2014 (12) TMI 393 - HC - Income Tax

Validity of notice for reopening of assessment u/s 147 r.w. s148 Full and true disclosure of material particulars made or not Income escaped or not Held that - The recorded reasons disclose two points which have purportedly led to the issuance of the notice - The first point was that on examination of the records it was found that the assessee had not shown receipts in the Profit and Loss Account to the extent of ₹ 18,95,45,672/- which had appeared in the 16A Forms that were submitted by the assessee for the relevant previous year the difference which is sought to be made the subject matter of the reasons for initiating an action of reassessment was in contemplation of the AO at the time of the original assessment and a full reply had been given by the Chartered Accounts reconciling the differences pointed out by the AO the AO in the assessment order dated 30.03.2008 had not made any additions after being fully satisfied by the reply submitted on behalf of the petitioner / assessee - It is clear that the attempt to reopen the assessment on this ground would be nothing but an attempt at changing the earlier opinion, which is not permissible in law the facts had been fully and truly disclosed before the AO at the time of the original assessment. TDS deducted u/s 40(a)(ia) or not Held that - Assessee pointed out that the payments were made to its own employees and were not of the nature of payments covered u/s 40(a)(ia) - even the assessment order would reveal that these payments were made to its own employees inasmuch as he had produced the muster roll and the AO at the time of the original assessment had even made an ad-hoc deduction of ₹ 4 lakhs - the reopening of the assessment order could not have been directed inasmuch as the nature of the payments by themselves indicate that it could not be covered u/s 40(a)(ia) - there was no basis for seeking reopening of the assessment the notice and the order for reopening is set aside Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment beyond four years under Section 148 of the Income-tax Act, 1961.
2. Conditions for reopening assessment under Section 147.
3. Failure to disclose material particulars and income escaping assessment.
4. Mere change of opinion as a ground for reopening assessment.
5. Interpretation of recorded reasons for reopening assessment.
6. Application of section 40(a)(ia) regarding deductions on payments.

Analysis:

1. The writ petition challenged a notice issued under Section 148 of the Income-tax Act, 1961 to reopen the assessment for the year 2007-08, beyond the four-year limit. The petitioner argued that the proviso to Section 147 required conditions to be fulfilled for reopening, including failure to disclose material particulars and income escaping assessment.

2. The petitioner contended that there was no failure in disclosing material particulars and that the reopening was based on a mere change of opinion, which is impermissible under the law. The recorded reasons for reopening highlighted discrepancies in the Profit and Loss Account and non-deduction of tax on certain payments, invoking Section 40(a)(ia).

3. The reasons provided for reopening the assessment included discrepancies in receipts, non-deduction of tax on payments, and failure to fully disclose facts necessary for assessment. The petitioner had objected to the reopening, citing previous explanations given during the original assessment.

4. The Court noted that the issues raised in the recorded reasons were considered during the original assessment, where satisfactory explanations were provided by the petitioner's Chartered Accountants. The attempt to reopen the assessment based on these grounds was deemed as an impermissible change of opinion.

5. The Court analyzed the nature of payments made by the assessee and found that they were not covered under section 40(a)(ia) as they were payments to its own employees. The assessment order also reflected this fact, making the reopening of the assessment unwarranted.

6. Consequently, the Court set aside the notice and rejection order, ruling in favor of the petitioner. The judgment emphasized that there were no valid grounds for reopening the assessment for the year 2007-08, and no additional reasons were provided in the recorded justifications. The writ petition was allowed with no costs imposed.