2019 (8) TMI 1067 - HC - Income Tax

Reopening of assessment u/s 147 - HELD THAT - In the present case, the Court is satisfied that there was no omission or failure on the part of the Petitioner to disclose all material facts relevant to the original assessment proceedings under Section 143(3) of the Act. Accordingly, in terms of the proviso to Section 147 of the Act, the assumption of the jurisdiction by the AO for reopening the assessment was bad in law. Consequently, the impugned notice dated 31st March 2017 and the consequential order rejecting the objections of the Petitioner are hereby set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act for reopening the assessment.
2. Alleged failure of the Assessee to disclose fully and truly all material facts necessary for the assessment.
3. Legitimacy of the Assessee's non-deduction of TDS on consultancy fees paid to Vedanta Resources PLC.
4. Jurisdictional preconditions for reopening the assessment after four years.

Detailed Analysis:

1. Validity of the Notice under Section 148:
The Petitioner challenged the notice dated 31st March 2017, issued by the Respondent, seeking to reopen the assessment for AY 2010-2011 under Section 147 of the Income Tax Act, 1961. The reasons for reopening the assessment were based on an order dated 31st March 2017, passed by the DCIT (IT) Madurai, which held the Petitioner to be an Assessee in default for not deducting TDS on payments made to Vedanta Resources PLC (VR PLC). The Respondent contended that this constituted "fresh information, specific in nature and reliable in character," thus justifying the reopening of the assessment.

2. Alleged Failure to Disclose Material Facts:
The Petitioner argued that it had made full disclosure of the payment of management consultancy fees to VR PLC in its audited accounts and audit report. The Petitioner had also responded to specific queries raised by the AO during the original assessment proceedings under Section 143(3) of the Act. The Court noted that the transaction was indeed disclosed by the Petitioner, both in the accounts and the audit report. Furthermore, the AO had referred the case to the TPO, who discussed this aspect in his order, leading the AO to deal with it in the assessment order. Therefore, it was not a case of failure to disclose all material particulars.

3. Legitimacy of Non-Deduction of TDS:
The Respondent argued that the Petitioner failed to deduct TDS on the consultancy fees paid to VR PLC, which was not disclosed. However, the Court observed that note 4 appended to the audit report provided an explanation for non-deduction of TDS. The Supreme Court in CIT v. Burlop Dealers Ltd. (1971) held that once the Assessee has placed all material facts necessary for the assessment before the AO, the Assessee is under no obligation to instruct the AO on what to do with those facts.

4. Jurisdictional Preconditions for Reopening:
The Court highlighted that the proviso to Section 147 of the Act would stand attracted since the reopening was after four years from the initial assessment under Section 143(3). The Court had to determine whether there was a failure on the part of the Assessee to make a full and true disclosure of all material facts. The Court concluded that there was no such failure, as the Petitioner had disclosed all relevant facts during the original assessment proceedings.

Conclusion:
The Court found that the reopening of the assessment was not justified, as there was no omission or failure on the part of the Petitioner to disclose all material facts relevant to the original assessment proceedings. Consequently, the impugned notice dated 31st March 2017, and the consequential order rejecting the objections of the Petitioner were set aside. The writ petition was allowed, with no orders as to costs.