2013 (5) TMI 284 - HC - Income Tax

Court upholds validity of tax assessment re-opening under Section 148, citing tangible material & judicial decisions

The court upheld the validity of the re-opening of the assessment under Section 148, finding that the Assessing Officer had tangible material justifying ... Reopening of assessee - commission paid to the three working directors was in lieu of dividend and the same is not allowable - assessee contested that re-opening was made on the ground that the facts for AY 2006-07 were similar to the relevant AY 2008-09, which is not correct as in AY 2006-07 no dividend was declared - Held that:- Assessment in the instant case was re-opened on the ground that the Special Bench of the Tribunal [2011 (6) TMI 251 - ITAT, Mumbai] in the assessee's own case for AY 2006-07 had reversed the earlier decision of the Tribunal in the assessee's case for AY 2005-06 whereby the Special Bench held that the commission to the three Directors was in lieu of dividend and the same was not allowable as deduction under Section 36(1)(ii). The Special Bench [2011 (6) TMI 251 - ITAT, Mumbai] confirmed the treatment of the commission under Section 36(1)(ii) and held that the provisions of Section 37(1) are not applicable. In the circumstances, considering the principles enunciated in the judgments referred to above, the re-opening of the assessment in the present case on the basis of the subsequent decision cannot be said to be a mere change of opinion. Contention of the Petitioner that the succeeding AO could not have issued the notice dated 1 October 2012 u/s 148, as it was his predecessor who has recorded the reasons for reopening is completely misconceived. The reasons recorded for re-opening and the notice dated 1 June 2012 which has been issued u/s 148 for reopening are as a matter of fact by the same AO. The notice dated 1 October 2012 issued by the succeeding AO was merely a notice fixing the hearing. Section 129 envisages such a situation and lays down that whenever in respect of any proceeding under the Act an income-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor - reopening was valid - against assessee. Issues Involved:1. Legality of the notice under Section 148 for re-opening the assessment.2. Applicability of Section 36(1)(ii) and Section 37(1) regarding commission payments.3. Validity of the notice issued by the succeeding Assessing Officer.Detailed Analysis:1. Legality of the Notice under Section 148 for Re-opening the Assessment:The petitioner challenged the notice dated 1 June 2012 under Section 148 of the Income-tax Act, 1961, arguing that it was a mere change of opinion. The petitioner contended that the re-opening was based on the Special Bench of the Tribunal's decision for AY 2006-07, which was not applicable to AY 2008-09 due to the declaration of dividends in the latter year. The court referenced the Supreme Court's judgment in Commissioner of Income Tax v. Kelvinator of India Limited, emphasizing that the Assessing Officer (AO) cannot re-open an assessment merely on a change of opinion but must have 'tangible material' indicating income escapement. The court found that the AO had tangible material, namely the Special Bench's decision, justifying the re-opening. Therefore, the re-opening was not a mere change of opinion but based on new, relevant information.2. Applicability of Section 36(1)(ii) and Section 37(1) Regarding Commission Payments:The petitioner paid Rs.1.50 crores as commission to its three directors, which was initially allowed under Section 37(1) by the AO. However, the Special Bench of the Tribunal later ruled that such commissions were in lieu of dividends and not allowable under Section 36(1)(ii). The court upheld the AO's reliance on this subsequent decision to re-open the assessment, noting that the principles from the judgments in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax and A.L.A. Firm v. Commissioner of Income-tax supported the use of subsequent judicial decisions as valid grounds for re-assessment. The court refrained from delving into the merits of whether the facts of AY 2008-09 were distinguishable from AY 2006-07, leaving this determination to the AO during the re-assessment process.3. Validity of the Notice Issued by the Succeeding Assessing Officer:The petitioner argued that the notice dated 1 October 2012 was invalid as it was issued by a succeeding AO who had not recorded the reasons for re-opening. The court clarified that the notice dated 1 June 2012 for re-opening was issued by the same AO who recorded the reasons. The notice dated 1 October 2012 was merely a procedural step to fix the hearing date, not a re-opening notice under Section 148. The court referenced Section 129 of the Income-tax Act, which allows a succeeding officer to continue proceedings from the stage left by the predecessor. The court distinguished this case from Hynoup Food and Oil Industries Ltd., where different officers recorded reasons and issued the notice, finding the petitioner's reliance on that case misplaced.Conclusion:The court concluded that the re-opening of the assessment was valid and within the jurisdiction of the AO. The notice for re-opening was upheld, and the petition was dismissed. The court clarified that all rights and contentions of the parties remain open before the AO upon re-opening.