2021 (11) TMI 537 - HC - Income Tax

Reopening of assessment u/s 147 - validity of reason to believe - information has been received from the office of the Deputy Commissioner of Income Tax, TDS -2 (1) regarding applicability of Section 40 (a) (ia) for non deduction of TDS on amount paid to stockists for Assessment Year 2012-2013 - HELD THAT - As on the basis of the said information, an order under Section 201 (1)/201 (1A) of the said Act has been passed on 26th March 2014 by the Deputy Commissioner of Income Tax, TDS 2 (1), Mumbai, deeming petitioner in default within the provisions of Section 201 for not deducting TDS under Section 194H. This itself cannot be accepted because he says on the basis of information dated 27th March 2017 an order has been passed on 26th March 2014. Moreover, this order has been discussed when the original assessment proceedings were held and as noted earlier, during the course of hearing a query was raised by the Assessing Officer and petitioner has given detailed explanation vide its letter dated 30th March 2016. Therefore, there is nothing on record to even indicate that there was any tangible material for reopening the assessment. In the case at hand, the assessment is sought to be reopened after the expiry of a period of four years from the end of relevant year and hence, the proviso to Section 147 applies which stipulates a requirement that there is an escapement of income by reasons of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment of that year. This condition required for reopening has not been satisfied. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reassessment.

Analysis:
The petitioner challenged a notice dated 25th March 2019 under Section 148 of the Income Tax Act, 1961, along with consequential notices and orders, on the grounds of lacking jurisdictional conditions for reassessment initiation. The petitioner, a company engaged in drug manufacturing, trading, and distribution, filed its return for Assessment Year 2012-2013, which was accepted under Section 143 (1) of the Act, with an assessment order passed under Section 143 (3) on 6th May 2016. During the assessment proceedings, queries were raised regarding disallowance of margins earned by stockists under Section 40 (a) (ia) of the Act, but the issue was not addressed in the final assessment order.

The petitioner contended that the Assessing Officer had considered the objections raised during the original assessment proceedings, as per established legal precedents. The reasons cited for reopening the assessment were found to be based on incorrect assumptions, as the material facts were indeed disclosed during the original assessment. Additionally, the tangible material justifying the reassessment, related to non-deduction of TDS on payments to stockists, was deemed insufficient as it had been discussed previously during the assessment proceedings.

The assessment was sought to be reopened after the statutory period of four years from the end of the relevant year, triggering the requirement under the proviso to Section 147 that there must be an escapement of income due to the assessee's failure to disclose all material facts necessary for assessment. This condition was found to be unsatisfied in the present case. Consequently, the High Court quashed the notice dated 25th March 2019 and subsequent orders, disposing of the petition without costs.