2014 (3) TMI 851 - HC - Income Tax

Tax Court upholds reassessment, partially allows disallowed expenses, quashes unwarranted reopening attempts

Vodafone South Ltd. And Another Versus Union of India And Others

The Court upheld the reassessment order issued under Section 148 of the Income Tax Act for the Assessment Year 2005-2006, with certain grounds upheld but ... Validity of notice for reassessment u/s 148 of the Act - Held that:- The decision in Commissioner of Income Tax, Delhi vs. Kelvinator of India Ltd [2010 (1) TMI 11 - SUPREME COURT OF INDIA] followed - a tax administrator would act within jurisdiction if notice of reassessment is issued in a given case, based on “tangible” or fresh material - Re-appraisal of previously assessed returns, based on a change of opinion or an improved understanding of the law, would not pass muster as the basis for a valid reassessment proceeding, because the law would not uphold such change of opinion as it amounts to an impermissible review - an erroneous previous view warranting exercise of revisional jurisdiction cannot authorize a valid reassessment notice. During the assessment proceeding, and the first reassessment proceeding, the question of dealers’ commission as well as TDS on those amounts, had been gone into - The attempt to revisit this issue a third time is nothing but the tax authorities’ effort to overreach the law and resultantly a sheer harassment of the assessee – the notice and all further proceedings conducted pursuant to it are without jurisdiction – Decided in favour of Assessee. Issues:1. Legality of reassessment notice under Section 148 of the Income Tax Act, 1961 for Assessment Year 2005-2006.2. Disallowance of commission expenses during the assessment proceedings.3. Validity of reasons cited by the Revenue for reopening assessment.4. Repeated attempts by the Revenue to reopen the question of dealers' commission.5. Justifiability of the grounds for reassessment and the lawfulness of issuing multiple reassessment notices.Issue 1: Legality of reassessment notice under Section 148 of the Income Tax Act, 1961 for Assessment Year 2005-2006:The petitioner challenged the legality of a reassessment notice issued by the Revenue under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2005-2006. The notice was issued on 14-03-2012, with reasons to believe that income had escaped assessment disclosed to the assessee on 01-10-2012. The petitioner, a telecom service provider, had claimed a loss of Rs. 3,50,99,31,672, and the Assessing Officer added back a portion of commission expenses claimed by the assessee. The reassessment order was upheld on certain grounds, but the issue of dealers' commission was left unresolved.Issue 2: Disallowance of commission expenses during the assessment proceedings:The Revenue raised concerns regarding the commission expenses claimed by the assessee, specifically related to dealer commissions and commissions to others. The Assessing Officer disallowed 25% of the claimed amount, leading to a tax implication. The Revenue alleged that the commission expenses were not fully justified and should have been disallowed entirely, resulting in incorrect carry forward of losses. The reassessment notice aimed to revisit this issue, which the petitioner argued was unjustified given the previous proceedings and explanations provided.Issue 3: Validity of reasons cited by the Revenue for reopening assessment:The Revenue cited multiple reasons for reopening the assessment, including provisions related to liabilities, capital expenditures, bad debts, and depreciation. The grounds for reassessment were based on alleged incorrect treatment of various financial aspects by the assessee, leading to potential tax implications. Despite objections raised by the petitioner, the Revenue persisted in seeking to re-examine these aspects through reassessment notices.Issue 4: Repeated attempts by the Revenue to reopen the question of dealers' commission:The Revenue repeatedly attempted to reopen the question of dealers' commission expenses, despite the matter being addressed in previous reassessment proceedings. The petitioner argued that all queries had been responded to, and the issues regarding TDS deductions on commissions had been examined during the original assessment and first reassessment. The petitioner contended that the second reassessment notice was unjustified and amounted to impermissible review under the law.Issue 5: Justifiability of the grounds for reassessment and the lawfulness of issuing multiple reassessment notices:The Court analyzed the grounds for reassessment and emphasized that a valid reassessment notice must be based on tangible or fresh material, rather than a mere change of opinion or a revision of previous assessments. The Court noted that the Revenue had already scrutinized the issue of dealers' commission in earlier proceedings, making the repeated attempts to reopen the assessment unwarranted and harassing. The Court concluded that the impugned notice and subsequent proceedings lacked jurisdiction and were quashed, highlighting the need for statutory conditions to be met for valid reassessment notices.This detailed analysis of the judgment showcases the legal intricacies involved in challenging reassessment notices and the importance of adhering to statutory conditions and principles of tax law.