2022 (6) TMI 294 - HC - Income Tax

Reopening of assessment u/s 147 - difference was due to TDS deducted by the principal on service tax @ 12.36 per cent included in the bill raised by the Petitioner - Eligibility of reason to believe - 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 (1) receipt of payments under Sections 194 I and 194 J by the petitioner, which had not been shown in its P L account, (2) non-disclosure of the amount of reimbursement of expenses claimed by it, (3) non-submission of the details of expenses incurred by it for verification during the assessment proceedings and (4) 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. Sanction u/s 151 - As approving authority under Section 151 of the Act has been placed on record by the Department and the detailed reasons recorded by the A.O. have been annexed to, and made a part of the order. 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. 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 recording a 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 under Section 148 of the Act. The notice dated 26-03-2021 issued under Section 148 of the Act as well as all the proceedings undertaken in consequence of the notice, including the order dated 18-02-2022 passed by the National Faceless Assessment Centre rejecting the petitioner s objections against issuance of the notice, does not suffer from any such illegality as to warrant interference by this Court in exercise of its Writ Jurisdiction. WP dismissed.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Alleged discrepancy in income receipts and TDS claims.
3. Reassessment based on audit objection and change of opinion.
4. Compliance with CBDT instructions.
5. Adequacy of reasons recorded for reassessment.
6. Application of mind by the approving authority.

Detailed Analysis:

Validity of the Notice Issued Under Section 148:
The petitioner challenged the notice dated 26.03.2021 issued under Section 148 of the Income Tax Act, proposing to reassess the petitioner’s income for the assessment year 2013-14. The petitioner argued that the notice was invalid as it was based on a change of opinion and lacked new tangible material. The court referred to the relevant provisions of Sections 147 and 148, emphasizing that an Assessing Officer (A.O.) can reassess if there is "reason to believe" that income has escaped assessment, as long as the reasons are recorded.

Alleged Discrepancy in Income Receipts and TDS Claims:
The petitioner declared receipts of Rs.2,40,77,127/- and TDS of Rs.12,35,202/- for the assessment year 2013-14. However, the A.O. noted discrepancies in the commission receipts disclosed in the Profit & Loss (P&L) account and Form 26AS, with a significant difference in the total receipts. The petitioner attributed this discrepancy to TDS deducted on service tax. The court found that the petitioner did not provide sufficient reconciliation or detailed documentation during the original assessment, leading to the belief that income had escaped assessment.

Reassessment Based on Audit Objection and Change of Opinion:
The petitioner contended that the reassessment was initiated based on an audit objection, which the A.O. had previously rejected. The court clarified that the authority to accept or reject audit objections lies with the Commissioner of Income Tax, not the A.O. The court also examined whether the reassessment was based on a change of opinion. It concluded that the A.O. had not formed any opinion on the specific discrepancies during the original assessment, thus the reassessment was not merely a change of opinion but based on new information regarding undisclosed income and expenses.

Compliance with CBDT Instructions:
The petitioner argued that the notice under Section 148 was issued in contravention of CBDT Instruction No. 07 of 2017, which restricts remedial action if an audit objection is not accepted. The court held that the A.O.'s letter rejecting the audit objection was merely a report and not a final decision. The decision to reassess was made by the Commissioner, who has the authority to accept or reject audit objections.

Adequacy of Reasons Recorded for Reassessment:
The court reviewed the reasons recorded by the A.O. for initiating reassessment, which included discrepancies in receipts and TDS claims, and the petitioner’s failure to provide detailed documentation of expenses. The court found that the reasons were sufficient to form a "reason to believe" that income had escaped assessment, satisfying the requirements of Sections 147 and 148.

Application of Mind by the Approving Authority:
The petitioner claimed that the Commissioner’s approval for reassessment was given without proper application of mind. The court examined the approval process and found that the Principal Commissioner of Income Tax had reviewed the detailed reasons recorded by the A.O. and expressed satisfaction that it was a fit case for reassessment. The court concluded that there was no lack of application of mind by the approving authority.

Conclusion:
The court dismissed the writ petition, finding that the notice under Section 148 and the subsequent reassessment proceedings were valid. The court held that there was prima facie material to justify the reassessment, and the petitioner had not fully and truly disclosed all material facts necessary for the assessment. The court emphasized that the sufficiency or correctness of the material is not to be considered at this stage, and the reassessment proceedings were initiated based on reasonable grounds.