2014 (11) TMI 1022 - AT - Income Tax

Invalid reassessment under Section 147/148 quashed; appeal allowed. Disallowance under Section 40(a)(i) not addressed.

The Tribunal held that the reopening of the assessment under Section 147/148 was invalid as it constituted a mere change of opinion without new material. ... Reopening of assessment - advertisement expenditure incurred and the commission paid to non-resident disallowed - Held that:- It is not in dispute that during the course of original assessment proceedings the assessee furnished all the required details with regard to advertisement expenditure incurred and the commission paid to non-resident. The reason - as to why section 40(a) is not applicable - was also mentioned by taking support from the decision of the Apex Court in the case of Toshoku Ltd. (1980 (8) TMI 2 - SUPREME Court ) As can be noticed from the original assessment order the AO has thoroughly examined the facts of the case and had also noted that the assessee is having transactions with non-resident, which implies that the AO had taken note of Annexure-9 to Tax Audit Report. Thus it is not in dispute that the facts were present before the AO; more particularly, Annexure-9 to the Tax Audit Report and it could not have been overlooked by the AO at the time of making original assessment, since the AO had taken note of the fact that the assessee had business connection with certain foreign clients and some expenditure was also incurred in that connection. Thus mere subjective satisfaction of the AO, on the basis of the same set of material, would amount to change of opinion and cannot be equated to the expression 'reasons to believe', in which event the reassessment proceedings, in our humble opinion, deserve to be treated as void abinitio. Having regard to the facts and circumstances of the case before us we respectfully follow the decision of the Hon'ble Apex Court in the case of Kelvinator India Ltd. (2010 (1) TMI 11 - SUPREME COURT OF INDIA ) to hold that the AO sought to reopen the assessment on mere change of opinion which is not permissible and hence we conclude that the notice issued under section 148 of the Act is not in accordance with law. Consequently we quash the reassessment proceedings - Decided in favour of assessee. Issues Involved:1. Validity of Reopening of Assessment under Section 147/148.2. Applicability of Section 40(a)(i) regarding non-deduction of tax at source on payments to non-residents.Detailed Analysis:1. Validity of Reopening of Assessment under Section 147/148:The primary issue was whether the reopening of the assessment by the Assessing Officer (AO) under Section 147/148 was valid. The original assessment for the assessee-firm, an exporter of tea, was completed with a declared income of Rs. 4.63 crores. During the original assessment, the AO scrutinized the details, including payments made to M/s. J.V. Overseas Trading Ltd. for advertisement and commission, and concluded the assessment without invoking Section 40(a)(i).The new AO reopened the assessment on the grounds that the assessee did not deduct tax at source on these payments, which should attract Section 40(a)(i). The assessee contended that the reopening was based on a mere change of opinion, not on any new tangible material, and hence was invalid. The assessee relied on the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which emphasized that 'mere change of opinion' cannot justify reopening an assessment.The Tribunal observed that during the original assessment, the AO had thoroughly examined the facts, including the payments to non-residents, and had implicitly accepted the assessee's position. The Tribunal held that reopening the assessment on the same set of facts without any new material amounted to a mere change of opinion, which is not permissible under the law. Consequently, the Tribunal quashed the reassessment proceedings, deeming them void ab initio.2. Applicability of Section 40(a)(i) regarding Non-Deduction of Tax at Source:The second issue concerned the applicability of Section 40(a)(i) related to the non-deduction of tax at source on payments made to non-residents. The assessee argued that the payments were made for services rendered outside India by a non-resident with no business operations in India, and hence, no tax was deductible at source. They relied on the Supreme Court's decision in CIT v. Toshoku Ltd., which supported their position.The AO, however, contended that the payments to non-residents, irrespective of where the services were rendered, required tax deduction at source under Section 195. Failure to do so would attract disallowance under Section 40(a)(i).The Tribunal, considering the facts and the legal precedents, noted that during the original assessment, the AO had accepted the assessee's explanation and did not invoke Section 40(a)(i). The Tribunal reiterated that reopening the assessment on the same facts without new material was not justified. Therefore, the Tribunal did not delve into the merits of the disallowance under Section 40(a)(i), as the reassessment proceedings themselves were quashed.Conclusion:The Tribunal concluded that the reopening of the assessment was invalid as it was based on a mere change of opinion without any new tangible material. Consequently, the reassessment proceedings were quashed, and the appeal filed by the assessee was allowed for statistical purposes. The issue of disallowance under Section 40(a)(i) was deemed academic and not considered further.