2021 (1) TMI 260 - HC - Income Tax

Reopening of assessment u/s 147 - Disallowance u/s 40(a)(ia) - Failure to Deduct TDS - Assessee has not disclosed the freight receipts from the Exporters and the net freight payment made which is covered u/s 194C as payment to a sub-contractor - It is claimed the payment was received on behalf of others - HELD THAT - As brought to the notice of this Court by the Learned Counsel for the Petitioner that after the filing of the Writ Petition, there has been amendment to Section 40(a)(ia) of the IT Act and that the Hon'ble Supreme Court of India in Commissioner of Income Tax, Kolkata XII -vs- Calcutta Export Company 2018 (5) TMI 356 - SUPREME COURT has held that the said amendment would have retrospective applicability from the date of its insertion with effect from the assessment year 2005-2006 in order to remove the unintended consequences which were causing grave and genuine hardships to the assessees and remedy that position In Commissioner of Income Tax -vs- Cargo Linkers 2008 (3) TMI 619 - DELHI HIGH COURT where in recognition of the fact that similarly placed clearing and forwarding agents in the industry had not been deducting tax at source till 31.03.2005, it was held that since the contract is actually between the exporter and the airline, and the clearing and forwarding agent is only an intermediary, it is not the person responsible for the deduction of tax at source in terms of Section 194-C Taking into account the peculiar features of this case, it shall be incumbent upon the Respondent to afford opportunity of personal hearing to the Petitioner and thereupon, the Respondent shall deal with each of the contentions raised by the Petitioner, uninfluenced and uninhibited by the earlier views expressed by the Respondent in the matter, and pass reasoned orders on merits and in accordance with law and communicate the decision taken to the Petitioner under written acknowledgment.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 in a Writ Petition.
Procedure to challenge re-assessment proceedings as per Supreme Court rulings.
Effect of amendment to Section 40(a)(ia) of the IT Act.
Retrospective applicability of the amendment and its impact on ongoing proceedings.

Analysis:
The judgment by the Hon'ble High Court of Madras pertains to a Writ Petition challenging the proceedings initiated by the Respondent under Section 148 of the Income Tax Act, 1961. The Petitioner contested a notice dated 18.09.2007, which sought to re-assess the income chargeable to tax for the assessment year 2005-2006. The Petitioner requested reasons for the re-opening of assessment, which were provided by the Respondent. The reasons highlighted discrepancies related to freight receipts and payments, leading to potential tax evasion. Despite the Petitioner's explanations regarding the nature of payments, the Respondent proceeded with the re-assessment, prompting the Petitioner to approach the Court.

The Court considered previous Supreme Court judgments, emphasizing the maintainability of challenging Section 148 notices in a Writ Petition. Referring to the procedure outlined in GKN Driveshafts (India) Ltd. case, the Court reiterated the importance of providing reasons and allowing objections before re-assessment. The Petitioner's arguments regarding amendments to Section 40(a)(ia) of the IT Act were also addressed. Citing relevant Supreme Court and Delhi High Court decisions, the Petitioner contended that the amendment had retrospective applicability from the assessment year 2005-2006, aiming to rectify unintended consequences causing hardships to taxpayers. The Court acknowledged the merit in the Petitioner's contentions and directed the Respondent to reconsider the matter in light of the amendment, granting the Petitioner an opportunity to submit written representations supported by materials by a specified date.

In light of the unique circumstances of the case, the Court instructed the Respondent to conduct a re-evaluation, providing the Petitioner with a personal hearing and addressing all contentions impartially. The Respondent was instructed not to take any adverse actions until the re-evaluation process was completed. The judgment concluded by disposing of the Writ Petition on the terms outlined, without imposing any costs. The detailed analysis of the issues involved, including the legal principles, procedural requirements, and the impact of statutory amendments, underscores the thorough consideration given by the Court to the complexities of the case and the rights of the parties involved.