2015 (5) TMI 278 - HC - Income Tax

Reopening of assessment - non deduction of tds under section 195, thus disallowance u/s 40(a)(i) - Held that - Specific questions were asked by the Assessing Officer regarding the expenditure in foreign currency, which shall be inclusive of the amount paid to the aforesaid 5 companies and Bhupendra Singh and even the reasons for non-deduction of tax with supporting evidence and the petitioner assessee furnished necessary documents with supporting reasons why the tax at source has not been deducted and only thereafter, the Assessing Officer finalized the assessment proceedings. In the case of Cliantha Research Ltd (2013 (7) TMI 452 - GUJARAT HIGH COURT), the Division Bench of this Court has specifically observed and held that during the original assessment, assessee s claim was processed at length and after calling for detailed explanation from him, same was accepted, mere because a certain element or angle was not in mind of Assessing Officer while accepting such a claim, could not be a ground for issuing notice under section 148 for reassessment. Considering the aforesaid facts and circumstances of the case, we are of the opinion that the initiation of the reassessment proceedings is nothing but a mere change of opinion by the Assessing Officer and as per the catena of decision of this Hon ble Court the impugned notice under section 148 of the Act to reopen the assessment even within a period of four years is not permissible, but deserves to be quashed and set aside. - Decided in favour of assessee.

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act for reopening assessment.
2. Alleged change of opinion by the Assessing Officer.
3. Non-deduction of TDS under Section 195 and its implications.
4. Application of amended provisions of Section 9 of the Income Tax Act.

Detailed Analysis:

1. Validity of the notice under Section 148 of the Income Tax Act for reopening assessment:
The petitioner challenged the notice issued under Section 148 of the Income Tax Act dated 27.3.2014, which sought to reopen the assessment for AY 2009-2010. The petitioner argued that the notice was illegal, without jurisdiction, and invalid. The notice was based on the belief that income chargeable to tax had escaped assessment, a claim which the petitioner objected to through communication dated 3.12.2014. The Assessing Officer disposed of these objections on 5.1.2015, leading to the present petition under Article 226 of the Constitution of India.

2. Alleged change of opinion by the Assessing Officer:
The petitioner contended that the reasons recorded for reopening the assessment amounted to a change of opinion, which is not permissible. During the original assessment proceedings, the petitioner had provided all required details and documents, including specific queries raised by the Assessing Officer regarding non-deduction of tax on payments to foreigners. The petitioner argued that the issue was already deliberated upon and settled during the original assessment, and thus reopening on the same grounds constituted a change of opinion.

3. Non-deduction of TDS under Section 195 and its implications:
The Assessing Officer noticed that the petitioner had paid Rs. 396.93 lakhs to five companies and Rs. 25.29 lakhs to an individual named Bhupendra Singh without deducting TDS under Section 195. The petitioner claimed that these entities were non-residents with no permanent establishment in India, and their services were rendered and utilized outside India. The Assessing Officer argued that as per the amended provisions of Section 9, such payments were deemed to accrue in India, necessitating TDS deduction under Section 195. Failure to deduct TDS would result in disallowance of expenditure under Section 40(a)(i).

4. Application of amended provisions of Section 9 of the Income Tax Act:
The Assessing Officer relied on the amended provisions of Section 9, effective from 1.6.1976, which stated that income of a non-resident shall be deemed to accrue or arise in India irrespective of the non-resident's place of business or service location. The petitioner argued that these provisions were already in place during the original assessment, and the Assessing Officer had considered them before finalizing the assessment. Thus, reopening the assessment on these grounds was unjustified.

Judgment:
The court noted that the reassessment was initiated within four years from the relevant assessment year based on the belief that income had escaped assessment due to non-deduction of TDS on payments to non-residents. However, the court found that the Assessing Officer had already scrutinized these issues during the original assessment. Specific queries were raised, and the petitioner provided detailed responses, including reasons for non-deduction of TDS. The court concluded that the reassessment proceedings were based on a change of opinion, which is not permissible.

The court relied on previous judgments, including Cliantha Research Ltd. and Classic Network Ltd., which held that reopening an assessment based on a change of opinion is invalid. The court quashed the notice under Section 148 and the consequent reassessment proceedings for AY 2009-10, ruling in favor of the petitioner. The petition was allowed, and the rule was made absolute without any order as to costs.

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