2012 (6) TMI 315 - AT - Income Tax

Reassessment - limitation - wrong application of rate of tax - held that - According to the Assessing Officer, the assessed income has been wrongly taxed at 15 per cent whereas it should have been taxed at 20 per cent. Application of rate of tax on assessed income cannot in any way be the result of the failure of the assessee to disclose fully and truly all material facts necessary for assessment. The Assessing Officer is an adjudicating authority for the purpose of levy of rate of tax on particular type of income and in case when there is no dispute regarding the assessable amount, then, it is only the Assessing Officer who has to determine that what rate of tax is payable by the assessee on a particular income. It is a case where first proviso to section 147 is clearly applicable. The initiation of reassessment proceeding is bad in law, hence, the impugned assessments are quashed on the legal ground that initiation of reassessment proceedings is bad in law.

Summary

Issues Involved:
1. Validity of notice issued under section 148.
2. Failure to disclose material facts.
3. Change of opinion.
4. Approval for notice under section 148.
5. Issuance of notice under section 143(2).
6. Directions by the Dispute Resolution Panel.
7. Treatment of contract receipt as Fee for Technical Service (FTS).
8. Interest under sections 234A, 234B, and 234C.
9. Consideration of evidence and material.
10. Basis of additions/disallowances.

Detailed Analysis:

1. Validity of Notice Issued Under Section 148:
The assessee contended that the notice under section 148 was illegal, bad in law, barred by time limitation, and without jurisdiction. The Tribunal examined that the original assessments for the years 2002-03 and 2003-04 were framed under section 143(3). The reassessment proceedings were initiated beyond four years from the end of the relevant assessment years. The Tribunal found no allegation by the Assessing Officer that the assessee failed to disclose fully and truly all material facts necessary for the assessment. Therefore, the reassessment proceedings were held to be contrary to the proviso to section 147 and were quashed.

2. Failure to Disclose Material Facts:
The Tribunal observed that there was no allegation in the reasons recorded by the Assessing Officer that the assessee failed to disclose fully and truly all material facts necessary for the assessment. The reasons for reopening the assessment were based on the difference in the rate of tax to be applied, which does not constitute a failure on the part of the assessee to disclose material facts.

3. Change of Opinion:
The Tribunal noted that the reassessment was initiated based on a change of opinion regarding the applicable rate of tax. The original assessment orders had already determined the tax liability, and the reassessment was merely a reconsideration of the same facts. This was deemed invalid as reassessment cannot be based on a mere change of opinion.

4. Approval for Notice Under Section 148:
The assessee argued that the notice under section 148 was issued without the required approval from the Chief Commissioner or Commissioner of Income-tax. The Tribunal did not specifically address this issue in detail, as the reassessment proceedings were quashed on other grounds.

5. Issuance of Notice Under Section 143(2):
The assessee contended that no notice under section 143(2) was issued within the stipulated time. The Tribunal did not delve into this issue separately, as the reassessment proceedings were already quashed based on the invalidity of the notice under section 148.

6. Directions by the Dispute Resolution Panel:
The assessee claimed that the directions issued by the Dispute Resolution Panel were incorrect and against the principles of natural justice. The Tribunal did not address this issue separately, as the reassessment proceedings were quashed on other grounds.

7. Treatment of Contract Receipt as Fee for Technical Service (FTS):
The assessee argued that the contract receipt should not be treated as Fee for Technical Service (FTS) under section 9 of the Income-tax Act or Article 13 of the DTAA between India and the UK. The Tribunal did not examine this issue in detail, as the reassessment proceedings were quashed on legal grounds.

8. Interest Under Sections 234A, 234B, and 234C:
The assessee contended that the interest charged under sections 234A, 234B, and 234C was wrongly and illegally levied. The Tribunal did not specifically address this issue, as the reassessment proceedings were quashed.

9. Consideration of Evidence and Material:
The assessee argued that the evidence and material placed on record were not properly considered. The Tribunal did not examine this issue separately, as the reassessment proceedings were quashed on legal grounds.

10. Basis of Additions/Disallowances:
The assessee claimed that the additions and disallowances were based on mere surmises and conjectures. The Tribunal did not delve into the merits of the additions, as the reassessment proceedings were quashed.

Conclusion:
The Tribunal quashed the reassessment proceedings for both assessment years 2002-03 and 2003-04 on the ground that the initiation of reassessment was bad in law due to the invalidity of the notice under section 148. The appeals filed by the assessee were allowed, and the Tribunal did not find it necessary to address the merits of the additions.