2022 (4) TMI 114 - HC - Income Tax

Reopening of assessment u/s 147 - Tangible material to justify reopening of assessment - addition u/s 40(a)(ia) - HELD THAT - It is now settled that an assessment order can be passed either in terms of section 143(1) or 143(3) of the I-T Act, and when a regular order of assessment is passed in terms of section 143 (3), a presumption that such an order is passed on application of mind is attached to it. This presumption is raised with the aid of section 114(e) of the Evidence Act which stipulates that judicial and official acts are regularly performed. A useful reference in this regard could be made to the decision in Commissioner of Income Tax v. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT - In the considered opinion of this court, when it is undisputed that the AO asked for details relating to the details of the payments made as subcontractor charges and the TDS affected and the petitioner has furnished those details, with the AO issuing the assessment order dated 22.11.2016 without any additions, it must be deemed that the AO has opined in favour of the petitioner on the TDS deductions made. The reason offered in justification of the notice issued under section 147 read with section 148 of the I-T Act is that on perusal of records it is observed by the AO that though the petitioner has paid subcontractor charges the petitioner has not deducted the TDS for the entire amount and therefore a sum cannot be allowed under section 40(a)(ia) of the I-T Act. If there is conscious application of mind on an issue during assessment, and this Court as in the circumstances of the case has already opined that there was such conscious application of mind and therefore a deemed opinion, there cannot be reassessment only because of an error in such opinion. The reasons offered by the A.O to justify reassessment cannot be accepted as an objective view based on any subsequent information in the absence of necessary material in this regard. This Court is of the considered view that the impugned notice issued under Section 148 read with Section 147 by the Additional Commissioner of Income Tax, Special Range-I (the first respondent) cannot be sustained and must be quashed on the ground of lack of jurisdiction. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 read with Section 147 of the Income Tax Act, 1961.
2. Jurisdiction and legality of the order rejecting the petitioner’s objections against the reopening of assessment.
3. Whether there was a change of opinion by the Assessing Officer (AO) in reopening the assessment.
4. Whether the reassessment was based on new tangible material or mere reappraisal of existing records.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 Read with Section 147 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 28.03.2019 issued under Section 148 read with Section 147 of the Income Tax Act, 1961, which sought to reopen the assessment for the assessment year 2014-2015. The basis for reopening was the alleged non-deduction of TDS on subcontracting charges paid to M/s Broadcom Communications Technologies Private Limited.

2. Jurisdiction and Legality of the Order Rejecting the Petitioner’s Objections Against the Reopening of Assessment:
The petitioner also contested the order dated 23.08.2019 by the Additional Commissioner of Income Tax, which rejected the objections against the reopening of the assessment. The first respondent opined that there was a reason to believe that ?3,97,43,979/- had escaped taxation and that reassessment need not be based only on fresh material. The first respondent further stated that there was no change of opinion as the non-deduction of TDS was not examined in the original assessment order under Section 143(3).

3. Whether There Was a Change of Opinion by the Assessing Officer (AO) in Reopening the Assessment:
The petitioner argued that the AO had already considered the details regarding TDS on subcontracting charges during the original assessment proceedings, as evidenced by the notice under Section 142(1) and the petitioner’s response dated 15.11.2016. The petitioner contended that the AO’s acceptance of the expenditure claimed without issuing a demand indicated a deemed opinion, making the reopening of the assessment a mere change of opinion, which is impermissible in law.

4. Whether the Reassessment Was Based on New Tangible Material or Mere Reappraisal of Existing Records:
The petitioner asserted that the reassessment was based on the same records and details furnished during the original assessment proceedings and that no new tangible material justified the reopening. The petitioner relied on various judicial precedents, including the Full Bench decision of the High Court of Delhi in Commissioner of Income Tax v. Kelvinator of India Ltd., which held that a mere change of opinion cannot justify reopening an assessment.

Court’s Findings:

1. Examination of Original Assessment Proceedings:
The court noted that the petitioner had furnished detailed information regarding the payments made to related parties and the TDS affected during the original assessment proceedings. The AO had issued the assessment order dated 22.11.2016 without any additions or rejections, indicating a deemed opinion on the petitioner’s claim for allowance.

2. Legal Precedents on Change of Opinion:
The court referred to various judicial decisions, including the Hon’ble Apex Court’s decision in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd., which established that a mere change of opinion cannot justify reopening an assessment. The court also cited the decision of the Full Bench of the High Court of Delhi in Commissioner of Income Tax - VI, New Delhi v. Usha International Ltd., which held that reassessment proceedings would be invalid if an issue or query was raised and answered in the original assessment proceedings but not recorded in the assessment order.

3. Tangible Material for Reopening Assessment:
The court emphasized that the material on which the AO bases its opinion must not be arbitrary, irrational, vague, distant, or irrelevant. The court found that the reasons offered by the AO for reopening the assessment were based on the same records and details furnished during the original assessment proceedings, without any new tangible material.

Conclusion:
The court concluded that the impugned notice dated 28.03.2019 and the order dated 23.08.2019 could not be sustained due to a lack of jurisdiction. The court quashed the notice and the order, allowing the writ petition.

Order:
The writ petition is allowed, and the impugned notice dated 28.03.2019 issued under Section 148 read with Section 147 of the Income Tax Act, 1961, and the order dated 23.08.2019 by the Additional Commissioner of Income Tax, Special Range-I, are quashed.