2016 (6) TMI 1431 - AT - Income Tax

Reopening of assessment u/s 147 - addition on account of commission payment which was provision in nature during the year and same was also not reflected in the return of income of the Directors - reopening has been done after expiry of four years from the end of the impugned assessment year - HELD THAT - This is a case where AO is trying to put the Cart before the Horse . The approach of the AO has been highly irresponsible and casual in reopening this case. The constitution of our country has attached great sanctity to the concept of finality of litigation. No reopening of an already concluded assessment can be done except as provided by the legislature. Any casual and irresponsible reopening of an already concluded assessment is misuse of process of law and pierces the faith of the taxpayers upon the incometax department. If the directors have not shown the commission income in their individual returns and if these facts are true then first of all the individual cases of the directors should have been reopened that too after verification of primary facts. It is further noticed by us that on facts also the Assessing Officer has gone wrong. It is shown to us that commission was paid as part of salary to the directors. Therefore the assessee was liable to deduct TDS u/s 192 and not u/s 194H. The company provided for the commission as part of salary in the impugned year. The TDS was deducted at the time of payment of the same in the subsequent financial year but before the due date of filing of the return u/s 139 - the same was not disallowable in view of the clear provisions of law as has emerged after various amendments and legal precedents. Even otherwise payments made on account of salary is not covered u/s 40(a)(ia)- where the payment was duly made by the assessee expenses were properly booked and claimed in the return of income and due compliance was made with regard to the provisions of TDS also. No case of escapement has been made out by the Assessing Officer at all. It is not a case where any belief could have been formed about the escapement of income. The reopening has been done in an absolutely illegal manner and is a by-product of casual approach of the Assessing Officer who had recorded the reasons. The ld.CIT(A) has rightly held that the reopening was not valid and has rightly quashed the same. - Decided against revenue.

Summary

Issues:
1. Validity of reopening assessment after the lapse of four years.
2. Deletion of addition on account of commission payment which was provision in nature.

Issue 1: Validity of reopening assessment after the lapse of four years

The appeal was filed by the revenue against the order of Commissioner of Income-tax (Appeals) regarding the reopening of assessment u/s 143(3) r.w.s. 147 of the I.T Act, 1961 for A.Y. 2005-06. The Assessing Officer recorded reasons and issued notice u/s 148 after four years from the original assessment. The first proviso to section 147 states that no reopening shall be done after the expiry of four years from the original assessment u/s 143(3) unless there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The reasons recorded by the Assessing Officer alleged that income had escaped assessment due to commission payments not being offered to tax by the Directors in their returns. However, the Tribunal found these reasons unsustainable as there was no failure on the part of the assessee to disclose material facts. The Tribunal cited various judgments supporting this view, including Hindustan Lever Ltd vs. R.B. Wadkar and Allanasons Ltd. v DC IT. The Tribunal concluded that the reopening was illegal and upheld the order of the ld.CIT(A) in quashing the reopening.

Issue 2: Deletion of addition on account of commission payment

The Assessing Officer had made an addition on account of commission payment which was provision in nature, alleging that it was not reflected in the Directors' returns. The Tribunal found that the assessee had disclosed the payment of commission in its books of account and during the assessment proceedings. The assessee had also provided evidence of TDS deduction on the payment. The Tribunal noted that the Assessing Officer's approach was irresponsible and casual, trying to presume no commission payment based on the Directors' returns. The Tribunal held that the payment was part of the directors' salary, subject to TDS under section 192, not 194H. The Tribunal found no escapement of income and no valid belief for reopening the assessment. The ld.CIT(A) rightly deleted the addition, and the Tribunal upheld this decision, dismissing the revenue's appeal.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the order of the ld.CIT(A) in quashing the reopening of assessment and deleting the addition on account of commission payment. The Tribunal found no failure on the part of the assessee to disclose material facts and no valid grounds for the reopening, thereby supporting the decision of the lower authorities.