2020 (1) TMI 56 - HC - Income Tax

Reasons for reopening of the assessment u/s 147 - EDC paid to HUDA was subject to TDS under Section 194 - HELD THAT - On perusal of the Scrutiny questionnaires issued by the AO and the information furnished in response thereto by the Assessee that there has been no failure on the part of the Assessee in furnishing the information. On the other hand, there appears to be non application of mind on such material on the part of the AO to make an appropriate determination in accordance with law. Thus, the AO cannot now review its decision, having failed to perform its statutory duty and therefore the impugned action of reopening is nothing but a change of opinion. Mr. Kaushik s another submission also merits consideration. He argues that the AO has not cared to analyse the applicability of the proviso to Section 40 (a) (ia) on the facts and circumstances of the case. The assessee shall be deemed to have deducted and deposited tax, if the recipient of income pays tax on payments received, even though the Assessee has not deducted TDS for such payment. In such a situation, there can be no disallowance under Section 40 (a) (ia) in the hands of the Assessee. This ignorance cannot escape our judicial notice, as the assessment is sought to be reopened after a period of four years from the end of the relevant assessment year. The notice does not state that the EDC charges collected by HUDA have not been subjected to tax as income in the hands of HUDA. This also shows non-application of mind that warrants our interference. - Decided in favour of assessee.

Issues Involved:
1. Validity of notices issued under Section 148 of the Income Tax Act for reopening assessments for AY 2012-13 and AY 2013-14.
2. Whether the reopening of assessments was based on a change of opinion.
3. Applicability of TDS on External Development Charges (EDC) paid to Haryana Urban Development Authority (HUDA).
4. Compliance with the proviso to Section 147 of the Income Tax Act.

Detailed Analysis:

1. Validity of Notices Issued Under Section 148:
The writ petitions challenge the notices dated 02.11.2018 issued under Section 148 of the Income Tax Act for reopening assessments for AY 2012-13 and AY 2013-14. The petitioner contends that the reasons for reopening the assessments are unsustainable in law, as the assumption of jurisdiction is misconceived. The AO's belief that EDC paid to HUDA was subject to TDS under Section 194 of the Act, a provision applicable to dividends, was erroneous. The EDC charges are statutory levies and not subject to TDS under any provision of the Income Tax Act.

2. Change of Opinion:
The petitioner argues that the reopening of assessments after four years is based on a change of opinion, which is not permissible. During the original assessment proceedings, the AO had scrutinized the details of TDS and EDC charges, which were disclosed by the petitioner. The AO's current stance that EDC payments should have been subjected to TDS represents a change of opinion, not supported by fresh tangible material. The court emphasizes that reopening based on a change of opinion is not valid and requires fresh tangible material linking to the belief of income escapement.

3. Applicability of TDS on EDC:
The AO's reasons for reopening were primarily based on the belief that EDC payments to HUDA were subject to TDS under Section 194 of the Act. However, the court finds this reasoning erroneous since Section 194 pertains to dividends. The AO's understanding that EDC payments are akin to rent and hence subject to TDS under Section 194-I is not supported by the recorded reasons. The court notes that the AO failed to provide a rationale for treating EDC payments as subject to TDS, and the recorded reasons do not substantiate this belief.

4. Compliance with Proviso to Section 147:
For reopening assessments after four years, the proviso to Section 147 requires that income chargeable to tax has escaped assessment due to the assessee's failure to disclose fully and truly all material facts. The court finds that the petitioner had disclosed all relevant details during the original assessment proceedings, including TDS and EDC charges. The AO's failure to apply due diligence in examining these details does not justify reopening the assessment. The court emphasizes that the reasons recorded by the AO must clearly specify the nature of the assessee's failure to disclose material facts, which was not evident in this case.

Conclusion:
The court concludes that the reopening of assessments for AY 2012-13 and AY 2013-14 is invalid as it is based on a change of opinion and lacks fresh tangible material. The AO's reasoning for treating EDC payments as subject to TDS is erroneous and unsupported. The court quashes the notices dated 02.11.2018 and the proceedings emanating from them, thereby allowing the writ petitions.

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