2014 (7) TMI 174 - HC - Income Tax

Reassessment u/s 148 of the Act Bar of limitation Held that - The reasons recorded for issuing the notice specifically points out that commission paid to M/s.Bonas & Co.Ltd. (a foreign party) is not shown separately but added to the cost of purchase while commission paid on local purchase has been separately shown in the profit and loss account and not added to costs - there has been less than full and true disclosure of all material facts during the assessment proceedings for AY 2005-06 - This is for reason that if the commission paid to the foreign party was shown separately as in case of local purchase, the question of tax deduction at source would have become the subject matter of examination by the AO while assessing the Assessee s income during regular assessment. The particular reason for reopening of the Assessment has not been dealt with by the petitioner in its objection to the reasons for reopening the assessment for AY 2005-06 furnished - it cannot be concluded that the notice dated 29.3.2012 is without jurisdiction - there was failure on the part of the assessee to fully disclose all material facts necessary for assessment the reopening of the assessment by notice dated 29.3.2012 as well as the order dated 25.10.2012 rejecting the objections need not be interfered Decided against Assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for Assessment Year 2005-2006; Rejection of objection to reopen assessment; Disallowance of commission payment to a foreign company without TDS deduction; Existence of permanent establishment in India; Failure to disclose material facts for assessment.

Analysis:
The petitioner challenged a notice issued under Section 148 of the Income Tax Act, 1961, along with the order rejecting objections to reopen the assessment for the Assessment Year 2005-2006. The notice was based on the belief that income chargeable to tax had escaped assessment due to commission payments to a foreign company without TDS deduction. The petitioner argued that the commission was paid to a non-residential company outside India, and there was no failure to disclose material facts necessary for assessment. However, the Assessing Officer rejected the objections, noting that the foreign company had an office in Mumbai.

The petitioner contended that the assessment reopening, beyond the four-year period, required a reason to believe that income had escaped assessment due to failure to fully disclose material facts. The petitioner claimed that all material facts were disclosed and that the reasons for reopening erroneously assumed the foreign company had a permanent establishment in India. Evidence presented indicated that the company's Indian office was established after the assessment year in question. The commission paid abroad was merged into the total purchase cost of diamonds, not shown separately.

The Revenue's counsel supported the notice and rejection of objections. The Court acknowledged the condition for reopening assessments beyond four years and the need for a reason to believe income had escaped assessment due to undisclosed material facts. The issue of whether the foreign company's Indian entity existed during the relevant assessment year needed investigation. The Court found that there was a lack of full and true disclosure of all material facts during the assessment, as the commission was not separately shown. The Court concluded that the notice was not without jurisdiction, as there was a failure to fully disclose material facts, allowing the reassessment proceedings to continue.

The Court clarified that its view was preliminary and that the petitioner could raise all points during reassessment. The Court stated it would only interfere with reassessment proceedings if the notices were clearly without jurisdiction. The Court dismissed the petition, allowing the petitioner to address all contentions during reassessment proceedings, without awarding costs.