2022 (3) TMI 727 - HC - Income Tax

Reopening of assessment u/s 147 - Whether AO has taken a prima facie view while issuing notice under Section 148 of the Act on the ground that the assessee ought to have deducted tax at source on payments made to the non-residents under Section 195? - HELD THAT - After examining the objections so raised by the appellant the respondent has concluded that there are tangible material evidence made available to resort to re-assessment proceedings and rejected the same. Respondent has only rejected the objections raised by the appellant and re-assessment proceedings are yet to be initiated. It is to be mentioned that earlier a final order dated 28.12.2011 was passed by the respondent under Section 143 (3) read with Section 147 of the Act raising an additional demand Towards tax - the said order was set aside by this Court in the order 2021 (8) TMI 513 - MADRAS HIGH COURT filed by the appellant herein. Thus a final order in the re-assessment proceedings initiated by the respondent is yet to be passed. While so as rightly pointed out by the learned counsel for the respondent the writ petition itself was premature and no relief could be granted thereof. The learned Judge has only directed the appellant to participate in the re-assessment proceedings and to place all the materials and legal issues before the Assessing Authority for consideration. Such a direction issued by the learned Judge in the given facts and circumstance of the case is proper and it does not call for any interference by this Court. Appellant prayed this Court to issue appropriate direction to the respondent to afford an opportunity of personal hearing before passing final order in the re-assessment proceedings for which the learned Standing counsel appearing for the respondent has no objection. Therefore the respondent is hereby directed to afford an opportunity of hearing to the appellant and after considering all the objections raised pass appropriate orders on merits and in accordance with law within a period of three months from the date of receipt of a copy of this order.

Summary

Issues:
1. Reopening of assessment proceedings for the assessment year 2004-2005.
2. Jurisdiction of the assessing officer to reopen assessment beyond four years.
3. Legality of reassessment proceedings without fresh material.
4. Interpretation of "reasons to believe" under Section 147 of the Income Tax Act.
5. Prematurity of the writ petition seeking relief before completion of reassessment proceedings.

Analysis:

Issue 1: Reopening of assessment proceedings for the assessment year 2004-2005
The appellant challenged the communication rejecting objections to the reopening of assessment proceedings for the year 2004-2005. The respondent issued a notice under Section 148 of the Income Tax Act, claiming an escapement of income. The appellant contended that the reassessment was based on a mere change of opinion without fresh material. The High Court previously remanded the matter back to the respondent for reconsideration of objections, leading to the rejection of objections in the order dated 29.10.2021.

Issue 2: Jurisdiction of the assessing officer to reopen assessment beyond four years
The appellant argued that the reassessment proceedings were time-barred as the notice to reopen the assessment was issued beyond four years from the completion of the original assessment. The appellant contended that the reassessment was initiated without fresh tangible material, solely based on the non-deduction of TDS under Section 195 of the Act, which was legally impermissible.

Issue 3: Legality of reassessment proceedings without fresh material
The appellant asserted that the reassessment proceedings lacked fresh material and were initiated on a mere change of opinion by the assessing officer. The appellant highlighted that the respondent failed to consider that the payments to foreign companies were directly made by customers abroad and debited in the appellant's account. The absence of new tangible material rendered the reassessment proceedings legally unsustainable.

Issue 4: Interpretation of "reasons to believe" under Section 147 of the Income Tax Act
The appellant referred to the Supreme Court's decision in the case of Commissioner of Income Tax Appeals vs. Kelvinator of India, emphasizing the necessity of tangible material to support the belief of income escapement for reassessment. The appellant argued that the respondent's actions lacked the required live link with the formation of belief, and the reassessment was not based on new material but a change of opinion.

Issue 5: Prematurity of the writ petition seeking relief before completion of reassessment proceedings
The High Court noted that the order dated 29.10.2021 only rejected the objections raised by the appellant, and the reassessment proceedings were yet to be initiated. The Court deemed the writ petition premature and directed the appellant to participate in the reassessment proceedings. The Court emphasized the importance of allowing the reassessment process to proceed before seeking relief, leading to the dismissal of the writ petition.

In conclusion, the High Court directed the respondent to afford the appellant an opportunity for a personal hearing before passing the final order in the reassessment proceedings within three months. The writ appeal was disposed of without costs, emphasizing the need for completion of reassessment proceedings before seeking judicial relief.