2021 (3) TMI 193 - HC - Income Tax

Reopening of assessment u/s 147 - TDS u/s 195 - payments made to non-residents under the voyage agreements - Non deduction of TDS - reopening after four years - Addition u/s 40(a)(i) - petitioner had made payments to the owners of the ship/liners under the Bare Boat Charter Cum Demise (BBCD) Voyage Charter and Time Charter to M/s.Dolphin Maritime Inc. Cyprus and to few others under Voyage Charter - HELD THAT - In this case at the time of assessment for the Assessment Year 2004-05 the details were called for from the petitioner vide notice dated 17.8.2006 issued u/s 143 (2)/142 (1) of the Income Tax Act 1961. In its reply dated 30.8.2006 the petitioner declared that it had paid a total sum as freight. During assessment only a sum of 6, 08, 98, 646/-from the aforesaid amount was disallowed under Section 40(a)(1) of the Income Tax Act 1961. Thus there is no case made out for suppression of facts or failure to truly and fully disclose information by the petitioner. Therefore invocation of the machinery prescribed under the Act for reopening the assessment beyond the normal period of limitation was not available to the respondent. Though the petitioner has an alternate remedy before the Commissioner of Income Tax (Appeals) this court is inclined to interfere by quashing the impugned order dated 28.12.2011 for the Assessment Year 2004-05 as there was no failure on the part of the petitioner to truly and fully disclose all materials that are required for assessment by the assessment officer. Coming to the Assessment Year 2005-06 only reason given for re-opening of the assessment is on account of the failure on the part of the petitioner to pay tax on the freight under voyage charter. In the notice issued under section 143 (2) of the Income Tax Act 1961 and the consequent communication dated 15.11.2007 of the Assistant Commissioner of Income Tax the petitioner was called upon to furnish the details in writing to the questionnaire attached to the said notice. The questionnaire specifically called upon the petitioner only to furnish details of BBCD hire charges paid to M/s.Dolphin Maritime Inc.Cyprus with the details of tax deducted at source. The petitioner not only produced the details but also furnished the details of the payment made towards charter hire for a sum of 2, 12, 28, 88, 338/-. By another communication dated 3.12.2007 also these details were furnished again by the petitioner. The Asst Commissioner of Income Tax in the assessment order dated 31.12.2008 merely disallowed the BBCD hire charges for a sum of 4, 35, 64, 010/-. This was perhaps on account of the order dated 27.4.2005 passed by the Income Tax Officer (International Taxation) Division. Thus there was no failure to truly and fully disclose all information required for assessment.

Issues Involved:
1. Validity of re-assessment orders for Assessment Years 2004-05 and 2005-06.
2. Failure to deduct tax at source under Section 195 of the Income Tax Act, 1961.
3. Jurisdiction and limitation for issuing notices under Section 148 of the Income Tax Act, 1961.
4. Full and true disclosure of information by the petitioner.

Issue-wise Detailed Analysis:

1. Validity of Re-assessment Orders for Assessment Years 2004-05 and 2005-06:
The petitioner was aggrieved by the re-assessment orders for the Assessment Years 2004-05 and 2005-06. The original assessments were completed on 19.12.2006 and 31.12.2008, respectively, with slight modifications. The re-assessment orders were challenged on the grounds that they were issued without jurisdiction and were based on a change of opinion rather than new material.

2. Failure to Deduct Tax at Source Under Section 195 of the Income Tax Act, 1961:
The petitioner made payments to non-residents under various charter agreements but failed to deduct tax at source as required under Section 195 of the Income Tax Act, 1961. The Income Tax Officer (International Taxation) had earlier scrutinized these payments, and the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld the disallowance of these payments under Section 40(a)(i) of the Act.

3. Jurisdiction and Limitation for Issuing Notices Under Section 148 of the Income Tax Act, 1961:
The petitioner argued that the notices issued under Section 148 of the Income Tax Act, 1961, were without jurisdiction and beyond the normal period of limitation. For the Assessment Year 2004-05, the notice was issued just three days before the expiry of the limitation period, and for the Assessment Year 2005-06, it was issued after four years. The petitioner contended that there was no failure to fully and truly disclose all material facts necessary for assessment, and thus, the re-assessment was not justified.

4. Full and True Disclosure of Information by the Petitioner:
The petitioner submitted that all necessary information was provided during the original assessments. For the Assessment Year 2004-05, the petitioner disclosed payments totaling ?68,89,14,292/- as freight, and only a sum of ?6,08,98,646/- was disallowed under Section 40(a)(i). For the Assessment Year 2005-06, the petitioner furnished details of payments totaling ?2,12,28,88,338/-, and only the BBCD hire charges of ?4,35,64,010/- were disallowed. The petitioner argued that there was no suppression of facts or failure to disclose information.

Conclusion:
The court held that there was no failure on the part of the petitioner to truly and fully disclose all material facts necessary for assessment. The invocation of the machinery for re-opening the assessment beyond the normal period of limitation was not justified. The court quashed the impugned re-assessment orders dated 28.12.2011 for both Assessment Years 2004-05 and 2005-06, allowing the writ petitions. The court emphasized that the re-assessment was based on a change of opinion rather than new material, and thus, the re-assessment notices were invalid. Consequently, the connected miscellaneous petitions were also closed.

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