2018 (2) TMI 1597 - HC - Income Tax

Reopening of assessment - failure to comply with TDS provisions on commission - Held that - The Petitioner in its objections to the reasons pointed out that no where in its accounts any amounts have been shown as discounts on sale to its stockists. Thus, the amount of commission being shown as discount does not arise. In fact, it was pointed out that in its Revenue recognition policy as disclosed in its accounts, sales are recognised net of discounts. Thus, no expenditure/deduction is claimed on account of discount in respect of sales of its goods made to its stockists. The aforesaid fundamental objection of the Petitioner on facts has not been dealt by the order disposing of the objections. Thus, rendering the entire process of taking a second look, particularly on facts, before proceeding to reassess, futile. Even before us the Revenue has not been able to show that in its accounts the Petitioner had claimed any amount of expenditure as discount on sales of its products to stockists. All the above is indicative of the absence of application of mind by the Assessing Officer to the tangible material obtained in the form of the order passed by the Deputy Commissioner of Income Tax (TDS). Accordingly, there shall be a stay in terms of prayer clause (d) of the Petition.

Summary

Issues:
Challenging a notice issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961 for reopening the assessment for the assessment year 2010-11.

Analysis:
The petition challenges a notice dated 31 March 2017 issued by the Assessing Officer under Section 148 of the Income Tax Act, seeking to reopen the assessment for the year 2010-11. The regular assessment proceedings for the said year were completed on 26 February 2014 under Section 143(3) of the Act. The impugned notice is beyond the four-year period from the end of the relevant assessment year, necessitating the satisfaction of the first proviso to Section 147 of the Act for the Assessing Officer to assume jurisdiction. The reasons for the notice were based on an order by the Deputy Commissioner of Income Tax (TDS) indicating a failure to comply with TDS provisions amounting to ?11.95 Crores. The reasons state that the difference between MRP and selling prices to stockists was considered commission on which TDS was not deducted, totaling ?11.19 Crores. The petitioner objected, stating that no amounts were shown as discounts in their accounts, and sales were recognized net of discounts as per their revenue recognition policy. The objections were not adequately addressed, indicating a lack of application of mind by the Assessing Officer.

The court noted that the Revenue failed to demonstrate any claimed expenditure as discounts on sales to stockists in the petitioner's accounts. This lack of evidence pointed to the Assessing Officer's failure to properly consider the material obtained from the Deputy Commissioner of Income Tax (TDS) and assess whether there was a failure to disclose material facts necessary for assessment. Consequently, the court granted a stay in terms of the prayer clause in the petition.

The court also addressed the petitioner's contention that a previous reopening notice dated 19 March 2015 barred the Revenue from issuing the impugned notice. Citing the Jet Airways case, the court clarified that the pending reopening notice did not restrict the Revenue from issuing the current notice. The court emphasized that the reassessment proceedings following the earlier notice would not be affected by the current admission, allowing the Assessing Officer to examine all issues in accordance with Explanation III to Section 147 of the Act.