2021 (8) TMI 443 - HC - Income Tax

Validity of the notice issued u/s 148 - non deduction u/s 195 - assessee has made payments to Associated Enterprise for shared service/cost sharing expenses - HELD THAT - The facts of the case as narrated in the Appellate order would reveal that Assessment u/s.143(3) has been completed for A.Y.2011-12 after disallowing payments made to BASF Malaysia towards shared legal / administrative services u/s.40(a)(i) for failure to deduct tax at source u/s.195. The difference is that the disallowance of payments related to BASF Malaysia is stated in the appeal and the extent of disallowance is mentioned as ₹ 1,08,78,548/-. - in the reasons furnished for reopening in proceedings dated 12.10.2018 would state that the income escaped is ₹ 3,72,07,000/-. Therefore, there is a mismatching between the subject dealt with by the Appellate authority as well as the reasons furnished for reopening of assessment. Petitioner made an attempt to clarify certain transactions for the purpose of establishing that the subject matter is one and the same and the issue was relatable to the transactions from various countries. If the facts also, it is for the petitioner / assessee to place all such records before the Assessing Officer. Mere reopening of cannot be construed as conclusive. Still, the petitioner would get an opportunity to clarify these aspects and establish that there was no suppression or failure on the part of the assessee to furnish true and full disclosures. However, High Court cannot adjudicate these disputed aspects. Once there is a prima facie reason for reopening of assessment, which is essential under the provisions of Section 147 of the Act, rest of the adjudications are to be completed in all respects by affording opportunity to the assessee concerned. The initiation of proceedings cannot be crippled merely based on certain clarifications. Such clarifications as well as the documents relied upon are to be adjudicated in detail by the Assessing Officer for the purpose of arriving a decision during the course of 147/148 proceedings. This being the factum established, this Court is of the considered opinion that the petitioner has to co-operate for the completion of the assessment / reassessment proceedings by availing the opportunities to be provided and the respondents are bound to complete the proceedings as expeditiously as possible.

Issues Involved:
1. Legal validity of the notice issued under Section 148 of the Income Tax Act.
2. Whether the reopening of assessment constitutes a change of opinion.
3. Applicability of the third proviso to Section 147 of the Income Tax Act.
4. Whether new tangible materials were available for reopening the assessment.

Issue-wise Analysis:

1. Legal validity of the notice issued under Section 148 of the Income Tax Act:
The petitioner challenged the notice issued under Section 148 and the subsequent order disposing of the objections. The petitioner argued that the assessment order was passed after considering all relevant books of accounts and information. The first respondent issued the notice alleging that the petitioner's income had escaped assessment. The petitioner contended that the notice was invalid as it was based on previously adjudicated issues.

2. Whether the reopening of assessment constitutes a change of opinion:
The petitioner argued that the reopening of the assessment was perverse and constituted a change of opinion since the issues raised were already adjudicated by the Assessing Officer. The petitioner emphasized that no new tangible materials were available to justify the reopening. The petitioner's counsel referred to the appellate order by the CIT(A) and pointed out that the issues were already considered and were pending before the ITAT. Therefore, the reopening was in violation of the third proviso to Section 147 of the Act.

3. Applicability of the third proviso to Section 147 of the Income Tax Act:
The petitioner argued that the issues pending in appeal before the ITAT could not be grounds for reopening the assessment under the third proviso to Section 147. The third proviso states that the Assessing Officer may assess or reassess income other than the income involving matters which are the subject of any appeal, reference, or revision. The court highlighted that the proviso uses the word "may," indicating discretion for the Assessing Officer to scrutinize records at the time of reopening. The court noted that if new materials are identified that were not the subject matter of the appeal, the Assessing Officer is empowered to reopen the assessment.

4. Whether new tangible materials were available for reopening the assessment:
The respondent's counsel argued that the reasons for reopening were independent and not connected to the issues raised in the appeal. The counsel referred to the explanations submitted by the petitioner and pointed out that the materials available on record were unconnected with the earlier adjudication. The court noted that the reasons for reopening indicated payments to BASF Corporation, USA, without TDS deduction, which was different from the payments to BASF Malaysia adjudicated by the appellate authority. The court concluded that there was a prima facie reason for reopening the assessment based on new materials identified, and the petitioner should participate in the reassessment proceedings to clarify and establish their case.

Conclusion:
The court dismissed the writ petition, stating that the petitioner must cooperate with the reassessment proceedings and avail the opportunities provided by the respondents. The court emphasized that the initiation of proceedings could not be crippled based on certain clarifications and that the Assessing Officer should adjudicate the disputed aspects in detail during the course of the proceedings under Sections 147/148 of the Act.

← Previous Next →