Karnataka High Court
Google India Private Limited vs The Assistant Commissioner Of Income ... on 24 February, 2025
Author: S.G.Pandit
Bench: S.G.Pandit
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