2020 (10) TMI 996 - HC - Income Tax

Reopening of assessment u/s 147 - Eligibility of reasons to believe - Employee benefit expense, long term capital gains on slump sale, Bike event expenses, legal and Professional fees, employees as PF contribution, non-deduction of tax at source under Section 194J in respect of remittances towards fee for technical/professional services, disallowance u/s 14A - HELD THAT - All issues based on which the impugned proceedings for re-assessment have been initiated emanate from the Return of income and accompanying annexures and have been noted even at the time of original proceeding. Queries have been raised by the officer even at that juncture and the petitioner has, admittedly, furnished explanations and details in response thereto. The reasons for re-assessment themselves fairly reveal that the assumption of jurisdiction is only based on materials already available on record and no new, tangible materials have been culled thereafter. There is no dispute on the position that the alleged escapement of income, if any, is not attributable to non-disclosure of material particulars by the petitioner. The conditions precedent in the proviso to Section 147 are clearly not attracted in this case. The Supreme Court, in the case of ACIT vs ICICI Security Primary Dealership Ltd 2012 (8) TMI 754 - SC ORDER considered the re-opening of an assessment beyond the period of four years confirming the quashing of the proceedings for re-assessment on the ground that there was a full disclosure of all material particulars in the return of income filed by the assessee. So too in this case. Order re-opening the assessment was not maintainable. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction for re-assessment under Section 147 of the Income Tax Act, 1961.
2. Disallowance under Section 14A.
3. Non-deduction of tax at source under Section 194J.
4. Provident Fund contributions not paid before due dates.
5. Classification of legal and professional fees as capital expenditure.
6. Deduction of CSR expenses.
7. Employee benefit expenses related to ex-employees.
8. Long-term capital gains on slump sale.

Issue-wise Detailed Analysis:

1. Jurisdiction for Re-assessment under Section 147:
The petitioner challenged the jurisdiction assumed by the respondent for re-assessment for Assessment Year 2012-13. The proceedings were initiated after four years, invoking the proviso to Section 147 of the Income Tax Act, 1961. The court noted that the petitioner had filed the return of income in time, and the only issue was whether the alleged income escapement was due to the petitioner’s failure to fully and truly disclose all material facts. The court examined the reasons for re-assessment and found that all issues were based on materials already available on record during the original assessment. There was no new tangible material, and the conditions precedent in the proviso to Section 147 were not met.

2. Disallowance under Section 14A:
The re-assessment order disallowed ?40,70,957 under Section 14A as per Rule 8D. However, the petitioner had already disallowed ?81,43,316 as management expenses related to exempted assets. The court noted that the Assessing Officer had raised this issue during the original assessment, and the petitioner had responded appropriately. The court found that the excess addition of ?34,33,371 should be deleted.

3. Non-deduction of Tax at Source under Section 194J:
The re-assessment order disallowed ?3,30,900 for non-deduction of TDS under Section 194J. The court noted that this issue was raised and addressed during the original assessment. The petitioner had provided the necessary details and explanations in response to the Assessing Officer's queries. The court found no new material to justify the re-assessment.

4. Provident Fund Contributions Not Paid Before Due Dates:
The re-assessment order disallowed ?49,412 for late payment of employees' PF contributions. The court noted that details of PF contributions were sought and provided during the original assessment. The court found that the petitioner had disclosed all relevant information, and there was no failure to disclose material facts.

5. Classification of Legal and Professional Fees as Capital Expenditure:
The re-assessment order disallowed certain legal and professional fees, classifying them as capital expenditure. The court noted that details of these fees were sought and provided during the original assessment. The court found that the petitioner had disclosed all relevant information, and there was no failure to disclose material facts.

6. Deduction of CSR Expenses:
The re-assessment order disallowed ?1,09,51,936 claimed as "Bike event expenses," considering them as CSR expenses. The court noted that details of these expenses were sought and provided during the original assessment. The court found that the petitioner had disclosed all relevant information, and there was no failure to disclose material facts.

7. Employee Benefit Expenses Related to Ex-employees:
The re-assessment order disallowed ?2,84,73,639 claimed as employee benefit expenses related to ex-employees. The court noted that details of these expenses were sought and provided during the original assessment. The court found that the petitioner had disclosed all relevant information, and there was no failure to disclose material facts.

8. Long-term Capital Gains on Slump Sale:
The re-assessment order included ?27,77,75,000 as long-term capital gains from a slump sale. The court noted that details of the slump sale were sought and provided during the original assessment. The court found that the petitioner had disclosed all relevant information, and there was no failure to disclose material facts.

Conclusion:
The court found that all issues raised in the re-assessment were based on materials already available during the original assessment. There was no new tangible material, and the conditions precedent in the proviso to Section 147 were not met. The re-assessment was deemed a change of opinion, which is not permissible. The writ petitions were allowed, and both the impugned order dated 23.12.2019 and the re-assessment order dated 27.12.2019 were quashed.