2017 (3) TMI 1176 - AT - Income Tax

Reopening of assessment - assessee had made commission payment to a non-resident Indian but no tax was deducted at source on this commission payment - Held that - There is no dispute with regard to the fact that reopening was made after four years. The assessing officer has not brought any material available on record that the assessee was guilty of not disclosing fully and truly all materials facts necessary for the assessment. We find that the Assessing Officer during the original assessment had made a specific query with regard to payment of commission and the assessee replied the same. Therefore it cannot be inferred that the materials facts related to the payments of commission was not before Assessing Officer during the original assessment proceedings. The basis for reopening is admittedly the circular dated 22/10/2009 which was not having retrospective effects as held by the Hon ble Jurisdictional High Court in the case of CIT Vs. Modern Insulators (2014 (10) TMI 748 - RAJASTHAN HIGH COURT ) wherein it has been held that the circular no. 7 dated 22/10/2009 cannot be considered retrospectively to make it applicable to make payment before that date - Decided in favour of assessee

Summary

Issues:
1. Validity of re-assessment proceedings under section 148.
2. Disallowance of commission payment due to non-deduction of tax at source under section 40(a)(ia).

Issue 1: Validity of re-assessment proceedings under section 148:
The case involved an appeal by the assessee against the order of Income Tax (A)-2 Jaipur regarding the assessment year 2008-09. The Assessing Officer reopened the case due to commission payment made to a non-resident Indian without TDS deduction. The assessee challenged the reopening before the ld. CIT(A) who granted relief, stating no requirement to deduct tax at source on commission under section 195 or chapter XVII-B of the IT Act, 1961. The Tribunal found that the AO failed to demonstrate non-disclosure of material facts by the assessee during the original assessment. The basis for reopening, a circular dated 22/10/2009, was held non-retrospective by the Jurisdictional High Court, leading to the quashing of the assessment order dated 10/3/2015. The Tribunal allowed the assessee's appeal, emphasizing the lack of justification for reopening.

Issue 2: Disallowance of commission payment due to non-deduction of tax at source under section 40(a)(ia):
In the Revenue's appeal for the same assessment year, similar arguments were presented regarding the reopening of the assessment. The Tribunal reiterated the lack of justification for the reopening, referencing the same circular and High Court judgment. Consequently, the assessment order dated 10/3/2015 was quashed, and the grounds raised in the Revenue's appeal were dismissed. The Tribunal allowed the assessee's appeal while dismissing the Revenue's appeal, concluding the proceedings for the assessment year 2008-09.

In summary, the Tribunal found the re-assessment proceedings invalid due to the lack of justification for reopening based on non-retrospective circular and High Court judgment. The Tribunal allowed the assessee's appeal while dismissing the Revenue's appeal, ultimately quashing the assessment order for the assessment year 2008-09.