2012 (12) TMI 899 - HC - Income Tax

Validity of notice u/s 148 - Assessee engage in manufacture and sale of Tea - Re-opening of assessment u/s 147 - Escaped assessment Change of opinion Reason to believe - AO argued that payment made by assessee was in fact the commission paid against sale and there was no TDS deducted therefore, expenditure was required to be disallowed u/s 40(a)(ia) and hence, this income has escaped the assessment Held that - At the time of original assessment, in reply to the specific query raised, specific reply had been furnished with regard to the amount of discount paid by way of trade incentive slab scheme and the query also was whether on the amount paid, tax was deducted at source or not. Having furnished all the requisite details, if the AO chose not to deem it fit to reflect its consideration in the assessment order originally passed after scrutiny, on the very same grounds and materials when it seeks to reopen the assessment on the ground of escapement of income it is required of the respondent to point out as to how this is not a mere change of opinion and what are the cogent and relevant materials available with it to form an opinion that the said expenditure was required to be disallowed u/s 40(a)(ia), for not having deducted TDS. In favour of assessee

Issues Involved:
1. Validity of reopening assessment under Section 148 of the Income Tax Act, 1961.
2. Applicability of Section 194C and Section 194H regarding TDS on trade incentive payments.
3. Whether the reopening of assessment constitutes a mere change of opinion.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 148 of the Income Tax Act, 1961:

The petitioner, a public limited company involved in the manufacture and sale of tea, challenged the reopening of the assessment for AY 2006-07 under Section 148 on the grounds of escapement of income. The reopening was based on the non-deduction of TDS on trade incentive payments amounting to Rs. 22,70,869/-. The petitioner argued that the reassessment was barred by law as it was based on a mere change of opinion, which is impermissible even within four years of the original assessment. The court emphasized that the reopening of an assessment, even within four years, requires the Assessing Officer to have a "reason to believe" that income has escaped assessment, which must be based on tangible material and not merely a change of opinion. It was noted that the original assessment was completed after a thorough scrutiny under Section 143(3), and all relevant details were provided by the petitioner during the original assessment.

2. Applicability of Section 194C and Section 194H Regarding TDS on Trade Incentive Payments:

The Assessing Officer contended that the trade incentive payments under the "Garma Garam" scheme were in the nature of commission and should have been subjected to TDS under Section 194C, and consequently disallowed under Section 40(a)(ia) for non-deduction of TDS. The petitioner argued that these payments were quantity discounts and not commissions, and thus not subject to TDS under Section 194C or Section 194H. The court agreed with the petitioner, stating that the payments were neither for carrying out any work (Section 194C) nor in the nature of commission or brokerage (Section 194H), and hence, Section 40(a)(ia) was not applicable.

3. Whether the Reopening of Assessment Constitutes a Mere Change of Opinion:

The court examined whether the reopening was based on new material or merely a change of opinion. It was noted that during the original assessment, specific queries regarding the trade incentive payments were raised and satisfactorily addressed by the petitioner. The court held that the reopening was indeed based on a mere change of opinion, as the same issues were previously scrutinized and adjudicated during the original assessment. The court emphasized that the Assessing Officer must demonstrate cogent and relevant materials to justify the reopening, which was absent in this case.

Conclusion:

The court concluded that the reopening of the assessment was unjustified as it was based on a mere change of opinion without any new tangible material. The notice for reopening dated 4th March 2011 and the subsequent order rejecting the objections were quashed. The petition was allowed, and the rule was made absolute with no order as to costs.

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