2014 (12) TMI 91 - AT - Income Tax

Reopening of assessment u/s 147 - Applicability of section 40(a) - Whether utilisation of services in India is enough to attract its taxability in India and thus the assessee is duty bound to deduct tax at source as otherwise provisions of section 40(a) are liable to be attracted or not - Held that - During the course of original assessment proceedings the assessee furnished all the required details with regard to advertisement expenditure incurred and the commission paid to non-resident - the reason as to why section 40(a) is not applicable was also mentioned - the AO has thoroughly examined the facts of the case and had also noted that the assessee is having transactions with non-resident which implies that the AO had taken note of Annexure-9 to Tax Audit Report in Praful Chunilal Patel Versus MJ Makwana / Assistant Commissioner Of Income-tax 1998 (2) TMI 538 - GUJARAT High Court it has been rightly held that when a regular assessment is made in terms of section 143(3) of the Act a presumption can be raised that such an order has been passed by application of mind since judicial and official acts are deemed to have been regularly performed - merely because a new incumbent AO has a different view the Revenue cannot take benefit of its own wrong and arbitrarily assume that there is escapement of income without bringing on record any fresh tangible material to show that there is justification for forming an opinion that assessee s income escaped assessment - mere subjective satisfaction of the AO on the basis of the same set of material would amount to change of opinion and cannot be equated to the expression reasons to believe in which event the reassessment proceedings is to be treated as void ab initio. Since the AO had taken note of the fact that the assessee had business connection with certain foreign clients and some expenditure was also incurred in that connection thus the view taken by the CIT(A) that change of opinion can result in reopening of assessment within four years is held to be not in consonance with the spirit of provisions of section 147/148 of the Act following the decision in Commissioner of Income Tax Delhi Versus M/s. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT OF INDIA wherein it has been held that the AO sought to reopen the assessment on mere change of opinion which is not permissible and the notice issued u/s 148 of the Act is not in accordance with law thus the reassessment proceedings to be set aside Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under section 147/148.
2. Applicability of section 40(a)(i) regarding payments to non-residents.
3. Validity of reassessment based on "change of opinion."

Detailed Analysis:

1. Reopening of Assessment under Section 147/148:
The primary issue is whether the Assessing Officer (AO) had valid grounds to reopen the assessment under section 147. The assessee argued that the original assessment was thoroughly scrutinized, and all relevant details were disclosed, including the payments to M/s. J.V. Overseas Trading Ltd. The AO initially accepted these details, and thus, reopening the assessment based on the same information constitutes a "mere change of opinion," which is not permissible under the law. The Tribunal agreed, citing the Supreme Court decision in Kelvinator of India Ltd., which mandates that reassessment must be based on "tangible material" and not merely a different interpretation by a new AO.

2. Applicability of Section 40(a)(i) Regarding Payments to Non-Residents:
The AO contended that the payments made to M/s. J.V. Overseas Trading Ltd. for advertisement and commission should have been subjected to tax deduction at source (TDS) under section 195, and failure to do so attracts disallowance under section 40(a)(i). The assessee argued that the services were rendered outside India by a non-resident with no business operations in India, and thus, these payments do not constitute income accruing in India. The Tribunal noted that this issue was already considered during the original assessment, and the AO had accepted the assessee's position based on the Supreme Court's decision in Toshoku Ltd.

3. Validity of Reassessment Based on "Change of Opinion":
The Tribunal emphasized that the concept of "change of opinion" is crucial to prevent arbitrary reassessment. It reiterated that once an assessment is completed under section 143(3), it is presumed that the AO has applied his mind to all aspects of the case. Reopening the assessment on the same facts without any new material amounts to a review, which is beyond the AO's jurisdiction. The Tribunal relied on the Full Bench decision of the Delhi High Court in Praful Chunilal Patel, which was affirmed by the Supreme Court, to support this view.

Conclusion:
The Tribunal concluded that the reassessment proceedings initiated by the AO were invalid as they were based on a mere change of opinion without any new tangible material. Consequently, the notice issued under section 148 was quashed, and the appeal filed by the assessee was allowed for statistical purposes. The Tribunal did not consider the second ground of the appeal, as it became academic due to the invalidation of the reassessment proceedings.

Order Pronouncement:
The order was pronounced in the open court on 21st November 2014, allowing the appeal filed by the assessee.