2013 (4) TMI 930 - HC - Income Tax

Summary

Issues Involved:
1. Validity of reopening assessment u/s 148.
2. Disallowance of freight charges and clearing & forwarding charges due to non-deduction of TDS.

Summary:

1. Validity of Reopening Assessment u/s 148:

The appellant assessee, engaged in manufacturing articles from leather and PVC cloth, filed its return for AY 2005-06, which was initially processed u/s 143(1) and later scrutinized u/s 143(3). The Assessing Officer (AO) issued a notice u/s 148 on 19th February 2010 to reopen the assessment, citing that the income had escaped assessment. The appellant challenged the reopening before the CIT [A], which annulled the reassessment, stating that the AO had no jurisdiction to reopen the assessment without sufficient evidence to form a belief that income had escaped assessment.

The Tribunal, however, upheld the reopening, stating that the notice was issued within four years from the end of the relevant assessment year, and as per Section 147, the AO only needed a reason to believe that income had escaped assessment. The Tribunal relied on the Supreme Court's judgment in ACIT v. Rajesh Jhaveri Stock Brokers P. Limited, which held that the AO's belief need not conclusively prove the escapement of income at the stage of issuing the notice.

The Court highlighted that the AO must have tangible material to arrive at a belief of escapement of income, and the sufficiency of such reason is not for the Court to investigate at the initiation stage. The Court dismissed the appeal, stating that no substantial question of law arose from the Tribunal's order.

2. Disallowance of Freight Charges and Clearing & Forwarding Charges:

During the original assessment, the AO did not call for details of TDS deducted on freight and clearing & forwarding charges. The CIT [A] noted that the AO had no evidence to form a belief that there was any default in respect of TDS on these payments and concluded that the AO had no jurisdiction to reopen the assessment.

The Tribunal, however, held that the AO discovered from the assessee's records that disallowances were neither made in the original assessment nor examined at that stage. The Tribunal relied on the Supreme Court's judgment in Kalyanji Mavji & Company v. CIT, which stated that information for reopening can be derived from the original assessment records or subsequent investigation.

The Court noted that the AO's reasons for reopening specified the omission to disallow the expenditure on freight and clearing & forwarding charges due to non-deduction of TDS, resulting in under-assessment of income. The Court upheld the Tribunal's decision, stating that the AO was justified in reopening the assessment based on the material available, which indicated that the taxable income had escaped assessment.

Conclusion:

The Court dismissed the tax appeal, affirming the Tribunal's order upholding the reassessment proceedings initiated by the AO within four years from the end of the relevant assessment year. The AO had valid reasons to believe that income had escaped assessment due to non-deduction of TDS on freight and clearing & forwarding charges, and the reopening was not based on a mere change of opinion.