IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF FEBRUARY, 2025 BEFORE THE HON’BLE MR.JUSTICE S.G.PANDIT WRIT PETITION No.58327/2017 (T-IT) BETWEEN: GOOGLE INDIA PRIVATE LIMITED NO.3, RMZ INFINITY, TOWER E 4TH FLOOR, OLD MADRAS ROAD BANGALORE-560016 (PAN:AACCG0527D) REP. BY ITS AUTHORIZED SIGNATORY MS. GITANJLI DUGGAL. ...PETITIONER (BY SRI. DEEPAK CHOPRA, ADV. FOR SRI ANIND THOMAS, ADV.) AND: 1. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-3 (1)(2) ROOM NO.228, 2ND FLOOR BMTC BUILDING, 6TH BLOCK 80 FEET ROAD, KORAMANGALA BANGALORE-560095. 2. THE COMMISSIONER OF INCOME TAX-III BMTC COMPLEX 2 80 FEET ROAD, KORAMANGALA BANGALORE-560095. ….RESPONDENTS (BY SRI. RAVIRAJ Y.V., ADV.) THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE NOTICE DATED 31.03.2017 ISSUED BY THE R1 FOR ASSESSMENT YEAR 2010-11 VIDE ANNX-A AND QUASH THE ORDER DATED 16.12.2017 WHEREBY THE R1 HAS DISPOSED OF AND REJECTED THE OBJECTIONS FILED BY THE PETITIONER TO THE INITIATION OF PROCEEDINGS UNDER SECTION 147 OF THE INCOME TAX ACT 1961 VIDE ANNX-N. THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED ON 05/01/2025 COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING: CORAM: HON'BLE MR JUSTICE S.G.PANDIT CAV ORDER The petitioner is before this Court under Article 226 of the Constitution of India, questioning the correctness and legality of notice bearing No.14/ACIT- 3(1)(2)/2016-17 dated 31.03.2017 for the assessment year 2010-11 (Annexure-A) issued under Section 148 of the Income Tax Act, 1961 (for short, ‘1961 Act’) and also order dated 16.12.2017 rejecting the objections 3 filed by the petitioner for initiation of proceedings under Section 147 of 1961 Act (Annexure-N). 2. Brief facts of the case are that, the petitioner- company engaged in the business of Global Outsourced Information Technology and IT Enabled Services, filed its return of income for the assessment year 2010-11. It claimed deduction under Section 10A of 1961 Act. It is stated that the case of the petitioner was selected for scrutiny and notice under Section 143 of 1961 Act was issued. Since the petitioner had entered into international transaction, the case was referred to Transfer Pricing Officer (TPO) for determination of Arms Length Price (ALP) for the said transaction. The petitioner is said to have replied to the notices issued seeking specific queries regarding Section 10A deductions. The TPO passed a draft assessment order determining the income of the petitioner on the higher side as against the declared income. The petitioner is 4 said to have filed objections before the Dispute Resolution Panel (DRP). The DRP granted partial relief on 28.11.2014. Thereafter, final assessment order was passed on 30.12.2014 and aggrieved by the final assessment order, petitioner filed appeal before the Income Tax Appellate Tribunal (for short, ‘ITAT’) on 22.01.2015. Thereafter, respondent No.1 issued notice under Section 148 of the 1961 Act on 31.03.2017 which was said to have been received by the petitioner on 01.04.2017. The petitioner sought reasons for re- opening the assessment by letter dated 11.04.2017. The first respondent, by letter dated 03.11.2017 supplied reasons to the petitioner for re-opening. The petitioner filed objections before respondent No.1 on 13.12.2017 against re-opening of assessment. Respondent No.1 by order dated 16.12.2017 rejected the objections filed by the petitioner which was received by petitioner on 19.12.2017. Questioning Section 148 notice as well as 5 order dated 16.12.2017 rejecting the petitioner’s objections for initiation of proceedings under Section 147 of 1961 Act, the petitioner is before this Court in this writ petition. 3. Heard learned counsel Sri.Deepak Chopra for Sri.Anind Thomas, learned counsel for petitioner and learned counsel Sri.Y.V.Raviraj along with Sri.M.Dilip, learned counsel for respondents-Revenue. Perused the entire writ petition papers. 4. Learned counsel for the petitioner would submit that no ground is made out for re-opening assessment for the assessment year 2010-11 on the ground that income has escaped assessment. Learned counsel for the petitioner would submit that the petitioner-company filed its return of income for assessment year 2010-11 and when its case was selected for scrutiny and notice was issued under 6 Section 143(2) of 1961 Act, petitioner filed its objections and answered specific queries regarding Section 10A deductions. Thereafter, the final assessment order was passed, the petitioner has challenged the same before the ITAT and the same is pending adjudication. 5. Learned counsel would submit that there is no new material before the first respondent for re- opening the assessment by issuing notice under Section 148 of 1961 Act. Learned counsel for the petitioner would submit that the notice issued under Section 148 of 1961 Act as well as Section 147 of 1961 Act would not satisfy the requirement or ingredients of the income escaping assessment. It is submitted that the notice issued under Section 147 of 1961 Act is beyond four years from the end of the relevant assessment year and it is not the case of the respondents that income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to make return or 7 response to notice issued under Sub-Section (1) of Section 142 or Section 148 of 1961 Act or had failed to disclose fully and truly all material facts necessary for assessment for that assessment year. 6. Learned counsel would invite attention of this Court to reasons supplied for re-opening on the ground that income has escaped assessment, submits that it is re-appreciation of material already on record and there is no new material. There was no failure on the part of the petitioner to disclose all material facts necessary for assessment and further he submits that it is a case of change of opinion by the Assessing Authority. It is submitted that the allegation is with regard to computing Section 10A deduction and it is explained by the petitioner at the time of Section 143(2) notice and as such re-opening of assessment on the ground that income has escaped assessment on the same material which has undergone process of assessment is 8 impermissible. Learned counsel for the petitioner places reliance on the decision of the Full Bench decision of this Court dated 27.01.2021 in W.A.No.1145/2015 as well as Co-ordinate Bench decision in BANGALORE TURF CLUB LTD., VS. UNION OF INDIA [(2024) 161 TAXMANN.COM 353 (KARNATAKA)]. 7. Per contra, learned counsel Sri.Y.V.Raviraj for respondents-Revenue made all efforts to justify the notice issued under Section 148 of 1961 Act and also rejection of objections filed by the petitioner to Section 147 proceedings. Learned counsel for the Revenue referring to statement of objections filed submits that, the Assessing Officer on perusal of the assessment records noticed that the assessee in computation claimed an amount of Rs.6,27,30,364/- as indefeasible rights to connectivity allocated solely on Mumbai unit and thereby reducing the taxable income and boosting the profit of 10A units. Further, he submits that 9 petitioner had also claimed certain amounts towards supply bandwidth capacities as indefeasible right of the connectivity from prepaid expenses to intangible assets. Learned counsel also took exception in company amortizing such intangible assets over a period of eight years for the purpose of income tax. Further, learned counsel would submit that the assessee has resorted to deferment of expenditure by reclassifying the intangible asset as indefeasible right. Learned counsel for the Revenue would submit that the respondents have resorted to re-assessment as the income liable to tax has escaped assessment due to oversight, inadvertence and by mistake committed by the Income Tax Officer. In that circumstance, he submits that re-assessment of escaped income would be permissible. Thus, learned counsel would pray for dismissal of the writ petition. 8. Having heard the learned counsel appearing for the parties and on perusal of the entire writ petition 10 papers, the only point which falls for consideration is as to, “Whether the notice issued under Section 148 of 1961 Act for re-opening assessment for escapement of income for the assessment year 2010-11 is justified in the facts and circumstances of the case?” 9. Section 147 of 1961 Act empowers the Assessing Officer to reassess such income if he has reasons to believe that any income chargeable to tax has escaped assessment for any assessment year by initiating proceedings under Sections 148 to 153 of 1961 Act. 10. The Hon'ble Apex Court in the case of COMMISSIONER OF INCOME-TAX, DELHI VS. KELVINATOR OF INDIA LIMITED (2010) 320 ITR 561, interpreting Section 147 of 1961 Act has it stood then has observed that the Assessing Officer has power 11 to re-open, provided there is ‘tangible material’ to come to the conclusion that there is escapement of income from assessment. Further, it observed that reasons must have a live link with the formation of belief and it also held that mere change of opinion on consideration of the same material is of no ground to invoke Section 147 of 1961 Act. Relevant portion of the above decision which is relevant for the present case reads as follows: “4. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4- 1989), they are given a go-by and only one condition has remained viz. that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1-4-1989, power to reopen is much wider. However, one needs to give a schematic 12 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 precondition 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 1-4-1989, 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. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but 13 also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words “reason to believe”, Parliament reintroduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the assessing officer. "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression 'reason to believe' in section 147. - A number of representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of assessing officer. It was pointed out that the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989 has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of 14 the opinion'. Other provisions of the new section 147, however, remain the same." (Underlines supplied) 11. It is settled position of law that an error found on reconsideration of the same material which was put to assessment does not give the Assessing Officer the power to re-open a concluded assessment. However, the assessee is required to make a true and full disclosure of primary facts at the time of original assessment. 12. In the case on hand, petitioner - assessee had filed return of income for the assessment year 2010-11. When the case of the petitioner was selected for scrutiny under Section 143(2) of 1961 Act, the petitioner had disclosed and answered the specific queries regarding Section 10A deductions claimed by the petitioner before the TPO. On examination of the 15 material placed on record by the petitioner-assessee, the Assessing Officer has concluded the assessment and against the assessment order, the petitioner is in appeal which is an admitted fact. 13. On issuance of notice under section 148 of 1961 Act which is beyond four years, the petitioner sought reasons for re-opening the assessment. The petitioner was furnished reasons for re-opening vide letter dated 03.11.2017. The reasons furnished for re- opening assessment for the year 2010-11 on the ground of escapement of income reads as follows: “The assessee company, filed its return of income for the A.Y. 2010-11 on 24.09.2010 declaring total Rome Rs22.00.27.866. Subsequently order 143(3) read with 144c of the 1.1. Act was completed on determining the total income at Rs. 325,32,75,250 after making disallowance u/s 92CA of 193672651 and u/s 40(a) (1) of Rs.153,47,184. 16 Subsequently, on perusal of the assessment records, it was noticed that the assessee in the computation claimed an amount of Rs. 6,27,30,364 as indefeasible rights to connectivity, which while computing 10A deduction was allocated solely on the Mumbai unit, thereby reducing the taxable and at the same time boosting the profit of the 10A units. On examining the expenditure prepared as per the IT Act in the current year, it was noticed that the assessee has reclassified Rs48,31,76,250/- towards supply of band-with capacities as indefeasible Right of connectivity from prepaid expenses to intangible assets. The company amortizes such intangible assets period of eight year in the books. For the purpose of Income tax Act, such amounts paid are as deferred revenue expenditure and claimed over a period of eight years. Assessee cannot the intangible assets as indefeasible Right of connectivity and treat the same as deferred expenditure under the Income Tax Act. The assessee is stating that the said expenditure would med in eight assessment years treating it has deferred revenue expenditure, which is incorrect. the Income Tax Act, the intangible assets are depreciated as 17 25%. Hence, the assessee can only claim the same as per the provisions of the IT Act. The assessee has claims an amount of 27,30,364/-as 1/8 of the total amount, which works out to Rs.50,18,42,912/-t. therefore, the depreciation on this @ 25% works out to Rs. 12.54.60.728/-, which should be spread over all the units d on the profit percentage. Based on this, the deduction u/s 10a is re computed to Rs.34,25,94,411 against Rs.42,35,15,471 as allowed in the assessment order dated 30.12.2014. Therefore deduction under Section 10A is allowed in excess to the extent of Rs.8,09,21,060 and the same needs to be brought to tax. In the light of above, I have reason to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 of the Income-Tax Act, 1961." 14. A reading of the above reasons furnished for re-opening indicates that the material on which re- opening is sought is the same material which has undergone assessment and in fact, final assessment 18 order is passed. There is no new material or income which was not declared at the time of assessment or scrutiny under Section 143(2) of 1961 Act. It is pertinent to note here that the petitioner had declared income of Rs.22,00,27,866/- and the Assessing Authority passed draft assessment order determining the income of the petitioner at Rs.4,46,54,65,833/-. In fact, it is stated that while assessing the income, Section 10A deductions were reduced from the claimed amount. Moreover, the reasons would not indicate the failure of the petitioner to disclose any information or that he has not disclosed true and full material facts which is one of the ingredients of Section 147 of 1961 Act. A careful reading and appreciating the reasons, I am of the view that it is a change of opinion and on the basis of changed opinion, proceedings under Section 147 of 1961 Act for re-opening of assessment on the allegation of escaped income is initiated, which is not permissible. 19 15. The respondents in their statement places reliance on the decision of the Hon'ble Apex Court in KALYANJI MAVJI AND COMPANY VS. C.I.T. WEST BENGAL - II, (1976) 1 SCC 985 to say that in the original assessment, the income liable to tax has escaped assessment due to oversight, inadvertence and mistake committed by the ITO. The said ground would not be available for the respondents for re-opening assessment in the facts of the present case and also in view of the observations of the Hon'ble Apex Court in M/S. INDIAN AND EASTERN NEWSPAPER SOCIETY, NEW DELHI VS. COMMISSIONER OF INCOME TAX, NEW DELHI (1979) 4 SCC 248. 16. The Full Bench of this Court in W.A.No.1145/2015, in its judgment dated 27.01.2024 was considering one of the questions as to whether the reason to believe in the context of Section 147 of the Income Tax Act can be based on change in the opinion 20 of the Assessing Officer. The Full Bench placing reliance on the various decisions of the Hon'ble Apex Court at paragraphs 17, 18 and 19 has held as follows: “17. Thus, what is held by the Apex Court is that when a power under Section 147 is to be exercised, concept of change of opinion must be treated as an inbuilt test to check abuse of power of the Assessing Officer. Further, it is held that after 1st April 1989, the Assessing Officer has power to reopen provided there is a tangible material to come to the conclusion that there is escapement of income from assessment. The Apex Court held that mere change of opinion on consideration of the same material is no ground to invoke Section 147 of the said Act. 18. As noted earlier, the decision in the case of Rinku Chakraborthy (supra) is based only on what is held in Clause (2) of paragraph 13 of the decision in the case of Kalyanji Mavji and Company (supra). The decision rendered in the case of Kalyanji Mavji and Company (supra) was by a Bench of two Hon’ble Judges. Subsequently, a larger Bench of three Hon’ble Judges in the case of M/s. Indian and Eastern Newspaper Society 21 (supra) has clearly held that oversight, inadvertence or mistake of the Assessing Officer or error discovered by him on the reconsideration of the same material does not give him power to reopen a concluded assessment. It was expressly held that the decision in the case of Kalyanji Mavji and Company (supra), on this aspect does not lay down the correct law. The decision in the case of Rinku Chakraborthy (supra) is based solely on the decision of the Apex Court in the case of Kalyanji Mavji and Company (supra) and in particular what is held in Clause (2) of paragraph 13. The said part is held as not a good law by a subsequent decision of the Apex Court in the case of M/s. Indian and Eastern Newspaper Society (supra). 19. Therefore, in the light of law laid down in the case of M/s. Indian and Eastern Newspaper Society (supra), the first question will have to be answered in the negative by holding that the decision in the case of Rinku Chakraborthy does not lay down correct position law to the extent to which it follows what is held in clause (2) of paragraph 13 of the decision of the Apex Court in the case of Kalyanji Mavji and Company (supra). The second question will have to be answered in the affirmative. 22 In view of the consistent decisions of the Apex Court holding that “reason to believe” in the context of Section 147 of the Income Tax cannot be based on mere change of opinion of the Assessing Officer, the third question will have to be answered in the negative. In fact, in view of settled law, framing of question No.3 was not warranted at all.” 17. For the reasons recorded above, the following: ORDER a) Writ petition is allowed. b) Notice bearing No.148/ACIT- 3(1)(2)/2016-17 (Annexure-A) dated 31.03.2017 and the order dated 16.12.2017 (Annexure-N) are quashed. Sd/- (S.G.PANDIT) JUDGE NC. CT:bms