2016 (10) TMI 51 - HC - Income Tax

Reopening of assessment - Disallowance u/s 40(a)(ia) - late deposit of TDS - Held that - We have noticed in the order of assessment, to the extent the Assessing Officer wanted to, disallowed the expenditure on the assessee s failure to deposit the tax deducted at source. He, however, did not disturb the assessee s claim of expenditure of foreign commission though apparently no tax was deducted at source on such commission. Only on this ground, the notice must fail. Prima-facie, we also feel the requirement of deducting tax at source itself in the present case is hugely doubtful. There is nothing on record to suggest that the foreign agents had any establishment in India or in any manner the income accrued or arose in India. Even when the petitioner raised such an objection before the Assessing Officer, he rejected the objection without dealing with the specific contention. Be that as it may, on the question of change of opinion, we are convinced that impugned notice cannot survive. The same is, therefore, set aside. Petition is allowed and disposed of.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for Assessment Year 2005-2006.

Analysis:
1. The petitioner challenged a notice issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961. The original assessment for the Assessment Year 2005-2006 resulted in disallowance of a sum under Section 40(a)(ia) for late deposit of TDS. The Assessing Officer sought to reopen the assessment based on the non-deduction of TDS on foreign agent commission.

2. The reasons for reopening the assessment included the non-deduction of TDS on commission paid to foreign agencies, leading to under-assessment of income. The petitioner objected to the notice of reopening, citing that the issue of non-deduction of TDS was already examined during the original assessment, and any addition would be a change of opinion.

3. The petitioner argued that the question of deducting TDS on foreign commission agents was governed by CBDT circulars, which were later withdrawn. They also contended that since the income did not accrue or arise in India, there was no liability to deduct TDS. Legal precedents were cited to support these arguments.

4. The revenue's counsel maintained that the notice for reopening was within the permissible period and that the issue of deducting TDS on foreign commission was not examined during the original assessment. They argued that the question of where the income accrued could not be determined at this stage.

5. The High Court noted that the Assessing Officer's reason for reopening the assessment was the non-deduction of TDS on foreign agent commission. During the original assessment, the petitioner had provided details and documents related to the commission paid to foreign agents, including agreements and payment details.

6. The court observed that the Assessing Officer had the opportunity to disallow the expenditure on foreign commission during the original assessment but chose not to. Based on the materials provided by the petitioner and the lack of tax deduction on the commission, the court ruled that the notice for reopening the assessment was unjustified and amounted to a change of opinion.

7. Additionally, the court found doubts regarding the requirement to deduct TDS on the foreign commission due to the absence of evidence suggesting income arising in India. The Assessing Officer's rejection of the petitioner's objection without proper consideration further supported the court's decision to set aside the notice for reopening.

8. Ultimately, the High Court allowed the petition, setting aside the impugned notice for reopening the assessment, emphasizing that it could not survive due to the lack of valid grounds.