2023 (3) TMI 313 - AT - Income Tax

Reopening of assessment u/s 147 - change of opinion - Reason to believe - HELD THAT - There was no fresh material available with the AO for harbouring a doubt that income had escaped assessment, the reopening of assessment was purely based on change of opinion. Considering in the case of CIT v. Kelvinator India Ltd. 2010 (1) TMI 11 - SUPREME COURT as well as in the case of TANMAC India 2017 (1) TMI 122 - MADRAS HIGH COURT the assessment order passed u/s 143(3) r.w.s. 147 is liable to be quashed. CIT(A) has also, by following various judgements annulled the assessment framed u/s 147 of the Act and thus, we find no reason to interfere with the order passed by the CIT(A). Accordingly, the ground raised by the Revenue is dismissed. TDS u/s 194C - Non deduction of tds - Audit objection - HELD THAT - We find that the audit objection on a point of law may constitute fresh information for reopening of assessment. However, if the audit objection on factual issue and, where, the audit party has quantified escapement, then, definitely, it does not constitute information for reopening of assessment. In this case, if we go by audit note issued by the audit party, it points out disallowance of 40(a)(ia) of the Act for non-deduction of TDS, in our opinion, the said observations of the audit party is on a factual matrix and no legal position is involved. Therefore, the argument of the ld. DR in light of certain judicial precedents are not tenable.

Summary

Issues:
- Delay in filing appeals due to Covid-19 pandemic
- Reopening of assessment under section 147 based on non-deduction of TDS
- Validity of reopening of assessment
- Change of opinion in reopening assessment
- Legal issue vs. factual matter in assessment
- Applicability of audit objection in reopening assessment
- Judicial precedents and case laws considered

Detailed Analysis:
1. Delay in Filing Appeals: Both the Revenue and the assessee filed appeals against the order of the Commissioner of Income Tax, facing delays due to the Covid-19 pandemic. The delays of 28 days and 18 days were condoned, allowing the appeals to be admitted for adjudication.

2. Reopening of Assessment under Section 147: The assessment was reopened under section 147 due to non-deduction of TDS on hire charges claimed as expenses by the assessee. The Assessing Officer disallowed a portion of the expenses under section 40(a)(ia) of the Income Tax Act, leading to the addition of the disallowed amount to the total income of the assessee.

3. Validity of Reopening of Assessment: The assessee challenged the validity of the reopening of assessment under section 147, leading to an appeal before the Tribunal. The Revenue argued that the reopening was valid based on audit objections regarding non-deduction of TDS, while the assessee contended that it amounted to a change of opinion as the issue had been considered during the original assessment.

4. Change of Opinion in Reopening Assessment: The Tribunal found that the original assessment under section 143(3) had thoroughly examined the expenses claimed by the assessee. Reopening the assessment based on the audit objection was deemed a clear case of change of opinion, which is impermissible under law.

5. Legal Issue vs. Factual Matter: The Tribunal noted that the reopening was not based on new or tangible material but on a change of opinion. The judgment cited the case of CIT v. Kelvinator India Limited to support the conclusion that reassessment should be based on specific preconditions and not a mere change of opinion.

6. Applicability of Audit Objection: The Tribunal analyzed the audit objection raised on the non-deduction of TDS and concluded that it was a factual issue rather than a legal one. The absence of fresh material for reassessment based on the audit objection further supported the decision to quash the assessment.

7. Judicial Precedents and Case Laws: The Tribunal referred to the judgment of the Madras High Court in TANMAC India v. DCIT to emphasize that reassessment should not be used as a tool for review based on stale material. The Tribunal dismissed the appeal filed by the Revenue and upheld the decision of the CIT(A) to annul the assessment.

8. Conclusion: The Tribunal dismissed both appeals filed by the Revenue and the assessee, affirming the decision to quash the assessment order passed under section 143(3) r.w.s. 147 of the Income Tax Act. The judgment highlighted the importance of adhering to legal principles and precedents in assessing and reopening tax assessments.