2017 (1) TMI 509 - AT - Income Tax

Reopening of assessment - no tax was deducted on the warehousing charges paid by the assessee u/s 194I - reopening on reliance on audit objection - Held that - The audit party has raised objection with regard to non deduction of tax on warehousing charges paid. The issue whether warehousing charges are liable for tax deduction at source u/s 194I, is purely a legal issue. Hence, the audit objection cannot be a ground for reopening of assessment, especially when in the course of original assessment proceedings, the said issue was considered by the Assessing Officer in detail and the contention of the assessee was accepted. For the aforesaid reasons uphold the order of the CIT(A). It is ordered accordingly. - Decided in favour of assessee

Summary

Issues involved:
Reopening of assessment validity, applicability of section 194I on warehousing charges, change of opinion doctrine in reassessment, information for reopening assessment, audit party's role in reopening assessment.

Reopening of assessment validity:
The original assessment was reopened by the Assessing Officer due to the failure of the assessee to deduct tax at source from warehousing charges. The CIT(A) favored the assessee, stating that the reassessment was a mere change of opinion since the Assessing Officer had already considered the TDS issue during the original assessment. The CIT(A) relied on the judgment in CIT vs Kelvinator of India Ltd to support this decision.

Applicability of section 194I on warehousing charges:
The dispute revolved around whether warehousing charges should be subjected to tax deduction at source under section 194I of the Income Tax Act. The assessee argued that warehousing charges did not fall under the definition of rent as per Explanation (i) of section 194I since there was no lease or tenancy agreement involved. The Assessing Officer accepted this argument during the original assessment, leading to no disallowance of the charges.

Change of opinion doctrine in reassessment:
The CIT(A) held that the reassessment was a change of opinion as the Assessing Officer had already considered and accepted the assessee's contention regarding TDS on warehousing charges during the original assessment. This doctrine was crucial in determining the validity of the reassessment process.

Information for reopening assessment:
The revenue contended that the reassessment was valid based on information obtained from internal audit reports highlighting the income escapement. However, the Tribunal rejected this argument, stating that the audit party's opinion on a legal issue does not constitute valid information for reopening an assessment, as established by judicial precedents.

Audit party's role in reopening assessment:
The Tribunal emphasized that the audit party's objection to the non-deduction of tax on warehousing charges was a legal issue, not a factual one. The Tribunal cited judgments to support that an audit party's opinion on a legal matter does not qualify as valid information for reopening an assessment. The Tribunal upheld the CIT(A)'s decision based on these grounds.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision that the reassessment was a change of opinion and not based on valid grounds for reopening. The judgment highlighted the importance of distinguishing between legal and factual issues in the context of reassessment validity.