2016 (7) TMI 609 - AT - Income Tax

Reopening of assessment - non offering of truck income - non deduction of tds u/s 194C - Held that - With regard to the first reason recorded by the AO namely not offering truck income to the extent of ₹ 67,600/-, the assessee had declared income from lorry plying of ₹ 50,000/- under the head income from Basanti Automobiles . Income u/s 44AE of the Act has been taken in the capital account. Therefore the assessee had declared income from truck plying in the original return of income. This factual position is not being disputed by the AO. Besides the above, there was no tangible material based on which the AO came to a conclusion that income from truck plying was not offered to tax by the Assessee in the original return of income. In fact the factual assertion in the letter dated 22.6.2011 that the Assessee owned three vehicles and that these were used in the business of plying trucks on hire is without any basis and is purely a surmise of the AO. As far as the second reason recorded by the AO is concerned it relates to the carriage inward charges in the business of wholesale dealing in potato seeds. As already observed that the AO examined the carriage inward account in the original assessment proceedings and did not think it fit that there was any violation of section 40(a)(ia) of the Act. It can thus be seen that this issue on which the AO initiated reassessment proceedings had been duly considered by the AO while concluding the proceedings u/s 143(3) of the Act. As during the course of original assessment, it is seen that no query regarding Tax deduction at source from transport payment has been made. Consequently no examination regarding disallowance u/s 40(a)(ia) has been made. Similarly other heads under for which assessments were reopened were not touched upon by the assessing officer during the original assessment. When in the original assessment proceeding the assessing officer has not examined the issue at all, no opinion was formed, the principle of change of opinion cannot apply. Further this is a case where the assessment has been reopened within 4 years of the end of the assessment year. Therefore the re-assessment proceeding cannot be treated as invalid on the ground that full and true disclosure of material fact was made in the original proceeding - Decided in favour of assessee

Summary

Issues Involved:
1. Validity of initiation of reassessment proceedings under Section 147 of the Income Tax Act, 1961.
2. Disallowance of transportation charges under Section 40(a)(ia) of the Income Tax Act, 1961.
3. Income from the business of plying trucks on hire.
4. Disallowance of expenses related to car running, depreciation, and interest on car loan.

Detailed Analysis:

1. Validity of Initiation of Reassessment Proceedings under Section 147 of the Income Tax Act, 1961:
The primary issue raised by the assessee was the validity of the initiation of reassessment proceedings under Section 147. The assessee argued that the reassessment was based on a mere change of opinion without any fresh tangible material. The original assessment under Section 143(3) had already examined the transportation charges and the income from truck plying. The Tribunal noted that the AO had formed his belief regarding escapement of income based on existing materials provided during the original assessment. The Tribunal emphasized that reassessment should not be based on a change of opinion, as established in the Supreme Court case of CIT vs Kelvinator of India Ltd. (2010) 320 ITR 561 (SC). The Tribunal concluded that the initiation of reassessment proceedings was invalid as it was based on a change of opinion and not on any new tangible material.

2. Disallowance of Transportation Charges under Section 40(a)(ia) of the Income Tax Act, 1961:
The AO had disallowed transportation charges amounting to ?18,45,600/- under Section 40(a)(ia) due to non-deduction of tax at source as required by Section 194-C. The Tribunal observed that during the original assessment, the AO had already scrutinized these transportation charges and found them satisfactory. Since this issue had been duly considered in the original assessment, the Tribunal held that revisiting this matter in reassessment proceedings amounted to a change of opinion, which is impermissible.

3. Income from the Business of Plying Trucks on Hire:
The AO had added ?50,000/- as income from the business of plying trucks on hire, based on the assumption that the assessee owned three vehicles and had not declared the full income. The assessee clarified that only one truck was used for hire, and the income from this truck was already declared in the original return. The Tribunal found that the AO's assumption was without basis and purely speculative. The Tribunal held that the AO's action was not justified as there was no tangible material to support the claim of escapement of income.

4. Disallowance of Expenses Related to Car Running, Depreciation, and Interest on Car Loan:
The AO had disallowed expenses related to car running, depreciation, and interest on car loan amounting to ?50,122/-. Since the reassessment proceedings were annulled, the Tribunal stated that the issue of disallowance of these expenses did not require any further consideration.

Conclusion:
The Tribunal annulled the reassessment proceedings initiated under Section 147, holding them invalid as they were based on a change of opinion without any new tangible material. Consequently, the issues related to disallowance of transportation charges, income from plying trucks, and other car-related expenses were not considered further. The appeal of the assessee was allowed.