisdiction is also affected when the reasons for forming belief has not been disclosed or are not specific.^3
- In the instant case, the AO has neither stipulated the „tangible material‟^4 nor pointed out the facts which have not been disclosed by the Petitioner at the time of initial assessment. On the contrary the Petitioner has fully cooperated with the Respondent and provided it with all the documents as and when demanded.^5 Thus, it is submitted before the hon‟ble Court that AO has assumed the jurisdiction erroneously.
B. THAT EXISTENCE OF ALTERNATIVE REMEDY IS NO BAR TO FILE PETITION
- It is humbly submitted before the hon‟ble Court that the remedy under Article 226 of the Constitution is discretionary remedy.^6 The Court is vested with power to entertain the petition where there occurs gross miscarriage of justice and effective remedy is not available.
- Reliance is placed upon the decision in the case of Whirlpool‟s Corp. v. Registrar of Trade Marks,^7 in which it was held by the Apex Court that the jurisdiction of the HC in entertaining a writ petition under article 226 of the Constitution would not be affected although there exist alternative statutory remedies particularly in cases where the authority against whom the writ has been filed is shown to have had no jurisdiction or has purported to usurp jurisdiction without any legal foundation.
- It is humbly submitted that the hon‟ble jurisdictional Bombay HC has interfered in such matters having similar facts as in the present case.^8 While maintaining the writ petition in the
(^2) Avadh Transformers Pvt Ltd v. UOI [2013] 215 Taxman 432; Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191; Voltas Ltd. v. ACIT & Anr. [2012] 349 ITR 656 [Hereinafter referred as “VOLTAS”]; Pravin Kumar v. ITO (2012) 66 DTR 236 (Guj). 3 Coca-Cola Export Corp. v. I.T.O. (1998) 4 SCC 166; Sri Krishna (P.) Ltd. v. I.T.O., Calcutta (1996) 9 SCC 5344 [Hereinafter referred as “SRI KRISHNA”]. 5 Indivest PTE Ltd v. ADIT (2012) 250 CTR 15; Aventis Pharma Ltd. v. ACIT (2010) 323 ITR 570 (Bom). 6 Moot Proposition, p. 4 ¶ 6. Techspan India (P.) Ltd. v. ITO [2006] 283 ITR 212 (Del); D.D BASU, INTRODUCTION TO THE CONSTITUTION OF 7 INDIA 448 (21st^ Ed. 2013). Whirlpool‟s Corp. v. Registrar Of Trade Marks [1998] 8 SCC 1; U.O.I. v. Vicco Laboratories (2007) 13 SCC 270; U.O.I. v. Hindalco Industries (2003) 5 SCC 194; U.O.I. v. Bajaj Tempo Ltd. (1998) 9 SCC 281. 8 OHM Stock Brokers Pvt. Ltd. v. CIT-4 & Anr. [2013] 215 Taxman 53; IPCA Laboratories Ltd. v. Gajanand Meena, DCIT & Ors. [2001] 251 ITR 416; Sesa Goa Ltd. v. JCIT [2007] 294 ITR 101; Sound Casting (P) Ltd. v. DCIT 2013 (7) Bom.C.R. 709; Supra VOLTAS at 2.
Memorandum Drawn And Filed By The Petitioner 3
case of Grindwell Norton Ltd. v. Jagdish Prasad Jangid, ACIT & Ors.,^9 the hon‟ble Court relied upon its own decision in the case of Ajanta Pharma Ltd v. ACIT^10 and held that:
“Decision of the Apex Court in GKN's case (supra) does not lay down any proposition of law that in no circumstances the writ petition against the issuance of notices under s. 148 of the said Act can be entertained.”
Relying on the aforesaid cases, it is submitted before the hon‟ble Court that the instant writ petition is maintainable.
II. WHETHER THE REOPENING OF ASSESSMENT BY ASSESSING
OFFICER BY ISSUE OF NOTICE DATED JULY 4, 2014 IS BAD IN LAW?
- The AO has sought to reopen the assessment of the Petitioner u/s 147 of the Act for the six consecutive AYs 2003-04 to 2008-09 vide its impugned notice dated July 4, 2014. The petitioner challenges the impugned notice on it being time barred and devoid of the jurisdictional condition for reopening an assessment beyond the period of four years. It is thereby contended that the impugned notice u/s 148 seeking to reopen the assessments for all the aforementioned AYs is without jurisdiction and is liable to be quashed and set aside.
A. THAT THE NOTICE SEEKING RE-OPENING OF ASSESSMENT IS BARRED BY TIME
- § 149 (1) (b) of the Act provides that notice of reassessment u/s 148 where the income escaped is more than INR 1,00,000 (Indian Rupees One Lakh Only) has to be issued within six years after the end of relevant AY.^11
- In the instant case, the AO has sent the notice for reassessment u/s 148 of the Act on July 4, 2014.^12 It is contended by the Petitioner that the period of six has lapsed for AYs 2003-04, 2004-05, 2005-06, 2006-07 and 2007-08. Therefore, it is submitted before the hon‟ble Court that the assessment of the Petitioner cannot be reopened as the same is barred by time.
(^9) Grindwell Norton Ltd. v. Jagdish Prasad Jangid, ACIT & Ors. [2004] 267 ITR 673. (^10) Ajanta Pharma Ltd. v. ACIT 2004 (186) CTR 521; M.P. JAIN, INDIAN CONSTITUTIONAL LAW 670 (6th (^) Ed. 2010). 11 Lotus Investment Limited v. G.Y. Wagh, ACIT & Ors. [2007] 288 ITR 459; B.B LAL & N. VASHISHTH, D 12 IRECT TAX, WEALTH TAX AND TAX PLANNING 550 (29th^ Ed. 2010). Moot Proposition, p. 3 ¶ 5.
Memorandum Drawn And Filed By The Petitioner 5
was a full disclosure of the factum of payments as well as of the agreement under which the payments were being made to Zeon.
- It is further submitted that the Petitioner has been regularly filing its income tax returns for all the AYs without any delays.^18 It is a matter of record that the AO had accepted the returns of the petitioner and its transaction with Zeon for all these years. However, in pursuance of a mere change in opinion, the AO, vide its impugned notice has sought to reopen the assessment for the 143(3) AYs. The reason cited by the AO for all these years was that payments made by the petitioner constituted „royalty‟ u/s 9 of the Act, and thus tax should have been withheld at the rate of 25% for all these years, while making payment to Zeon for the software.^19
- From mere perusal of the impugned notice, it is clear that the reason provided is not postulated on there being any suppression on the part of the assessee or a failure on the part of the assessee to state fully and truly all material facts necessary for the assessment. Thus, it can be deduced from the aforesaid factual matrix that there was true and full disclosure by the Petitioner of all material facts.
ii. Reopening beyond four years in the absence of failure of the petitioner to disclose material facts truly and fully is bad in law
- It is contended that the impugned notice for reopening of the assessments for the concerned AYs does not fulfill the requirement set out under the proviso to § 147 and hence, the notices of reopening would accordingly have to be quashed and set aside.
- The Petitioner strongly relies upon the Apex Court decision in the case of Sri Krishna (P) Ltd. v. ITO^20 and recent judgment of the jurisdictional Bombay HC in the case of OHM Stock Brokers Pvt. Ltd v. CIT-4 & Anr.^21 in which the court quashed the impugned notice issued u/s 148 and held that “ before the AO proceeds to reopen an assessment after the expiry of four years of the end of the relevant AY, he must nonetheless apply his mind to the fundamental question as to whether there has been a failure to disclose on the part of the assessee.” 22
(^18) Moot Proposition, p. 3 ¶ 5. (^19) Moot Proposition, p. 3 ¶ 5. (^20) CA Yogender Kumar Sud, Discussion on Section 147 & 148 of the Income Tax Act, 1961, DISTRICT BAR A 21 SSCOIATION 2 – 19 (2013); Sri Krishna (P.) Ltd v. ITO (1996) 9 SCC 534; Supra SRI KRISHNA at 2. 22 Supra^ OHM^ at^3. DR. VINOD K. SINGHANIA & DR. KAPIL SINGHANIA, DIRECT TAXES: LAW & PRACTICE 396 (24th^ Ed. 2011).
Memorandum Drawn And Filed By The Petitioner 6
- The decision of the Bombay HC has made the law absolute by maintaining the judicial discipline and following its own decisions in the cases of Sesa Goa Ltd. v. JCIT^23 and numerous other decisions^24 in which the Court held that “ mere reason to believe that income has escaped assessment in itself was not sufficient for reopening an assessment beyond a period of four years unless there was a failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment.”^25 It was further held that Explanation 2 to § 147 cannot be read without reading the proviso to § 147 of the said Act_._^26
Thus, it is humbly submitted before the hon‟ble Court that since there was true and full disclosure of facts on the part of the Petitioner, the assessment cannot be reopened as the jurisdictional condition under proviso § 147 has not been fulfilled by AO.
III. WHETHER THE ASSESSING OFFICER HAS „REASON TO BELIEVE‟
THAT THERE WAS ESCAPEMENT OF INCOME?
- It is contended before the hon‟ble Court that the AO has erred in reopening the assessment by furnishing notice u/s 148 and thereafter disallowing expenditures claimed as deductions u/s 40 (1) (i) of the Act and charging the Petitioner as assessee-in-default u/s 201 of the Act.^27
- It is also contended that the AO neither had any „tangible material‟ on record for reopening of assessment nor any failure has been shown on the part of the Petitioner as to the true and full disclosure of material facts. Accordingly, the notice issued by the AO u/s 148 to the Petitioner is in pursuance of a mere „change of opinion‟.
A. THAT THERE WAS NO TANGIBLE MATERIAL WITH THE AO TO REOPEN ASSESSMENT
- It is humbly submitted before the hon‟ble Court that § 147 of the Act stipulates that, subject to §§ 148 to 153, the AO may reopen the assessment if he has „reason to believe‟ that income
(^23) Sesa Goa Ltd. v. JCIT [2007] 294 ITR 101; CIT v. M/S. K. Mohan & Co. [2011] 7 ITR (Trib.) 507; DIL Ltd. v. ACIT W.P. (Lodg.) No. 2786 of 2011; 24 Supra SESA at 3. Sound Casting (P) Ltd v. DCIT (2012) 250 CTR 119; Ketan. B. Mehta v. ACIT [2012] 346 ITR 254; Tanna Builders Pvt. Ltd. v. Smt. Neela Krishnan & Anr. 2005 (198) CTR 541; M/s Ajay Oxycholoride Floorings v. Iyer, ACIT & Ors. [2006] 283 ITR 169; Purity Techtextile (P) Ltd v. ACIT & Anr. [2010] 325 ITR 459; Supra G 25 RINDWELL at 3. Pravin Kumar Bhogilal Shah v. ITO (2012) 66 DTR 236 (Guj); Vinayak Construction v. ITO (2012) 66 DTR 233 (Guj); Sadbhav Engineering v. DCIT [2011] 333 ITR 483; DCIT & Ors. v. Simplex Concrete Piles (India) Ltd (2013) 11 SCC 373. 26 Bhor Industries Ltd. v. ACIT & Ors. 2003 (183) CTR 248; IPCA Laboratories Ltd. V. Gajanand Meena, DCIT & Ors.[2001] 251 ITR 416. 27 Moot Proposition, p. 3 ¶ 5.
