2012 (12) TMI 874 - HC - Income Tax

Re opening of assessment - labour charges and radiography charges to be disallowed u/s 40(a)(ia)- Non deduction of TDS - Held that - As during the assessment proceedings leading to the assessment order dated 11/11/2009 the petitioner had disclosed all facts with regard to deduction being claimed on account of labour charges and radiography charges. In fact, the assessment order dated 11/12/2009 records the fact that a notice was issued to the petitioner to explain why expenses on account of labour and radiography charges should not be disallowed under Section 40(a)(ia) & petitioner explained its view point and the AO on consideration of those facts in his order of assessment dated 11/12/2009 concluded that these payments on account of radiography charges and labour charges are tax deductible at source in terms of Section 194C. Thus the petitioner has disclosed all primary facts and on consideration of those facts as reflected in the assessment order dated 11/12/2003 therefore, the impugned notice u/s 148 and the reasons in support thereof clearly indicates that it has been issued merely on the basis of change of opinion and would amount to a review of the Assessment Order dated 11/12/2003. The reasons for reopening is not on the basis of any tangible material but merely on verification of the material and primary facts already on record that the AO has duly considered while passing the order dated 11/12/2003 for AY 2007-08. Also that is in the order dated 15/10/2012 rejecting the objections filed by the petitioner with regard to reassessment proceedings for assessment year 2007-08 a completely new ground has been added to reopen assessment is the lack of co-relation between the payment received by the petitioner and the TDS Certificate issued by the persons making payment to it during the assessment year 2007-08. This according to order dated 15/10/2012 resulted in under assessment of income to the extent of ₹ 21.61 lacs. The aforesaid issue was not one of the grounds specified in the reasons communicated to the petitioner on 23/7/2012 for the purpose of reopening the assessment for assessment year 2007-08. Our Court in the matter of Hindustan Lever Ltd. v. R.B. Wadkar, Assistant Commissioner of Income Tax and others reported in (2004 (2) TMI 41 - BOMBAY HIGH COURT ) has held that for the purpose of examining the jurisdiction to reopen a completed assessment one is only concerned with the reasons recorded at the time of issuing notice under Section 148 of the Act. These reasons cannot be supplemented/ improved upon later. Therefore, the order dated 15/10/2012 disposing of the objection also cannot be sustained - the impugned notice dated 28/3/2012 is bad in law - in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reopening of assessment was based on a change of opinion.
3. Adequacy of reasons provided for reopening the assessment.
4. The role of audit objections in the reopening of assessment.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 20/3/2012 issued under Section 148 of the Income Tax Act, 1961, which sought to reopen the assessment for the assessment year 2007-08. The notice was issued on the grounds that the Assessing Officer had reasons to believe that income chargeable to tax had escaped assessment within the meaning of Section 147 of the Act. The court noted that the notice was issued within four years from the end of the relevant assessment year, making the proviso to Section 147 inapplicable. Therefore, the revenue was not required to prima facie establish that there was a failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment.

2. Whether the reopening of assessment was based on a change of opinion:
The court observed that during the original assessment proceedings, the petitioner had disclosed all facts regarding the deduction claimed for labour charges and radiography charges. The Assessing Officer had considered these facts and concluded that TDS had to be deducted under Section 194C of the Act. The court emphasized that the reopening of assessment based on the same facts without any new tangible material would amount to a change of opinion. The Supreme Court in CIT Vs. Kelvinator India Limited had held that the Assessing Officer has no power to review but only to reassess based on new tangible material. Therefore, the court concluded that the impugned notice was issued merely on account of change of opinion, which is not permissible.

3. Adequacy of reasons provided for reopening the assessment:
The reasons communicated to the petitioner for reopening the assessment did not include the ground that there was a difference of Rs.21.61 lacs between the amount received by the petitioner and the TDS certificates issued by the payer. This ground was only mentioned in the order rejecting the petitioner's objections to the reopening. The court held that the reasons for reopening must be based on tangible material and cannot be supplemented or improved upon later. Therefore, the additional ground mentioned in the order dated 15/10/2012 could not be sustained.

4. The role of audit objections in the reopening of assessment:
The petitioner argued that the reopening was based on objections raised by the internal audit department, as indicated in the letter dated 14/3/2012 from the Assessing Officer to the Joint Commissioner seeking approval to reopen the assessment. The court did not examine this ground in detail, as it had already concluded that the impugned notice was not sustainable due to the change of opinion.

Conclusion:
The court found that the impugned notice dated 28/3/2012 was issued merely on account of change of opinion and amounted to a review of the assessment order dated 11/12/2009. Therefore, the notice was quashed and set aside. The petition was allowed with no order as to costs.

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