2021 (4) TMI 541 - AT - Income Tax

Reopening of assessment u/s 147 - notice issued after four years from the end of the relevant assessment year - disallowance u/s 40a(ia) with respect to non-deduction of tax u/s 194H on the discount enjoyed by the distributors on sale of prepaid cards and u/s 194J pertaining to payment of roaming charges to Telecom Service providers - HELD THAT - It is trite that in order to reopen an assessment made under Section 143 (3) of the Act after the expiry of four years from the end of the relevant assessment year, the reasons recorded must allege that there was failure on the part of the assessee to disclose fully and truly material facts necessary for its assessment. Such allegation is necessary since it is a condition precedent to the assumption of jurisdiction. In the absence of such allegation, the reassessment proceedings have to be held as without jurisdiction. We note that at the time when the assessee s assessment was completed, the law as it stood was that there was no liability to deduct tax at source in respect to discount and roaming charges. Therefore there cannot even be an allegation of failure to disclose fully and truly any material fact necessary for assessment. Reliance by the Revenue on the judgment of the Hon ble Supreme Court in the case of A.L.A. Firm vs. CIT 1991 (2) TMI 1 - SUPREME COURT is misplaced in as much as this judgment of the Hon ble Apex Court relates to reopening of assessment within a period of four years on the basis of information, being a judgment which came to the notice of the Assessing Officer subsequent to the assessment. In our considered opinion, this principle will not apply where the assessment is sought to be reopened after the expiry of four years from the end of the relevant assessment year on the basis of a subsequent judgment of the Hon ble Delhi High Court which is being interpreted as reversing the legal position and in such case the Assessing Officer will have to establish failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, we hold that the impugned notice u/s 148 of the Income Tax Act and the proceedings u/s 147 of the Act are not sustainable in law for the reason that there is no whisper in the recorded reason that there was any omission or failure on the part of the assessee in disclosing fully and truly facts for assessment. We quash the reassessment proceedings accordingly - Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction under Section 147 of the Income Tax Act, 1961.
2. Disallowance of free airtime to distributors under Section 40(a)(ia).
3. Disallowance of roaming charges under Section 40(a)(ia).
4. Set off of brought forward losses and unabsorbed depreciation.
5. Charging of interest under Section 234B.

Detailed Analysis:

Issue 1: Assumption of Jurisdiction under Section 147
The primary issue was whether the Assessing Officer (AO) correctly assumed jurisdiction under Section 147 of the Income Tax Act for the reassessment proceedings. The AO initiated the second reopening based on the judgment of the Hon’ble Delhi High Court in CIT vs. Idea Cellular Ltd., which held that free airtime to distributors and roaming services fell within the ambit of Sections 194H and 194J, respectively, and were liable for tax deduction at source.

The Tribunal noted that the reopening was initiated after four years from the end of the relevant assessment year. For such reopening, it is mandatory that there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The reasons recorded by the AO did not mention any such failure by the assessee. The Tribunal emphasized that merely having a reason to believe that income had escaped assessment is insufficient for reopening beyond four years if there has been no failure to disclose material facts fully and truly.

The Tribunal relied on several judicial precedents, including the Hon’ble Supreme Court's decision in DCIT vs. Simplex Concrete Piles (India) Ltd., which held that subsequent reversal of legal positions by courts does not authorize reopening of assessments that were completed based on the law as it stood at the relevant time. Therefore, the Tribunal quashed the reassessment proceedings due to the absence of any allegation of failure on the part of the assessee to disclose material facts.

Issue 2: Disallowance of Free Airtime to Distributors under Section 40(a)(ia)
The AO disallowed ?51,82,86,000 on account of free airtime given as a discount to distributors, treating it as commission subject to tax deduction under Section 194H. The Tribunal noted that the AO relied on the Delhi High Court’s judgment in Idea Cellular Ltd., but other High Courts and ITAT Benches had held that such discounts were not liable for tax deduction at source.

The Tribunal observed that the CIT(A) confirmed the disallowance based on the interpretation of Section 201 by the Delhi High Court, which does not automatically lead to disallowance under Section 40(a)(ia). The Tribunal also noted that the assessee was under a bona fide belief that tax was not deductible on such discounts, supported by divergent judicial views.

Issue 3: Disallowance of Roaming Charges under Section 40(a)(ia)
The AO disallowed ?17,21,48,000 on account of roaming charges paid to other telecom operators, treating them as fees for technical services subject to tax deduction under Section 194J. The Tribunal noted that the CIT(A) confirmed this disallowance by following an identical issue in another case.

The Tribunal observed that the assessee’s role was limited to collecting roaming charges from subscribers and paying them to telecom operators, which did not involve rendering technical services. The Tribunal also noted that the assessee was under a bona fide belief that tax was not deductible on such payments, supported by divergent judicial views.

Issue 4: Set Off of Brought Forward Losses and Unabsorbed Depreciation
The AO did not allow the set off of brought forward losses and unabsorbed depreciation under Sections 72 and 32(2) of the Act, respectively. However, since the Tribunal quashed the reassessment proceedings, this issue became academic and did not require adjudication.

Issue 5: Charging of Interest under Section 234B
The AO charged interest under Section 234B of the Act. However, since the Tribunal quashed the reassessment proceedings, this issue also became academic and did not require adjudication.

Conclusion:
The Tribunal quashed the reassessment proceedings under Section 147 due to the absence of any allegation of failure on the part of the assessee to disclose material facts fully and truly. Consequently, the grounds raised by the assessee on the merits of the additions became academic and did not require adjudication. The appeal of the assessee was allowed.

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