Karnataka HC Quashes Reassessment of Novo Nordisk: Section 149(1)(b) Non-Compliance Makes IT Notice Invalid
1. Facts and Issues of the Case
In the case of Novo Nordisk India Private Limited vs. Deputy Commissioner of Income Tax, the Karnataka High Court addressed the validity of a reassessment notice issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year (AY) 2006-07. Novo Nordisk India, a company incorporated in India, had its case selected for detailed scrutiny, and a notice under Section 143(2) was issued on October 23, 2007. The company responded accordingly, and the matter was referred to the Transfer Pricing Officer (TPO) for determining the arm’s length price of international transactions.
The TPO, after a thorough examination, accepted the arm’s length price reported by Novo Nordisk India and concluded that no adjustment was necessary. Consequently, the Assessing Officer (AO) passed an order under Section 143(3), accepting the TPO’s conclusions.
However, nearly six years later, on March 28, 2013, the AO issued a notice under Section 148, initiating reassessment proceedings on the grounds that income had escaped assessment. Novo Nordisk India challenged this notice, arguing that it was issued beyond the permissible time limit and without satisfying the conditions stipulated under Section 149(1)(b) of the Act.
2. Observations by the Court
The Karnataka High Court examined the procedural aspects of the case, particularly focusing on the timelines and conditions under which a reassessment notice can be issued. The court noted that the original assessment was completed under Section 143(3) after a detailed scrutiny, including transfer pricing analysis, and no discrepancies were found at that time.
The court observed that the impugned notice under Section 148 was issued after the lapse of nearly six years from the end of the relevant assessment year. According to the provisions of Section 149(1)(b), for such a notice to be valid, the AO must have in possession documents or evidence indicating that income chargeable to tax, represented in the form of assets, has escaped assessment and amounts to or is likely to amount to ₹1 lakh or more.
In this case, the court found that the AO did not present any new tangible material or evidence to justify the reopening of the assessment. The reassessment was initiated based on the same set of facts and documents that were already scrutinized during the original assessment. The court emphasized that mere change of opinion does not constitute valid grounds for reassessment.
3. Law Applicable
The central legal provisions involved in this case are Sections 147, 148, and 149(1)(b) of the Income Tax Act, 1961:
- Section 147 empowers the AO to assess or reassess income that has escaped assessment, subject to the provisions of Sections 148 to 153.
- Section 148 outlines the procedure for issuing a notice for reassessment.
- Section 149(1)(b) specifies that no notice under Section 148 shall be issued after six years from the end of the relevant assessment year unless the income chargeable to tax, which has escaped assessment, amounts to or is likely to amount to ₹1 lakh or more.
The court highlighted that for reassessment beyond four years, especially when the original assessment was completed under Section 143(3), the AO must have tangible material indicating escapement of income. In the absence of such material, and without demonstrating failure on the part of the assessee to disclose fully and truly all material facts, the reassessment proceedings are not sustainable.
4. Conclusion by the Court
The Karnataka High Court concluded that the reassessment notice issued to Novo Nordisk India was untenable due to non-compliance with the mandatory requirements of Section 149(1)(b). The court held that the AO did not possess any new tangible material to justify the reopening of the assessment and that the initiation of reassessment proceedings amounted to a mere change of opinion.
Consequently, the court allowed the writ petition filed by Novo Nordisk India and quashed the notice issued under Section 148. This judgment reinforces the principle that reassessment proceedings must be initiated based on new and tangible material evidence and within the stipulated time frame, ensuring adherence to the procedural safeguards enshrined in the Income Tax Act.
