2021 (9) TMI 312 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - payment effected in foreign currency towards loan guarantee fee/ interest, no tax was deducted by the assessee at source - HELD THAT - This Court is of the considered opinion that based on the return of income filed by the petitioner / assessee, the assessment order has been passed and subsequently certain new tangible materials were traced out for the purpose of reopening as the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. Under these circumstances, the assessee cannot say that he has produced all the material facts and books of accounts etc., Even if such materials are produced, if the authorities found that the tax escaped assessment, then they are empowered to initiate reopening proceedings. assessment is reopened within a period of four years and therefore, mere availability of tangible material would be sufficient for the purpose of invoking the powers under Section 147 of the Act. As pointed out in the reasons, the petitioner has represented that there is no item of expenditure falling under Section 40A of the Income Tax Act. However, the respondent subsequently found that the payment effected in Foreign Currency / interest, no tax was deducted by the assessee at source. This failure on the part of the petitioner was considered for reopening of assessment and the finding is given that the assessee company has misleading the assessing authorities by furnishing incorrect particulars. However, this Court cannot arrive a finding in this regard. Once, the materials are available and such materials were not taken into consideration by the original assessing authority, or any findings are given in the assessment order, which would be sufficient for the purpose of reopening of assessment and once such reopening is made based on tangible materials, then the assessee has to defend his case by furnishing further particulars or explanations or documents during the course of reopening proceedings. High Court cannot form any opinion in respect of such findings to be made. Only endeavour of the High Court is to ensure that, whether the conditions stipulated and the process adopted for the purpose of reopening of assessment in consonance with the provisions of the Act and in accordance with the Directives of the Hon ble Supreme Court of India in the case of GKN Driveshafts 2002 (11) TMI 7 - SUPREME COURT are not. If the conditions are fulfilled, then it is for the assessee to defend their case in the manner known to law. - Thus the reasons furnished in the case of the petitioner would be sufficient for the purpose of reopening of assessment as the case of the petitioner is initiated within a period of four years and therefore, the petitioner is bound to participate in the reopening proceedings - Decided against assessee.

Summary

Issues Involved
1. Validity of the notice issued under Section 148 of the Income Tax Act for reopening the assessment.
2. Whether the reopening of the assessment was based on a "change of opinion."
3. Applicability of Section 40(a) of the Income Tax Act regarding the deduction of tax at source on loan guarantee fees.

Detailed Analysis

Issue 1: Validity of the Notice Issued Under Section 148
The petitioner challenged the notice issued under Section 148 of the Income Tax Act, 1961, dated 29.03.2012, and the consequential order dated 05.03.2013. The petitioner argued that the reopening of the assessment was not justified as it did not meet the conditions stipulated under Section 147 of the Act. The court, however, found that the reopening was within the period of four years and was based on tangible material, thus validating the notice.

Issue 2: Reopening Based on "Change of Opinion"
The petitioner contended that the reopening of the assessment was based on a change of opinion, which is not permissible. The petitioner argued that all relevant details, including books of accounts and responses to queries, were provided during the original assessment. The court examined the reasons recorded for the reopening and found that there was a "reason to believe" that income had escaped assessment. The court held that the reopening was not merely based on a change of opinion but on new tangible material discovered post-assessment.

The court cited several judgments to support the principle that the belief for reopening must be based on reasonable grounds and not on mere suspicion. The court also noted that the petitioner had disclosed all material facts, and the reopening was based on existing material without any fresh tangible material, thus amounting to a review rather than a reassessment.

Issue 3: Applicability of Section 40(a) Regarding TDS on Loan Guarantee Fees
The petitioner argued that the loan guarantee fees paid to Cairn Energy PLC were not subject to tax deduction at source under Section 40(a) of the Income Tax Act. The petitioner provided detailed responses to queries raised during the original assessment, asserting that the guarantee fees were correctly claimed as allowable expenditure under Section 37(1) of the Act.

The court, however, found that the payment of loan guarantee fees in foreign currency without deducting tax at source warranted the reopening of the assessment. The court held that the payment could be classified as "fees for technical services," requiring tax deduction at source under Section 40(a). The court emphasized that the reopening was based on tangible material indicating that the petitioner had misled the assessing authorities by furnishing incorrect particulars.

Conclusion
The court concluded that the reopening of the assessment was justified and based on tangible material, not merely a change of opinion. The petitioner was directed to participate in the reassessment proceedings to defend their case. The writ petition was dismissed, and the reopening notice under Section 148 was upheld.