2024 (12) TMI 1083 - AT - Income Tax

Reopening of assessment u/s 147 - reason to believe - Notice beyond four years - wilful act of assessee in order to reduce its taxable income for payment to non-resident without deduction of tax at source - HELD THAT - If notice u/s. 148 is to be issued after expiry of four years, the assessee should have failed to disclose material facts and the ld. AO should have alleged and based his reasons to believe on that fact of non-disclosure by the assessee. If the AO does not state or allege that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the said assessment year, any other authority cannot infer or improve up on such reasons so recorded, therefore absence of such necessary jurisdictional facts mentioned in reasons, such reopening of the assessment cannot be upheld. Merely because the AO has mentioned that non-disallowance of payment to non-resident without deduction of tax at source is a wilful act of assessee in order to reduce its taxable income is also an allegation that assessee has failed to disclose fully and truly all material facts, we do not find any reason to compare these findings of the AO for allegation of failure on the part of assessee for disclosure. Therefore, on this solitary ground, we quash the reassessment order passed by the ld. AO. When the dispute is settled for a particular assessment year involving same point in VSV 2020, the learned assessing officer could not have reopened the assessment on the same issue - in this case originally additions were made for non-deduction of tax at source with respect to the payment made to the resident Indian, whereas the issue involved in the reopening of the assessment is with respect to payment made to the non-resident. According to provisions of section 5 of VSV 2020 Act on matters stated in the application for settlement of disputes are covered therein. In this case, the matter settled in the VSV Act and the matter for which reopening is made are two different issues and therefore there is no infirmity in the action of the learned assessing officer in not considering that the matter settled in VSV 2020 is the same as involved in the reopening. The judicial precedents cited before us are in fact related to section 263 of the income tax act, but those decisions have quashed the revisionary proceedings only for the reasons not the matter settled in that scheme and the matter for which the revisionary proceedings are initiated are same. Therefore, we dismiss this argument of the learned authorised representative. Decided in favour of assessee.

Issues Involved:

1. Validity of the reassessment proceedings under Section 147 and issuance of notice under Section 148.
2. Principles of natural justice and whether the CIT(A) provided a reasoned order.
3. Classification of AMC and maintenance charges as fees for technical services.
4. Deduction of tax at source on payments made to non-residents under Section 195 and disallowance under Section 40(a)(i).

Issue-wise Detailed Analysis:

1. Validity of the Reassessment Proceedings:
The primary issue was whether the reassessment proceedings initiated under Section 147, and the notice issued under Section 148, were valid. The assessee argued that the reassessment was initiated beyond the four-year limitation period without any failure on their part to disclose material facts. The tribunal noted that for reassessment proceedings initiated after four years, it is mandatory for the Assessing Officer (AO) to allege a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In this case, the tribunal found no such allegation in the reasons recorded for reopening. The tribunal cited the Karnataka High Court's decision in the case of Canara Bank, which held that in the absence of such an allegation, the reopening of assessment beyond four years is bad in law. Consequently, the tribunal quashed the reassessment order on this ground.

2. Principles of Natural Justice:
The assessee contended that the CIT(A) failed to provide cogent reasons for treating payments to foreign vendors as fees for technical services and did not consider the submissions made. The tribunal did not specifically address this issue in detail, as the reassessment was already quashed on other grounds. However, the tribunal's decision implied that the procedural aspects and the requirement for a reasoned order were significant concerns raised by the assessee.

3. Classification of AMC and Maintenance Charges:
The assessee challenged the classification of payments for AMC and maintenance charges as fees for technical services under Section 9(1)(vii) of the Act. The tribunal's decision did not delve into the merits of this classification, as the reassessment proceedings were quashed on jurisdictional grounds. However, the assessee argued that these payments were not taxable in India due to the absence of a permanent establishment of the foreign vendors and the provisions of the Double Tax Avoidance Agreement (DTAA), which were not adequately considered by the lower authorities.

4. Deduction of Tax at Source and Disallowance:
The issue of whether the payments made to non-residents were subject to tax deduction at source under Section 195 and the consequent disallowance under Section 40(a)(i) was also raised. The tribunal did not address this issue in detail, as the reassessment proceedings were quashed. The assessee argued that the payments were not chargeable to tax in India under the DTAA, and hence, the provisions of Section 195 were not applicable. The tribunal's decision to quash the reassessment proceedings rendered the disallowance issue moot.

Conclusion:
The tribunal quashed the reassessment proceedings for both assessment years 2013-14 and 2014-15 due to the absence of an allegation of failure by the assessee to disclose material facts, which is a prerequisite for reopening assessments beyond four years. Consequently, the tribunal did not delve into the merits of the other issues raised, as they became infructuous following the quashing of the reassessment. The appeals were partly allowed, with the reassessment proceedings being the primary focus of the tribunal's decision.

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