2013 (3) TMI 193 - AT - Income Tax

Reassessment - to make disallowance u/s 40(a)(ia) - jurisdiction of reopening u/s. 147 r.w.s. 148 - held that - AO during the course of original assessment proceedings has noted the transport expenses and given a definite finding regarding allowability and made disallowance of Rs.50,000/- on estimate basis, on that date i.e. on 24.05.2007, the provisions of section 40(a)(ia) of the Act was available for invocation for the AO and AO despite the fact that he made disallowance on estimate basis out of these transportation expenses, without invoking the provisions of section 40(a)(ia) of the Act, he has formed an opinion. Subsequently, the AO to make disallowance in view of the provisions of section 40(a)(ia) of the Act for transportation expenses reopened the assessment by recording reasons that the disallowance is to be made for non-deduction of TDS in view of the provisions of section 40(a)(ia) of the Act. When a regular assessment order was passed u/s. 143(3) of the Act and subject matter of the present appeal was before the AO and AO after applying his mind made part disallowance out of transportation expenses, the AO cannot say that he has not formed an opinion. - Following the decisions Supreme Court and Hon ble Delhi High Court (FB) in the case of Kelvinator of India Ltd. ( 2002 (4) TMI 37 - DELHI HIGH COURT and 2010 (1) TMI 11 - SUPREME COURT OF INDIA ) decided in favor of assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction for reopening under Section 147 read with Section 148 of the Income Tax Act, 1961.
2. Validity of reassessment proceedings based on audit objections and change of opinion.

Detailed Analysis:

1. Assumption of Jurisdiction for Reopening under Section 147 read with Section 148 of the Income Tax Act, 1961:

The first issue in this appeal concerns the order of the CIT(A) confirming the action of the Assessing Officer (AO) in assuming jurisdiction for reopening under Section 147 read with Section 148 of the Income Tax Act, 1961. The appellant contended that the initiation of notice under Section 148 dated 9.7.2008, based on audit objections, was legally unjustified in the absence of properly recorded reasons, and thus, the reassessment proceedings should be canceled.

The facts reveal that the assessee had filed its return of income for the Assessment Year 2005-06 on 29.10.2005, which was processed under Section 143(1) of the Act. Subsequently, the AO issued notices under Sections 143(2) and 142(1) and framed the assessment under Section 143(3) on 24.05.2007, disallowing ad-hoc transportation charges of Rs.50,000 out of the total transportation charges of Rs.2,88,08,554 due to unverifiable vouchers. Later, the AO issued a notice under Section 148 dated 09.07.2008 and disallowed the entire transportation charges of Rs.2,87,58,554 under Section 40(a)(ia) for non-deduction of TDS under Section 194C.

The CIT(A) confirmed the AO's action, citing clause (c) of Explanation (2) of Section 147, which states that income is deemed to have escaped assessment if it has been under-assessed or received excessive relief under the Act. The reopening was within four years from the end of the relevant assessment year.

2. Validity of Reassessment Proceedings Based on Audit Objections and Change of Opinion:

The appellant argued that the AO had verified the transportation charges during the original assessment and made an estimated disallowance of Rs.50,000. The AO had formed an opinion on the issue, and the subsequent reopening based on the non-deduction of TDS was merely a change of opinion. The appellant cited the decision of the Hon'ble Delhi High Court in Jindal Photo Films Ltd. v. Deputy CIT, which held that a mere change of opinion does not confer jurisdiction to reopen assessments.

The tribunal found that the AO had indeed formed an opinion during the original assessment, as evidenced by the disallowance of Rs.50,000. The AO's subsequent attempt to disallow the entire transportation charges under Section 40(a)(ia) based on the same facts constituted a change of opinion. The tribunal referenced the Hon'ble Delhi High Court's decision in CIT Vs. Kelvinator India Ltd. and the Hon'ble Supreme Court's affirmation of this decision, which emphasized that a mere change of opinion does not justify reopening assessments under Section 147.

The tribunal concluded that the AO's action to reopen the assessment was based on a mere change of opinion, which does not confer jurisdiction. The reassessment proceedings were quashed, and the appeal of the assessee was allowed.

Conclusion:

The tribunal quashed the reassessment proceedings, holding that the AO's action was based on a mere change of opinion, which does not confer jurisdiction under Section 147. The appeal of the assessee was allowed. The order was pronounced in open court on 20.01.2012.