2022 (5) TMI 1387 - HC - Income Tax

Reopening of assessment u/s 147 - deduction of TDS on expenses on behalf of the Principal Companies - valid approval u/s 151 - TDS @ 2% u/s 194C or @ 10% u/s 194H - petitioner had received payments under Section 194 J also, but it had not shown the said receipts in his P L account and had not given any explanation for the same - HELD THAT - In the present case, at the time of making the assessment originally, the Assessing Officer had not formed any opinion regarding the reasons on which the notice under Section 148 of the Act has been issued. To say it more particularly, the A.O. had not formed any opinion regarding receipt of payments by the petitioner under Section 194 J, which had not been shown in its P L account, non-disclosure of the amount of reimbursement of expenses claimed by it, non-submission of the details of expenses incurred by it for verification during the assessment proceedings and non-production of any ledgers, bills and vouchers of expenses incurred on behalf of the Principal Companies etc. Therefore, it is not a case of change of opinion and challenge to the notice under Section 148 of the Act on the ground that it seeks to initiate reassessment on the ground of change of opinion, cannot be accepted. The approving authority the PCIT, has stated that he agrees with the comments of the A.O., which were annexed with the order, and has recorded his satisfaction that it was a fit case for issuance of the notice under Section 148 of the Act. The aforesaid order does not indicate non-application of mind by the PCIT to the proposal made by the A.O. and we are not able to accept the submission that the PCIT has granted approval without application of mind to the proposal put up by the A.O. Keeping in view the scope of power of judicial review while scrutinizing a notice issued under Section 148 of the Act as explained in Raymond woolen Mills Ltd. 1997 (12) TMI 12 - SUPREME COURT and Phool Chand Bajarang Lal 1993 (7) TMI 1 - SUPREME COURT and Srikrishna 1996 (7) TMI 2 - SUPREME COURT , we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not as the sufficiency or correctness of the material cannot a thing to be considered at this stage. In the instant case, the notice under Section 148 of the Act has been issued by the assessing officer after conducting an investigation and going through the income tax return and other related documents of the petitioner and after forming reason to believe that the petitioner did not truly and fully disclose all the material facts, because of which income has escaped assessment. We are satisfied that there was prima facie material available on record before the assessing officer for issuing a notice for reassessment and the notice under Section 148. WP dismissed.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment was based on a mere change of opinion.
3. Whether there was fresh tangible material justifying the reassessment.
4. The role of audit objections in initiating reassessment.
5. Compliance with procedural requirements under Section 151 of the Act.

Detailed Analysis:

1. Validity of the Notice under Section 148:
The petitioner challenged the notice dated 26.03.2021 issued by the Income Tax Officer under Section 148 of the Income Tax Act, proposing to reassess the income for the assessment year 2013-14. The court examined whether the Assessing Officer (A.O.) had "reason to believe" that income chargeable to tax had escaped assessment, as required under Sections 147 and 148 of the Act. The court referred to the Supreme Court's rulings in *Raymond Woolen Mills Ltd. v. ITO* which emphasized that at the notice stage, the court only needs to see if there is prima facie material to reopen the case, without assessing the sufficiency or correctness of the material.

2. Change of Opinion:
The petitioner argued that the reassessment was initiated based on a change of opinion, which is not permissible. The court noted that the A.O. had not formed any opinion regarding the specific issues during the original assessment, such as the receipt of payments under Section 194 J, non-disclosure of reimbursement amounts, and lack of verification details. Therefore, it was not a case of change of opinion. The court cited *CIT v. Techspan India (P) Ltd.*, explaining that a "change of opinion" implies a previously formed opinion, which was not the case here.

3. Fresh Tangible Material:
The petitioner contended that no fresh tangible material justified the reassessment, as the documents were already available during the original assessment. However, the court found that the material facts were "embedded in such a manner" that they were not discoverable by the A.O. during the original assessment. The court held that subsequent investigation revealing discrepancies between the total receipts and declared income constituted fresh tangible material. The court referenced *Phool Chand Bajrang Lal v. ITO*, which allows reassessment based on fresh facts or information exposing the untruthfulness of previously disclosed facts.

4. Role of Audit Objections:
The petitioner argued that the reassessment was based on an audit objection, which the A.O. had initially rejected. The court clarified that the authority to accept or reject audit objections lies with the Commissioner of Income Tax (CIT), not the A.O. The court referred to CBDT Instruction No. 07 of 2017, which outlines the procedure for handling audit objections, and found that the A.O.'s initial rejection was inconsequential. Since the reasons for reassessment did not mention the audit objection, the court dismissed this ground.

5. Compliance with Section 151:
The petitioner claimed that the approval for reassessment under Section 151 was given without proper application of mind. The court examined the approval process and found that the Principal Commissioner of Income Tax (PCIT) had reviewed the detailed reasons recorded by the A.O. and agreed with the proposal. The court held that the approval did not indicate non-application of mind, referencing *United Electrical Co. Ltd. v. CIT*, which requires the Commissioner to apply his mind to the proposal.

Conclusion:
The court concluded that the notice under Section 148 was validly issued, as there was prima facie material indicating that income had escaped assessment due to the petitioner's failure to fully and truly disclose all material facts. The reassessment was not based on a mere change of opinion, and the fresh tangible material justified the reopening of the assessment. The procedural requirements under Section 151 were also duly complied with. Consequently, the writ petition was dismissed.