9911796707
TMI Blog2012 (5) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 226 of the Constitution of India may be summed up thus : 1. The petitioner is engaged in the business of manufacturing of various grades of zinc oxide, cobalt/nickel related products, intermediates and generating electricity through non-conventional energy devices (wind mills). 2. On 26 th October, 2005, the petitioner-company filed return of income for the Assessment Year 2005-06, declaring total income of Rs.16,92,45,000=00. The return was processed under Section 143(1)(a) of the Act on 17 th February 2006. The case of the petitioner was selected for scrutiny under Section 143(3). The assessment order came to be passed on 27 th December 2007, wherein the Assessing Officer disallowed export commission payment made by the petitioner to one M/s.Softgenie Limited at the rate of 5% to the tune of Rs.1,01,46,996=00. 3. The said assessment order came to be challenged by the petitioner by way of appeal before the Commissioner of Income Tax (Appeals) III, Baroda. The Commissioner of Income Tax (Appeals), vide order dated 28 th February 2008, partly allowed the appeal of the petitioner. The export commission payment to the extent of 2% was considered reasonable, and while passi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment finalized under Section 143(3) of the Act, the issue was based on the addition made under Section 40A(2)(b) of the Act whereas, the assessment was reopened on the violation of the provisions laid down under Section 40(a)(ia) of the Act and that the TDS was not deducted under Section 194H of the Act neither was there anything on record to establish that M/s.Softgenie had sought any certificate of short/no deduction of TDS in prescribed form. The case made out by the writ-petitioner in this writ-application may be summed up thus : 1. The petitioner-company, by way of its objections to the notice of reopening under Section 148 of the Act very specifically brought to the notice of the officer that a certificate has been issued by the respondent, whereby the petitioner was permitted to make the payment of commission to M/s.Softgenie without deducting tax under Section 194H of the Act. Even in the earlier writ-petition being Special Civil Application No.8378 of 2011 filed by the petitioner, the certificates issued by the Income Tax department were annexed and the respondent was aware about the valid certificate issued by the department under Section 194H of the Act. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the ratio of the recent three-judge-bench decision of the Supreme Court in the case of Kelvinator of India Limited, reported in 320 ITR 561. The writ-application is opposed by the Revenue by filing affidavit-in-reply thereto opposing the prayer of the writ-petitioner and the defence of the Revenue may be epitomized thus : 1. The writ-petition filed by the petitioner is a premature one inasmuch as only a notice under Section 148 of the Act has been issued and in the event the petitioner is aggrieved by the reassessment order to be passed, the statutory remedy of appeal under the provisions of the Act is available. 2. In course of regular assessment proceedings finalized by the Assessing Officer under Section 143(3) of the Act, the commission paid to M/s.Softgenie Limited was dealt with by the Assessing Officer from the view point of Section 40A(2)(b) of the Act and not from the view point of Section 194H of the Act. The assessment for the Assessment Year 2005-06 was reopened by the Revenue not just on the violation of the provisions laid down under Section 40(a)(ia) of the Act, and thus, there is no change of opinion as canvassed by the petitioner in this petition. 3. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Section 151(1) are self-explanatory. If an assessment has been made under Section 143(3) of the Act or under Section 147 of the Act for the relevant Assessment Year, no notice under Section 148 of the Act by an Assessing Officer who is below the rank of Assistant Commissioner or Deputy Commissioner can issue such a notice unless the Joint Commissioner or Additional Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for issuance of notice. While rejecting the objections, it observed that the Assessing Officer of the rank of ACIT or DCIT is empowered to issue notice under Section 148 of the Act if four years from the end of the relevant Assessment Year have not elapsed. This is how the Deputy Commissioner tried to justify issuance of notice under Section 148 of the Act. The second objection raised by the petitioner was that the assessment was finalized under Section 143(3) of the Act and the details of commission paid to M/s.Softgenie were furnished to the then Assessing Officer and the entire expenses was disallowed under Section 40A(2)(b) of the Act. According to the assessee, the condition precedent for issuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs.1,11,95,754. However, tax was not deducted at source while making payment or crediting to payee's account. For confirming the non-deduction of TDS, case records of commission recipient party, namely, Softgenie, was verified and found that though the commission income was shown in profit and loss account but no credit for TDS was claimed by Softgenie. Scrutiny of ledger of commission on export sales and domestic sale revealed that no entry exit to confirm the deduction of TDS. This confirmed that the non-deduction of TDS by the assessee. This violated the provisions of section 194H and, therefore, entire expenditure was required to be disallowed. In order to appreciate the aforesaid question, it will be profitable to refer to the provisions contained in Section 147 of the Act, which are quoted below : Income escaping assessment. "147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relief under this Act; or [iv] excessive loss or depreciation allowance or any other allowance under this Act has been computed. Explanation 3.-- For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section [2] of section 148." In the case before us, the assessee having challenged the notice of reassessment in a proceeding under Article 226 of the Constitution, before proceeding further, we propose to deal with the scope of interference in such a matter. The Supreme Court in the case of the Commissioner of Income Tax, Gujarat v/s. M/s. A Raman and Company, reported in AIR 1968 SC 49 , had the occasion to deal with such a question. We may appropriately refer to the following observations made by a three-judge-bench in the above matter by relying upon the majority view taken in an earlier decision of that court taken by a bench of five judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing income. If he has that information, the Income-tax Officer may commence proceedings for assessment or reassessment. To commence the proceeding for reassessment it is not necessary that on the materials which came to the notice of the Income-tax Officer, the previous order of assessment was vitiated by some error of fact or law. 6. The High Court exercising jurisdiction under Article 226 of the Constitution has power to set aside a notice issued under Section 147 of the Income-tax Act, 1961, if the condition precedent to the exercise of the jurisdiction does not exist. The Court may, in exercise of its powers, ascertain whether the Income-tax Officer had in his possession any information: the Court may also determine whether from that information the Income-tax Officer may have reason to believe that income chargeable to tax had escaped assessment. But the jurisdiction of the Court extends no further. Whether on the information in his possession he should commence a proceeding for assessment or reassessment, must be decided by the Income-tax Officer and not by the High Court. The Income-tax Officer alone is entrusted with the power to administer the Act; if he has inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Income-tax Officer could not take recourse to Section 147 (a) to remedy the error resulting from his own oversight and that therefore the notice under Section 148 should be quashed. In the case of Nawab Mir Barkat Ali Khan Bahadur, Hyderabad (supra ), the Supreme Court even went to the extent that non-production of the documents at the time of the original assessments cannot be regarded as non-disclosure of any material facts necessary for the assessment of the respondent for the relevant assessment years, where such documents conform to the documents already filed by the assessee in material particulars. The following observations are in this connection relevant and are quoted below: Non-production of the documents executed in 1957 at the time of the original assessments cannot therefore be regarded as non-disclosure of any material fact necessary for the assessment of the respondent for the relevant assessment years. The High Court was right in holding that the Income-tax Officer had no valid reason to believe that the respondent had omitted or failed to disclose fully and truly all material facts and consequently had no jurisdiction to reopen the assessments fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words reason to believe , Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the assessing officer. 8 . We quote hereinbelow the relevant portion of Circular No. 549 dated 31-10-1989, which reads as follows: 7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression reason to believe' in Section 147. A number of representations were received against the omission of the words reason to believe' from Section 147 and their substitution by the opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Appellate Tribunal, Ahmedabad, the commission paid to M/s.Softgenie Limited cannot be again disallowed under Section 40(ia) of the Act. We are conscious of the fact that the principle of res judicata would have no application to the proceedings under the Act. However, there is exception to this rule that a finding reached in the assessment proceedings after due inquiry would not be reopened merely on change of opinion. In our opinion, the decision of the Assessing Officer to reopen the assessment on the violation of the provisions laid down under Section 40(a)(ia) of the Act on the premise that TDS was not deducted under Section 194H of the Act is not tenable in law. To appreciate this issue, it is necessary for us to take note of the provision viz. 40(a)(ia), which reads as under : 40. Amounts not deductible.- Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession ,- (a) in the case of any assessee- (i) xxx xxx xxx (ia) any interest, commission or brokerage, rent, royalty, fees for professional servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services rendered not being professional services or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities. However, what has been lost sight of is Section 197(1) of the Act, which reads as under : 197. Certificate for deduction at lower rate.- (1) Subject to rules made under sub-section (2A), where, in the case of any income of any person or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194K, 194LA and 195, the Assessing Officer is satisfied, that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate. (2) Where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not made. Since the facts were before the Assessing Officer at the time of framing the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the Assessing Officer or his successor to reopen the assessment of the assessee. We have already pointed out that the Supreme Court in the case of Kelvinator of India Limited ( supra ), dismissed the appeal preferred by the Revenue not only against the decision of the Full Bench of the Delhi High Court in the case of CIT v/s. Kelvinator of India Limited, reported in (2002) 256 ITR 1 (Delhi) but also against the above case of CIT v/s. Eicher Limited (supra) as both were heard analogously. Thus, none of the reasons assigned by Assessing Officer for reopening the assessment was tenable in eye of law. On consideration of the entire materials on record, we thus find that the condition precedent for exercising power of reopening the assessment as provided in Section 147 of the Act is absent and the Assessing Officer acted illegally in issuing notice of reassessment by forming a second opinion on the selfsam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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