2020 (9) TMI 459 - AT - Income Tax

Reopening of assessment u/s 147 - non deduction of tds u/s 195 - disallowing expenses u/s.40(a)(i) observing that the assessee could neither prove that it had made application to the AO to determine the appropriate portion of the sum so chargeable u/s 195(1) and neither the undertaking nor the CA certificate for the FY 2010-11 as envisaged in the CBDT circulars was referred to - CIT-A deleted both reopening and addition u/s.40(a)(i) - HELD THAT - From a bare perusal of the reasons recorded by the AO for reopening of assessment it is clear that the AO has reopened the assessment on the ground that the foreign currency was incurred without making TDS u/s.195 and no application under section 192(2), 192(3) or 197 of the Act was made by the assessee for non-deduction of tax u/s.195. On perusal of the relevant materials placed on record, we find that the during the original assessment proceedings, the AO had considered the issue of non-deduction of tax u/s.195 on payment made to foreign parties and had not made any disallowance. After that no new fact has come to the knowledge of the AO after the original assessment was framed under Section 143(3) of the Act vide Order dated 14.03.2014. The AO has merely re-examined the profit and loss account of the assessee to initiate the reassessment proceedings. In any case, the CIT(A) has in the impugned order at page 8 has recorded a finding of fact that the very same payment has been discussed elaborately in the original assessment order passed under Section 143(3) of the Act. CIT(A) has followed the decision of Kelvinator of India ltd 2010 (1) TMI 11 - SUPREME COURT wherein, it was held that the concept of change of opinion must be treated as an inbuilt test to check the abuse of power by the AO and that even after 1.4.1989, the date from which the amended provisions of section 147 came into force, the AO has power to reopen an assessment, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. In this case, no tangible material has come to the knowledge of the AO to reopen the assessment. Ld CIT(A) has also followed the decisions of this Tribunal in assessee s own case under similar facts in quashing the reassessment order. In the reasons recorded for reopening of assessment, there is no whisper, what to speak of any allegation, that the assessee had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen the assessment - there was no new tangible materials, as discernible from the reasons recorded by him for initiation of reassessment proceedings in his hands, thus, it is a case of change of opinion. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.
2. Whether the reassessment was based on a mere change of opinion.
3. Justification of the disallowance under Section 40(a)(i) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961:
The revenue contested the order of the CIT(A) which quashed the reassessment proceedings initiated under Section 147. The CIT(A) held that the reassessment proceedings were invalid as they were based on a mere change of opinion. The Assessing Officer (AO) had initially assessed the income under Section 143(3) without disallowing the expenses in question. The AO later reopened the assessment on the grounds that tax was not deducted at source under Section 195 for certain foreign currency expenses, which was previously examined and accepted during the original assessment. The Tribunal upheld the CIT(A)’s decision, stating that the reassessment was not based on any new tangible material but was merely a re-examination of the same facts already considered in the original assessment.

2. Whether the reassessment was based on a mere change of opinion:
The Tribunal noted that the AO had considered the issue of non-deduction of tax under Section 195 during the original assessment and had not made any disallowance after being satisfied with the assessee's explanation. The reassessment proceedings were initiated on the same facts without any new information coming to the AO's notice. Citing the Supreme Court's decision in CIT vs. Kelvinator of India Ltd., the Tribunal emphasized that a mere change of opinion does not justify reopening an assessment. The reassessment was, therefore, invalid as it was based on a change of opinion rather than new tangible material.

3. Justification of the disallowance under Section 40(a)(i) of the Income Tax Act, 1961:
The CIT(A) also addressed the merits of the disallowance under Section 40(a)(i). It was observed that the payments in question were made to foreign companies and did not have any element of income taxable in India, thus not attracting the provisions of Section 195. The Tribunal supported this view, referring to previous decisions where similar disallowances were deleted. The Tribunal concluded that even on merits, the disallowance was not sustainable.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming the CIT(A)’s decision to quash the reassessment order. It was held that the reassessment proceedings were invalid as they were based on a mere change of opinion without any new tangible material. Additionally, the disallowance under Section 40(a)(i) was not justified as the payments made to foreign companies did not attract the provisions of Section 195. The Tribunal emphasized the necessity of tangible material for reopening assessments and the importance of not using reassessment as a tool for reviewing previously accepted positions.